<PAGE>   1

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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, 1999

                                       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

                          HEALTHEON/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.)
 400 THE LENOX BUILDING, 3399 PEACHTREE ROAD                        30326
                     NE,                                          (ZIP CODE)
               ATLANTA, GEORGIA
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
</TABLE>

         (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE): (404) 495-7600

          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.  [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of $59.00 on March 1, 2000, as
reported on the Nasdaq Stock Market's National Market, was approximately
$8,915,337,898. As of March 1, 2000, the Registrant had outstanding 180,401,890
shares of common stock.

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<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
PART I
  Item    Business....................................................    2
     1.
  Item    Properties..................................................   22
     2.
  Item    Legal Proceedings...........................................   22
     3.
  Item    Submission of Matters to a Vote of Security Holders.........   23
     4.

PART II
  Item    Market for Registrant's Common Equity and Related
     5.   Stockholder Matters.........................................   24
  Item    Selected Financial Data.....................................   25
     6.
  Item    Management's Discussion and Analysis of Financial Condition
     7.   and Results of Operations...................................   26
  Item    Quantitative and Qualitative Disclosures about Market
     7A.  Risks.......................................................   42
  Item    Financial Statements and Supplementary Data.................   43
     8.
  Item    Changes and Disagreements with Accountants in Accounting and
     9.   Financial Disclosures.......................................   43

PART III
  Item    Directors and Executive Officers of the Registrant..........   44
     10.
  Item    Executive Compensation......................................   44
     11.
  Item    Security Ownership of Certain Beneficial Owners and
     12.  Management..................................................   44
  Item    Related Party Transactions..................................   44
     13.

PART IV
  Item    Exhibits, Financial Statement Schedules and Reports on Form
     14.  8-K.........................................................   45
Signatures............................................................   49
Financial Statements..................................................   50
Exhibits..............................................................   75
</TABLE>

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                                     PART I

                           FORWARD-LOOKING STATEMENTS

     Except for historical information, this annual report contains
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 involve risks and uncertainties,
including, among other things, statements regarding our pending acquisitions,
anticipated costs and expenses, revenue mix, product and service development and
relationships with strategic partners. These forward-looking statements include
declarations regarding our belief or current expectations of management, such as
statements indicating that "we expect," "we anticipate," "we intend," "we
believe" and similar language. Our actual results may differ significantly from
those projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Management's discussion and analysis of financial condition and
results of operations -- Factors that may affect future results of operations."
You should carefully review the risks described in our reports and registration
statements that we file from time to time with the Securities and Exchange
Commission. You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this annual report. We undertake
no obligation to publicly release any revisions to the forward-looking
statements or reflect events or circumstances after the date of this document.

ITEM 1.  BUSINESS

OVERVIEW

     We provide web-based healthcare information and services to facilitate
connectivity and transactions among physicians, patients, payers and other
healthcare industry participants. Our Internet-based information and transaction
platform allows for the secure exchange of information among the disparate
information systems used by healthcare industry participants and supports our
administrative transaction services, including patient enrollment, eligibility
determination, referrals and authorizations, laboratory and diagnostic test
orders and results, clinical data retrieval and claims processing.

     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. We design our service
offerings to help integrate and manage administrative, clinical, research and
information needs of healthcare industry participants. We believe that our
web-based solution has the potential to create significant improvements in the
way that information is used by the healthcare system, enabling improved
workflows, better decision-making and, ultimately, higher quality patient care
at a lower cost.

     Through WebMD.com, physician subscribers can access WebMD Practice, our
provider destination, and consumers can access WebMD Health, our free consumer
destination. WebMD Practice provides physicians with administrative transaction
services, medical news and research, continuing medical education credits,
customized web sites and e-mail accounts, among other services. 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.

     We currently provide services to over 250,000 physicians and approximately
11,000 dentists, 1,100 hospitals, 46,000 pharmacies, 650 payers and 6 laboratory
companies. In addition, nearly 80,000 physicians have subscriptions to WebMD
Practice, and over 850,000 consumers are enrolled in our support communities on
WebMD Health. In January 2000, WebMD.com attracted approximately 2.2 million
unique users, according to Media Metrix, and page views exceeded approximately
33.0 million, according to commercial software that we utilize.

     We were incorporated in December 1995 and commenced operations in January
1996. In November 1999, we merged with WebMD, Inc., MedE America Corporation and
Greenberg News

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<PAGE>   4

Networks, Inc., which is referred to as Medcast, and changed our name to
Healtheon/WebMD Corporation. We launched our integrated web site in November
1999 following the closing of these mergers.

RECENT EVENTS

     Practice management system vendor strategic alliances.  In January and
February 2000, we entered into strategic alliances with three leading practice
management system vendors, IDX Systems Corporation, InfoCure Corporation and
Medic Computer Systems, Inc. The completion of our alliance with IDX and its
subsidiary ChannelHealth is subject to regulatory approval. We have received a
request from the Department of Justice for additional information on our
proposed transaction with IDX. Under these agreements, we will provide
electronic transaction services and healthcare-related content to an aggregate
of approximately 250,000 physicians utilizing IDX, InfoCure and Medic
applications, some of which may already be using our services. We expect to
complete the integration of our services with these practice management system
applications and begin deploying these services in the third quarter of 2000.

     Acquisition of Envoy.  On January 22, 2000, we entered into a merger
agreement to acquire Envoy Corporation from Quintiles Transnational Corp. and
its subsidiary, QFinance, Inc., which together own all of the capital stock of
Envoy. Envoy is a leading provider of electronic data interchange, or EDI, and
transaction processing services to participants in the healthcare market. In
1999, Envoy's network processed over 1.4 billion transactions involving
approximately 250,000 physicians, 35,000 pharmacies, 47,000 dentists, 4,500
hospitals and 900 payers, including approximately 47 Blue Cross Blue Shield
plans, 59 Medicare plans and 40 Medicaid plans. Pursuant to the Envoy merger
agreement, we will issue 35.0 million shares of our common stock, which, if
issued as of March 1, 2000, would have represented approximately 16% of our
common stock outstanding as of that date, and pay $400.0 million in cash. These
shares will be subject to restrictions on their sale for two years after the
completion of the merger, except that up to one-third of these shares may be
sold at any time after the one-year anniversary of the completion of the merger
and up to two-thirds of these shares may be sold at any time after the 18-month
anniversary of the completion of the merger. Quintiles will issue us a warrant
to purchase up to 10.0 million shares of Quintiles common stock at $40 per
share, exercisable for four years. The acquisition of Envoy will be accounted
for as a purchase transaction. We expect that completion of the Envoy merger,
which is subject to regulatory approval and other customary closing conditions,
will occur in the second quarter of 2000. We filed the Envoy merger agreement
with the Securities and Exchange Commission in our report on Form 8-K on January
27, 2000.

     News Corporation strategic alliance.  On January 26, 2000, we completed the
transactions contemplated by our strategic alliance agreement with The News
Corporation Limited and Fox Entertainment Group, Inc., an entity which is
controlled through intermediaries by News Corporation. News Corporation is one
of the world's largest media companies with diversified global operations in the
U.S., Canada, the United Kingdom, Australia, Latin America and the Pacific
Basin.

     Under our ten-year strategic alliance with News Corporation:

     - News Corporation and its affiliates will provide us with $400.0 million
       of media branding services domestically over the ten-year term.

     - We acquired a 50% interest in The Health Network LLC and will jointly own
       and operate with News Corporation a health-focused cable television
       network, which we intend to re-launch as WebMD TV. After January 26,
       2005, News Corporation has the option to require us to purchase, and we
       have the option to require News Corporation to sell to us, the remaining
       50% interest for up to 8,291,939 shares of our common stock.

     - We formed WebMD International LLC as a joint venture with News
       Corporation to launch our services worldwide, other than in the U.S. and
       Japan. A subsidiary of News Corporation is obligated to contribute $100.0
       million in cash to WebMD International in exchange for its 50% interest.

     - News Corporation and its affiliates will provide WebMD International with
       $300.0 million of media branding services internationally over the
       ten-year term.

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<PAGE>   5

     - We each granted the other a worldwide license to use each other's
       health-related content, including news feeds, over a five-year term. Our
       license for News Corporation content is royalty-free, and News
       Corporation will pay us license fees of an aggregate of $62.5 million
       over a five-year term for our content.

     - We acquired a 50% interest in thehealthnetwork.com, a health and fitness
       web site, and have an option to purchase the remaining 50% for one
       dollar.

     We issued 155,951 shares of our Series A preferred stock, which shares vote
on an as if converted basis with our common stock, in consideration for the
transactions described above. Assuming conversion of all of the shares of Series
A preferred stock on March 1, 2000, the holders of the Series A preferred stock
would receive 21,282,645 shares, representing approximately 10% of our common
stock outstanding as of March 1, 2000. These shares are subject to restrictions
on their sale for three years. In addition, affiliates of Fox Entertainment
purchased 2.0 million shares of our common stock for an aggregate purchase price
of $100.0 million in cash. This complex transaction will be accounted for based
on its relative independently determined fair value of its components. We filed
our master strategic alliance agreement with the SEC in our report on Form 8-K
on December 10, 1999.

     Investment by Janus.  On January 27, 2000, Janus Capital Corporation,
through its managed mutual funds, purchased 15.0 million shares of our common
stock for $930.0 million in cash. We intend to use the proceeds to fund the cash
portion of our pending acquisition of Envoy and to provide working capital for
general corporate purposes. We filed the securities purchase agreement with
Janus with the SEC in our report on Form 8-K on January 28, 2000.

     Acquisition of Kinetra.  On January 31, 2000, we acquired all of the
outstanding membership interests of Kinetra LLC from Electronic Data Systems
Corporation, Eli Lilly and Company and Integrated Medical Systems, Inc., a
subsidiary of Eli Lilly, in exchange for an aggregate of 7,437,248 shares of our
common stock and $1,000 in cash. Kinetra, a joint venture between Electronic
Data Systems and Eli Lilly, is a leading provider of health information networks
and e-commerce services that enhance decision-critical information flow within
the healthcare field. We have begun to migrate Kinetra's integrated delivery
network, hospital and payer connectivity to our platform. We have accounted for
this acquisition as a purchase transaction. We filed our acquisition agreement
with Kinetra with the SEC in our report on Form 8-K on February 10, 2000.

     Acquisition of Medical Manager and CareInsite.  On February 13, 2000, we
entered into a merger agreement to acquire Medical Manager Corporation and its
publicly traded subsidiary, CareInsite, Inc. Medical Manager is a leading
supplier of practice management systems in the U.S. with an installed base of
approximately 33,000 sites, representing an estimated 185,000 physicians,
including its pending acquisition of Physician Computer Network. Medical Manager
Corporation operates three lines of business: the Medical Manager Health Systems
practice management systems business, the CareInsite business described below
and the development, manufacturing and distribution of porous and solid plastic
products business through its Porex Corporation subsidiary. CareInsite is
developing an Internet-based healthcare e-commerce network that links
physicians, payers, suppliers and patients and is designed to enable physicians
to conduct clinical and administrative transactions that deliver relevant
information at the point of care.

     Pursuant to the Medical Manager and CareInsite merger agreements, we will
issue 1.65 shares of our common stock in exchange for each outstanding share of
Medical Manager stock and 1.3 shares of our common stock for each outstanding
share of CareInsite stock that is not owned directly or indirectly by Medical
Manager. The acquisition of each of Medical Manager and CareInsite will be
accounted for as a purchase transaction. We expect that completion of the
Medical Manager merger and the CareInsite merger, each of which is subject to
regulatory approval and other customary closing conditions, will occur mid-year
2000. Completion of the Medical Manager merger and CareInsite merger is subject
to approval by our stockholders, Medical Manager's stockholders, and
CareInsite's stockholders. In addition, the closings of the Medical Manager and
CareInsite mergers are conditioned on each other. We filed our merger agreements
with Medical Manager and CareInsite with the SEC in our report on Form 8-K/A on
February 24, 2000.

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<PAGE>   6

     Acquisition of OnHealth.  On February 15, 2000, we entered into a merger
agreement to acquire OnHealth Network Company, a leading source of original,
informative, timely and trusted consumer-oriented health and wellness
information, products and services on the web. OnHealth.com was the single most
trafficked health web site with 3.2 million unique users in December 1999,
according to Media Metrix. Pursuant to the OnHealth merger agreement, we will
issue 0.189435 shares of our common stock for each outstanding share of OnHealth
stock. The acquisition of OnHealth will be accounted for as a purchase
transaction. We expect that completion of the OnHealth merger, which is subject
to regulatory approval and other customary closing conditions, will occur
mid-year 2000. In addition, the OnHealth merger is subject to approval by
OnHealth's stockholders. In connection with the OnHealth merger agreement, we
agreed to provide OnHealth with a line of credit of up to $30.0 million, of
which we have advanced $15.0 million for working capital needs. The loan is
secured by all of OnHealth's assets and is due on February 15, 2001. OnHealth
issued us a warrant to purchase 5.8 million shares of their common stock, which
warrant is exercisable until February 15, 2003 at $10.75 per share. In addition,
if the OnHealth merger agreement is terminated, we will receive warrants to
purchase up to an additional 500,000 shares of OnHealth's common stock at $0.01
per share, if the loan is not repaid 270 days after termination. We filed our
merger agreement with OnHealth with the SEC in our report on Form 8-K/A on
February 22, 2000.

OUR SERVICES

     We offer a comprehensive suite of healthcare transaction and information
services to physicians, consumers and other healthcare industry participants
delivered over the Internet, private intranets and other networks.

  Transaction services

     Our transaction services currently include administrative, clinical
information, membership and pharmacy services. These network-based services are
provided through software applications operating on or interfacing with our
platform. These services are typically sold on a transaction or subscription fee
basis, which varies across customers and market segments.

     The following chart summarizes the key transactions supported by us,
organized by business function:

<TABLE>
<CAPTION>
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      BUSINESS FUNCTION             CUSTOMERS OR USERS          TRANSACTIONS SUPPORTED
------------------------------------------------------------------------------------------
<S>                              <C>                        <C>
 Administrative services         Payers and providers       - Claims submission
                                                            - Patient eligibility
                                                              verification
                                                            - Referrals and authorizations
                                                            - Prescription transmissions
                                                              from physicians to pharmacies
                                                            - Confirmation of payment to
                                                              providers
                                                            - Patient statement billing
                                                              services
                                                            - Provider directories
                                                            - Formulary management and
                                                              reimbursement
                                                            - Provider files and directory
                                                              management and claims
                                                              repricing*
------------------------------------------------------------------------------------------

 Clinical information services   Suppliers and providers    - Lab test orders and results
                                                            - Patient identification and
                                                              encounter history
                                                            - Patient registration
                                                            - Text document and
                                                              transcription distribution
------------------------------------------------------------------------------------------
</TABLE>

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<TABLE>
<CAPTION>
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      BUSINESS FUNCTION             CUSTOMERS OR USERS          TRANSACTIONS SUPPORTED
------------------------------------------------------------------------------------------
<S>                              <C>                        <C>
 Membership services             Consumers and payers       - Enrollment in health plans
                                                            - Comparison and selection of
                                                              multiple health plans
                                                            - Provider search, selection
                                                              and change
                                                            - Benefits inquiries under
                                                              enrolled plans
                                                            - Messaging between consumers,
                                                              payers and employers
------------------------------------------------------------------------------------------
 Pharmacy services               Providers                  - Prescription writing
                                                            - Pre-authorization of
                                                              prescription with pharmacy
                                                              benefit managers
                                                            - Prescription transmission
                                                              from physicians to pharmacies
                                                              via the Internet
                                                            - Refill requests and
                                                              authorizations
                                                            - Formularies and drug
                                                              utilization reviews
------------------------------------------------------------------------------------------
</TABLE>

* Under development

     Some of these applications were recently acquired by us and are not yet
Internet-enabled. We intend to integrate many of these applications with our
platform and Internet-based WebMD Practice product and to consolidate our
transaction networks.

     Administrative services.  Our administrative services provide the
connectivity and EDI and transaction services needed for providers and payers in
the healthcare industry to communicate with each other. Through our transaction
network, we provide an electronic link, directly or indirectly through other
clearinghouses or vendors, or over the Internet, to healthcare providers in the
medical, dental and pharmacy markets and to third party payers. Our
administrative services include claims submission, eligibility and patient
benefit coverage verification, claims data capture and editing, remittance
processing, credit/debit card and check guarantee and formulary management.
These services are generally paid for by commercial payers and healthcare
providers on a transaction fee basis, although we may also charge a one-time
implementation fee. These fees vary depending on the type of transaction and the
customer's relationship with us. Our administrative services are currently
generating significant transaction volumes and revenues.

     Providers include hospitals, physicians, dentists and pharmacies, some of
which access our services through their affiliations with integrated delivery
networks, clinics and physician practice management companies. Providers
initiate transactions with us over a dedicated network or the Internet.
Providers submit transactions to us over a modem connection or dedicated phone
line if the provider utilizes our software products which are installed or
operated on the provider's desktop and interface with the provider's practice
management system software, or over the Internet if the provider subscribes to
our Internet-based product WebMD Practice.

     We maintain direct connections with many healthcare payers, including
Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and
commercial insurance companies. These direct connections typically consist of
dedicated networks between the payer and us. Most transactions are currently
transmitted to the payers using our proprietary software and dedicated telephone
lines, with some transactions transmitted via the Internet. We also have
contractual relationships with claims clearinghouses that maintain connections
with an additional payers. These intermediaries may charge us a fee for
transmitting our claims via their networks.

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     Providers can use our products to verify patient eligibility and 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
also receive electronic remittance advice which provides payer payment
information and an explanation of the settlement of a related claim.

     In addition, we act as a clearinghouse for claims routed to us by other
processors and intermediaries for transmission to payers. These third parties
aggregate transactions from healthcare providers, but choose to use a
clearinghouse, such as us, to reach payers that they do not connect to directly.
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, which may be accessed by other processors and
clearinghouses. We typically receive revenue from payers on these transactions
and may pay rebates to exclusive or preferred vendors as an inducement to use us
as their clearinghouse for these transactions.

     We are currently developing our ProviderWorks product, with support from
one of our strategic partners, Beech Street Corporation. ProviderWorks will
support the creation and management of networks of providers by managing complex
provider directories and files, managing provider relationships and contracts
and performing claims repricing functions.

     Clinical information services.  We provide clinical information services
through our SCAN product and our Internet-based Dx and Clinical Reports products
that are available through WebMD Practice. Our SCAN product supports ordering
and distribution of clinical tests and test results between SmithKline Beecham
Clinical Laboratories, Inc, recently acquired by Quest Diagnostics Incorporated,
and providers using SmithKline Labs's services. In addition, we provide
teleprinter services to transmit and print these lab tests results. SCAN is
deployed on approximately 5,300 installed workstations serving physicians
throughout the U.S. and is currently generating significant transaction volumes
and revenues. SCAN is not Internet-enabled. Dx provides the same SCAN functions
allowing physicians to order lab tests and obtain results over the Internet from
national and regional laboratories. We have begun to transition the SmithKline
Lab sites to our Dx product. Clinical Reports is a document distribution system
that allows physicians to choose how they receive clinical reports through
secure e-mail, fax, network printer, pager notification or on demand from the
document repository.

     Membership services.  We provide our membership services through our
Benefit Central product available on WebMD Health, which is provided to
employees by their employers or health plan administrators. Benefit Central
allows employees to compare employer-sponsored plans, search provider
directories and electronically enroll in benefits. Benefit Central also allows
benefits administrators to manage employee benefit data, generate reports and
send employee enrollment information to health plans and insurance carriers over
the Internet. We currently provide membership services directly and through
aggregators to approximately 200 companies covering over 320,000 lives.

     Other services.  We also provide comprehensive consulting and
implementation and information technology, or IT, management services to enable
our customers to take full advantage of our platform. These services are
typically sold on a fixed fee or time and materials basis. We are currently
generating significant revenues from these services.

     Pharmacy services.  We have completed the initial development of our Rx
online pharmacy service, which will provide physicians access to online
prescription services, including prescription writing and routing services,
pre-authorization services and access to formularies and drug utilization
reviews through WebMD Practice. We are currently in beta testing for this
product.

  WebMD.com web site

     WebMD.com provides access to subscription-based services for physicians
through WebMD Practice and a free healthcare destination for consumers through
WebMD Health.

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     WebMD Practice.  A subscription to WebMD Practice provides online access to
multiple areas, including:

<TABLE>
<CAPTION>
CONTENT OR SERVICE                                     FEATURES
<S>                                     <C>
  Today's medical news                  - Provides original, daily medical
                                          news stories written by our staff of
                                          journalists, as well as reports on
                                          the business of practice
                                          administration and summaries of
                                          current consumer health issues of
                                          interest to patients
------------------------------------------------------------------------------
  Continuing medical education, or CME  - Provides access to over 700
                                          accredited CME courses free of charge
                                          in a variety of specialty areas and
                                          allows physicians to track their CME
                                          credits against state and
                                          association requirements
------------------------------------------------------------------------------
  Medical community                     - Allows physicians to share ideas
                                          with colleagues in peer forums and
                                          daily polls
                                        - Provides news 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                       - Offers access to our online version
                                          of the Scientific American Medicine
                                          medical reference
                                        - Provides searchable access to
                                          comprehensive physician journals and
                                          newsletters from well-recognized
                                          sources, including access to:
                                        - over 9 million abstracts from
                                          medical journals available in the
                                          National Library of Medicine's
                                          MEDLINE database
                                        - a medical dictionary
                                        - Clinical Pharmacology drug database
                                        - Provides access to disease-specific
                                          information about diagnoses and
                                          treatment
                                        - Offers access to audio clips and
                                          archives of interviews with medical
                                          experts
------------------------------------------------------------------------------
  Career center                         - Allows physicians to search, apply
                                          for and post permanent and temporary
                                          job positions and provides access to
                                          a variety of career-related
                                          resources, such as state licensure
                                          guidelines and relocation
                                          information
------------------------------------------------------------------------------
</TABLE>

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<PAGE>   10

<TABLE>
<CAPTION>
CONTENT OR SERVICE                                     FEATURES
<S>                                     <C>
  For your patients                     - Provides access to patient education
                                          databases and interactive, animated
                                          patient presentations that explain
                                          common health conditions and
                                          diseases
------------------------------------------------------------------------------
  Secure mail                           - Allows physicians to send and
                                          receive e-mail, including sending
                                          encrypted messages to other
                                          subscribers
                                        - Supports other optional WebMD
                                          Practice services, including clinical
                                          reports and dictation and
                                          transcription services
------------------------------------------------------------------------------
  Practice enhancements                 - Allows physicians or practices to
                                          create their own customized web site,
                                          including information such as e-mail
                                          address, office hours, telephone
                                          numbers, office locations and
                                          directions, hospital affiliations
                                          and links to patient education
                                          information
                                        - Provides access to a fee schedule
                                          analyzer, which allows physicians to
                                          compare their fees with
                                          reimbursement rates in their
                                          specific geographic market
------------------------------------------------------------------------------
  Purchasing                            - Provides online access to ordering
                                          of medical and surgical supplies and
                                          medical textbooks
------------------------------------------------------------------------------
  World news and sports                 - Provides access to news and sports
                                          information from CNN, Fox News and
                                          Fox Sports, The New York Times and
                                          CBS Sportsline
------------------------------------------------------------------------------
  Finance and leisure                   - Provides convenient access to
                                          financial services and products,
                                          including stock information and
                                          insurance at discounted rates, as
                                          well as non-medical information that
                                          may be of interest to physicians
------------------------------------------------------------------------------
  Healthcare organizations              - Provides links to web sites of our
                                          hospital and integrated delivery
                                          network partners for which we have
                                          enrolled a minimum number of
                                          affiliated physician subscribers
------------------------------------------------------------------------------
</TABLE>

     Our current base subscription fee for WebMD Practice is $29.95 per month,
typically for a 12-month service period. Most of our subscription revenues
consist of WebMD Practice subscriptions for physicians paid for by Microsoft
Corporation and E.I. du Pont de Nemours and Company. For a more complete
description of these sponsorships, see the section entitled
"Business -- Strategic relationships."

     In addition, our administrative services and clinical services available on
WebMD Practice provide physicians online access to our Internet-enabled
transaction services for additional transaction or monthly fees. Subscribers can
currently utilize the following transaction services on WebMD Practice:

     - administrative services, including claims processing, eligibility
       verification and referrals and authorizations

     - clinical information services, including Dx and Clinical Reports through
       some of our laboratory strategic partners

     For a more complete description of these services, see the section entitled
"Transaction services."

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<PAGE>   11

     WebMD Practice also provides physicians access to the following optional
services for additional transaction or one-time implementation fees:

     - dictation and transcription services, which provide physicians with
       electronic delivery and accessibility of transcribed reports dictated via
       the telephone

     - WebMD OnCall, which offers physician-only answering services that utilize
       experienced professionals to assist both physicians and patients during
       physicians' off hours

     - coding compliance monitor, which allows physicians to compare their
       coding practices against peer group benchmarks and payer standards

     - Virtual Receptionist, which integrates web-based communication and
       information services, including, e-mail, voice mail and fax messaging,
       paging, conference calling, long distance and active message notification

     - additional CME courses available through our strategic partners

     We have not generated significant revenue from these optional services to
date.

     WebMD Health.  Consumers have free online access to multiple areas on WebMD
Health, including:

<TABLE>
<CAPTION>
CONTENT OR SERVICE                                     FEATURES
<S>                                     <C>
  Today's news                          - Offers original, daily health and
                                          wellness news articles written by
                                          our staff of journalists
------------------------------------------------------------------------------
  WebMD live events                     - Offers daily scheduled live chat
                                          events with healthcare experts and
                                          celebrity guests discussing relevant
                                          health issues, with archives from
                                          each show added to our searchable
                                          database
------------------------------------------------------------------------------
  Member to member                      - Provides access to chat rooms,
                                          message boards and posted member
                                          columns focused on chronic health
                                          conditions and relevant health
                                          topics
------------------------------------------------------------------------------
  Living better                         - Offers access to original content
                                          covering various wellness topics,
                                          including diet and nutrition and
                                          emotional wellness
------------------------------------------------------------------------------
  Condition centers                     - Provides access to over 50 support
                                          communities allowing consumers to
                                          share experiences and exchange
                                          information with other members with
                                          their health condition or concern
------------------------------------------------------------------------------
  Sports and fitness                    - Offers access to information
                                          relating to recreational fitness
                                          activities and sports medicine
                                          topics
------------------------------------------------------------------------------
  Find a physician                      - Allows consumers to search for a
                                          physician, dentist, mammography or
                                          maternity center in their area
------------------------------------------------------------------------------
  Resource center                       - Provides information on emergencies,
                                          medical associations and government
                                          agencies
                                        - Allows consumers to research
                                          features of their health plan
------------------------------------------------------------------------------
</TABLE>

                                       10
<PAGE>   12

<TABLE>
<CAPTION>
CONTENT OR SERVICE                                     FEATURES
<S>                                     <C>
  Health-E-Meters                       - Provides access to interactive tools
                                          to assess or demonstrate health
                                          topics, including an ovulation
                                          calendar, weight gain estimator,
                                          kid's height predictor, dessert
                                          wizard and target heart rate
                                          calculator
-------------------------------------------------------------------------------
  Medical library                       - Provides searchable access to
                                          easy-to-read health and wellness
                                          content, including:
                                        - clinical trials and research study
                                          information
                                        - drug and herb references from
                                          Clinical Pharmacology and Physician's
                                          Desk Reference
                                        - an overview of health topics
                                          currently in the news
                                        - articles in our self-care advisor
                                        - our ask our experts service, where
                                          consumers can post their health
                                          questions for our physicians
                                        - health topics A-Z, an alphabetical
                                          listing of articles on specific
                                          health conditions and concerns
                                        - a medical encyclopedia
                                        - a patient's guide to medical tests
                                        - interactive, animated presentations
                                          that explain common health conditions
                                          and diseases
-------------------------------------------------------------------------------
  MyHealthRecord                        - Allows members to establish and
                                          maintain a 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
-------------------------------------------------------------------------------
  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
-------------------------------------------------------------------------------
  E-Newsletters                         - Allows consumers to receive e-mail
                                          newsletters on general health and
                                          personalized newsletters targeted to
                                          their health concerns
-------------------------------------------------------------------------------
</TABLE>

     In addition, our quick search feature offers site-wide search capability,
which allows subscribers to target and sort their searches against sections
within WebMD Practice and consumers to target and sort their searches against
sections within WebMD Health.

     Our web site also provides physicians and consumers with access to content
provided by some of our strategic sponsors. This content is located in a
separate area on WebMD Practice and WebMD Health and is identified as sponsor
content so our users will not confuse it with our original content.

                                       11
<PAGE>   13

     Our editorial and production team, currently consisting of over 100
individuals, includes board-certified physicians, Masters and Ph.D. level
medical editors, writers, illustrators and reporters who produce our original,
daily medical news from our national news center in Atlanta, Georgia, with a
bureau located in the National Press Building in Washington, D.C. We have
assembled a medical advisory board, which consists of expert representatives
from different specialties, who advise us on current news content topics.

STRATEGIC RELATIONSHIPS

     In the ordinary course of our business, we enter into strategic
relationships with leading online and media distribution and healthcare
partners. We believe that our strategic relationships will enable us to enhance
our brand, increase the number of transactions processed over our platform,
generate traffic on our web site and capitalize on additional distribution and
revenue opportunities.

     Our principal strategic relationships with parties that are currently
related to us or were related to us in 1999 are described below.

       Microsoft. We have entered into a five-year strategic alliance with
Microsoft which provides that:

     - We distribute our content and services over MSN, MSNBC and WebTV.  We
       develop, host, maintain on our servers and provide all of the content for
       the health channels on MSN, MSNBC and WebTV. We consider ourselves to
       essentially be the exclusive provider of health-related content and
       services on MSN because a minimum of 80% of all health-related content
       and services on MSN must be derived from the MSN health channel which is
       developed, hosted and maintained by us. Microsoft may reduce this amount
       to 50%, however, if WebMD Health does not maintain specified consumer
       health web site rankings or if the MSN health channel does not maintain a
       certain number of average page views per unique user per month, as
       determined by Media Metrix. In addition, we have agreed to promote each
       others' services in the following manner:

        - Microsoft must maintain a link to the MSN health channel from
          MSN.com's home page.

        - Microsoft must provide a joint credit promoting us on each page of the
          MSN health channel.

        - We must maintain a link from all pages of WebMD Health to MSN.com's
          home page.

        - Microsoft has agreed to promote the MSN health channel in a manner
          equivalent to all major MSN topic specific offerings and in this
          regard has committed to provide at least 125.0 million impressions per
          year to promote the health channel from its house advertising
          inventory.

        - Each party has committed to spend $50.0 million to co-market our
          services over the first two years of our alliance.

         We have agreed to pay Microsoft an aggregate of $162.0 million in
      carriage fees over the term of our alliance, $4.0 million of which we
      recognized as sales and marketing expense in 1999, for the distribution of
      our consumer health content and services on Microsoft's health channels.
      The carriage fees are payable as follows:

<TABLE>
<CAPTION>
YEAR                                                           AMOUNT
----                                                           ------
<S>                                                         <C>
1.........................................................  $29.0 million
2.........................................................   31.5 million
3.........................................................   34.0 million
4.........................................................   32.5 million
5.........................................................   35.0 million
</TABLE>

                                       12
<PAGE>   14

         We incurred a nominal amount of web site development costs associated
      with these health channels, which was expensed as incurred.

         In connection with our strategic alliance, WebMD issued Microsoft a
      warrant to purchase shares of its common stock, which we assumed in our
      merger with WebMD. This warrant now represents the right to purchase
      13,676,389 shares of our common stock and has an exercise price of $30.16.
      We have accounted for the acquisition of our rights under the Microsoft
      alliance by having the relationship independently valued in connection
      with accounting for our merger with WebMD. This value is recorded as
      "prepaid content and services -- related parties." We amortize this cost
      over the remaining term of the alliance on a straight line basis, which is
      approximately 4.5 years at December 31, 1999.

     - We receive advertising and e-commerce revenue from Microsoft's health
       channels.  Microsoft must pay us 100% of net revenue from banner and
       other advertising and e-commerce transactions generated on the health
       channels or advertising that Microsoft places on our web site each year
       during the term until we have received an amount equal to that portion of
       the $162.0 million carriage fee that was payable during that year.
       Microsoft has guaranteed that we will receive at least the following
       amounts during each year of the term:

<TABLE>
<CAPTION>
YEAR                                                        MINIMUM AMOUNT
----                                                        --------------
<S>                                                         <C>
1.........................................................  $22.5 million
2.........................................................   22.5 million
3.........................................................   20.0 million
4.........................................................   17.5 million
5.........................................................   17.5 million
</TABLE>

         Each year, after we have received advertising equal to that portion of
      the $162.0 million carriage fee that was payable during that year,
      Microsoft will share 50% of any additional revenue with us. We pay
      Microsoft a 25% commission on that portion of the revenue received up to
      the annual guaranteed minimum amount for its services in selling and
      placing advertising on the Microsoft health channels or our web site
      either directly or through its agents.

         We recognize this advertising revenue when we are notified by Microsoft
      that the advertisements have been placed on the health channels and billed
      by Microsoft, not based on the guaranteed minimum payments. In 1999, we
      recognized approximately $1.6 million of revenue from advertising
      generated from Microsoft's health channels, which was recorded net of the
      commissions due to Microsoft and is included as "service revenue from
      related parties."

         Microsoft is entitled to satisfy its guaranteed minimums by purchasing
      or placing advertising on our web site. We have agreed to make sufficient
      advertising space available to Microsoft for this purpose. We will
      recognize revenue only from third-party advertising placed by Microsoft on
      our web site, and we did not recognize any of this type of revenue in
      1999. Payments received from Microsoft in satisfaction of its guaranteed
      minimums will reduce the carrying amount of "prepaid content and
      services -- related parties." We did not reduce the carrying amount of
      this item at December 31, 1999 because the first year of the term of our
      alliance does not end until May 2000, and we could not determine the
      amount, if any, that Microsoft would pay relating to its guaranteed annual
      minimum.

     - Microsoft pays us for physician subscriptions to WebMD
       Practice.  Microsoft will sponsor up to 5.0 million subscriber months of
       physician subscriptions to WebMD Practice over the term of our alliance.
       These sponsored subscriptions are subject to specified annual maximum
       amounts and require Microsoft to pay us $29.95 per month, less a $5 per
       month commission that we must pay to Microsoft or any third party that
       places the subscription for Microsoft. In order to recognize subscription
       revenue from Microsoft, we must place a subscription with a physician
       through our own sales force or through one of our distributors, enroll
       the physician and connect them to WebMD Practice. Subscription agreements
       are entered into between us and the physician and have

                                       13
<PAGE>   15

       a term of at least one year. We have committed to make available training
       funds of $50 for each Microsoft-sponsored subscriber and have expensed
       these training costs as incurred as they are typically performed at the
       time of subscriber enrollment. If a physician with a Microsoft-sponsored
       subscription fails to access WebMD Practice at least once every four
       months, then Microsoft will no longer be required to pay us for this
       subscription, and we are allowed to replace this subscriber with another
       physician.

         In 1999, we recognized approximately $1.8 million in revenue for
      subscriptions sponsored by Microsoft, which was recorded net of the
      commissions due Microsoft and is included in "service revenue from related
      parties."

     - We will share with Microsoft advertising and e-commerce revenue from
       Microsoft- and DuPont-sponsored physician subscriptions to WebMD
       Practice.  We will share with Microsoft 50% of net revenue from banner
       and other advertising generated by subscriptions to WebMD Practice paid
       for by either Microsoft or DuPont until Microsoft has received the amount
       it has expended for its sponsored subscriptions. Thereafter, we will
       share 25% of this revenue with Microsoft. We will also share with
       Microsoft 15% of net revenue from e-commerce transactions and optional
       services not included in the basic subscription to WebMD Practice,
       including net revenue from our Internet-based transaction services on
       WebMD Practice, that are generated from these Microsoft-sponsored and
       DuPont-sponsored subscriptions. We will recognize e-commerce revenue when
       a subscriber of WebMD Practice utilizes our Internet-based transaction
       services or purchases goods or services through our web site. We will
       recognize revenue from our optional services when a subscriber utilizes
       one or more of these services for fees in addition to the base
       subscription fees for WebMD Practice. In 1999, we did not recognize any
       of these types of revenue that we were required to share with Microsoft.

     - We will share with Microsoft transaction revenue generated by Microsoft's
       health channels.  We will share with Microsoft 15% of net revenue from
       the fees we receive from our healthcare transaction services generated
       from the Microsoft health channels. To date, we have not recognized any
       transaction fees from the Microsoft health channels.

     - Other terms of our strategic alliance with Microsoft.  Our strategic
       alliance with Microsoft also provides that:

      - We will use Microsoft operating systems and other technologies,
        including Microsoft Windows, Microsoft Office, Microsoft BackOffice,
        Microsoft Commerce Server and Microsoft Visual Studio, to operate and
        maintain the health channels and our web site.

      - We will promote Microsoft and Microsoft-authorized independent software
        vendors in a healthcare technology sector of our web site and integrate
        the applications of the independent software vendors for transaction
        processing on WebMD Practice.

      - Microsoft and its affiliates will be the sole providers of some
        non-healthcare related content and services on our web site and the sole
        provider of Internet access to those WebMD Practice subscribers who
        purchase Internet access from us.

      - We will not provide health-related content or services to, or license
        co-branded or third party-branded web sites with, specified entities,
        including some Internet and healthcare companies, without Microsoft's
        consent in some cases, or without providing Microsoft with notice and
        offering the same content or services on the health channels or allowing
        Microsoft to provide its products or services on the web site in other
        cases.

      - Microsoft can terminate our strategic alliance for a limited period of
        time after the announcement of our intent to build or acquire specified
        types of healthcare software applications if we cannot identify and
        resolve conflicts that may arise as a result of these acquisitions with
        Microsoft.

                                       14
<PAGE>   16

     We recently began discussions with Microsoft regarding the operating
platforms and other technologies that would be utilized by Medical Manager and
CareInsite following our completion of these pending acquisitions. We have
agreed with Microsoft that for a 60-day period following our acquisitions of
Medical Manager and CareInsite we will work with Microsoft to identify and
resolve any conflicts that we may have as a result of these acquisitions.

     Microsoft has agreed to vote its shares in favor of our acquisitions of
Medical Manager and CareInsite. Moreover, we believe that the 60-day period
following the acquisitions provides ample time to resolve the details of our
relationship with Microsoft as it pertains to the software businesses of Medical
Manager and CareInsite. However, if we cannot resolve any potential conflicts
with Microsoft after the closing of these acquisitions, Microsoft could
terminate our strategic alliance. If Microsoft terminates our relationship, we
would seek to replace it with a comparable one. If Microsoft terminates its
strategic alliance with us and we are unable to replace it with a comparable
relationship on terms as favorable to us as the Microsoft relationship, the
termination could result in a material reduction in our subscription and
advertising revenue.

     Microsoft is one of our principal stockholders and is entitled to designate
one member of our board of directors.

     News Corporation.  We have entered into various agreements in connection
with our strategic alliance with News Corporation and its affiliates. Affiliates
of News Corporation beneficially own approximately 10.5% of our common stock
outstanding as of March 1, 2000, assuming conversion of all their preferred
stock into common stock as of that date. For more information regarding our
strategic alliance with News Corporation, see "Business -- Recent events."

     SmithKline Labs.  SmithKline Labs, which was recently acquired by Quest
Diagnostics, has agreed to promote us as its preferred vendor for laboratory
electronic connectivity services under December 1997 and January 1999 service
agreements which are effective through December 2002 and January 2004,
respectively. We provide lab order and results to SmithKline Labs' providers
through our SCAN product and teleprinter services, as well as our
Internet-enabled Dx product. Although SmithKline Beecham was one of our
principal stockholders during 1999, its holdings no longer constitute more than
5% of our common stock.

     UnitedHealth Group.  UnitedHealth Group has agreed to utilize us as its
preferred vendor of EDI services, through our ProviderLink and WebMD Practice
products, to UnitedHealth Group's managed care providers and customers over the
five-year term of our agreement. We receive a monthly fee for each user site
enrolled and a fee per transaction for EDI and transaction processing services.
This agreement superceded our prior agreement with UnitedHealth Group. Dr.
William McGuire, Chief Executive Officer and Chairman of UnitedHealth Group, was
one of our directors until his resignation in January 2000.

     DuPont.  DuPont has agreed to sponsor an aggregate of approximately 6.15
million subscriber months of WebMD Practice for physicians over the five-year
term of our alliance and provide life sciences content to WebMD.com. We share
advertising, carriage fees and e-commerce revenues with DuPont generated from
our web site ranging from 15% to 50%, depending on the type of revenue. Although
DuPont was one of our principal stockholders immediately after the WebMD merger,
its holdings no longer constitute more than 5% of our common stock.

     In addition, we have entered into strategic alliances with portals and
other web sites to broaden distribution of our WebMD Health consumer content and
to provide us with e-commerce revenue opportunities. Through these
relationships, our content is available on co-branded web sites, channels on our
strategic partners' web sites or direct links from each others' web sites. We
are often the exclusive or preferred provider of consumer healthcare-related
content on our strategic partners' health channels over terms ranging from three
to five years. These partners have typically agreed to provide us with a
guaranteed minimum number of impressions and to share net advertising revenues
generated by these health channels with us in exchange for our payment of
carriage fees over the terms of the agreements. In addition, our e-commerce
strategic partners typically agree to share e-commerce revenues generated by co-

                                       15
<PAGE>   17

branded web sites with us over the terms of these agreements. Our agreements
with our online and media partners generally provide for co-branding of each
others' services, which may include online and offline branding, such as
television, newspaper, magazine, radio and in-store advertising.

     We intend to continue to evaluate and enter into additional strategic
relationships with both publicly owned and privately held companies in the
ordinary course of our business and we may, as we have in the past, make
investments in or issue our securities to some of our strategic partners in
connection with these relationships. Although we view our strategic
relationships as a key factor in our overall business strategy, our strategic
partners may not view their relationships with us as significant to their own
business and may reassess their commitment to us in the future.

SALES AND MARKETING

     Our national sales force targets significant potential customers in each
market segment by region. We market our services through direct sales contacts,
participation in trade shows, articles in industry publications and by
leveraging our existing customer base. We support our sales force with technical
and sales support personnel. As of December 31, 1999, we employed 275 employees
in sales and marketing.

     In addition, we utilize the sales and marketing organizations of our
strategic partners. For example, we have entered into agreements with practice
management service and other healthcare solution vendors to integrate our
services with their applications and leverage their existing customer bases of
providers and payers. We have begun these integration efforts and expect to
begin deploying these services in the third quarter of 2000. We believe that
these alliances will enable us to more rapidly deploy our services to physicians
and increase our transaction volume.

     We are currently engaged in a significant branding and advertising campaign
to increase awareness of the WebMD brand as a trusted and comprehensive source
of healthcare information and services on the web. We use a combination of
print, online, television and radio advertising and other marketing and
promotional efforts aimed at defining a desirable online destination for
physicians and consumers, attracting new customers, increasing traffic on our
web site and developing additional revenue opportunities. We promote our
services through traditional print media, including trade journals, newspapers
and magazines targeted at healthcare professionals and participate in trade
shows, conferences and speaking engagements as part of our ongoing public
relations program. In addition, we have entered into several strategic alliances
to promote the WebMD brand online and offline with leading online distribution
partners and traditional media companies. In addition, we will re-launch The
Health Network, a health-focused cable television network, as WebMD TV in
connection with our strategic alliance with News Corporation. We plan to
continue to allocate significant resources to marketing our services.

CUSTOMER SUPPORT

     We believe that a high level of customer support is necessary to attract
and retain customers. We provide a wide range of customer support through a
staff of customer service personnel, multiple call centers and an e-mail help
desk. We also offer web-based support services that are available 24 hours a
day, seven days a week, as well as toll-free telephone support to our physician
customers from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday. We
also employ technical support personnel who work directly with our direct sales
force and customers. As of December 31, 1999, we employed 500 employees and
independent contractors in customer support functions, including network
services, provider services and customer support services.

OUR PLATFORM

     Our platform is a distributed application framework, combined with software
tools that are designed to ensure security, scalability, availability,
reliability and manageability, on which transaction-intensive applications can
be delivered over the Internet or over other distributed environments. Our
platform is deployed on a server complex at our data center in Santa Clara,
California, with additional operations in

                                       16
<PAGE>   18

three other facilities in the U.S., which consists of SUN Solaris, Stratus and
Windows NT servers in a fault tolerant configuration and redundant or fault
tolerant network components. Our platform features:

     Security.  Our platform is designed to ensure the privacy and integrity of
data and communications by using a combination of security methodologies to
provide multiple lines of defense. All Internet communications between us and
our users employ the Secure Sockets Layer protocol. In addition, we utilize
server digital certificates and username and password schemes to authenticate
users. Each user has a unique user identification and has one or more roles that
define the types of functionality and data access available. All of our
applications record logging information, creating an audit trail, and protect
privacy by encrypting sensitive data. We also use a multi-layered firewall
complex to secure our network infrastructure. In addition, network vulnerability
scanners are used on a regular basis to actively monitor security status. Our
physical security systems at our Santa Clara facility consist of comprehensive
physical controls and multi-layered authentication, dual-level access points and
multiple alarm systems.

     Scalability.  Our platform utilizes CORBA-based middleware, which enables a
highly scalable distributed applications infrastructure and enables an
application to run simultaneously on multiple host systems, allowing for large
numbers of simultaneous users while at the same time optimizing network
performance and resource utilization. In addition, our platform has been
designed to transparently deploy new services and hardware while existing
applications remain operational. Finally, our platform reduces communications
bottlenecks resulting from limited numbers of connections to database servers
through intelligent management of database connections and object caches that
reduce the need to query database servers for frequently used data.

     Rapid application development and integration.  Our platform is designed to
enable rapid application development and integration. It supports
object-oriented programming, which accelerates the design process through object
reuse. We maintain a comprehensive set of object libraries, called core
services, that allows developers to build complex applications rapidly. Our
platform also allows applications developed by third parties to be deployed with
relative ease. The platform interfaces with legacy systems by accepting industry
standard ANSI X.12 and HL7 electronic data interchange formats.

     High availability.  Our platform architecture is designed to ensure high
availability through the replication of applications and other software
services, failure detection and automatic restart of failed services and
applications. Running multiple copies of a service or application removes any
single point of failure within the system and ensures that at least some copies
of a service will be available while others may have failed. In addition, the
servers that host our applications are duplicated to provide redundancy. We use
duplicate fiber optic cable connections to Sprint and MCI/WorldCom to ensure
highly available access to the Internet. Our platform uses a mix of
fault-tolerant hardware, redundant equipment and back-up power systems.

     Manageability.  Our management framework provides a single image view of
all of our services, thus simplifying administration in a distributed
environment. Our services can be managed from a web-based management station.
Our management and administration framework monitors service performance and
generates event notifications of system abnormalities.

     Disaster recovery plans.  Although we believe our operations facilities are
highly resistant to systems failure and sabotage, we have developed, and are in
the process of implementing, a disaster recovery and contingency operations
plan. In addition, all of our services are linked to advance storage systems
that provide data protection through techniques such as replication. We also
maintain on-site backup power systems.

     Audits.  Our information technology department periodically performs, and
retains accredited third parties to perform, audits of its operational
procedures under both internally developed audit procedures and externally
recognized standards.

                                       17
<PAGE>   19

DEVELOPMENT AND ENGINEERING

     We have developed internally and acquired through acquisitions our
applications and services. We will also continue to work closely and engage in
joint development efforts with some of our strategic partners. We have several
significant projects currently in development. These projects include the
continued enhancement of our platform architecture, the development of our
ProviderWorks product, the integration of our services with Medic's practice
management systems applications, and the continued integration of ActaMed's and
MedE America's platform, network and transaction services. As of December 31,
1999, we employed 900 employees in development and engineering.

     Our development and engineering expense, which excludes development
expenses included in cost of operations, totaled $29.7 million in 1999, $19.0
million in 1998 and $12.3 million in 1997. We believe that timely development
and deployment of new and enhanced applications and technology is necessary to
remain competitive. Accordingly, we intend to continue to make investments in
development and engineering and to recruit and hire experienced development
personnel. However, we cannot guarantee that we will be successful in developing
and deploying new applications and services that respond to competitive and
technological developments and changing customers needs.

COMPETITION

     The market for healthcare information 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 have. These organizations may be better known and
have more customers than we have. 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.

     We have many competitors, including:

     - healthcare information software vendors

     - healthcare electronic data interchange companies

     - large information technology consulting service providers

     - online services or web sites targeted to the healthcare industry,
       physicians and healthcare consumers generally

     - 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

     We expect that major software information systems companies and others
specializing in the healthcare industry will offer competitive applications or
services. Some of our customers and strategic partners may also compete with us.
Our reputation and brand name could be adversely affected if we experience
difficulties in introducing new services, if our services are not accepted by
physicians or consumers, if we are required to discontinue existing services or
if our services do not offer desirable features or function properly.

                                       18
<PAGE>   20

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

     Our business is and will continue to be subject to government regulation.
Existing and new laws and regulations could adversely affect our business. Laws
and regulations may be adopted with respect to the Internet or other online
services covering issues such as:

     - user privacy and patient confidentiality

     - pricing

     - content

     - copyrights and patents

     - distribution

     - characteristic and quality of products and services

     We cannot predict whether these laws will be adopted and how they will
affect our business.

  Regulation regarding privacy and patient confidentiality

     Internet user privacy has become an issue both in the U.S. and abroad.
Whether and how existing privacy or consumer protection laws in various
jurisdictions apply to the Internet is uncertain and may take years to resolve.
Any legislation or regulations of this nature could affect the way we conduct
our business, particularly in our collection or use of personal information, and
could harm our business. Further, activities on or using the Internet have come
under increased scrutiny, including increased investigation in the healthcare
arena by the Federal Trade Commission and heightened media attention.

     Similar to many other Internet healthcare companies, we have recently
received a request for information from the FTC concerning our web site privacy
policies and practices. While we believe we are in compliance with all
applicable laws, all third party contractual commitments and our published
privacy commitments, government inquiries such as this inquiry can divert
management's attention from other matters and create unfavorable publicity.

     Numerous state and federal laws govern the collection, dissemination, use,
access to and confidentiality of patient health information. Many states have
laws and regulations that protect the confidentiality of medical records or
medical information. In addition, the federal Department of Health and Human
Services has proposed regulations implementing the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, concerning standards for electronic
transactions, security and electronic signatures and privacy of individually
identifiable health information. The proposed regulations, among other things,
would require companies to develop security standards for all health information
that is used electronically. The proposed regulations would impose significant
obligations on companies that send or receive electronic health information. The
application of these laws to the personal information we collect could create
potential liability under these laws. We have designed our services to comply
with these proposed regulations. However, we cannot predict when these proposed
regulations will be finalized and whether they will be changed before they are
finalized. Any changes could cause us to use additional resources to revise our
platform and services.

     Additional legislation governing the distribution of medical records exists
and has been proposed at both the state and federal levels. We will be subject
to extensive regulation relating to the confidentiality and release of patient
records, and it may be expensive to implement security or other measures to
comply with new legislation and final regulations. Further, we may be restricted
or prevented from maintaining or delivering patient records electronically. Such
a restriction may have an adverse effect on our business.

  Federal and state 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

                                       19
<PAGE>   21

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. 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 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 such as
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 certain 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 our 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.

  Regulation by the Food and Drug Administration

     Some computer applications and software are considered medical devices and
are subject to regulation by the United States Food and Drug Administration, or
the FDA. FDA regulations are broadly worded and its guidance in these areas is
outdated, leaving uncertainty in how these regulations apply. 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. 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.

  Regulation of transaction services

     State and federal statutes and regulations governing transmission of claims
may affect our operations. For example, Medicaid rules require certain
processing services and eligibility verification to be maintained as separate
and distinct operations. We believe that our practices are in compliance with
applicable state and federal laws. These laws, though, are complex and changing,
and the government may take positions that are inconsistent with our practices.

  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 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 employ and contract with physicians who provide only medical information to
consumers, and we have no intent to provide medical care or advice. We do not
maintain professional liability insurance because we believe we

                                       20
<PAGE>   22

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.

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 have several trademarks in the U.S. and internationally. We have applied
for federal registration of our service marks "WebMD," "Web-MD," "Health has a
Homepage," "WebMD Practice," "WebMD Health," "Healtheon" and "WebMD OnCall,"
among others. Our Web-MD application was published in the U.S. Patent and
Trademark Office Official Gazette on February 22, 2000. Any party interested in
opposing registration of our Web-MD mark will have 30 days from publication to
file either a notice of opposition or a request for extension of time to file
opposition. If no such document is timely filed, our Web-MD application should
mature to registration in due course. Our WebMD application is being prosecuted,
and we anticipate that a second office action will be received in the next three
months. We have also applied for registration of the service marks WebMD and
Health has a Homepage, among others, in approximately 75 foreign jurisdictions.
Although some of these applications have matured to registration, we cannot
guarantee that any of the remaining applications will do so. In any jurisdiction
where common law rights are acquired by being the first entity to adopt, use and
continue to use a particular mark in connection with certain goods or services,
we will be able to assert our common law rights against any third-party
infringer until such time as we can also assert our national registration, if at
all. In addition to our service mark applications, we have also 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
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 web site. 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, our exposure to copyright infringement actions may increase because we
must rely upon such parties for information as to the origin and ownership of
such 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 assure 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.

                                       21
<PAGE>   23

     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 misappropriate of our
proprietary software and databases could disadvantage us in our efforts to
attract and retain customers in a highly competitive market and could cause us
to lose revenues 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, 1999, we employed a total of 1,825 employees and
independent contractors, of whom 500 were employed in customer, network and
provider services, 900 were employed in development and engineering, 275 were
employed in sales and marketing and 150 were employed in administrative,
financial, legal, human resources and executive functions. None of our employees
is represented by a labor union, and we have never experienced a work stoppage.
We believe our relationship with our employees is good.

ITEM 2.  PROPERTIES

     We maintain two principal executive offices, our corporate headquarters
located in Atlanta, Georgia and our technology headquarters located in Santa
Clara, California. We lease our Atlanta office consisting of an aggregate of
approximately 63,000 square feet of space pursuant to leases which expire in
February 2002 and November 2004. We lease our Santa Clara office, which shares
approximately 50,000 square feet of space with some of our development and
network operations, pursuant to a lease which expires in March 2008.

     The following chart summarizes some of our additional facilities:

<TABLE>
<CAPTION>
                               APPROXIMATE            OWNED/LEASED
LOCATION                     SQUARE FOOTAGE       AND EXPIRATION DATE              OPERATIONS
--------                    -----------------    ----------------------      -----------------------
<S>                         <C>                  <C>                         <C>
Twinsburg and Bethel, Ohio  50,000 aggregate     Owned                       Primary medical and
                                                                             pharmacy data center
Minneapolis, Minnesota      50,000               Leased -- April 2006        Sales, engineering and
                                                                             support operations
Atlanta, Georgia            41,000               Leased -- July 2001         Sales, development and
                                                                             network operations
</TABLE>

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

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, we may be a party to legal proceedings incidental to our
business. We do not believe that any of these proceedings will have a material
adverse effect on our business or financial condition.

                                       22
<PAGE>   24

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

     At our annual meeting of stockholders held on November 11, 1999, our
stockholders voted with respect to the following matters:

     - To approve the issuance of 1.796 shares of our common stock for each
       share of outstanding WebMD common stock in the merger of WebMD with and
       into a wholly owned subsidiary of Healtheon/WebMD. By voting in favor of
       the WebMD merger, stockholders also voted to elect the following as
       directors of Healtheon/WebMD upon consummation of the WebMD merger: W.
       Michael Long, James H. Clark, L. John Doerr, William W. McGuire, M.D.,
       Jeffrey T. Arnold, Eric J. Gleacher, William P. Payne, U. Bertram Ellis,
       Jr. and Laura Jennings

<TABLE>
<S>                                                <C>
Votes for:                                         59,744,532
Votes against:                                        119,367
Abstentions:                                           29,908
Broker non-votes:                                     804,998
</TABLE>

     - To approve an amendment to our certificate of incorporation to change our
       corporate name from Healtheon Corporation to Healtheon/WebMD Corporation
       and to increase the authorized number of shares of common stock from
       150,000,000 to 600,000,000 shares, in each case if the WebMD merger was
       completed

<TABLE>
<S>                                                <C>
Votes for:                                         59,466,154
Votes against:                                      1,207,833
Abstentions:                                           24,818
Broker non-votes:                                           0
</TABLE>

     - To elect James H. Clark, L. John Doerr and C. Richard Kramlich as Class I
       directors to serve three year terms ending in 2002, such election to be
       effective in the event that the WebMD merger did not close before
       December 16, 1999

<TABLE>
<S>                                                <C>
Votes for James H. Clark:                          60,661,234
Votes against James H Clark:                           37,571
Votes for L. John Doerr:                           60,661,234
Votes against L. John Doerr:                           37,571
Votes for C. Richard Kramlich:                     60,656,234
Votes against C. Richard Kramlich:                     42,571
</TABLE>

     - To amend our bylaws to provide that directors can be removed only for
       cause and to modify the advance notice and provisions for board
       nominations and other stockholder proposals

<TABLE>
<S>                                                <C>
Votes for:                                         58,428,096
Votes against:                                      1,419,116
Abstentions:                                           46,595
Broker non-votes:                                     804,998
</TABLE>

     - To amend our 1996 stock plan, if the WebMD merger was completed, to
       increase the number of shares reserved for issuance from 19,107,321
       shares to 29,107,321 shares

<TABLE>
<S>                                                <C>
Votes for:                                         58,373,586
Votes against:                                      1,479,236
Abstentions:                                           40,985
Broker non-votes:                                     804,998
</TABLE>

                                       23
<PAGE>   25

     - To amend our 1998 employee stock purchase plan to increase the number of
       shares of common stock reserved under the plan from 1,000,000 shares to
       2,000,000 shares and to change the formula for annually increasing the
       number of shares available to be issued under the plan

<TABLE>
<S>                                                <C>
Votes for:                                         59,594,266
Votes against:                                        260,484
Abstentions:                                           39,057
Broker non-votes:                                     804,998
</TABLE>

                                    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. Prior to that date, there was no
public market for our common stock and, therefore, no quoted market prices for
our common stock are available for the year ended December 31, 1998.

     The high and low closing prices for each quarterly period of 1999 are as
follows:

<TABLE>
<CAPTION>
                                                             HIGH       LOW
                                                            -------    ------
<S>                                                         <C>        <C>
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
</TABLE>

     On March 1, 2000, there were 954 holders of record of our common stock.
Because many of such 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. Factors that
may have a significant effect on the market price of our common stock include:

     - actual or anticipated quarterly variations in our operating results

     - changes in expectations of future financial performance or changes in
       estimates of securities analysts

     - announcements of technological innovations

     - announcements relating to strategic relationships and acquisitions

     - customer relationship developments

     - perceived changes in our business strategy

     - conditions affecting the Internet or healthcare industries, in general

     The trading price of our common stock may continue to be volatile. The
stock market in general, and the market for technology and Internet-related
companies in particular, has experienced extreme volatility that often has been
unrelated to the operating performance of particular companies. These broad
market and industry fluctuations many adversely affect the trading price of our
common stock, regardless of our actual operating performance.

     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.

                                       24
<PAGE>   26

     We have never declared or paid any cash dividends on our common, 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 A
payment-in-kind convertible preferred stock pays a 10.5% annual dividend
quarterly in additional shares of Series A preferred stock.

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 for all dates and periods presented and reflects the
results of operations for WebMD, MedE America and Medcast from the closing date
of these mergers, November 12, 1999, forward. All of these acquisitions were
accounted for as purchases, except for ActaMed, which was accounted for as a
pooling of interests. All financial information has been restated to reflect the
combined operations of Healtheon and ActaMed. The consolidated statements of
operations data for the three-year period ended December 31, 1999 and the
consolidated balance sheet data at December 31, 1999 and 1998 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, 1996 and the
consolidated balance sheet data at December 31, 1997, 1996 and 1995 are derived
from, and are qualified by reference to, audited consolidated financial
statements that are not included in this report. The consolidated statements of
operations and balance sheet data as of and for the year ended December 31, 1995
are derived solely from the ActaMed statements of operations and balance sheets
for such periods because we did not commence operations until January 1996. See
notes 1 and 2 of notes to consolidated financial statements for a discussion of
the accounting for our acquisition of ActaMed. We do not believe that our
historical operating results are necessarily indicative of our future results.
See note 1 of notes to consolidated financial statements for an explanation of
the determination of the shares used in computing basic and diluted net loss per
common share.

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                    -----------------------------------------------------
                                                       1999        1998       1997       1996      1995
                                                    ----------   --------   --------   --------   -------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>          <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
  Service revenue.................................  $   57,421   $ 27,102   $  4,301   $  1,795   $   458
  Service revenue from related parties............      37,210     20,956      7,309      4,237        --
  Software licenses...............................       7,518        780      1,780      4,981     1,717
                                                    ----------   --------   --------   --------   -------
  Total revenue...................................     102,149     48,838     13,390     11,013     2,175
Operations costs and expenses:
Cost of operations:
  Cost of revenue.................................      58,267     26,907      3,910      1,590     1,573
  Cost of revenue from related parties............      30,309     16,107      6,536      4,919        --
  Cost of software licenses.......................          --         --         --        160       343
                                                    ----------   --------   --------   --------   -------
Total cost of operations..........................      88,576     43,014     10,446      6,669     1,916
Development and engineering.......................      29,669     19,002     12,267      8,332     2,446
Sales, general and administrative.................      82,315     24,715     10,096      8,400     1,749
Depreciation and amortization.....................     193,067     16,055      6,004      4,153        --
                                                    ----------   --------   --------   --------   -------
Total operating costs and expenses................     393,627    102,786     38,813     27,554     6,111
                                                    ----------   --------   --------   --------   -------
</TABLE>

                                       25
<PAGE>   27

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                    -----------------------------------------------------
                                                       1999        1998       1997       1996      1995
                                                    ----------   --------   --------   --------   -------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>          <C>        <C>        <C>        <C>
Loss from operations..............................    (291,478)   (53,948)   (25,423)   (16,541)   (3,936)
  Interest income.................................       4,013      1,262        611        539       208
  Interest expense................................        (527)      (472)      (323)       (56)       (6)
  Other...........................................          --       (890)    (2,870)    (2,548)     (724)
                                                    ----------   --------   --------   --------   -------
Net Loss..........................................  $ (287,992)  $(54,048)  $(28,005)  $(18,606)  $(4,458)
                                                    ==========   ========   ========   ========   =======
  Basic and diluted net loss per common share.....  $    (3.58)  $  (1.54)  $  (3.88)  $  (2.83)  $  (.85)
                                                    ==========   ========   ========   ========   =======
Weighted-average shares outstanding used in
  computing basic and diluted net loss per common
  share...........................................      80,367     34,987      7,223      6,583     5,246
                                                    ==========   ========   ========   ========   =======

<CAPTION>
                                                                     AS OF DECEMBER 31,
                                                    -----------------------------------------------------
                                                       1999        1998       1997       1996      1995
                                                    ----------   --------   --------   --------   -------
<S>                                                 <C>          <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
  investments.....................................  $  291,286   $ 36,817   $ 21,804   $  7,539   $ 9,386
Working capital...................................     216,304     27,934     14,790      2,505     7,244
Total assets......................................   4,242,462     79,940     53,747     34,407    10,801
Long-term obligations, net of current portion.....     121,489      2,984        932      1,210        --
Convertible redeemable preferred stock............          --         --     50,948     39,578    16,029
Stockholders' equity (net capital deficiency).....   3,973,672     59,413     (9,930)   (14,553)   (7,698)
</TABLE>

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

OVERVIEW

     We provide web-based healthcare information and services to facilitate
connectivity and transactions among physicians, patients, payers and other
healthcare industry participants. Our Internet-based information and transaction
platform allows for the secure exchange of information among the disparate
information systems used by healthcare industry participants and supports our
administrative transaction services, including patient enrollment, eligibility
determination, referrals and authorizations, laboratory and diagnostic test
orders and results, clinical data retrieval and claims processing.

     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. We design our service
offerings to help integrate and manage administrative, clinical, research and
information needs of the healthcare industry. We believe that our web-based
solution has the potential to create significant improvements in the way that
information is used by the healthcare system, enabling improved workflows,
better decision-making and, ultimately, higher quality patient care at a lower
cost.

     We were incorporated in December 1995 and commenced operations in January
1996. In November 1999, we merged with WebMD, MedE America and Medcast, and we
changed our name to Healtheon/WebMD. We launched our integrated web site in
November 1999 following the closing of these mergers.

     We have rapidly and significantly expanded our operations through
acquisitions. We have completed the following acquisitions prior to the year
ended December 31, 1999:

<TABLE>
<CAPTION>
                                                      SHARES OF OUR        OPTIONS AND
COMPANY ACQUIRED                   DATE ACQUIRED   COMMON STOCK ISSUED   WARRANTS ASSUMED     CASH PAID
----------------                   -------------   -------------------   ----------------   --------------
                                                                                            (In thousands)
<S>                                <C>             <C>                   <C>                <C>
WebMD............................  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          $2,336
Metis, LLC.......................  August 1998          1,600,000                   --             620
ActaMed Corporation..............  May 1998            23,271,355            3,383,011              --
</TABLE>

                                       26
<PAGE>   28

     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, MedE America and Medcast from the closing date
of these mergers, November 12, 1999, forward.

     As a result of our purchases of WebMD, 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, which will be amortized over
estimated useful lives of three to four years.

     In addition, we completed our acquisition of Kinetra and entered into
merger agreements to acquire Envoy, Medical Manager, CareInsite and OnHealth in
the first quarter of 2000. For a more complete description of these
acquisitions, see the section entitled "Business -- Recent events."

     Because we have only recently completed the November 1999 mergers and
expect to complete all of our pending mergers by the third quarter of 2000, 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, 1999, we had an accumulated
deficit of $391.4 million. We plan to continue to invest heavily in
acquisitions, strategic relationships, sales and marketing and infrastructure
and applications development. As a result, we expect that we will continue to
incur losses for at least the next 12 months, and we may never achieve or
sustain profitability.

     Our revenue to date has been derived primarily from revenue from
non-Internet, network-based transaction services, development, consulting and IT
management services, software license fees and advertising and subscription
revenue from our web site.

     We provide our network- and Internet-based administrative transaction
services to healthcare payers and providers generally on a transaction fee
basis, although we may charge for this service on a monthly basis. These fees
vary depending on the type of transaction and the customer's relationship with
us. We provide development and consulting services, as well as IT management and
operations services to some of our customers, which are typically sold on a
fixed fee or time and materials basis. We have also licensed our software to two
of our customers. However, we do not expect that a significant amount of revenue
will be earned from software license fees in the foreseeable future. We are
currently generating significant revenue from our development, consulting and IT
services. In addition, we do not anticipate that revenue from these services
will increase as a percentage of our total revenue in the future as some of
these current customers begin to utilize our transaction and subscription
services.

     We also derive revenue from advertising and sponsorships, subscriptions,
e-commerce, content license fees and carriage fees generated from our web site
and co-branded web sites. Our advertising and e-commerce revenues are typically
generated from revenue sharing arrangements with our online strategic partners.
Most of our subscription revenue consists of sponsorship of WebMD Practice
subscriptions for physicians by Microsoft and DuPont. These sponsorships require
Microsoft and DuPont to pay us our current WebMD Practice base subscription fee
of $29.95 per month, typically for a 12-month service period. For a more
complete description of these sponsorships, see the section entitled "Related
party transactions." Subscribers can also access our Internet-based transaction
services and optional services on WebMD Practice for additional transaction or
one-time implementation fees. For a complete description of these services, see
the section entitled "Business -- WebMD Practice." During 1999, we did not
generate significant revenue from our Internet-based transaction services or
optional services. If we are successful in migrating provider and payer
customers to our transaction services available on WebMD Practice, building our
subscriber base and increasing traffic on our web site, we expect that our
Internet-based transaction, advertising and subscription revenue to increase as
a percentage of total revenue.

                                       27
<PAGE>   29

     We recognize revenue as our services are performed or our products are
delivered. We earn revenue on our network-based fees from fixed fee subscription
arrangements, which are recognized ratably over the term of the applicable
agreement, and from our administrative services, which are priced on a
per-transaction or per-user basis and recognized as the services are performed.
Revenue from our development, consulting and IT management services is
recognized as these services are performed. We recognize revenue related to
software license fees when a customer enters into a noncancelable license
agreement, the software product covered by the license agreement 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 fees is considered probable.

     Revenue from advertising is recognized as advertisements are run on our web
site or on co-branded web sites. Our subscription revenue, including
subscription revenue from sponsorship arrangements, is recognized as
subscriptions are placed with physicians. We do not allocate subscription
revenue among our various service offerings included as part of the base
subscription fee. Revenue from fixed fee content license or carriage fees are
recognized ratably over the term of the applicable agreement. We recognize
e-commerce revenue when a subscriber or consumer utilizes our Internet-based
services or purchases goods or services through our web site or a co-branded web
site with one of our strategic partners. We recognize revenue from our optional
services when we provide one or more of these services for fees in addition to
the base subscription fees for WebMD Practice.

     Three of our customers, SmithKline Labs, which was recently acquired by
Quest Diagnostics, Beech Street and UnitedHealth Group, each accounted for more
than 10% of our revenue in 1999, and together accounted for approximately 57.9%
of our revenue for the same period. We expect that these three customers,
together with Microsoft, will account for a significant but smaller portion of
our revenue for 2000.

     Cost of operations consist 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 consulting and
development personnel, 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. Given our limited operating history,
changes in revenue mix, limited history of Internet-based network services,
recent investments in personnel, recently completed and pending acquisitions,
amortization of infrastructure investments and evolving business model, we
believe that analysis of historical cost of operations as a percentage of
revenue is not meaningful. We anticipate that our total cost of operations will
increase in absolute dollars in the future.

     Development and engineering expense, which excludes development expenses
that are included in cost of operations, 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. We believe our
success is partially dependent upon our ability to introduce new applications in
a relatively short period of time. Accordingly, we intend to continue to make
investments in development and engineering and to recruit and hire experienced
engineering personnel. We expect that development and engineering expenses will
continue to increase in absolute dollars. Currently, all development and
engineering expenses are expensed as incurred.

     Sales and marketing expense consists primarily of advertising, product and
brand promotion, salaries and related expenses for sales, account management and
marketing personnel, commissions, costs and expenses for marketing programs and
trade shows, and fees for professional marketing and advertising services. We
anticipate these expenses will continue to increase in absolute dollars as we
add sales and marketing personnel, increase our advertising, marketing and
promotional activities and incur costs related to promoting the WebMD brand.

     General and administrative expense consists primarily of salaries and
related expenses for administrative, finance, legal, human resources and
executive personnel, fees for professional services, costs
                                       28
<PAGE>   30

of general insurance and costs of accounting and internal control systems to
support our operations. We anticipate that general and administrative expense
will continue to increase in absolute dollars as we add administrative,
financial, legal, human resources and executive personnel, increase the size of
our organization and incur costs relating to operating a public company, such as
professional fees and directors' and officers' liability insurance premiums.

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,
                                                             -------------------------------
                                                              1999        1998        1997
                                                             -------     -------     -------
<S>                                                          <C>         <C>         <C>
Revenue:
  Service revenue.......................................        56.2%       55.5%       32.1%
  Service revenue from related parties..................        36.4        42.9        54.6
  Software licenses.....................................         7.4         1.6        13.3
                                                             -------     -------     -------
          Total revenue.................................       100.0       100.0       100.0
Operating costs and expenses:
Cost of operations:
  Cost of operations....................................        57.0        55.1        29.2
  Cost of operations from related parties...............        29.7        33.0        48.8
                                                             -------     -------     -------
          Total cost of operations......................        86.7        88.1        78.0
Development and engineering.............................        29.0        38.9        91.6
Sales and marketing.....................................        53.4        18.9        45.6
General and administrative..............................        27.2        31.7        29.9
Depreciation and amortization...........................       189.0        32.9        44.8
                                                             -------     -------     -------
          Total operating costs and expenses............       385.3       210.5       289.9
                                                             -------     -------     -------
Loss from operations....................................      (285.3)     (110.5)     (189.9)
Interest income.........................................         3.9         2.6         4.6
Interest expense........................................        (0.5)       (1.0)       (2.4)
Other...................................................          --        (1.8)      (21.4)
                                                             -------     -------     -------
  Net loss..............................................      (281.9%)    (110.7%)    (209.1%)
                                                             =======     =======     =======
</TABLE>

  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. For a description
of these arrangements, see the section entitled "Business -- Strategic
relationships." 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 advertising from Microsoft

                                       29
<PAGE>   31

contributed to the significant increases in revenue. The SmithKline Labs revenue
ceased being related party revenue on August 16, 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 and marketing.  Sales and marketing expense increased to $54.6
million in the year ended December 31, 1999 from $9.2 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. Of the increase in
sales and marketing expense, $28.1 million is a result of expenses incurred by
the acquired companies from the merger date, November 12, 1999, through the end
of the year.

     General and administrative.  General and administrative expense increased
to $27.8 million in the year ended December 31, 1999 from $15.5 million in the
year ended December 31, 1998. 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 general and
administrative expense, $5.7 million is a result of expenses incurred by the
acquired companies from the merger date, November 12, 1999, through the end of
the year.

     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, $8.2 million in 1998 and
$2.7 million in 1997. 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. Amortization is estimated
to total $3.3 million in 2000, $1.4 million in 2001 and $0.4 million for 2002.

     Depreciation and amortization.  Depreciation and amortization 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 merger with WebMD and the acquisition of MedE
America and Medcast on November 11, 1999. Amortization charges on these and
other previously completed transactions are estimated to be $1.2 billion in
2000, $1.2 billion in 2001, $1.0 billion in 2002, and $84.7 million in 2003
assuming no impairment of the remaining unamortized intangible asset balances
and no additional acquisitions of intangible assets. See Notes 2, 3 and 6 of
notes to our consolidated financial statements. The consummation of the purchase
transactions announced in the first quarter of 2000 will add significant
additional charges in future periods. See note 15 to our consolidated financial
statements.

     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 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

                                       30
<PAGE>   32

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.

     Income taxes.  At December 31, 1999, we had net operating loss
carryforwards for federal income tax purposes of approximately $591.0 million
and federal tax credits of approximately $6.2 million, both expiring from 2009
through 2014. Of these net operating losses, approximately $19.9 million relates
to a consolidated subsidiary and is available only to offset future taxable
income of that subsidiary. Because of the "change of ownership" provisions of
the tax code, a portion of our net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods. Thus, a portion of these carryforwards
may expire before becoming available to reduce future income tax liabilities.

  Years ended December 31, 1998 and 1997

     Revenue.  Total revenue increased to $48.8 million in 1998 from $13.4
million in 1997. The significant increase in revenue in these periods was
principally due to new contracts for the management and operation of two of our
customers' IT infrastructures beginning in late 1997. To provide these services,
we utilized our own personnel, outside contractors and personnel and facilities
of the customers that are leased to us. The cost of these leased customer
personnel and facilities are included as part of the total costs of the IT and
development services that we billed to the customers. We recognized revenue for
IT services of $15.1 million in 1998 and $2.1 million in 1997. Revenue for IT
services included costs of leased personnel and facilities of $11.8 million in
1998 and $1.9 million in 1997. These amounts are also included in cost of
services. In addition, we recognized revenue related to development services of
$6.5 million in 1998 and $.2 million in 1997.

     Revenue from related parties increased to $21.0 million in 1998 from $7.3
million in 1997. The increase was primarily due to the additional revenue from
SmithKline Labs to provide laboratory and test order and results services.

     Cost of operations.  Total cost of operations was $43.0 million in 1998 and
$10.4 million in 1997. Cost of revenue increased to $26.9 million in 1998 from
$3.9 million in 1997. The increases included costs of leased personnel and
facilities utilized to provide IT services totaling $11.8 million in 1998 and
$1.9 million in 1997, as well as costs related to development services of $6.5
million in 1998 and $0.2 million in 1997. The remainder of the increase resulted
from increased personnel and expansion of our network infrastructure to support
current customers and future business activities.

     Cost of revenue to related parties was $16.1 million in 1998 and $6.5
million in 1997. The increase in 1998 over 1997 was due to higher personnel and
network operation costs required to support increased transactions from our
services provided to SmithKline Labs.

     Development and engineering.  Development and engineering expense was $19.0
million in 1998 and $12.3 million in 1997. The increase was the result of a
significant increase in the number of engineers engaged in the development of
our applications and services.

     Sales and marketing.  Sales and marketing expense increased to $9.2 million
in 1998 from $6.1 million in 1997. Substantially all of the increase resulted
from salaries and related support costs for added sales and marketing personnel.

     General and administrative.  General and administrative expense increased
to $15.5 million in 1998 from $4.0 million in 1997. In October 1998, we withdrew
a planned initial public offering of our common stock and wrote off the
accumulated costs related thereto totaling $1.6 million. Additionally, the
amortization of deferred stock compensation expense accounted for $2.8 million
of the increase in 1998 and $0.8 million of costs related to our acquisition of
ActaMed. Substantially all of the remainder of the increase resulted from
salaries and related support costs for added executive management.

     Depreciation and amortization.  Depreciation and amortization of intangible
assets was $16.1 million in 1998 and $6.0 million in 1997. The intangible assets
include those arising from ActaMed's acquisition of

                                       31
<PAGE>   33

EDI Services, Inc. in March 1996 and our acquisition of Metis in August 1998, as
well as from intangible assets related to the technology rights acquired from
SmithKline Labs in December 1997. Property and equipment is being depreciated
over the estimated useful lives of the related assets, generally three to seven
years, while the intangible assets are generally being amortized over a
three-year life. Although our agreement with UnitedHealth Group has a five-year
term, we determined that a three-year amortization period was appropriate for
the EDI-related assets due to the price renegotiation required by this
agreement, the probability that the purchased technology and software would be
replaced within three years and the uncertain profitability of the agreement
after the price renegotiation. Similarly, although our agreement with SmithKline
Labs has a five-year term, we determined that a three-year amortization period
was appropriate for the SCAN-related assets due to the price renegotiation
required by this agreement, the probability that the purchased technology and
software would be replaced within three years and the uncertain profitability of
the agreement after the price renegotiation. See Notes 2, 3 and 6 of notes to
our consolidated financial statements.

     Interest income and expense.  Interest income has been derived primarily
from the investment of excess cash. Interest expense results primarily from our
borrowings and from capitalized lease obligations for equipment purchases. Net
interest income was $0.8 million in 1998 compared to $0.3 million in 1997. The
1998 increase was due to higher average cash balances resulting from the
proceeds of our $25.0 million preferred stock financing in October 1997 and our
$46.1 million preferred stock financing in October 1998.

LIQUIDITY AND CAPITAL RESOURCES

     In February 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $41.4
million. Prior to this offering, we had funded our operations since inception
primarily through the private placement of equity securities. We had also
financed our operations through equipment lease financing and bank borrowings.
As of December 31, 1999, we had outstanding equipment lease liabilities of $5.6
million. As of December 31, 1999, we had approximately $291.3 million of cash,
cash equivalents and short-term investments and working capital of $216.3
million.

     Cash used in operating activities was $75.9 million in 1999 compared to
$26.6 million in 1998 and $16.2 million in 1997. The cash used during these
periods was primarily attributable to net operating losses of $288.0 million in
1999, $54.0 million in 1998 and $28.0 million in 1997, offset in part by
depreciation and amortization. These losses were principally related to
increased expenses as more fully described in the section entitled "-- Results
of operations." Our losses were principally related to increased sales and
marketing expenses to promote the WebMD brand, development and engineering
expenses and general and administrative expenses.

     Cash provided by investing activities was $281.2 million in 1999 compared
to cash used in investing activities of $19.1 million in 1998 and $9.3 million
in 1997. Cash provided in 1999 primarily related to $298.0 million in net cash
acquired when we merged with WebMD, MedE America and Medcast. Investments in
property and equipment, excluding equipment acquired under capital leases, and
internally developed software were $27.0 million in 1999, $6.3 million in 1998
and $2.8 million in 1997. In 1999, we purchased an additional $24.0 million of
short-term investments and realized $35.7 million in cash from maturities of our
short-term investments. In 1998, we purchased an additional $22.5 million of
short-term investments and realized $10.4 million in cash from maturities of our
short-term investments. In 1997, we used $5.3 million of cash to purchase
short-term investments and had no maturities of short-term investments. We
invest our excess cash in short-term investments and will continue to do so in
the future. We are not assured of having excess cash balances in the future, so
purchases of short-term investments cannot be assured.

     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

                                       32
<PAGE>   34

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. Cash provided by financing activities was
$34.4 million in 1997, resulting primarily from the sale of our preferred and
common stock, net proceeds from the exercise of stock options and to a lesser
extent, from a bank line and bridge note financing.

     As of December 31, 1999, we did not have any material commitments for
capital expenditures. Our principal commitments at December 31, 1999 consisted
of obligations under operating and capital leases, notes payable and guaranteed
payments under our strategic agreements. In January 2000, Janus, through its
managed mutual funds, purchased 15.0 million shares of our common stock for
$930.0 million in cash. Also in January 2000, affiliates of Fox Entertainment
purchased 2.0 million shares of our common stock for $100.0 million in cash in
connection with our News Corporation strategic alliance. We intend to use the
proceeds from these investments to pay the $400.0 million cash portion of our
acquisition of Envoy from Quintiles, to fund any additional advances to OnHealth
of up to $15.0 million pursuant to their line of credit, to provide working
capital and for general corporate purposes. For a more complete description of
the News Corporation strategic alliance and pending acquisition of OnHealth, see
the section entitled "Business -- Recent events."

     At December 31, 1999, we estimate that we will make the following aggregate
guaranteed payments under our current relationships with our strategic partners:

<TABLE>
<CAPTION>
Year Ended December 31,                                     Amount
-----------------------                                  -------------
<S>                                                      <C>
2000...................................................  $72.0 million
2001...................................................   75.1 million
2002...................................................   42.4 million
2003...................................................   34.4 million
2004...................................................    8.8 million
</TABLE>

     Most of our current strategic relationships contain revenue sharing
arrangements which generally provide for us to share advertising, sponsorship or
transaction net revenues, ranging from 15% to as much as 100%, with the
strategic partner. In addition, some strategic partner agreements and
promotional arrangements require payments on a per-subscriber basis. We may
enter into additional promotional arrangements with current and future strategic
partners that may require us to pay consideration in amounts that significantly
exceed the amounts we are required to pay under our current arrangements. These
guaranteed payments and promotional and other arrangements may require us to
incur significant expenses. We cannot guarantee that we will generate sufficient
revenues to offset these expenses.

     We may need to raise additional funds to support expansion, develop new or
enhanced applications and services, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities. However, with the completion of the merger with WebMD and the
investments by Janus and affiliates of New Corporation, we believe that we will
have sufficient cash resources to meet our presently anticipated working capital
and capital expenditure requirements for at least the next 12 months. In
addition, we expect to incur operating losses for at least the next 12 months.
We believe that our future liquidity and capital requirements will depend upon
numerous factors, including the success of our existing and new application and
service offerings and competing technological and market developments. We may be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements.

YEAR 2000 COMPLIANCE

     Our business is dependent on the operation of numerous systems that could
have potentially been impacted by Year 2000 related problems. Those systems
include, among others, hardware and software systems used by us to deliver
services to our customers, including our proprietary software systems as well as
hardware and software supplied by third parties, communications networks, such
as the Internet and private intranets, which we depend on to provide electronic
transactions to our customers, the internal

                                       33
<PAGE>   35

systems of our customers and suppliers, the hardware and software systems we use
internally in the management of our business, and non-information technology
systems and services we use in our business, such as telephone and building
systems.

     With the assistance of an independent consulting firm specializing in Year
2000 issues, we completed a formal assessment of our Year 2000 exposure and the
remediation of all our applications, internal IT systems, and non-IT systems in
the fourth quarter of 1999. An independent Year 2000 audit was performed with
the objective of achieving Year 2000 certification by an industry leading expert
group. As a result of these efforts, we did not experience any significant
problems related to Year 2000, and we do not expect any to arise in the future.
In addition, no further material expenditures related to the Year 2000 issue are
expected.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or 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. Because we currently
hold no derivative financial instruments and do not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
our financial condition or results of operations.

     On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101, or
SAB 101. SAB 101 summarizes specific areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We believe that our current revenue recognition principles comply
with SAB 101.

     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 revenues 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
do not believe that the adoption of EITF 99-17 will have a material impact on
our financial condition or results of operations.

     In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
website. 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. We are currently evaluating the adoption of EITF
00-2 and its potential impact on our financial condition or results of
operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATION

  We have incurred and will continue to incur substantial losses

     We began operations in January 1996 and have incurred net losses from
operations in each fiscal period since our inception. As of December 31, 1999,
we had accumulated losses of approximately $391.4 million. In addition, we
currently intend to invest heavily in pending acquisitions, infrastructure
development, applications development and sales and marketing in order to deploy
our services to a growing number of potential customers and strategic partners.
The purchase price of acquisitions we have recently completed will be, and the
purchase price of acquisitions which we may undertake in the future may be,
amortized over the useful life of the tangible and intangible assets. As of
December 31, 1999, we had approximately $3.2 billion of unamortized goodwill and
other intangible assets reflected on our financial statements as a result of
acquisitions. We currently anticipate that this amortization will cause us

                                       34
<PAGE>   36

to incur significant net losses for the next several years. We expect that we
will incur increasing net operating losses and negative cash flows for the
foreseeable future and may never be profitable.

 The business of providing services over the Internet is difficult to evaluate
 and our business model is unproven

     Because we recently began operations, it is difficult to evaluate our
businesses and prospects. Our revenue and income potential is unproven and our
business model is emerging. We derive a substantial portion of our revenue from
non-Internet network services, from development and consulting services and from
managing and operating our customers' information technology infrastructures. We
may never achieve favorable operating results or profitability.

  Our quarterly operating results may vary, which could affect the market price
of our common stock

     Our operating results have varied on a quarterly basis during our limited
operating history, and we expect to experience significant fluctuations in
future quarterly operating results. These fluctuations have been and may in the
future be caused by numerous factors, many of which are outside of our control,
including, but not limited to:

     - market acceptance of and demand for our products and services

     - our ability to attract and retain customers and subscribers

     - operating expenses relating to acquisitions and strategic partnerships

     - usage of the Internet and our ability to maintain and increase traffic on
       our web site

     - our ability to continue to develop and extend our brand

     - our ability to effectively integrate the operations and technologies of
       acquired businesses with our operations

     - introduction and timing of new products and services or enhancements by
       us or our competitors

     - capacity constraints and dependencies on computer infrastructure

     - economic conditions affecting the Internet or healthcare industries

     - general economic conditions

     Fluctuations in our quarterly results could adversely affect the market
price of our common stock in a manner unrelated to our long-term operating
performance. We expect to increase activities and spending in substantially all
operational areas and will base our expense levels in part upon our expectations
concerning future revenue, and these expense levels will be relatively fixed in
the short term. If we have lower revenue, we may not be able to reduce spending
in the short term in response. Any shortfall in revenue would have a direct
impact on our results of operations. As a result, we believe that
period-to-period comparisons of our results of operations will not necessarily
be meaningful and should not be relied upon as an indicator of future
performance. For these and other reasons, it is likely that in some future
quarter or quarters we may not meet the earnings estimates of securities
analysts or investors, which would materially and adversely affect our stock
price.

 Our business will suffer if we fail to successfully integrate any acquired
 businesses and technologies in the future

     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, MedE America and Medcast in November 1999 and
have entered into agreements in the first quarter of 2000 to acquire Envoy,
Medical Manager, CareInsite and OnHealth.

                                       35
<PAGE>   37

     We are in the process of completing the integration and consolidation of
the operations, products and services, technologies and personnel of WebMD, MedE
America and Medcast, and we will need to integrate and consolidate the
operations, products and services, technologies and personnel of Envoy, Medical
Manager, CareInsite and OnHealth upon our completion of these pending mergers.
We cannot guarantee that any acquired businesses will be successfully integrated
with our operations in a timely manner, or at all. The successful integration of
the acquired businesses into our operations is critical to our future
performance. Failure to successfully integrate acquired businesses or to achieve
operating synergies would have a material adverse effect on our business,
financial condition and results of operation. Integrating any newly acquired
organizations and technologies in the future could be expensive, time consuming
and may strain our resources. Our pending and any future acquisitions could
divert management's attention from other business concerns and expose us to
unforeseen liabilities or risks associated with entering new markets. In
addition, we may lose key employees while integrating these new companies. We
may also lose our current strategic partners and customers if any acquired
companies have relationships with competitors of our strategic partners or
customers.

     Challenges to the successful integration of acquired businesses include,
but are not limited to:

     - centralization and consolidation of financial, operational and
       administrative functions

     - integration of platforms, networks and service centers

     - cross-selling of products and services to our existing customer base and
       customer bases of acquired companies

     - integration and retention of personnel

     - potential conflicts in customer, strategic, sponsor or advertising
       relationships

     - need to coordinate geographically diverse organizations

     - compliance with regulatory requirements

Consequently, we may not be successful in integrating acquired businesses or
technologies and may not achieve anticipated revenue and cost benefits. We also
cannot guarantee that these acquisitions will result in sufficient revenues or
earnings to justify our investment in, or expenses related to, these
acquisitions or that any synergies will develop. The healthcare technology
industry is consolidating and we expect that we will face intensified
competition for acquisitions. If we fail to execute our acquisition strategy
successfully for any reason, our business will suffer significantly.

  Managing our growth through acquisitions may strain our administrative,
  technical and financial resources

     We have rapidly and significantly expanded our operations recently and
expect to continue to do so. Our growth has been accomplished primarily through
acquisitions, including our mergers with WebMD, MedE America and Medcast. This
growth has placed a significant strain on our managerial, operational, financial
and other resources and is expected to continue to strain our resources. If we
are unable to respond to and manage this expected growth, then the quality of
our services and our results of operations could be materially adversely
affected.

     Our current platforms, information systems, procedures and controls may not
continue to support our operations, and may hinder our ability to exploit the
market for healthcare applications and services. We are in the process of
evaluating and implementing our accounting and management information systems.
We could experience interruptions to our business while we transition to new
systems. We cannot guarantee that our systems, procedures and controls will be
adequate to support expansion of our operations.

                                       36
<PAGE>   38

  Our business could suffer if we fail to complete our pending acquisitions

     In the first quarter of 2000, we entered into merger agreements providing
for our acquisition of Envoy, Medical Manager, CareInsite and OnHealth. The
completion of each is subject to regulatory approval, including approval from
state and federal antitrust agencies, and other customary closing conditions.
The Medical Manager and CareInsite mergers are subject to the approval of our
stockholders, Medical Manager's stockholders and CareInsite's stockholders and
the OnHealth merger is subject to approval by OnHealth's stockholders. In
addition, the closing of the Medical Manager and CareInsite mergers are
conditioned on each other. We cannot guarantee that regulatory approvals will be
received, or that we will not be required to make changes in our business in
order to receive regulatory approvals, or that other closing conditions of any
of our pending mergers will be satisfied in a timely manner, or at all. Failure
to complete these mergers in a timely manner would have a material effect on our
business, results of operations and stock price.

  Future stock issuances will dilute our stockholders and could result in
adverse accounting consequences

     We intend to pay for some of our acquisitions and branding and advertising
services by issuing additional common stock which would dilute our stockholders.
We may also use cash to acquire companies or technologies and may need to incur
debt to pay for these acquisitions. Acquisition financing may not be available
on favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would materially increase our operating expenses.

 Our ability to generate revenues will suffer if we do not quickly expand our
 suite of applications and service offerings

     We currently offer a limited number of applications on our Internet-based
platform and some of our service offerings are not fully developed or launched.
We must quickly introduce new applications and services, improve the
functionality of our existing services and successfully launch these services in
a timely manner in order to attract and retain subscribers. We expect that our
advertising and sponsorship revenues will be dependent on the level of usage of
our services by subscribers and consumers, and believe that levels of usage will
not increase unless we improve functionality. 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 existing
customer legacy computer systems and our platform. We are currently in the
process of migrating many of our acquired applications and products and services
to our Internet-based platform. 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.

  We will be dependent on strategic relationships to generate some of our
revenue

     Our ability to generate revenues will suffer if we cannot establish and
maintain strategic relationships. We must establish and maintain strategic
relationships with leaders in a number of healthcare and Internet industry
segments. For a more complete description of our strategic relationships, see
the section entitled "Business -- Strategic relationships," and for a
description of our revenues resulting from these relationships, see the section
entitled "Factors that may affect future results of operations -- Our revenues
will be concentrated in a few customers and our ability to generate revenue
would suffer if we lost any of these customers." Our strategic relationships are
critical to our success because we believe that these relationships will provide
additional subscribers and consumers to our web site and will generate
acceptance of our platform, applications and services. We may not be able to
establish commercial acceptance of our platform, applications and services
unless we maintain our existing strategic relationships and establish and
maintain additional strategic relationships in the future.

                                       37
<PAGE>   39

     We may compete with potential strategic partners.  Some of our current and
future strategic partners may compete with us and some strategic relationships
or acquisitions may put us in competition with existing strategic partners or
customers. For example, Medical Manager, which we have agreed to acquire,
competes with some of our strategic partners, including Medic. In addition, we
may not be able to maintain or establish relationships with key participants in
the healthcare and Internet industries if we have already established
relationships with competitors of these key participants.

     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 exclusive online pharmacy and medical supplies and equipment
e-commerce partners and 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 our customers. Our inability to offer
such applications and content could cause our business to suffer.

 Our revenues will be concentrated in a few customers, and our ability to
 generate revenue would suffer if we lost any of these customers

     Currently, we receive a significant amount of our revenue from three
customers. SmithKline Labs, which was recently acquired by Quest Diagnostics,
Beech Street and UnitedHealth Group, each accounted for more than 10% of our
revenue for the year ended December 31, 1999, and together accounted for
approximately 57.9% of our revenue for the same period. We expect that these
three customers, together with Microsoft, will account for a significant amount
of our revenue for 2000. Microsoft will have the right to terminate its
strategic alliance with us if we acquire Medical Manager and CareInsite and
within 60 days thereafter we cannot resolve with Microsoft any conflicts that
may be created by our ownership of those companies. For details regarding our
relationship with Microsoft, see the section entitled "Business -- Strategic
relationships -- Microsoft." If we do not generate as much revenue from these
customers as we expect, or if we lose any of these customers, our revenue will
be significantly reduced which would harm our business and results of
operations.

  Our ability to generate revenues will suffer if we cannot attract and retain
subscribers

     We must attract and retain subscribers to WebMD Practice in order to
generate subscription revenues. In addition, our ability to generate advertising
and sponsorship revenues and transaction revenues will be dependent on the
number of subscribers and level of usage by those subscribers. We cannot
guarantee that we will be able to attract new or retain existing subscribers. In
particular, we cannot guarantee that we will retain subscribers whose
subscriptions are initially paid for by our strategic partners once those
subscribers are required to pay for their subscriptions themselves or that these
subscribers will actually use our services.

  Our business will suffer if healthcare participants do not accept Internet
solutions

     Our business model depends on the adoption of Internet solutions by
healthcare participants. Our ability to generate revenues could suffer
dramatically if Internet solutions are not accepted or not perceived to be
effective.

     The Internet infrastructure may be unable to support the demands placed on
it by continued growth and use of the Internet. The adoption of Internet
solutions by healthcare participants will require the acceptance of a new way of
conducting business and exchanging information. To maximize the benefits of our
platform, healthcare participants must be willing to allow sensitive information
to be stored in our databases and to conduct healthcare transactions over the
Internet.

  Performance problems with our systems could damage our business

     Our customer satisfaction and our business could be harmed if we or our
customers experience system delays, failures or loss of data. We currently
process substantially all our customer transactions and data at our facilities.
Although we have a contingency plan for emergencies, we have limited backup
facilities to
                                       38
<PAGE>   40

process information if these facilities are not functioning. The occurrence of a
major catastrophic event or other system failure at any of our facilities could
interrupt data processing or result in the loss of stored data. While we have
general liability insurance that we believe is adequate, including coverage for
errors and omissions, we may not be able to maintain this insurance on
reasonable terms in the future. In addition, our insurance may not be sufficient
to cover large claims and our insurer could deny coverage on claims. If we are
liable for an uninsured or underinsured claim or if our premiums increase
significantly, our financial condition could be materially harmed.

  Performance problems with the systems of our service and content providers
  could harm our business

     We depend on service and content providers to provide information and data
feeds on a timely basis. Our web sites could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. In addition, our customers depend on Internet
service providers, online service providers and other web site operators for
access to our web sites. 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 customers, strategic partners, advertisers or
sponsors and, if sustained or repeated, could reduce the attractiveness of our
services.

 If our systems experience security breaches or are otherwise perceived to be
 insecure, our reputation will suffer

     A material security breach could damage our reputation or result in
liability. We retain confidential customer and patient information in our
processing centers. We may be required to spend significant capital and other
resources to protect against security breaches or to alleviate problems caused
by breaches. Any well-publicized compromise of Internet security could deter
people from using the Internet or from conducting transactions that involve
transmitting confidential information, including confidential healthcare
information. Therefore, it is critical that these facilities and infrastructure
remain secure and are perceived by the marketplace to be secure. 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.

 Our business will be harmed if we are unsuccessful in responding to rapid
 technology changes in our markets

     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.

  Our platform infrastructure and scalability are not proven and we may fail to
respond to new growth

     To date, we have processed a limited number and variety of transactions
over our platforms. Similarly, a limited number of healthcare participants use
these 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 customer requirements. This expansion and adaptation will be
expensive and will divert our attention from other activities.

 If we are unable to generate significant advertising revenues, our future
 results of operations will be materially adversely affected

     We derive a portion of our revenues from advertising on our web sites. We
may not be able to continue to generate significant advertising revenues. No
standards have been widely accepted to measure

                                       39
<PAGE>   41

the effectiveness of web advertising. If no standards develop, existing
advertisers may not continue their current level of web advertising, and
advertisers that have traditionally relied on other advertising media may be
reluctant to advertise on the web. Advertisers that already have invested
substantial resources in other advertising methods may be reluctant to adopt a
new strategy. Our business would be adversely affected if the market for web
advertising fails to develop or develops more slowly than expected. Different
pricing models are used to sell advertising on the web. It is difficult to
predict which, if any, will emerge as the industry standard. This makes it
difficult to project future advertising revenues. The level of subscriber and
consumer usage for our services is likely to be a factor in determining
advertising rates, and we cannot predict whether those subscribers whose
subscriptions are paid for by our strategic partners will actually use our
services. 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 web
advertising.

 We plan to generate a portion of our revenue from healthcare transactions on
 our web site, and our future revenues will be materially adversely affected if
 we do not significantly increase the number of transactions that occur on our
 web site

     We cannot guarantee that we will be able to generate significant
transaction revenues in the future. We have developed relationships with service
providers to offer healthcare products and services through direct links from
our web site to their web sites. However, there is no established business model
for the sale of healthcare products or services over the Internet. Accordingly,
we have no significant experience in the sale of products or services online and
the development of relationships with providers of such products and services,
nor can we predict the rate at which our customers will elect to engage in this
form of commerce or the compensation that we will receive for enabling these
transactions.

 Lengthy sales and implementation cycles for our solutions could adversely
 affect our revenue growth

     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 our customers' buying decisions. We expect that the sales and
implementation process 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
customers' internal budgets and procedures for approving large capital
expenditures and deploying new technologies within their networks.

     We will need to expend substantial resources to integrate our applications
with the existing legacy and client-server architectures of large healthcare
organizations. We have limited experience in integrating our applications with
large, complex architectures, and we may experience delays in the integration
process. These delays would, in turn, delay our ability to generate revenue from
these applications and could adversely affect our results of operations.

  We will face significant competition

     The market for healthcare information 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 have. These organizations may be better known and
have more customers than we have. 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.
Some of our large customers may also compete with us. For more information about
our competitors, see the section entitled "Business -- Competition."

 Our business could be adversely affected as a result of political, regulatory,
 economic or other changes in the healthcare industry

     The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare

                                       40
<PAGE>   42

organizations. 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. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry participants operate. Healthcare industry participants may respond by
reducing their investments or postponing investment decisions, including
investments in our applications and services. We do not know what effect any
proposals would have on our business.

  Government regulation could adversely affect our business

     Our business is and will continue to be subject to government regulation.
Existing and new laws and regulations could adversely affect our business. Laws
and regulations may be adopted with respect to the Internet or other online
services covering issues such as:

     - user privacy and patient confidentiality

     - pricing

     - content

     - copyrights and patents

     - distribution

     - characteristic and quality of products and services

     We cannot predict whether these laws will be adopted and how they will
affect our business. For more information regarding government regulation to
which we are or may be subject, see the section entitled "Business -- Government
regulation and legal uncertainties."

 Complying with antitrust regulations may delay completion of our pending
 acquisitions

     The FTC, Department of Justice or other federal or state regulatory
agencies charged with enforcement of the antitrust laws may review our future
acquisitions or business activities. We believe that our business activities,
contractual relationships and pending acquisitions comply with all applicable
antitrust laws.

     In the course of reviewing our pending acquisitions and strategic
relationships, it is possible that governmental agencies may seek to require us
to modify our pending acquisitions or business activities. If governmental
agencies seek modifications, it could delay our completion of these
transactions. If the governmental agencies were successful in requiring
modifications, it could have an adverse effect on our operations.

 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 sites or through content and information that may
be posted by users in chat rooms or bulletin boards. 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.

                                       41
<PAGE>   43

 Our intellectual property may be subjected 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 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.

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

     Our future operating results will 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 experienced
professionals capable of developing, selling and installing complex healthcare
information systems. We face intense competition for these people. Our executive
management team, including Jeffrey T. Arnold, our Chief Executive Officer, and
W. Michael Long, our Chairman and Chief Operating Officer, are critical to our
success.

  Our business could be adversely affected as a result of our international
expansion

     One element of our strategic alliance with News Corporation is the
formation of WebMD International as a joint venture with News Corporation to
launch our services worldwide, other than in the U.S. and Japan. In addition, we
have entered into an agreement with one of our strategic partners to form an
international joint venture in Japan. We have extremely limited experience in
developing localized versions of our products and services. WebMD International
and any future international ventures may not be successful in launching our
services into foreign markets.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

INTEREST RATE SENSITIVITY

     The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we have
invested in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk, we maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, other
non-government debt securities and money market funds. In general, money market
funds are not subject to market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. In addition, we invest in
relatively short-term securities. As of December 31, 1999, all of our
investments mature in less than three months. See note 1 of notes to
consolidated financial statements.

     The following table presents the amounts of our cash equivalents and
short-term investments that are subject to market risk by range of expected
maturity and weighted-average interest rates as of

                                       42
<PAGE>   44

December 31, 1999. This table does not include money market funds because those
funds are not subject to market risk.

<TABLE>
<CAPTION>
                                                    MATURING IN THREE
                                                     MONTHS OR LESS      FAIR VALUE
                                                    -----------------    ----------
                                                        (Dollars in thousands)
<S>                                                 <C>                  <C>
Included in cash and cash equivalents.............      $  4,773          $  4,773
  Weighted-average interest rates.................          6.06%
Included in short-term investments................      $  5,667          $  5,667
  Weighted-average interest rates.................          5.90%
</TABLE>

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 conducted only limited transactions in foreign
currencies during 1999, and we do not anticipate that foreign exchange gains or
losses will be significant in the forseeable 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 AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND FINANCIAL
DISCLOSURES

     None.

                                       43
<PAGE>   45

                                    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.  RELATED PARTY 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.

                                       44
<PAGE>   46

                                    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, 1999 and 1998

          - Consolidated Statements of Operations for the Years Ended December
            31, 1999, 1998 and 1997

          - Consolidated Statements of Stockholders' Equity (Net Capital
            Deficiency) for the Years Ended December 31, 1999, 1998 and 1997

          - Consolidated Statements of Cash Flows for the Years Ended December
            31, 1999, 1998 and 1997

          - 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

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
  2.1(a)      Agreement and Plan of Merger dated as of February 13, 2000,
              between Registrant and Medical Manager Corporation
  2.2(a)      Agreement and Plan of Merger dated as of February 13, 2000,
              among Registrant, Avicenna Systems Corporation and
              CareInsite, Inc.
  2.3(b)      Agreement and Plan of Reorganization dated as of May 20,
              1999, as amended, by and among Registrant, WebMD, Inc.,
              Water Acquisition Corp.
  2.4(b)      Agreement and Plan of Reorganization dated as of April 20,
              1999, as amended, by and among Registrant, Merc Acquisition
              Corp. and MedE America Corporation
  2.5(b)      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.
  2.6(c)      Agreement and Plan of Reorganization, dated as of February
              24, 1998, by Registrant, MedNet Acquisition Corp. and
              ActaMed Corporation
  2.7(c)      Agreement and Plan of Merger, dated as of March 1, 1996, by
              and among Act Corporation, EDI Acquisition, Inc., UHC Green
              Acquisition, Inc. and United HealthCare Corporation,
              including amendment
  2.8(c)      Asset Purchase Agreement, dated June 25, 1998, among
              Registrant, Metis Acquisition Corp. and Metis, LLC
  2.9(d)      Purchase Agreement dated as of December 20, 1999, by and
              among Electronic Data Systems Corporation, Eli Lilly and
              Company, Integrated Medical Systems, Inc., Kinetra LLC and
              Registrant
  2.10(e)     Agreement and Plan of Merger dated as of January 22, 2000,
              among Registrant, Envoy Corporation, Quintiles Transnational
              Corporation and QFinance, Inc.
  2.11(f)     Agreement and Plan of Merger dated as of February 15, 2000,
              among Registrant, Tech Acquisition Corporation and OnHealth
              Network Company
</TABLE>

                                       45
<PAGE>   47

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
  3.1(g)      Amended and Restated Certificate of Incorporation of
              Registrant, as currently in effect
  3.2(h)      Bylaws of Registrant, as currently in effect
  4.1(c)      Specimen Common Stock certificate
 10.1(c)      Form of Indemnification Agreement to be entered into by
              Registrant with each of its directors and officers
 10.2(c)      Healtheon Corporation 1996 Stock Plan and form of Stock
              Option Agreement
 10.3(c)      ActaMed Corp. 1997 Stock Option Plan
 10.4(c)      ActaMed Corp. 1996 Stock Option Plan
 10.5(c)      ActaMed Corp. 1995 Stock Option Plan
 10.6(c)      ActaMed Corp. 1994 Stock Option Plan
 10.7(c)      ActaMed Corp. 1993 Class B Common Stock Option Plan
 10.8(c)      ActaMed Corp. 1992 Stock Option Plan
 10.9(c)      ActaMed Corp. 1996 Director Stock Option Plan, as amended
 10.10(c)     Amended and Restated Investors' Rights Agreement dated as of
              January 28, 1998 among Healtheon Corporation and certain of
              Registrant's security holders
 10.11(c)     Lease Agreement, dated December 2, 1997, between Larvan
              Properties and Registrant, including addenda
 10.12*(c)    Services Agreement, dated as of December 31, 1997, as
              amended, between ActaMed Corporation and SmithKline Beecham
              Clinical Laboratories, Inc.
 10.13*(c)    Assets Purchase Agreement, dated as of December 31, 1997, as
              amended, between ActaMed Corporation and SmithKline Beecham
              Clinical Laboratories, Inc.
 10.14*(c)    License Agreement, dated as of December 31, 1997, between
              ActaMed Corporation and SmithKline Beecham Clinical
              Laboratories, Inc.
 10.15*(c)    Development Agreement, dated as of October 31, 1997, between
              ActaMed Corporation and SmithKline Beecham Clinical
              Laboratories, Inc.
 10.16(c)     Amended and Restated Securities Purchase Agreement dated as
              of August 15, 1996, between Registrant and investors
 10.17(c)     Amended and Restated Series B Preferred Stock Purchase
              Agreement dated October 31, 1996, between Registrant and
              investors
 10.18(c)     Form of Series B Preferred Stock Purchase Warrant between
              Registrant and certain of Registrant's investors
 10.19(c)     Series C Preferred Stock Purchase Agreement dated July 25,
              1997, between Registrant and investors
 10.20(c)     Series D Preferred Stock Purchase Agreement dated October
              13, 1997, between Registrant and investors
 10.21(c)     Full Recourse Promissory Note dated as of July 11, 1997,
              between Registrant and W. Michael Long
 10.22(c)     W. Michael Long Employment Agreement
 10.23(c)     Healtheon 1998 Employee Stock Purchase Plan
 10.24(c)     Series A Preferred Stock Purchase Agreement, dated as of
              October 31, 1998, between Registrant and investors
 10.25*(i)    Asset Purchase Agreement, dated December 31, 1998, between
              Registrant and SmithKline Beecham Clinical Laboratories,
              Inc.
 10.26*(i)    Services Agreement dated January 19, 1999, between
              Registrant and SmithKline Beecham Clinical Laboratories,
              Inc.
 10.27*(j)    Distribution and Cross Promotion Agreement dated May 6, 1999
              between Microsoft Corporation, WebTV Networks, Inc., MSNBC
              Interactive News, L.L.C. and WebMD, Inc.
 10.28*(j)    Agreement, dated May 19, 1999, between Registrant, WebMD,
              Inc. and Microsoft Corporation
 10.29        Letter Agreement dated March 27, 2000 between Registrant and
              Microsoft Corporation
</TABLE>

                                       46
<PAGE>   48

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
 10.30(j)     Agreement dated September 1, 1999, between Registrant,
              WebMD, Inc., Healtheon/ WebMD, Inc., McKesson HBOC, Inc.,
              HBO & Company, Access Health, Inc. and National Health
              Enhancements Systems, Inc.
 10.31(k)     Investment Agreement dated May 12, 1999, between WebMD,
              Inc., Microsoft Corporation and each of the other persons
              listed on Schedule I thereto
 10.32(k)     Services Agreement dated January 27, 1999 between WebMD,
              Inc. and Gleacher NatWest, Inc., currently known as Gleacher
              & Co., LLC
 10.33(l)     Master Strategic Alliance Agreement dated December 6, 1999
              among Registrant, The News Corporation Limited and Fox
              Entertainment Group, Inc.
 10.34*       Master Services, Development and License Agreement dated
              November 12, 1999 between Registrant and Beech Street
              Corporation
 10.35*       Services and License Agreement dated as of October 24, 1999
              between Registrant and United HealthCare Services, Inc.
 10.36        Letter Agreement dated January 28, 1999 between WebMD, Inc.
              and E.I. du Pont de Nemours & Company
 10.37*       Collaboration Agreement dated March 30, 1999 between WebMD,
              Inc. and E.I. du Pont de Nemours & Company
 10.38        Letter Agreement dated March 30, 1999 between WebMD, Inc.
              and E.I. du Pont de Nemours & Company
 10.39        Warrant to purchase shares of Series D Common Stock of
              WebMD, Inc. dated March 30, 1999 issued to E. I. du Pont de
              Nemours & Company
 10.40*       Second Amendment to Collaboration Agreement dated as of May
              28, 1999 between WebMD, Inc. and E. I. du Pont de Nemours &
              Company
 10.41        Employment Agreement dated as of September 30, 1998 between
              WebMD, Inc. and Jeffrey T. Arnold
 10.42        Letter Agreement dated May 20, 1999 between Registrant and
              Jeffrey T. Arnold
 10.43        Warrant to purchase shares of common stock of Registrant
              dated March 9, 2000 issued to Gleacher & Co. LLC
 10.44        Warrant to purchase shares of common stock of Registrant
              dated March 9, 2000 issued to Eric J. Gleacher
 10.45        Sublease Agreement between Premiere Technologies, Inc. and
              WebMD, Inc. dated December 15, 1997
 10.46(m)     WebMD, Inc. 1997 Amended and Restated Stock Incentive Plan,
              as amended
 10.47(m)     Director Stock Option Plan of WebMD, Inc.
 10.48(m)     Direct Medical Knowledge, Inc. 1997 Stock Option/Stock
              Issuance Plan
 10.49(m)     Sapient Health Network, Inc. 1996 Stock Incentive Plan
 10.50(m)     Greenberg News Networks, Inc. 1997 Stock Option Plan
 10.51(m)     MedE America Corporation and its Subsidiaries Stock Option
              and Restricted Stock Purchase Plan
 10.52(m)     MedE America Corporation and its Subsidiaries 1998 Stock
              Option and Restricted Stock Purchase Plan
 21           Subsidiaries of Registrant
 23           Consent of Ernst & Young LLP, Independent Auditors
 24           Power of Attorney (see page 49)
 27           Financial Data Schedule (for SEC use only)
</TABLE>

---------------
   * Confidential treatment was received, or is requested, with respect to
     certain portions of this document. Such portions were omitted and filed
     separately with the Securities and Exchange Commission.

 (a) Incorporated by reference to Registrant's Report on Form 8-K/A filed
     February 24, 2000

 (b) Incorporated by reference to Registrant's Registration Statement on Form
     S-4 filed October 19, 1999

 (c) Incorporated by reference to Registrant's Registration Statement on Form
     S-1 filed January 14, 1999

                                       47
<PAGE>   49

 (d) Incorporated by reference to Registrant's Report on Form 8-K filed February
     10, 2000

 (e) Incorporated by reference to Registrant's Report on Form 8-K filed January
     27, 2000

 (f) Incorporated by reference to Registrant's Report on Form 8-K/A filed
     February 22, 2000

 (g) Incorporated by reference to Registrant's Report on Form 8-K filed February
     8, 2000

 (h) Incorporated by reference to Registrant's Report on Form 8-K filed November
     29, 1999

 (i) Incorporated by reference to Registrant's Amendment No. 1 to its
     Registration Statement on Form S-1 filed February 4, 1999

 (j) Incorporated by reference to Registrant's Registration Statement on Form
     S-4 filed September 7, 1999

 (k) Incorporated by reference to Registrant's Registration Statement on Form
     S-4 filed September 30, 1999

 (l) Incorporated by reference to Registrant's Report on Form 8-K filed December
     10, 1999

 (m) Incorporated by reference to Registrant's Registration Statement on
     Form S-8 filed November 12, 1999

     (B) REPORTS ON FORM 8-K

     During the last quarter of the fiscal year ending December 31, 1999,
Registrant filed the following reports on Form 8-K:

     - Report on Form 8-K filed on November 29, 1999, pursuant to which the
       Registrant reported the completion of its merger with WebMD, Inc. and
       its acquisitions of MedE America Corporation and Greenberg News
       Networks, Inc.

     - Report on Form 8-K filed on December 10, 1996, pursuant to which the
       Registrant reported the execution of a Master Strategic Alliance
       Agreement with The News Corporation Limited and Fox Entertainment Group,
       Inc.

                                       48
<PAGE>   50

                                   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, 2000.

                                          HEALTHEON/WEBMD CORPORATION

                                          By:     /s/ Jeffrey T. Arnold
                                             -----------------------------------
                                               Jeffrey T. Arnold
                                               Chief Executive Officer and
                                               Director

                               POWER OF ATTORNEY

     KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, John L. Westermann
III and Jack Dennison, 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 Exchanges 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/ Jeffrey T. Arnold               Chief Executive Officer and Director    March 30, 2000
------------------------------------  (principal executive officer)
Jeffrey T. Arnold

  /s/ John L. Westermann III          Executive Vice President, Chief         March 30, 2000
------------------------------------  Financial Officer, Treasurer and
John L. Westermann III                Secretary (principal financial
                                      officer)

  /s/ James H. Clark                  Director                                March 30, 2000
------------------------------------
James H. Clark

  /s/ L. John Doerr                   Director                                March 30, 2000
------------------------------------
L. John Doerr

  /s/ U. Bertram Ellis, Jr.           Director                                March 30, 2000
------------------------------------
U. Bertram Ellis, Jr.

  /s/ Eric J. Gleacher                Director                                March 30, 2000
------------------------------------
Eric J. Gleacher

  /s/ W. Michael Long                 Director                                March 30, 2000
------------------------------------
W. Michael Long

  /s/ William P. Payne                Director                                March 30, 2000
------------------------------------
William P. Payne
</TABLE>

                                       49
<PAGE>   51

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Healtheon/WebMD Corporation

     We have audited the accompanying consolidated balance sheets of
Healtheon/WebMD Corporation (formerly Healtheon Corporation) as of December 31,
1999 and 1998, 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, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with 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 Healtheon/WebMD
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

                                          /s/ Ernst & Young LLP

Atlanta, Georgia
February 29, 2000

                                       50
<PAGE>   52

                          HEALTHEON/WEBMD CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1999         1998
                                                              ----------    ---------
<S>                                                           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  285,619    $  19,389
  Short-term investments....................................       5,667       17,428
  Accounts receivable, net of allowance for doubtful
     accounts of $2,681 in 1999 and $152 in 1998............      39,977        4,594
  Accounts receivable from related parties..................      11,534        3,360
  Current portion prepaid content and services -- related
     parties................................................       3,881           --
  Current portion prepaid content and services..............       1,555           --
  Other current assets......................................      15,372          706
                                                              ----------    ---------
          Total current assets..............................     363,605       45,477
Property and equipment, net.................................      48,384       12,285
Prepaid content and services -- related parties.............     171,715           --
Prepaid content and services................................     101,323           --
Goodwill, net...............................................   3,230,412        4,147
Intangible assets, net......................................     317,147       15,721
Other assets................................................       9,876        2,310
                                                              ----------    ---------
                                                              $4,242,462    $  79,940
                                                              ==========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable.............................................  $       --    $   1,213
  Accounts payable..........................................      77,288        5,178
  Accrued merger costs......................................       8,246           --
  Accrued compensation......................................      10,994        2,424
  Other accrued liabilities.................................      43,601        4,559
  Deferred revenue..........................................       4,891        1,874
  Current portion of capital lease obligations..............       2,281        2,295
                                                              ----------    ---------
          Total current liabilities.........................     147,301       17,543
Deferred tax liability......................................     118,794           --
Other long-term liabilities.................................       2,695        2,984
Commitments
Stockholders' equity:
  Convertible preferred stock, $.0001 par value, issuable in
     series; 1999: 5,000,000 authorized, no shares issued or
     outstanding; 1998: 8,285,007 shares authorized,
     7,683,341, shares issued and outstanding; at amounts
     paid in (aggregate liquidation preference $46,101 at
     December 31, 1998).....................................          --       46,101
  Common stock, $.0001 par value; 1999: 600,000,000 shares
     authorized; 153,569,296 shares issued and outstanding;
     1998: 150,000,000 shares authorized; 54,463,097 shares
     issued and outstanding.................................          16            5
  Additional paid-in capital................................   4,370,165      123,670
  Deferred stock compensation...............................      (5,089)      (6,935)
  Accumulated deficit.......................................    (391,420)    (103,428)
                                                              ----------    ---------
                                                               3,973,672       59,413
                                                              ----------    ---------
                                                              $4,242,462    $  79,940
                                                              ==========    =========
</TABLE>

                            See accompanying notes.

                                       51
<PAGE>   53

                          HEALTHEON/WEBMD CORPORATION

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

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                        --------------------------------------
                                                           1999          1998          1997
                                                        ----------    ----------    ----------
<S>                                                     <C>           <C>           <C>
Revenue:
  Service revenue.....................................  $   57,421    $   27,102    $    4,301
  Service revenue from related parties................      37,210        20,956         7,309
  Software licenses...................................       7,518           780         1,780
                                                        ----------    ----------    ----------
  Total revenue.......................................     102,149        48,838        13,390
Operating costs and expenses:
  Cost of operations:
     Cost of operations...............................      58,267        26,907         3,910
     Cost of operations from related parties..........      30,309        16,107         6,536
                                                        ----------    ----------    ----------
  Total cost of operations............................      88,576        43,014        10,446
  Development and engineering.........................      29,669        19,002        12,267
  Sales and marketing.................................      54,556         9,249         6,088
  General and administrative..........................      27,759        15,466         4,008
  Depreciation and amortization.......................     193,067        16,055         6,004
                                                        ----------    ----------    ----------
  Total operating costs and expenses..................     393,627       102,786        38,813
                                                        ----------    ----------    ----------
Loss from operations..................................    (291,478)      (53,948)      (25,423)
  Interest income.....................................       4,013         1,262           611
  Interest expense....................................        (527)         (472)         (323)
  Other...............................................          --          (890)       (2,870)
                                                        ----------    ----------    ----------
Net loss..............................................  $ (287,992)   $  (54,048)   $  (28,005)
                                                        ==========    ==========    ==========
Basic and diluted net loss per common share...........  $    (3.58)   $    (1.54)   $    (3.88)
                                                        ==========    ==========    ==========
Weighted-average shares outstanding used in computing
  basic and diluted net loss per common share.........  80,366,695    34,986,660     7,223,158
                                                        ==========    ==========    ==========
</TABLE>

                            See accompanying notes.
                                       52
<PAGE>   54

                          HEALTHEON/WEBMD CORPORATION

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                          CONVERTIBLE
                                          REDEEMABLE              CONVERTIBLE
                                        PREFERRED STOCK         PREFERRED STOCK          COMMON STOCK       ADDITIONAL
                                     ---------------------   ---------------------   --------------------     PAID-IN
                                       SHARES      AMOUNT      SHARES      AMOUNT      SHARES      AMOUNT     CAPITAL
                                     -----------   -------   -----------   -------   -----------   ------   -----------
<S>                                  <C>           <C>       <C>           <C>       <C>           <C>      <C>
Balance at December 31, 1996.......   14,170,947   $39,578    13,285,000   $11,607     8,652,422    $ 1     $     1,523
Net loss and comprehensive loss....           --        --            --        --            --     --              --
Issuance of common stock for
 options and restricted stock
 exercises by employees............           --        --            --        --     1,397,844     --             297
Repurchase of employee common
 stock.............................           --        --            --        --      (613,542)    --             (31)
Issuance of Series A and Series B
 convertible preferred stock for
 services..........................           --        --        45,000        55            --     --              --
Issuance of Series B convertible
 preferred stock for cash..........           --        --        15,000        30            --     --              --
Issuance of Series B convertible
 preferred to officer for note
 receivable........................           --        --       250,000       500            --     --              --
Issuance of Series B stock warrants
 in connection with bridge
 financing.........................           --        --            --        64            --     --              --
Issuance of Series C convertible
 preferred stock for cash and
 conversion of bridge note.........           --        --     2,600,000     6,500            --     --              --
Issuance of Series D convertible
 preferred stock for cash..........           --        --     4,807,692    25,000            --     --              --
Issuance of Series D convertible
 redeemable preferred stock for
 asset purchase....................    2,317,913     8,500            --        --            --     --              --
Repayment of note receivable from
 officer...........................           --        --            --        --            --     --              --
Dividends accrued on convertible
 redeemable preferred stock........           --     2,870            --        --            --     --              --
Deferred stock compensation........           --        --            --        --            --     --           2,713
Amortization of deferred stock
 compensation......................           --        --            --        --            --     --              --
                                     -----------   -------   -----------   -------   -----------    ---     -----------
Balance at December 31, 1997.......   16,488,860    50,948    21,002,692    43,756     9,436,724      1           4,502
Net loss and comprehensive loss....           --        --            --        --            --     --              --
Issuance of common stock for
 options and restricted stock
 exercises by employees............           --        --            --        --     3,532,731     --           5,849
Repurchase of employee common
 stock.............................           --        --            --        --      (714,896)    --          (2,176)
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          94,115
Issuance of Series A convertible
 preferred stock...................           --        --     7,683,341    46,101            --     --              --
Issuance of common stock for asset
 purchases.........................           --        --            --        --     2,936,209     --          13,220
Repayment of note receivable from
 officer...........................           --        --            --        --            --     --              --
Deferred stock compensation........           --        --            --        --            --     --           8,160
Amortization of deferred stock
 compensation......................           --        --            --        --            --     --              --
                                     -----------   -------   -----------   -------   -----------    ---     -----------
Balance at December 31, 1998.......           --        --     7,683,341    46,101    54,463,097      5         123,670
Net loss and comprehensive loss....           --        --            --        --            --     --              --
Issuance of common stock for
 options exercises by employees....           --        --            --        --     5,501,438      1          14,884
Repurchase of employee common
 stock.............................           --        --            --        --      (147,201)    --            (608)
Issuance of common stock under
 employee stock purchase plan......           --        --            --        --       635,201     --           4,319
Issuance of common stock for
 warrant exercise..................           --        --            --        --       976,489     --           2,716
Issuance of common stock in
 connection with initial public
 offering, net of issuance costs of
 $4,602............................           --        --            --        --     5,750,000      1          41,398
Conversion of preferred stock to
 common stock in connection with
 initial public offering...........           --        --    (7,683,341)  (46,101)    7,683,341      1          46,100
Issuance of common stock for
 services..........................           --        --            --        --         8,020     --              48
Issuance of common stock for asset
 purchase..........................           --        --            --        --     1,833,333     --          11,000
Issuance of common stock and
 assumption of options and warrants
 in connection with the 1999
 Mergers...........................           --        --            --        --    76,865,578      8       4,120,851
Deferred stock compensation........           --        --            --        --            --     --           6,261
Adjustment to deferred stock
 compensation for terminations.....           --        --            --        --            --     --            (474)
Amortization of deferred stock
 compensation......................           --        --            --        --            --     --              --
                                     -----------   -------   -----------   -------   -----------    ---     -----------
Balances at December 31, 1999......           --   $    --            --   $    --   153,569,296    $16     $ 4,370,165
                                     ===========   =======   ===========   =======   ===========    ===     ===========

<CAPTION>
                                                                                   TOTAL
                                        NOTE                                   STOCKHOLDERS'
                                     RECEIVABLE     DEFERRED                      EQUITY
                                        FROM         STOCK       ACCUMULATED   (NET CAPITAL
                                      OFFICER     COMPENSATION     DEFICIT      DEFICIENCY)
                                     ----------   ------------   -----------   -------------
<S>                                  <C>          <C>            <C>           <C>
Balance at December 31, 1996.......    $   --       $    --       $ (27,684)    $  (14,553)
Net loss and comprehensive loss....        --            --         (28,005)       (28,005)
Issuance of common stock for
 options and restricted stock
 exercises by employees............        --            --              --            297
Repurchase of employee common
 stock.............................        --            --              --            (31)
Issuance of Series A and Series B
 convertible preferred stock for
 services..........................        --            --              --             55
Issuance of Series B convertible
 preferred stock for cash..........        --            --              --             30
Issuance of Series B convertible
 preferred to officer for note
 receivable........................      (500)           --              --             --
Issuance of Series B stock warrants
 in connection with bridge
 financing.........................        --            --              --             64
Issuance of Series C convertible
 preferred stock for cash and
 conversion of bridge note.........        --            --              --          6,500
Issuance of Series D convertible
 preferred stock for cash..........        --            --              --         25,000
Issuance of Series D convertible
 redeemable preferred stock for
 asset purchase....................        --            --              --             --
Repayment of note receivable from
 officer...........................       151            --              --            151
Dividends accrued on convertible
 redeemable preferred stock........        --            --              --             --
Deferred stock compensation........        --        (2,713)             --             --
Amortization of deferred stock
 compensation......................        --           562              --            562
                                       ------       -------       ---------     ----------
Balance at December 31, 1997.......      (349)       (2,151)        (55,689)        (9,930)
Net loss and comprehensive loss....        --            --         (54,048)       (54,048)
Issuance of common stock for
 options and restricted stock
 exercises by employees............        --            --              --          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.............................        --            --           6,309         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            --              --            349
Deferred stock compensation........        --        (8,160)             --             --
Amortization of deferred stock
 compensation......................        --         3,376              --          3,376
                                       ------       -------       ---------     ----------
Balance at December 31, 1998.......        --        (6,935)       (103,428)        59,413
Net loss and comprehensive loss....        --            --        (287,992)      (287,992)
Issuance of common stock for
 options exercises by employees....        --            --              --         14,885
Repurchase of employee common
 stock.............................        --            --              --           (608)
Issuance of common stock under
 employee stock purchase plan......        --            --              --          4,319
Issuance of common stock for
 warrant exercise..................        --            --              --          2,716
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........        --        (6,261)             --             --
Adjustment to deferred stock
 compensation for terminations.....        --           474              --             --
Amortization of deferred stock
 compensation......................        --         7,633              --          7,633
                                       ------       -------       ---------     ----------
Balances at December 31, 1999......    $   --       $(5,089)      $(391,420)    $3,973,672
                                       ======       =======       =========     ==========
</TABLE>

                            See accompanying notes.
                                       53
<PAGE>   55

                          HEALTHEON/WEBMD CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                              ----------------------------------
                                                                 1999         1998        1997
                                                              ----------    --------    --------
<S>                                                           <C>           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $ (287,992)   $(54,048)   $(28,005)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Amortization of intangibles.............................     183,357      13,382       7,564
    Depreciation............................................       9,710       6,198       1,755
    Amortization of deferred stock compensation.............       7,633       3,376         562
    Other...................................................          --         890       2,989
    Changes in operating assets and liabilities:
      Accounts receivable...................................     (20,653)     (3,510)       (806)
      Other assets..........................................      (9,051)        769         (73)
      Accounts payable......................................      13,418       2,857         751
      Accrued compensation and other liabilities............      18,509       4,996         345
      Prepaid content and services..........................       6,066          --          --
      Deferred revenue......................................       3,017      (1,522)     (1,285)
                                                              ----------    --------    --------
  Net cash used in operating activities.....................     (75,986)    (26,612)    (16,203)
                                                              ----------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of short-term investments........................     (23,954)    (22,529)     (5,300)
  Maturities of short-term investments......................      35,715      10,401          --
  Increase in restricted cash...............................          --          --        (867)
  Purchases of property and equipment.......................     (27,045)     (6,340)     (2,817)
  Cash acquired in business combination, net of cash paid...     298,013        (652)         --
  Cash acquisition costs....................................      (1,563)         --          --
  Capitalized internally developed software costs...........          --          --        (291)
                                                              ----------    --------    --------
  Net cash provided by (used in) investing activities.......     281,166     (19,120)     (9,275)
                                                              ----------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from line of credit borrowings and bridge
    notes...................................................          --          --       5,395
  Payment of line of credit borrowings and bridge notes.....      (1,428)     (2,212)         --
  Proceeds from line of credit borrowings from related
    party...................................................          --       1,000          --
  Payments of line of credit borrowings from related
    party...................................................          --      (1,000)         --
  Proceeds from issuance of preferred stock.................          --      48,135      29,530
  Proceeds from issuance of common stock in connection with
    initial public offering, net of issuance costs..........      41,399          --          --
  Proceeds from issuance of common stock, net of
    repurchases.............................................      21,312       3,673         266
  Principal payments of capital lease obligations...........        (233)       (979)       (748)
                                                              ----------    --------    --------
  Net cash provided by financing activities.................      61,050      48,617      34,443
                                                              ----------    --------    --------
Net increase in cash and cash equivalents...................     266,230       2,885       8,965
Cash and cash equivalents at beginning of year..............      19,389      16,504       7,539
                                                              ----------    --------    --------
Cash and cash equivalents at end of year....................  $  285,619    $ 19,389    $ 16,504
                                                              ==========    ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid.............................................  $      527    $    350    $    252
                                                              ==========    ========    ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
  ACTIVITIES:
  Issuance of common stock in connection with the 1999
    Mergers.................................................  $4,120,859    $     --    $     --
                                                              ==========    ========    ========
  Equipment acquired under capital lease obligations........  $    9,374    $  6,481    $    774
                                                              ==========    ========    ========
  Issuance of note receivable from officer for preferred
    stock...................................................  $       --    $     --    $    500
                                                              ==========    ========    ========
  Conversion of bridge notes to preferred stock.............  $       --    $     --    $  2,000
                                                              ==========    ========    ========
  Issuance of convertible redeemable preferred stock for
    acquisitions............................................  $       --    $  2,800    $  8,500
                                                              ==========    ========    ========
  Issuance of common stock for asset purchases..............  $   11,000    $ 13,220    $     --
                                                              ==========    ========    ========
  Value of warrant issued in connection with service
    agreement...............................................  $       --    $    830    $     --
                                                              ==========    ========    ========
  Deferred stock compensation related to options granted....  $    6,261    $  8,160    $  2,713
                                                              ==========    ========    ========
  Conversion of convertible redeemable preferred and
    convertible preferred stock to common stock.............  $   46,101    $ 94,119    $     --
                                                              ==========    ========    ========
</TABLE>

                            See accompanying notes.
                                       54
<PAGE>   56

                          HEALTHEON/WEBMD CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1999
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

     Healtheon/WebMD Corporation ("the Company") was incorporated in December
1995 and commenced operations in January 1996. In November 1999, Healtheon
Corporation ("Healtheon") completed the mergers ("the 1999 Mergers") with WebMD,
Inc., ("WebMD"), MedE America Corporation and Subsidiaries, Inc. ("MedE
America") and Greenberg News Networks, Inc. ("Medcast") and changed its name
from Healtheon Corporation to Healtheon/WebMD Corporation (See Note 2.) In May
1998, the Company merged with ActaMed Corporation in a transaction accounted for
as a pooling of interests (See Note 2.) All financial information has been
presented to reflect the combined operations of Healtheon and ActaMed for all
years presented and for WebMD, MedE America, and Medcast for the period
subsequent to November 12, 1999. All significant intercompany accounts and
transactions have been eliminated in consolidation.

     The Company provides web-based healthcare information and services to
facilitate connectivity and transactions among physicians, patients, payers and
other healthcare industry participants. The Company's Internet-based information
and transaction platform allows for the exchange of information among the
disparate information systems used by healthcare industry participants and
supports administrative transaction services, including patient enrollment,
eligibility determination, referrals and authorizations, laboratory and
diagnostic test orders and results, clinical data retrieval and claims
processing.

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 materially from these estimates.

CASH, CASH EQUIVALENT AND SHORT-TERM INVESTMENTS

     All highly liquid investments with an original maturity from date of
purchase of three months or less are considered to be cash equivalents. The
Company's cash, cash equivalents and short-term investments are invested in
various investment-grade commercial paper, money market accounts and
certificates of deposit. All short-term investments mature within nine months.
The fair value of cash equivalents and short-term investments is as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       1998
                                                          --------    -------
<S>                                                       <C>         <C>
Cash equivalents:
  Corporate and other non-government securities.........  $ 37,254    $19,346
  Money market funds....................................   248,365         43
                                                          --------    -------
                                                           285,619     19,389
Short-term investments:
  Corporate and other non-government securities.........     5,667     17,428
                                                          --------    -------
                                                          $291,286    $36,817
                                                          ========    =======
</TABLE>

     Net unrealized gains (losses) were immaterial at December 31, 1999 and
1998.

     Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Marketable debt and equity

                                       55
<PAGE>   57
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

securities are classified as available-for-sale, and are carried at their fair
value, with the unrealized gains and losses, when material, reported net-of-tax
in a separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income or expense. The cost of securities
sold is based on specific identification. Interest and dividends on securities
classified as available-for-sale are included in interest income.

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 twenty to twenty-five 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.

GOODWILL AND INTANGIBLE ASSETS

     Goodwill and intangible assets result from acquisitions accounted for under
the purchase method. (See Note 2.) Amortization of intangible assets is provided
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 method
over the estimated useful life of the related asset, generally one to four
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 future operating cash flows to determine
whether the goodwill or intangibles are impaired. To date, no impairment
indicators have been identified.

SOFTWARE DEVELOPMENT COSTS

     Statement of Financial Accounting Standards 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. Capitalized internally developed software costs
were approximately $291 in 1997. There were no internally developed software
costs capitalized in 1999 or 1998. Amortization expense related to capitalized
internally developed software costs included in cost of revenue was
approximately $782 and $376 for the years ended December 31, 1998 and 1997 (zero
in 1999). Development costs related to the enhancement and modification of
Internet properties are expensed as incurred and are included in development and
engineering expenses.

REVENUE RECOGNITION

     The Company provides healthcare transaction and network-based services;
subscriptions to the Company's web site; advertising and site sponsorship;
e-commerce and other services; development and consulting services; and
management and operation of customers' information technology ("IT")
infrastructure. The Company also has recognized revenue from software license
fees; however, the Company does not anticipate that a material amount of revenue
will be earned from software licenses in the foreseeable future. To date, the
Company has derived no significant revenue from brokers, value-added resellers
or systems integrators.

     Revenue is recognized when the services are performed or the products are
delivered. The Company earns revenue from fixed fee subscription arrangements,
which are recognized ratably over the term of the
                                       56
<PAGE>   58
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

applicable agreement. Revenue relating to software license fees are recognized
when a noncancelable license agreement has been signed with a customer, the
software product covered by the license agreement has been delivered, there are
no uncertainties surrounding product acceptance, there are no significant future
performance obligations, the license fees are fixed and determinable and
collection of the license fees is considered probable. These products do not
require significant customization. Cash received in excess of revenue recognized
relating to such services has been recorded as deferred revenue in the
accompanying consolidated balance sheets.

     The Company has entered into agreements that provide for the placement and
sponsorship of subscriptions, co-promotion and marketing rights, and web site
content licenses. Under such agreements, the Company generally pays a fee for
co-promotion services and branding rights and generally shares in the net
advertising and e-commerce revenues generated by the co-branded web sites and
web pages. Several of these relationships include the issuance of equity
securities by the Company. The Company has not recognized any revenue related to
the nonmonetary exchange of advertising for advertising, when such exchanges
were not objectively determinable based on the criteria set forth in Accounting
Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions."

     Revenue recognized during 1999 from arrangements deemed to be nonmonetary
exchanges of the Company's products and services for customer products and
services totaled approximately $6,000. Revenues from these exchanges are
recorded at the fair value of the products and services provided or received,
whichever is more clearly evident. There was no corresponding cost of revenues
related to these transactions.

     During 1997, the Company entered into agreements with two customers to
manage and operate their current and expanding IT operations, to develop a suite
of specific Internet-based commercial software applications and to assist these
customers in migrating from their current IT operating environment to these new
applications. The Company utilizes its own personnel, certain outside
contractors and certain personnel and facilities of one of the customers that
are leased under contract terms for these services. The cost of these leased
customer personnel and facilities is included as part of the total costs of the
IT and development services that are billed to the customers. In 1999, 1998, and
1997, the Company recognized revenue of approximately $17,736, $15,061 and
$2,100 for the IT services and approximately $6,310, $6,471 and $200 for the
development services. Revenue recognized for IT services included $11,951,
$11,792 and $1,909 in 1999, 1998 and 1997 related to leased personnel and
facilities. These amounts were also included in cost of operations for the
respective periods.

     In December 1996, through a subsidiary, the Company entered into an
agreement to license a newly granted patent to IBM. As part of this agreement,
IBM agreed to pay $4,800 over a four-year period. Because of the extended
payment terms and the subsidiary's uncertain relationship with IBM, the Company
concluded that collection was not assured and, accordingly, recorded this
revenue as the proceeds were collected. In 1999, the Company amended the
agreement with IBM such that the remaining payment stream was discounted by
10.5% in exchange for immediate payment of the revised balance due, resulting in
recognition of the remaining deferred revenue. As a result, the Company
recognized software licenses revenue from this license sale of $1,518 in 1999
and $780 in both 1998 and 1997.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair value for marketable securities is based on quoted market prices.
The carrying value of these securities approximates their fair value.

                                       57
<PAGE>   59
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The fair value of notes is estimated by discounting the future cash flows
using the current interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.

     The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to the Company for debt
instruments with similar terms, degrees of risk and remaining maturities. The
carrying values of these obligations approximate their respective fair values.

CONCENTRATION OF CREDIT RISK

     The Company currently derives a substantial portion of its consolidated
revenue from a few large customers, one of which is a related party. Four
customers represented 41% of the total of trade accounts receivable and amounts
due from related parties at December 31, 1999. At December 31, 1998, two
customers represented 42% of the total balance of trade accounts receivable and
amounts due from related parties. The Company believes that the concentration of
credit risk in its trade receivables, with respect to its limited customer base,
is substantially mitigated by its credit evaluation process. The Company does
not require collateral. To date, the Company's bad debt write-offs have not been
significant.

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. The Company does not incur any direct-response
advertising costs. Advertising expense totaled approximately $9,132 in 1999 and
was not material in 1998 and 1997. Included in other current assets are costs
related to specific advertisements scheduled to appear in early 2000 totaling
$6,027.

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

     The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair market value of the shares at the date
of grant. As permitted under Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," the Company accounts for
stock option grants to employees and directors in accordance with APB 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.

                                       58
<PAGE>   60
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                              -----------------------------------------
                                                 1999           1998           1997
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Net loss....................................  $  (287,992)   $   (54,048)   $   (28,005)
                                              ===========    ===========    ===========
Basic and diluted:
  Weighted-average shares of common stock
     outstanding............................   81,330,212     36,417,963      8,621,171
  Less: Weighted-average shares subject to
     repurchase.............................     (963,517)    (1,431,303)    (1,398,013)
                                              -----------    -----------    -----------
Weighted-average shares used in computing
  basic and diluted net loss per common
  share.....................................   80,366,695     34,986,660      7,223,158
                                              ===========    ===========    ===========
Basic and diluted net loss per common
  share.....................................  $     (3.58)   $     (1.54)   $     (3.88)
                                              ===========    ===========    ===========
</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 63,898,198 in 1999, 23,020,426 in 1998 and 51,216,689 in
1997.

COMPREHENSIVE LOSS

     The Company has no material components of other comprehensive loss, and
accordingly the comprehensive loss is the same as net loss for all periods
presented.

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. Because the Company currently holds no derivative financial
instruments and does not currently engage in hedging activities, adoption of
SFAS No. 133 is expected to have no material impact on the financial condition
or results of operations.

     On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its current
revenue recognition principles comply with SAB 101.

     In January 2000, the Emerging Issues Task Force of the FASB reached
consensus on Issue 99-17 "Accounting for Advertising Barter Transactions."
("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

                                       59
<PAGE>   61
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transactions. The Company does not believe that the adoption of EITF 99-17 will
have a material impact on its financial condition or results of operations.

     In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
website. 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 Company is currently evaluating the adoption
of EITF 00-2 and its potential impact on its financial condition or results of
operations.

2. BUSINESS COMBINATIONS

THE 1999 MERGERS

     On May 20, 1999, Healtheon entered into an agreement to merge with WebMD, a
provider of web-based solutions for the administrative, communications and
information needs of healthcare professionals and the healthcare informational
needs of consumers. Healtheon exchanged 1.796 shares of its common stock for
each share of WebMD stock. The total purchase consideration was approximately
$3,659,921, comprising the issuance of 63,932,659 shares of Healtheon's common
stock with an aggregate fair value of $2,204,478, the assumption of options and
warrants to purchase 49,012,168 shares of Healtheon's common stock with an
aggregate fair value of approximately $1,409,746, and $45,697 of acquisition
costs. Acquisition costs consisted principally of investment banking fees,
professional services 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. The values, totaling approximately $196,307, assigned to WebMD's acquired
technology, customer lists, trademarks, and other intangibles, were determined
through independent appraisal. WebMD's results of operations, including
approximately $144,006 of amortization expense related to goodwill and
separately identifiable intangibles, have been included in the consolidated
financial statements from November 12, 1999, the closing date of the
acquisition.

     On April 21, 1999, Healtheon entered into an agreement to acquire MedE
America, a provider of healthcare transaction services for hospitals,
pharmacies, physicians, dentists, payers and pharmacy benefit managers (PBMs).
Healtheon exchanged 0.7494 shares of its common stock for each share of MedE
America stock. The total purchase consideration was approximately $417,292,
comprising the issuance of 10,404,454 shares of Healtheon's common stock with an
aggregate fair value of $388,221, the assumption of options to purchase 468,584
shares of Healtheon'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 services 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. The values, totaling
approximately $105,545, assigned to MedE America's customer lists, trademarks
and acquired technology, were determined through independent appraisal. MedE
America's results of operations, including approximately $18,836 of amortization
expense related to goodwill and separately identifiable intangibles, have been
included in the consolidated financial statements from November 12, 1999, the
closing date of the acquisition.

                                       60
<PAGE>   62
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On June 30, 1999, Healtheon entered into an agreement to acquire Medcast,
an Internet-based medical news and information service. Healtheon exchanged
2,692,501 million shares or options to purchase shares of its common stock and
approximately $2,336 in cash for all Medcast outstanding stock. The total
purchase consideration was approximately $112,953, comprising the issuance of
2,528,465 shares of Healtheon's common stock with an aggregate fair value of
$101,391, the assumption of options to purchase 164,036 shares of Healtheon'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 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 approximately
$109,755 and is being amortized over three years. The values, totaling $17,700,
assigned to Medcast's customer lists, trademarks and acquired technology, were
determined through independent appraisal. Medcast's results of operations,
including approximately $5,834 of amortization expense related to goodwill and
separately identifiable intangibles, have been included in the consolidated
financial statements from November 12, 1999, the closing date of the
acquisition.

     The fair value per share of Healtheon's common stock was based on the
closing price of Healtheon's common stock on the five days prior and subsequent
to the days the mergers were announced, or, if applicable, the days the merger
agreements were amended, which were September 7, 1999 for WebMD, October 6, 1999
for Medcast and April 21, 1999 for MedE America.

     The following unaudited proforma financial information gives effect to the
acquisitions of WebMD, MedE America and Medcast, including the amortization of
goodwill and other intangible assets as if they had occurred as of the beginning
of each period presented. The information is provided for illustrative purposes
only and is not necessarily indicative of the operating results that would have
occurred if the transactions had been consummated at the dates indicated, nor is
it necessarily indicative of future operating results of the combined companies
and should not be construed as representative of these amounts for any future
periods. (unaudited):

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                     -------------------------
                                                        1999          1998
                                                     ----------    -----------
<S>                                                  <C>           <C>
Net revenue........................................  $  170,605    $   102,587
                                                     ==========    ===========
Net loss...........................................  $1,546,801    $(1,351,261)
                                                     ==========    ===========
Basic and diluted net loss per share...............  $   (10.53)   $    (12.08)
                                                     ==========    ===========
</TABLE>

METIS, LLC

     On August 25, 1998, the Company acquired the assets of Metis, LLC, a
provider of Internet and intranet-based consulting, design and development
services for the healthcare industry. The total purchase consideration was
approximately $9,400, comprising the issuance of 1,600,000 shares of its common
stock with an aggregate fair value of $8,320, a cash payment of $620 and the
assumption of certain liabilities. Of the shares issued, 476,548 shares were
issued to employees under restricted stock purchase agreements subject to a
lapsing right of repurchase, at the Company's option, over the respective
vesting periods. 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 $7,700 and is being amortized over three years.
The value assigned to Metis' assembled workforce of $1,400 was determined
through independent appraisal and is being amortized over two years.

                                       61
<PAGE>   63
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Metis' results of operations, including $692 and $259 in goodwill amortization
in 1999 and 1998, respectively, have been included in the consolidated financial
statements from its date of acquisition.

ACTAMED CORPORATION

     On May 19, 1998, Healtheon 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 Healtheon
and ActaMed for all dates and periods presented. Healtheon 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. Healtheon also
assumed all outstanding stock options and warrants to acquire 3,383,011 shares
of ActaMed capital 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) and the full year of
1997 were as follows (unaudited):

<TABLE>
<CAPTION>
                                                  FOUR MONTHS
                                                     ENDED            YEAR ENDED
                                                 APRIL 30, 1998    DECEMBER 31, 1997
                                                 --------------    -----------------
<S>                                              <C>               <C>
Revenue:
  Healtheon....................................     $  6,405           $  3,199
  ActaMed......................................        6,690             10,191
                                                    --------           --------
                                                    $ 13,095           $ 13,390
                                                    ========           ========
Net loss:
  Healtheon....................................     $ (6,664)          $(13,979)
  ActaMed......................................       (6,186)          $(14,026)
                                                    --------           --------
                                                    $(12,850)          $(28,005)
                                                    ========           ========
</TABLE>

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

3. SERVICES AGREEMENT WITH SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.

     In connection with a 1997 five-year Services Agreement with SmithKline
Labs, the Company acquired a license to SmithKline Labs' SCAN software and
computer workstations that reside in various medical providers' offices. At
December 31, 1997, the SCAN license and the assets from one region of the
country were transferred to Healtheon for $2,000 in cash and 2,317,913 shares of
Series D convertible redeemable preferred stock valued at $8,500. The assets for
the remaining regions of the country were transferred to the Company, and the
Company paid the remaining purchase price of $7,700 through the issuance of
763,548 shares of Series D convertible redeemable preferred stock in March 1998
and 1,336,209 shares of the Company's common stock in June 1998. The value of
the services agreement and the SCAN software license totaled $14,774, and the
value of the computer workstations totaled $3,426.

     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.

                                       62
<PAGE>   64
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PREPAID CONTENT AND SERVICES

     In connection with obtaining web site content and distribution services,
the Company's subsidiary, WebMD, paid cash or issued equity instruments to
certain service providers, including related parties prior to the 1999 Mergers.
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,
                                                         --------------------
                                                           1999        1998
                                                         --------    --------
<S>                                                      <C>         <C>
CURRENT PORTION
Content................................................  $  1,478    $     --
Distribution...........................................     3,958          --
                                                         --------    --------
                                                         $  5,436    $     --
                                                         ========    ========
LONG-TERM PORTION
Services...............................................     2,215          --
Distribution...........................................   270,823          --
                                                         --------    --------
                                                         $273,038    $     --
                                                         ========    ========
</TABLE>

5. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       1998
                                                          --------    -------
<S>                                                       <C>         <C>
Computer equipment......................................  $ 44,219    $14,979
Land....................................................       150         --
Buildings...............................................     1,664         --
Office equipment, furniture and fixtures................     8,985      2,958
Purchased software for internal use.....................     9,725      2,624
Leasehold improvements..................................     3,092      1,465
                                                          --------    -------
                                                            67,835     22,026
Less accumulated depreciation and amortization..........   (19,451)    (9,741)
                                                          --------    -------
Property and equipment, net.............................  $ 48,384    $12,285
                                                          ========    =======
</TABLE>

     Property and equipment included assets acquired under capital lease
obligations with a cost of approximately $9,374 and $6,481 at December 31, 1999
and 1998, respectively. Accumulated depreciation related to the assets acquired
under capital leases totaled $6,040 and $2,656 at December 31, 1999 and 1998,
respectively.

                                       63
<PAGE>   65
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INTANGIBLE ASSETS

     Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                  AMORTIZATION    ----------------------
                                                     PERIOD          1999         1998
                                                  ------------    ----------    --------
<S>                                               <C>             <C>           <C>
Goodwill........................................     3 years      $3,394,885    $ 15,668
Customer lists..................................     4 years          84,130          --
Acquired technology.............................     3 years          64,747       8,245
Trademarks......................................     3 years         116,869         216
Other...........................................   1-3 years          80,325       5,779
                                                                  ----------    --------
                                                                   3,740,956      29,908
Less accumulated amortization...................                    (193,397)    (10,040)
                                                                  ----------    --------
                                                                  $3,547,559    $ 19,868
                                                                  ==========    ========
</TABLE>

7. INVESTMENT

     Prior to the 1999 Mergers, WebMD entered into a strategic alliance with
Nationwide Medical Services, Inc. ("J&C Nationwide"), a private company, by
acquiring a 30% equity interest. The investment was initially valued at $2,000.
This investment is being accounted for under the equity method of accounting,
and is adjusted for the appropriate share of the net earnings or losses of the
investee. At December 31, 1999, the J&C Nationwide investment carrying value was
approximately $1,725.

8. COMMITMENTS

     The Company has agreements with various content providers and strategic
partners whereby the Company is committed to pay certain amounts in connection
with content and services obtained for use on its WebMD web site and certain
distribution arrangements. The Company has recorded $15,861 as costs related to
these agreements during 1999. The Company's non-cancelable future commitments
under these agreements, a portion of which are with related parties, are as
follows:

<TABLE>
<CAPTION>
                                             UNRELATED PARTIES    RELATED PARTIES     TOTAL
                                             -----------------    ---------------    --------
<S>                                          <C>                  <C>                <C>
2000.......................................       $22,252            $ 49,782        $ 72,034
2001.......................................        13,933              61,212          75,145
2002.......................................            --              42,422          42,422
2003.......................................            --              34,375          34,375
2004.......................................            --               8,750           8,750
                                                  -------            --------        --------
                                                  $36,185            $196,541        $232,726
                                                  =======            ========        ========
</TABLE>

     The Company has entered into several lease lines of credit. Approximately
$8,156 had been utilized under these lease lines through December 31, 1999. At
December 31, 1999, approximately $5,444 was available for future utilization
under these lease lines. This amount included approximately $1,100 that was
repaid under the terms of a revolving lease line and is thus again available for
future utilization. The arrangements are secured by the property and equipment
subject to the leases. The term of the leases is generally three years and the
interest rates implicit in the leases range from 6.9% to 20.2% per annum.

     The Company leases its headquarters and other office facilities under
operating lease agreements that expire at various dates through 2008. Total rent
expense for all operating leases was approximately $4,106,

                                       64
<PAGE>   66
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2,386 and $1,165 in 1999, 1998 and 1997 respectively. Future minimum lease
commitments under non-cancelable lease agreements at December 31, 1999 were as
follows:

<TABLE>
<CAPTION>
                                                          OPERATING    CAPITAL
                                                           LEASES      LEASES
                                                          ---------    -------
<S>                                                       <C>          <C>
Year ended December 31, 2000............................   $ 7,746     $ 3,363
  2001..................................................     6,848       2,124
  2002..................................................     4,188         151
  2003..................................................     3,427           5
  2004..................................................     3,078          --
                                                           -------     -------
Total minimum lease payments............................   $25,287       5,643
                                                           =======
Amount representing interest............................                (1,352)
Present value of minimum lease payments under capital
  lease obligations.....................................                 4,291
Less current portion....................................                (2,281)
                                                                       -------
Non-current portion.....................................               $ 2,010
                                                                       =======
</TABLE>

9. RETIREMENT PLAN

     The Company has a defined contribution 401(k) plan. The plan is for the
benefit, generally, of all employees 21 years of age or older with at least six
months of employment and permits voluntary employee contributions and Company
profit sharing contributions. The Company has not made any such contributions to
the plan through December 31, 1999. In conjunction with the 1999 Mergers, the
defined contribution 401(k) plans for WebMD, MedE America, and Medcast were
terminated and will be merged into the Company's plan. All WebMD, MedE America
and Medcast employees became eligible for the Company's 401(k) plan as of
November 12, 1999.

10. STOCKHOLDERS' EQUITY

INITIAL PUBLIC OFFERING

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

CONVERTIBLE PREFERRED STOCK

     In October 1998, the Board of Directors authorized 8,285,007 shares of
convertible preferred stock and designated all of these shares as Series A. In
November 1998, the Company issued 7,683,341 shares of Series A convertible
preferred stock for $46,101 of cash proceeds. Upon the closing of the initial
public offering in February 1999, all of the outstanding shares of Series A
preferred stock were converted into shares of common stock.

WARRANTS

     In July 1997, the Company issued a warrant to an officer, in connection
with his employment, to purchase 750,000 shares of Series B convertible
preferred stock at an exercise price of $2.00 per share, the fair value at the
date of issuance. The warrant expires three years from issuance, and shares
purchased under the warrant are subject to repurchase by the Company, at its
option, upon termination of employment. Shares under the warrant vest ratably
over a period of two years from the date of grant. In

                                       65
<PAGE>   67
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

May 1998, this warrant was converted to a warrant to purchase common stock. It
remained outstanding at December 31, 1999.

     In December 1998, as part of a service agreement with a customer, the
Company issued to the customer a warrant to purchase 500,000 shares of common
stock with an exercise price of $10.40 per share. The warrant vests as to
200,000 shares in December 1999 and as to an additional 100,000 shares in
December 2000, 2001 and 2002. The warrant expires in March 2003. The services
are anticipated to be provided by the customer to the Company through at least
December 31, 2002. In the event that the customer terminates the service
agreement prior to December 31, 2002, the customer is obligated to pay the
Company a breakage fee. This breakage fee represents a significant economic
penalty for nonperformance under the service agreement. The value of the warrant
at the date of issuance was approximately $830,000. This amount is being
amortized over the life of the service agreement.

     Prior to the consummation of the 1999 Mergers, McKessonHBOC, Inc.
("McKessonHBOC") entered into an agreement with WebMD and Healtheon that served
to terminate all prior strategic agreements between WebMD and McKessonHBOC.
WebMD received a cash payment of $3,600 and, in exchange, agreed to pay a
commission of the ongoing monthly subscription fees for any physician
subscriptions to WebMD's products and services previously obtained by
McKessonHBOC, if any (the Company does not expect there will be any material
payments under this provision). In connection with this revision, McKessonHBOC
received 4,688,049 warrants to purchase WebMD common stock at a weighted average
exercise price of $38.00 per share. These warrants were assumed by the Company
in accordance with the Merger Agreement, giving McKessonHBOC a warrant to
purchase 8,419,736 shares of the Company's common stock.

     Prior to the consummation of the 1999 Mergers, Microsoft Corporation
("Microsoft") entered into a five-year strategic alliance with WebMD. (See Note
13.) In connection with this relationship, Microsoft received a warrant to
purchase 7,614,916 shares of its common stock at an exercise price of $54.17,
the fair value of WebMD stock at the date of issuance. The warrant vested
immediately upon issuance and expires five years from the issuance date. This
warrant was assumed by the Company in accordance with the Merger Agreement,
giving Microsoft a warrant to purchase 13,676,389 shares of the Company's common
stock.

     Prior to the consummation of the 1999 Mergers, E.I. du Pont de Nemours and
Company ("DuPont") entered into a five-year strategic alliance with WebMD. (See
Note 13.) In connection with this relationship, DuPont received a warrant to
purchase 4,000,000 shares of its common stock at an exercise price of $20.00,
the fair value of WebMD stock at the date of issuance. The warrant vested
immediately upon issuance and expires five years from the issuance date. This
warrant was assumed by the Company in accordance with the Merger Agreement,
giving DuPont a warrant to purchase 9,946,966 shares of the Company's common
stock.

     Prior to the consummation of the 1999 Mergers, as part of a service
agreement, WebMD issued a warrant to purchase 1,038,450 shares of its common
stock to a financial services company. As of the merger date, this warrant was
assumed by Healtheon in accordance with the Merger Agreement and after the
effect of the exchange ratio, 621,685 remained unvested and expire on January
27, 2004. In the event the financial services company terminates the service
agreement, they forfeit the unvested options and pay the Company a cash penalty
of up to $3,400. This breakage fee represents a significant economic penalty for
nonperformance under the service agreement. The value of the warrant at the date
of issuance was approximately $4,688. This amount is being amortized over the
remaining life of the agreement as general and administrative expense.

     At December 31, 1999, the Company had reserved 35,602,352 shares of common
stock for issuance upon exercise of the outstanding warrants for common stock.

                                       66
<PAGE>   68
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. STOCK-BASED COMPENSATION

STOCK OPTION PLANS

     Under the 1996 Stock Plan, or the 1996 Plan, which was adopted in February
1996, the Board of Directors may grant options to purchase common stock or issue
common stock subject to a restricted stock purchase agreement to eligible
participants. Options granted may be either incentive stock options or
nonstatutory stock options and are exercisable within the times or upon the
events determined by the Board of Directors as specified in each option
agreement. Options vest over a period of time as determined by the Board of
Directors, generally ten years. The term of the 1996 Plan is ten years. A total
of 15,000,000 shares were initially reserved under the 1996 Plan.

     The number of shares reserved under the 1996 Plan is subject to an annual
increase equal to the lesser of 5% of the outstanding common shares or a lesser
amount determined by the Board of Directors. In January 1999, an additional
3,107,321 shares were reserved under the 1996 Plan under the annual increase
provision. In February 1999, the Board of Directors and the stockholders
approved an amendment to increase the number of shares reserved for issuance
under the 1996 Plan by an additional 1,000,000 shares. In connection with the
1999 Mergers, an additional 10,000,000 shares were reserved under the 1996 Plan.
At December 31, 1999, 10,057,560 shares remained available for future grant
under the 1996 Plan.

     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 acquisitions of ActaMed, WebMD, 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 respectively shares were
fully vested. The remainder of the shares vest based upon the terms of the
original plans ranging from four to ten 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 and 1998, 375,000 and 259,896 shares, respectively, were
repurchased from terminated employees. 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.

                                       67
<PAGE>   69
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes stock option activity:

<TABLE>
<CAPTION>
                                                                WEIGHTED-AVERAGE
                                                  NUMBER OF      EXERCISE PRICE
                                                    SHARES         PER SHARE
                                                  ----------    ----------------
<S>                                               <C>           <C>
Options outstanding at December 31, 1996........   5,244,615         $  .68
  Granted.......................................   5,394,008            .73
  Exercised.....................................    (547,844)           .16
  Canceled......................................    (890,528)           .49
                                                  ----------
Options outstanding at December 31, 1997........   9,200,251            .72
  Granted.......................................   7,743,881           4.32
  Exercised.....................................  (2,433,999)           .59
  Canceled......................................  (2,997,333)          4.95
                                                  ----------
Options outstanding at December 31, 1998........  11,512,800           2.06
  Granted.......................................   7,407,738          20.41
  Assumed.......................................  15,367,606           7.95
  Exercised.....................................  (5,501,438)          2.71
  Canceled......................................  (1,138,369)          7.54
  Expired.......................................      (3,491)          3.34
                                                  ----------
Options outstanding at December 31, 1999........  27,644,846         $ 9.98
                                                  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               1999      1998     1997
                                                              ------    ------    -----
<S>                                                           <C>       <C>       <C>
Weighted-average fair value of options granted..............  $8.08     $0.67     $.18
                                                              =====     =====     ====
</TABLE>

     The following table summarizes information regarding options outstanding
and exercisable at December 31, 1999:

<TABLE>
<CAPTION>
                                                               WEIGHTED-AVERAGE
                                                                  REMAINING
                                            WEIGHTED-AVERAGE   CONTRACTUAL LIFE                        WEIGHTED-AVERAGE
EXERCISE PRICES        NUMBER OUTSTANDING    EXERCISE PRICE       (IN YEARS)      NUMBER EXERCISABLE    PRICE EXERCISE
---------------        ------------------   ----------------   ----------------   ------------------   ----------------
<S>                    <C>                  <C>                <C>                <C>                  <C>
$ .05 - $1.00               6,979,670            $ 0.61              4.3              3,905,172             $ 0.65
$1.30 - $4.50               5,115,129              3.29              8.3              1,994,715               2.92
$5.40 - $8.05              10,748,440              6.47              5.2              3,002,501               6.57
$17.35 - $40.25             3,541,893             33.85              9.0                292,392              23.61
$40.56 - $105.00            1,259,714             51.88              9.6                 12,644              78.82
                           ----------                                                 ---------
$.05 - $105.00             27,644,846            $ 9.98                               9,207,424             $ 3.91
                           ==========                                                 =========
</TABLE>

     The Company recorded deferred stock compensation of approximately $6,261
and $8,160 in 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 $7,633 and $3,376 in 1999 and 1998,
respectively, based on a graded vesting method. At December 31, 1999, the
Company had a total of approximately $5,089 remaining to be amortized on a
graded vesting method over the corresponding vesting period of each respective
option, generally four years.

                                       68
<PAGE>   70
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

     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 1997 and 1998 and using a Black-Scholes option pricing
model in 1999 with an expected volatility of 100%. The following
weighted-average assumptions were used: risk-free interest rate of approximately
5.6% in 1999, 4.9% in 1998, and 6.0% in 1997; a weighted-average expected life
of the option of 3.3 years in 1999, 3.5 years in 1998, and 4.2 years in 1997;
and a dividend yield of zero for all years.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                    ---------------------------------
                                                      1999         1998        1997
                                                    ---------    --------    --------
<S>                                                 <C>          <C>         <C>
Net loss (in thousands):
  As reported.....................................  $(287,992)   $(54,048)   $(28,005)
                                                    =========    ========    ========
  Pro forma.......................................  $(322,999)   $(55,414)   $(28,173)
                                                    =========    ========    ========
Basic and diluted net loss per common share
  As reported.....................................  $   (3.58)   $  (1.54)   $  (3.88)
                                                    =========    ========    ========
  Pro forma.......................................  $   (4.02)   $  (1.58)   $  (3.90)
                                                    =========    ========    ========
</TABLE>

     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

     In September 1998, the Board of Directors and the stockholders approved the
adoption of the Company's 1998 Employee Stock Purchase Plan, or the 1998
Purchase Plan. The 1998 Purchase Plan became effective on the effective date of
the initial public offering, February 10, 1999. A total of 1,000,000 shares of
common stock were initially reserved for issuance under the 1998 Purchase Plan,
plus annual increases equal to the lesser of 500,000 shares; 0.5% of the
outstanding common shares; or a lesser amount determined by the Board of
Directors. In conjunction with the 1999 Mergers, the shareholders approved an
increase of 1,000,000 shares to the 1998 Purchase Plan. Additionally, the
formula for annual increases, calculated on the first day of each fiscal year,
was changed to increase the number of shares reserved for issuance under the
1998 Purchase Plan to be the lesser of 1,000,000 shares; 0.5% of the outstanding
common shares on that date; or a lesser amount determined by the Board of
Directors. A total of 635,201 shares were issued under this plan during 1999.

                                       69
<PAGE>   71
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. 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,
                                                         --------------------
                                                           1999        1998
                                                         ---------    -------
<S>                                                      <C>          <C>
Deferred tax assets:
  Net operating loss carryforwards.....................  $ 224,570    $29,984
  Intangible assets....................................         --      5,491
  Research and development tax credit..................      2,353      2,353
  Other accrued expenses...............................      6,155         --
  Other................................................      3,208      2,775
                                                         ---------    -------
Total deferred tax assets..............................    236,286     40,603
                                                         ---------    -------
Valuation allowance....................................   (236,286)   (40,530)
                                                         ---------    -------
Net deferred tax assets................................         --         73
                                                         ---------    -------
Deferred tax liabilities:
  Depreciation.........................................         47        (73)
  Intangible assets....................................     (3,875)        --
  Other................................................   (114,966)        --
                                                         ---------    -------
Total deferred tax liabilities.........................   (118,794)       (73)
                                                         ---------    -------
Net deferred tax assets and liabilities................  $(118,794)   $    --
                                                         =========    =======
</TABLE>

     A valuation allowance equal to 100% of the net deferred tax assets 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 $195,756, $21,599 and $9,386 in 1999, 1998 and 1997
respectively.

     At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $590,973 which expire in 2009
through 2019, and federal tax credits of approximately $6,192 which expire in
2009 through 2014.

     The 1999 Mergers resulted in the acquisition of deferred tax assets and a
corresponding valuation allowance of $97,985 during 1999. Approximately $54,207
of the deferred tax asset related to net operating loss carryforwards that will
result in a credit to contributed capital when recognized. In addition, net
operating loss carryforwards of approximately $19,890 arising from the ActaMed
merger are available to offset future taxable income.

     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.

13. RELATED PARTY TRANSACTIONS

     Revenue from related parties and accounts receivable from related parties
consisted of revenue attributable to UnitedHealth Group for all years presented
and SmithKline Labs from January 1, 1998 to August 16, 1999. Accounts receivable
due from UnitedHealth Group and SmithKline Labs was $3,360 at

                                       70
<PAGE>   72
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1998. On August 16, 1999, SmithKline Labs was sold to a company
which is not a significant shareholder of Healtheon/WebMD. At this date, it
ceased to be a related party. At December 31, 1999, accounts receivable from
UnitedHealth Group were approximately $1,346.

     Revenue from related parties also included amounts due from the Microsoft
Corporation from November 12, 1999 (the date of the 1999 Mergers) for revenue
sharing on advertising, third-party carriage fees and subscription and
e-commerce revenue to third parties as discussed below.

PREMIERE TECHNOLOGIES, INC. ("PREMIERE")

     The Company provides its WebMD subscribers with Premiere enhanced
communications services. The Company's agreement with Premiere is effective
until January 31, 2001 and contains minimum commitments for per-account and
per-transaction payments by the Company to Premiere. The Company's agreement
with Premiere also provides for the development of the Orchestrate platform for
the Company. Premiere is a shareholder of the Company and one of the Company's
board members is an executive and director of Premiere. One of the Company's
executives is a board member of Premiere.

MICROSOFT CORPORATION

     Prior to the 1999 Mergers, WebMD and Microsoft entered into a five-year
strategic alliance under which the Company will develop, host and maintain on
its servers a health channel for MSN, MSNBC and WebTV. Microsoft has committed
to provide a minimum of 125 million impressions to WebMD'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 Healtheon/WebMD have each committed co-marketing funds of $50,000
over the first two years of the agreement. As of December 31, 1999, the Company
had recognized $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 will not be recorded as revenue, but as a reduction of the
carrying value of prepaid content and services-related parties. During 1999, the
Company recognized $1,590 related to health channel advertising revenue and no
revenue related to advertising placed by Microsoft on the Company's web site.

     Microsoft will also sponsor up to 5.0 million subscriber months of
subscriptions to WebMD's physician web site over the term of the agreement. The
Company records revenue only to the extent that actual subscriptions are placed
with physicians. The Company pays a commission on all subscriptions placed by
Microsoft. During 1999, $1,845 was recorded as revenue related to subscriptions
sponsored by Microsoft. This amount has been recorded net of commissions.

                                       71
<PAGE>   73
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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, 1999 relating to this provision.

     The value assigned to the Microsoft strategic agreement, as determined
through independent appraisal, was $180,000. As of December 31, 1999, the
Company had recognized $4,500 as sales and marketing expense for amortization of
this asset. As of December 31, 1999, the accounts receivable from Microsoft was
$9,030.

     As described in Note 10, Microsoft has a warrant to purchase 13,676,389
shares of the Company's common stock and owns 11,933,342 shares of the Company's
common stock. As of December 31, 1999, an executive of Microsoft was a board
member of the Company.

EXCITE@HOME

     Prior to the 1999 Mergers, WebMD entered into a three-year services
agreement with At Home Corporation, or Excite@Home, whereby the Company will
create a co-branded health channel and online health-related communities for
Excite@Home. In addition, Excite@Home purchased 461,510 shares of stock from
WebMD at $54.17 per share. The Company, through its WebMD subsidiary, will be
the exclusive provider of health content on the Excite@Home network. Excite@Home
has guaranteed a minimum level of impressions throughout the Excite@Home network
and the Company has agreed to pay carriage fees over the term of the agreement.
During 1999, the Company recorded $1,650 as sales and marketing expense related
to carriage fees based on impressions delivered. Excite@Home and the Company
will share the advertising revenue generated by the co-branded web site. The
accounts receivable for advertising revenue from Excite@Home was $1,158 as of
December 31, 1999.

     In conjunction with the 1999 Mergers, Excite@Home received 837,640 shares
of the Company's common stock in exchange for its WebMD ownership. Additionally,
a board member of Excite@Home is a board member of Healtheon/WebMD.

14. SEGMENT INFORMATION

     The Company derives its revenue from a single operating segment, healthcare
transaction and information services delivered over the Internet, private
intranets or other networks and from development, consulting and IT contracts
related to these services.

GEOGRAPHIC INFORMATION

     The Company operates primarily within the United States and to date has
derived nearly all of its revenue from within the United States.

15. SUBSEQUENT EVENTS

ENVOY CORPORATION

     On January 22, 2000, the Company entered into a definitive agreement with
Quintiles Transnational Corp. and its subsidiary, QFinance, Inc. (together,
"Quintiles"), to acquire Quintiles' electronic data interchange subsidiary
("EDI"), Envoy Corporation, a provider of healthcare EDI transactions in the
United States. Under the terms of the agreement, Quintiles will receive
35,000,000 shares of Healtheon/

                                       72
<PAGE>   74
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

WebMD stock and $400,000 in cash, for a total consideration of approximately
$2,500,000. Quintiles will issue the Company a warrant to purchase up to
10,000,000 shares of Quintiles common stock at $40.00 per share, exercisable for
four years. Stock received by Quintiles in the transaction will be subject to
restrictions on sale for one to two years. Completion of the agreement, which
will be accounted for as a purchase transaction, is expected in the second
quarter of 2000, subject to regulatory approval and certain other customary
closing conditions.

NEWS CORPORATION STRATEGIC ALLIANCE

     On January 26, 2000, Healtheon/WebMD completed the transactions
contemplated by its strategic alliance agreement with The News Corporation
Limited, Fox Entertainment Group and certain of their affiliates (collectively,
"News Corporation"). Under this strategic partnership, News Corporation became a
minority stockholder in Healtheon/WebMD. The financial terms of the strategic
partnership include $400 million in media branding services to be provided by
News Corporation and its affiliates to Healtheon/ WebMD domestically over 10
years; a $100 million cash investment commitment by News Corporation in an
international joint venture; a $62.5 million five-year licensing agreement for
syndication of WebMD daily broadcast content; the transfer to Healtheon/WebMD of
a 50% interest in The Health Network, a health-focused cable network, and 50%
ownership of thehealthnetwork.com. All shares, excluding the cash investment,
will be restricted in certain respects for a period of up to three years.

     Healtheon/WebMD issued an aggregate of 155,951 shares of Series A Preferred
Stock, which shares vote on an as-if-converted basis with the Company's common
stock, in consideration for these transactions. Assuming conversion of all of
the shares of Series A Preferred Stock, the holders of these shares will receive
21,282,645 shares of the Company's Common Stock. These shares are subject to
restrictions on their sale for three years. In addition, affiliates of Fox
Entertainment purchased 2,000,000 shares of the Company's common stock at $50.00
per share for an aggregate purchase price of $100 million in cash.

JANUS INVESTMENT

     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.

KINETRA LLC

     On January 31, 2000, the Company completed its acquisition of Kinetra LLC,
a joint venture between Electronic Data Systems Corporation and Eli Lilly and
Company, which was accounted for as a purchase. Kinetra is a provider of health
information networks and healthcare e-commerce services that enhance
decision-critical information flow within the healthcare field. Healtheon/WebMD
issued an aggregate of 7,437,248 shares of the Company's common stock valued at
approximately $300,000 and paid a nominal amount of cash in exchange for all of
the membership interests of Kinetra.

MEDICAL MANAGER CORPORATION/CAREINSITE, INC.

     On February 13, 2000, the Company entered into definitive agreements to
acquire Medical Manager Corporation, a provider of physician practice management
systems in the United States, and its publicly traded subsidiary, CareInsite,
Inc., a developer of an Internet-based healthcare e-commerce network that links
physicians, suppliers and patients. Under the terms of the agreements, the
Company will exchange 1.65 shares of its common stock for each share of Medical
Manager and 1.3 shares for each share of CareInsite not owned directly or
indirectly by Medical Manager. Completion of the acquisitions, which will be
accounted for as purchase transactions, is expected in mid-year 2000, subject to
regulatory and stockholder approvals and certain other customary closing
conditions. In addition, the completion of the Medical Manager and CareInsite
acquisitions are conditioned on each other.
                                       73
<PAGE>   75
                          HEALTHEON/WEBMD CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ONHEALTH NETWORK COMPANY

     On February 15, 2000, the Company entered into a definitive agreement to
acquire OnHealth Network Company ("OnHealth"), a source of original,
informative, timely and trusted consumer-oriented health and wellness
information, products and services on the web. Under the terms of the agreement,
shareholders of OnHealth stock are to receive 0.189435 shares of the Company's
common stock for each share of OnHealth stock. Closing of the transaction, which
will be accounted for as a purchase transaction, is expected in mid-year 2000,
subject to regulatory and OnHealth stockholder approval and other customary
closing conditions. In connection with the agreement, the Company advanced
$15,000 to OnHealth for working capital needs.

                                       74
<PAGE>   76

                                    EXHIBITS

     As required under Item 14, Exhibits, Financial Statement Schedules and
Reports on Form 8-K, the exhibits filed as part of this report are provided in
this separate section. The exhibits included in this section are as follows:

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
  2.1(a)      Agreement and Plan of Merger dated as of February 13, 2000,
              between Registrant and Medical Manager Corporation
  2.2(a)      Agreement and Plan of Merger dated as of February 13, 2000,
              among Registrant, Avicenna Systems Corporation and
              CareInsite, Inc.
  2.3(b)      Agreement and Plan of Reorganization dated as of May 20,
              1999, as amended, by and among Registrant, WebMD, Inc.,
              Water Acquisition Corp.
  2.4(b)      Agreement and Plan of Reorganization dated as of April 20,
              1999, as amended, by and among Registrant, Merc Acquisition
              Corp. and MedE America Corporation
  2.5(b)      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.
  2.6(c)      Agreement and Plan of Reorganization, dated as of February
              24, 1998, by Registrant, MedNet Acquisition Corp. and
              ActaMed Corporation
  2.7(c)      Agreement and Plan of Merger, dated as of March 1, 1996, by
              and among Act Corporation, EDI Acquisition, Inc., UHC Green
              Acquisition, Inc. and United HealthCare Corporation,
              including amendment
  2.8(c)      Asset Purchase Agreement, dated June 25, 1998, among
              Registrant, Metis Acquisition Corp. and Metis, LLC
  2.9(d)      Purchase Agreement dated as of December 20, 1999, by and
              among Electronic Data Systems Corporation, Eli Lilly and
              Company, Integrated Medical Systems, Inc., Kinetra LLC and
              Registrant
  2.10(e)     Agreement and Plan of Merger dated as of January 22, 2000,
              among Registrant, Envoy Corporation, Quintiles Transnational
              Corporation and QFinance, Inc.
  2.11(f)     Agreement and Plan of Merger dated as of February 15, 2000,
              among Registrant, Tech Acquisition Corporation and OnHealth
              Network Company
  3.1(g)      Amended and Restated Certificate of Incorporation of
              Registrant, as currently in effect
  3.2(h)      Bylaws of Registrant, as currently in effect
  4.1(c)      Specimen Common Stock certificate
 10.1(c)      Form of Indemnification Agreement to be entered into by
              Registrant with each of its directors and officers
 10.2(c)      Healtheon Corporation 1996 Stock Plan and form of Stock
              Option Agreement
 10.3(c)      ActaMed Corp. 1997 Stock Option Plan
 10.4(c)      ActaMed Corp. 1996 Stock Option Plan
 10.5(c)      ActaMed Corp. 1995 Stock Option Plan
 10.6(c)      ActaMed Corp. 1994 Stock Option Plan
 10.7(c)      ActaMed Corp. 1993 Class B Common Stock Option Plan
 10.8(c)      ActaMed Corp. 1992 Stock Option Plan
 10.9(c)      ActaMed Corp. 1996 Director Stock Option Plan, as amended
 10.10(c)     Amended and Restated Investors' Rights Agreement dated as of
              January 28, 1998 among Healtheon Corporation and certain of
              Registrant's security holders
 10.11(c)     Lease Agreement, dated December 2, 1997, between Larvan
              Properties and Registrant, including addenda
 10.12*(c)    Services Agreement, dated as of December 31, 1997, as
              amended, between ActaMed Corporation and SmithKline Beecham
              Clinical Laboratories, Inc.
 10.13*(c)    Assets Purchase Agreement, dated as of December 31, 1997, as
              amended, between ActaMed Corporation and SmithKline Beecham
              Clinical Laboratories, Inc.
</TABLE>

                                       75
<PAGE>   77

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
 10.14*(c)    License Agreement, dated as of December 31, 1997, between
              ActaMed Corporation and SmithKline Beecham Clinical
              Laboratories, Inc.
 10.15*(c)    Development Agreement, dated as of October 31, 1997, between
              ActaMed Corporation and SmithKline Beecham Clinical
              Laboratories, Inc.
 10.16(c)     Amended and Restated Securities Purchase Agreement dated as
              of August 15, 1996, between Registrant and investors
 10.17(c)     Amended and Restated Series B Preferred Stock Purchase
              Agreement dated October 31, 1996, between Registrant and
              investors
 10.18(c)     Form of Series B Preferred Stock Purchase Warrant between
              Registrant and certain of Registrant's investors
 10.19(c)     Series C Preferred Stock Purchase Agreement dated July 25,
              1997, between Registrant and investors
 10.20(c)     Series D Preferred Stock Purchase Agreement dated October
              13, 1997, between Registrant and investors
 10.21(c)     Full Recourse Promissory Note dated as of July 11, 1997,
              between Registrant and W. Michael Long
 10.22(c)     W. Michael Long Employment Agreement
 10.23(c)     Healtheon 1998 Employee Stock Purchase Plan
 10.24(c)     Series A Preferred Stock Purchase Agreement, dated as of
              October 31, 1998, between Registrant and investors
 10.25*(i)    Asset Purchase Agreement, dated December 31, 1998, between
              Registrant and SmithKline Beecham Clinical Laboratories,
              Inc.
 10.26*(i)    Services Agreement dated January 19, 1999, between
              Registrant and SmithKline Beecham Clinical Laboratories,
              Inc.
 10.27*(j)    Distribution and Cross Promotion Agreement dated May 6, 1999
              between Microsoft Corporation, WebTV Networks, Inc., MSNBC
              Interactive News, L.L.C. and WebMD, Inc.
 10.28*(j)    Agreement, dated May 19, 1999, between Registrant, WebMD,
              Inc. and Microsoft Corporation
 10.29        Letter Agreement dated March 27, 2000 between Registrant and
              Microsoft Corporation
 10.30(j)     Agreement dated September 1, 1999, between Registrant,
              WebMD, Inc., Healtheon/ WebMD, Inc., McKesson HBOC, Inc.,
              HBO & Company, Access Health, Inc. and National Health
              Enhancements Systems, Inc.
 10.31(k)     Investment Agreement dated May 12, 1999, between WebMD,
              Inc., Microsoft Corporation and each of the other persons
              listed on Schedule I thereto
 10.32(k)     Services Agreement dated January 27, 1999 between WebMD,
              Inc. and Gleacher NatWest, Inc., currently known as Gleacher
              & Co., LLC
 10.33(l)     Master Strategic Alliance Agreement dated December 6, 1999
              among Registrant, The News Corporation Limited and Fox
              Entertainment Group, Inc.
 10.34*       Master Services, Development and License Agreement dated
              November 12, 1999 between Registrant and Beech Street
              Corporation
 10.35*       Services and License Agreement dated as of October 24, 1999
              between Registrant and United HealthCare Services, Inc.
 10.36        Letter Agreement dated January 28, 1999 between WebMD, Inc.
              and E.I. du Pont de Nemours & Company
 10.37*       Collaboration Agreement dated March 30, 1999 between WebMD,
              Inc. and E.I. du Pont de Nemours & Company
 10.38        Letter Agreement dated March 30, 1999 between WebMD, Inc.
              and E.I. du Pont de Nemours & Company
 10.39        Warrant to purchase shares of Series D Common Stock of
              WebMD, Inc. dated March 30, 1999 issued to E. I. du Pont de
              Nemours & Company
 10.40*       Second Amendment to Collaboration Agreement dated as of May
              28, 1999 between WebMD, Inc. and E. I. du Pont de Nemours &
              Company
 10.41        Employment Agreement dated as of September 30, 1998 between
              WebMD, Inc. and Jeffrey T. Arnold
</TABLE>

                                       76
<PAGE>   78

<TABLE>
<CAPTION>
EXHIBIT NO.   DESCRIPTION
-----------   -----------
<C>           <S>
 10.42        Letter Agreement dated May 20, 1999 between Registrant and
              Jeffrey T. Arnold
 10.43        Warrant to purchase shares of common stock of Registrant
              dated March 9, 2000 issued to Gleacher & Co. LLC
 10.44        Warrant to purchase shares of common stock of Registrant
              dated March 9, 2000 issued to Eric J. Gleacher
 10.45        Sublease Agreement between Premiere Technologies, Inc. and
              WebMD, Inc. dated December 15, 1997
 10.46(m)     WebMD, Inc. 1997 Amended and Restated Stock Incentive Plan,
              as amended
 10.47(m)     Director Stock Option Plan of WebMD, Inc.
 10.48(m)     Direct Medical Knowledge, Inc. 1997 Stock Option/Stock
              Issuance Plan
 10.49(m)     Sapient Health Network, Inc. 1996 Stock Incentive Plan
 10.50(m)     Greenberg News Networks, Inc. 1997 Stock Option Plan
 10.51(m)     MedE America Corporation and its Subsidiaries Stock Option
              and Restricted Stock Purchase Plan
 10.52(m)     MedE America Corporation and its Subsidiaries 1998 Stock
              Option and Restricted Stock Purchase Plan
 21           Subsidiaries of Registrant
 23           Consent of Ernst & Young LLP, Independent Auditors
 24           Power of Attorney (see page 48)
 27           Financial Data Schedule (for SEC use only)
</TABLE>

---------------
   * Confidential treatment was received, or is requested, with respect to
     certain portions of this document. Such portions were omitted and filed
     separately with the Securities and Exchange Commission.

 (a) Incorporated by reference to Registrant's Report on Form 8-K/A filed
     February 24, 2000

 (b) Incorporated by reference to Registrant's Registration Statement on Form
     S-4 filed October 19, 1999

 (c) Incorporated by reference to Registrant's Registration Statement on Form
     S-1 filed January 14, 1999

 (d) Incorporated by reference to Registrant's Report on Form 8-K filed February
     10, 2000

 (e) Incorporated by reference to Registrant's Report on Form 8-K filed January
     27, 2000

 (f) Incorporated by reference to Registrant's Report on Form 8-K/A filed
     February 22, 2000

 (g) Incorporated by reference to Registrant's Report on Form 8-K filed February
     8, 2000

 (h) Incorporated by reference to Registrant's Report on Form 8-K filed November
     29, 1999

 (i) Incorporated by reference to Registrant's Amendment No. 1 to its
     Registration Statement on Form S-1 filed February 4, 1999

 (j) Incorporated by reference to Registrant's Registration Statement on Form
     S-4 filed September 7, 1999

 (k) Incorporated by reference to Registrant's Registration Statement on Form
     S-4 filed September 30, 1999

 (l) Incorporated by reference to Registrant's Report on Form 8-K filed December
     10, 1999

 (m) Incorporated by reference to Registrant's Registration Statement on
     Form S-8 filed November 12, 1999

                                       77