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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   Form 10-K

(Mark One)

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

                  For the fiscal year ended December 31, 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: 000-27567

                               HEALTHCENTRAL.COM
            (Exact name of registrant as specified in its charter)

              Delaware                                 94-3250851
   (State or other jurisdiction of                  (I.R.S. Employer
   incorporation or organization)                  Identification No.)

                               HealthCentral.com
                       6001 Shellmound Street, Suite 800
                             Emeryville, CA 94608
         (Address of principal executive offices, including zip code)

      Registrant's telephone number, including area code: (510) 250-2500

       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 $.001 per share

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than 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 in 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 was approximately $84,855,473 as of February 29, 2000 based
upon the closing sale price on the Nasdaq National Market reported for such
date. Shares of Common Stock held by each officer and director and by each
person who owns 5% of more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

   There were 22,584,964 shares of the registrant's Common Stock issued and
outstanding as of February 29, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders to be filed hereafter (incorporated into Part III hereof).

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                                    PART I

   In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements. These forward-looking statements involve
risks, uncertainties and assumptions. The actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including but not limited to, those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors That May Affect Future Results and Market Price of
Stock." Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect management's opinions only as of the date
hereof. The Company undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements.

Item 1. Business

Company Overview

   We provide original, trustworthy, up-to-date and personalized online
healthcare information and sell health-related products to consumers through
our HealthCentral.com network of websites. In addition, we enable healthcare
institutions to provide healthcare information to their patients and consumers
through our enterprise web services business.

   Through our HealthCentral.com network, we derive revenue from
advertisements and the online sale of health-related products, or e-commerce.
Through our enterprise web services business we derive revenue from annual
license fees for applications, content, hosting and maintenance services, as
well as from development fees for customization services.

   We believe we are strongly positioned to integrate a wide range of health-
related content with a complete healthcare e-commerce solution. Our goal is to
become the consumer's most trusted and complete online source of healthcare
information and products. We intend to accomplish this by:

  . providing credible, original, engaging and personalized content through
    our HealthCentral.com network;

  . offering a broad range of products through our online drug store,
    HealthCentralRx.com;

  . offering our content to our e-commerce customers to help them make
    better-informed purchases of health-related products;

  . maintaining the strict independence of our editorial content; and

  . utilizing a cross-media promotion strategy--involving exposure in
    television, radio and print media--which leverages our relationships with
    established medical media personalities from traditional media.

   Our HealthCentral.com network of interactive websites offers consumer-
oriented health content and health related e-commerce. Our flagship
HealthCentral.com website currently offers health-related content provided by
media personalities such as Dr. Dean Edell, Joe and Theresa Graedon of The
Peoples' Pharmacy and Covert Bailey. Our HealthCentralRx.com online drug store
offers approximately 23,000 SKUs of prescription pharmaceutical products,
health and beauty aids, parenting and personal care products and nutritional
supplements. RxList.com is our online database of over 4,000 pharmaceuticals
and other medicines, with extensive information on 600 entries. We have an
agreement through December 15, 2002 with AltaVista under which we are the
exclusive healthcare content provider to its website, subject to conditions,
and we expect to launch an enhanced version of our co-branded health channel
in the second quarter of 2000. We also operate a Canadian co-branded health
channel on MediaLinx.

   In addition, we act as an application service provider, which means that we
design, host and maintain websites for healthcare institutions. These websites
are private label websites, which means that they are branded under our
clients' own names and brands rather than ours. Our largest clients are Brown
and Toland, Scripps Clinic and Catholic Healthcare West.

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Industry Background

 The Growth of the Internet and Electronic Commerce

   The Internet has revolutionized the way in which people obtain and exchange
information and transact business. International Data Corporation, or IDC,
estimates that the number of Internet users will increase from 142 million at
the end of 1998 to 500 million by the end of 2003. The Internet has unique and
powerful characteristics that differentiate it from traditional channels of
retail distribution, which are often narrow in selection, inconvenient,
limited in product information and lacking in privacy. IDC estimates that
worldwide business-to-consumer sales over the Internet will increase from
approximately $11 billion in 1998 to approximately $93 billion by 2002.

 The Growth of the Internet Healthcare Market

   The Internet has become an increasingly popular source for healthcare
information and products. Consumer research conducted by Cyber Dialogue in
1999 found that 24.8 million U.S. adults search for health information on the
Internet, with the number of people retrieving health-related information
projected to grow to 30 million in 2000. This growth in demand for online
health information has been driven by consumers seeking to make better
personal health care decisions. Consumers are also increasingly purchasing
healthcare products online. Forrester Research estimates that almost one third
of a surveyed group of Internet users shopped for health and personal care
products online during the previous six months. According to Jupiter
Communications, the total online and offline market for health goods, which
includes over-the-counter as well as prescription drugs, is expected to grow
from $133.6 billion in 1998 to $205.2 billion in 2003, while the amount of
online consumer purchases of healthcare goods is expected to grow from $2.4
million in 1998 to $1.7 billion in 2003.

 Healthcare Industry Trends

   Consumers are taking it upon themselves to seek more information about
their healthcare needs for the following reasons:

  . Patients' access to their physicians has become significantly reduced due
    to managed care.

  . Employers are increasingly shifting healthcare costs and decisions to
    their employees.

  . Insurance plans allow individuals greater choice in healthcare options,
    at increased personal costs.

  . Advances in medicine have broadened treatment options for many medical
    conditions.

The advent of the Internet has provided a medium for consumers to seek such
information. Moreover, the Internet allows consumers to seek information on
sensitive or embarrassing health issues while maintaining anonymity and
confidentiality.

   Payors and providers, who are faced with increasing economic pressures as
an outcome of managed care, are increasingly competing for consumers.
Physician groups compete to increase their patient bases to spread their
administrative costs and increase their negotiating leverage with payors. This
competition in the provider market is exacerbated by an oversupply of
specialist physicians in many markets and underutilization in many hospitals.
Due to this increased competition for members and patients, both payors and
providers are looking for ways to develop and maintain the loyalty of their
existing members and patients and attract new members and patients. Internet-
based services enable health plans and providers to differentiate their
services, decrease their customer support costs, and improve ties with their
members or patients.

   The consumer has also become the marketing focus of commercial healthcare
enterprises, such as pharmaceutical and other healthcare products companies.
While pharmaceutical manufacturers have traditionally marketed their
prescription products to physicians, these companies have recognized that
consumers want to learn about and exercise greater control over their drug
therapies across an ever-widening list of conditions. Pharmaceutical companies
have thus begun advertising their products directly to consumers, most notably

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through television advertising. This direct-to-consumer, or DTC, advertising
is increasing rapidly. Jupiter Communications projects that overall health-
related advertising spending in all forms of media will increase to $10.8
billion by 2003, while DTC advertising for pharmaceutical products will grow
to almost $3.8 billion. Advertisers are also increasingly turning to the
Internet as a medium to deliver their message. Jupiter Communications projects
that overall online health and medical advertising spending, including online
DTC advertising, will increase to $356 million by 2003, up from $12.3 million
in 1998.

 Internet Healthcare Market Opportunities

   Although the Internet enables consumers to access healthcare information,
products and services, several Internet healthcare opportunities have yet to
be fully addressed. Despite approximately 15,000 healthcare websites, online
healthcare information is typically provided in a generic, impersonal and
sometimes misleading manner, with the line between editorial content and
advertising blurred. In addition, Internet services offered to healthcare
institutions typically offer no customization capabilities or branding
opportunity to these institutions.

   The interactive nature of the Internet enables a unique combination of
content provision with product offerings. However, the markets for health-
related content and e-commerce have not been well integrated to date. Online
merchants of health-related products are beginning to overcome the challenges
of inconvenience, narrow selection and lack of privacy that face traditional
store-based retailers. Yet, we believe these online merchants generally do not
offer content that is both wide-ranging and personalized in combination with
their product offerings.

HealthCentral.com Solution

   We provide original, trustworthy, up-to-date and personalized online
healthcare information and sell health-related products to consumers through
our HealthCentral.com network of websites. In addition, we enable healthcare
institutions to provide healthcare information to their patients and consumers
through our enterprise web services business.

 Our HealthCentral.com Network

   Our consumer-focused network of interactive websites currently consists of
our flagship HealthCentral.com website, our RxList.com pharmaceutical database
and our HealthCentralRx.com online drug store. We also operate a Canadian co-
branded health channel on MediaLinx, our Canadian affiliate, and we plan to
launch an enhanced version of our AltaVista co-branded health channel in the
second quarter of 2000. We also have important affiliations with other online
promotional and portal companies. Our HealthCentral.com network of websites is
a global consumer health information source--from current fitness issues to
complex diseases--as well as an online drug store through which consumers can
purchase health-related products.

   Unique, Trustworthy and Engaging Health Information Content. Our
HealthCentral.com network is built on the provision of unique and engaging
information from medical professionals who have established a high degree of
trust with consumers through traditional media. Currently our original content
comes from established media sources such as Dr. Dean Edell, one of the
leading physician broadcasters in the United States over the past twenty
years, Joe and Teresa Graedon, who host their own internationally syndicated
radio show and write The People's Pharmacy, a nationally syndicated newspaper
column, and Covert Bailey, a fitness and nutrition expert, author and
television personality.

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   Online Prescription Pharmaceuticals and Other Health-Related Products.
HealthCentralRx.com offers approximately 23,000 SKUs, of which approximately
5,000 are prescription pharmaceuticals and approximately 18,000 are health and
beauty aids and over-the-counter medications. HealthCentralRx.com has
fulfillment agreements with Bergen Brunswig, a major drug distributor, for
health and beauty aids, over-the-counter products and, through Bergen
Brunswig's Medi-Mail mail order pharmacy subsidiary, prescription drug orders.
Through this relationship with Bergen Brunswig and Medi-Mail,
HealthCentralRx.com also has access to the Good Neighbor Pharmacy Network, a
coalition of approximately 2,000 participating retail pharmacies nationwide,
and the PlusCare Provider Network of third-party pharmaceutical benefit
management companies, or PBMs. Collectively, these PBMs provide prescription
drug benefits for approximately 80 million covered lives.

   Personalized Level of Service. We personalize the level of service for our
visitors to enable them to make informed personal health decisions. Our
proprietary tools were designed and developed over a 15-year period by Windom
Health, whose efforts were in part funded through an advanced technology
program under a shared grant of $20 million from governmental and private
sources. By using our interactive features, visitors can receive a personal
health report outlining their greatest health risks, find information tailored
to their interests and build their online personal health record. This
personalized content includes action guides relating to visitors' particular
health concerns and free e-mail newsletters on specific healthcare topics.

 Enterprise Web Services

   Primary Online Consumer Interface for Institutional Clients. We act as an
application service provider for healthcare institutions by designing, hosting
and maintaining their private label websites. Unlike many of our competitors,
we provide these services on a private label basis, which means that the
websites are branded under our clients' own names and brands rather than ours.
These private label websites enable our institutional clients to build needed
brand loyalty to retain and attract members and patients. We receive both
development fees for building customized websites and an annual license fee
for our content and interactive tools.

   Multiple Levels of Service to Institutional Clients. With our private label
websites, our institutional clients are able to improve their patient support
and marketing efforts, reduce their administrative costs of interacting with
their patients and provide relevant health information, control and choice to
the consumer. We offer three levels of application services:

  . QuickStart. Our entry-level service package, called QuickStart, provides
    basic tools.

  . A La Carte Application Licenses. Institutions may license any combination
    of our content and interactive software tools to incorporate into their
    own websites. We also offer administrative tools for both updating
    content and measuring site usage. License fees, which include fees for
    maintenance but not technical support, depend on the combination of tools
    and content licensed.

  . Comprehensive Website Development. Our premium service features
    comprehensive website development, in which we integrate the
    institutional customer's content and tools with our content and tools,
    then continually update our content and maintain the website. We receive
    both a fee, based on time and materials, for developing the website and
    an annual license fee, which includes several hours per month of
    maintenance and customer support. We also customize our tools to suit the
    specific institutional client's needs, which leads to the development of
    unique tools that can often be repurposed for use on our consumer network
    or on other institutional websites.

Our Strategy

   Our goal is to become the consumer's most trusted and complete online
source of healthcare information and products. We intend to accomplish this
objective by the following:

   Build Our Brands and Drive Network Traffic Through Our Cross-Media
Exposure. Our cross-media strategy entails increasing our exposure through the
promotional efforts of established medical professionals in traditional media
such as television, radio and newspaper, and through select Internet portal
relationships. We believe our

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cross-media strategy is a cost-effective means for increasing and sustaining
our network traffic. We intend to continue building our cross-media exposure
to build brand awareness and drive traffic to HealthCentral.com and other
websites on the HealthCentral.com network, including RxList.com and
HealthCentralRx.com.

  . Dr. Dean Edell. Dr. Dean Edell is the host of the Dr. Dean Edell Show, a
    daily one hour radio program on over 320 radio stations, including the 20
    largest radio markets in the United States. Dr. Edell typically refers
    listeners to our HealthCentral.com network several times on his daily
    one-hour syndicated radio program. He also has Medical Minutes radio
    programs typically aired five times a week during morning rush hour
    traffic. We believe Dr. Edell reaches approximately 13 million radio
    listeners weekly through his radio broadcast, based on data provided by
    Arbitron. Dr. Edell also has a daily syndicated television report, which
    is broadcast in over 55 markets, including four of the 10 largest
    television markets in the United States. As of February 25, 1999,
    television stations in 30 markets had agreed to promote the
    healthcentral.com website and include the HealthCentral.com Report icon
    on their local web pages.

  . The People's Pharmacy. Teresa and Joe Graedon write The People's
    Pharmacy, a newspaper column syndicated by King Features and published in
    over 75 newspapers, including in markets such as New York, Baltimore, Los
    Angeles, Boston and Chicago. The Graedons also host a weekly radio show
    that is broadcast on over 700 stations around the world. In addition,
    they are the authors of ten books, including The People's Pharmacy, a New
    York Times No. 1 best seller. We operate a co-branded website,
    PeoplesPharmacy.HealthCentral.com.

  . Portal Relationships with AltaVista, America Online and MediaLinx. We
    have an agreement with AltaVista under which we are the exclusive
    healthcare content provider to its website, subject to conditions, and we
    expect to launch an enhanced version of our co-branded health channel in
    the second quarter of 2000. HealthCentralRx.com has an agreement with
    America Online through August 2001, under which HealthCentralRx.com is
    one of the five health-related anchor tenants on the America Online
    HealthOnline Pharmacy Channel. We also operate our co-branded health
    website with MediaLinx, which manages the largest Internet service
    provider in Canada.

  . Other Internet Affiliations. We have agreements with portals and other
    websites, including Microsoft, Looksmart, NetPulse, Snap.com and Yahoo!.

   Cultivate Multiple Revenue Streams. Our strategy is to develop our multiple
revenue streams to spread our business risk and leverage our intellectual
property:

  . Sponsorship and Advertising Fees. Companies can sponsor, through
    exclusive advertising, Health Topic Centers, which are pages devoted to
    specific health issues written and compiled by our editorial staff, or
    free e-mail newsletters requested by users on specific health topics. We
    generate advertising fees from placing ads, all of which are clearly
    delineated from our editorial content, on our websites. DoubleClick
    currently acts as our advertising sales agent for our HealthCentral.com
    website and, since January 1999, 100% of our available ad inventory has
    been sold. DoubleClick also acts as our advertising sales agent for our
    RxList.com website.

  . e-commerce. HealthCentralRx.com, our online drug store, offers
    prescription pharmaceutical products, health and beauty aids, parenting
    and personal care products and nutritional supplements.
    HealthCentralRx.com currently delivers prescriptions, over-the-counter
    items, and health and beauty aids by mail order.

  . Enterprise Web Services. Our institutional clients pay us fees for
    licensing our tools and content, as well as development fees for
    customized website development. We have developed a personal health
    record that enables our institutional clients to provide their members or
    patients with Internet access to personal health data. This service is
    currently in use at Catholic Healthcare West.

   Deliver Compelling and Unique Content to Consumers. We intend to
continually add credible and compelling content and provide interactive and
personalized tools to retain visitors to our HealthCentral.com network. Our
production and editorial staff of 29 employees develops, screens, edits and
compiles content for our HealthCentral.com network, so that the healthcare
information we provide continues to be original, topical and engaging for our
visitors.

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   Attract a Growing Base of Customers to HealthCentralRx.com and Provide
Visitors with a Superior Shopping Experience. We intend to grow our online
drug store business by:

  . offering consumers useful links to information related to products by
    integrating selected content and tools from HealthCentral.com, RxList.com
    and PeoplesPharmacy.HealthCentral.com;

  . strengthening the HealthCentral.com brand through traditional and online
    advertising;

  . expanding our range of consumer products and services;

  . offering the consumer the choice of mail order delivery, in-store pickup
    or, in some cases, delivery from any of the approximately 2,000
    pharmacies in the Good Neighbor Pharmacy Network;

  . encouraging repeat purchasing patterns by allowing customers to store
    frequently purchased items in their own personal shopping lists;

  . continually improving the shopping experience by adding new features to
    the site; and

  . developing a high level of customer service.

   Leverage Personalization Features. Our database of visitor information will
allow us to improve the user's return visits to our network by providing the
user with targeted content of particular interest. Each page of our content is
reviewed by our editorial staff and linked to specific health conditions or
interests. While protecting all confidential patient information, we can
provide advertisers and electronic merchants with direct links to highly
specialized target markets, enabling them to use DTC advertising more
efficiently.

   Maintain and Cultivate a Relationship of Trust with Consumers. Through our
affiliations with trusted media personalities such as Dr. Dean Edell, Teresa
and Joe Graedon of The People's Pharmacy and Covert Bailey, we enjoy a
privileged and trusted status with those consumers who seek our
HealthCentral.com network based on their experience with those personalities.
We hold that level of trust in high regard and seek to maintain it by
providing consumers with reliable editorial-reviewed content and by keeping
individual consumer information confidential. We strive to clearly delineate
our editorial content from our advertising.

   Leverage Strategic Relationships. We have strategic relationships with
AltaVista, America Online, and Bergen Brunswig, which we plan to leverage into
increased traffic, branding and market power. We intend to pursue additional
complementary relationships that would provide us with a competitive
advantage.

HealthCentralRx.com

   HealthCentralRx.com launched its website in September 1999.
HealthCentralRx.com has fulfillment agreements with Bergen Brunswig, a major
drug distributor, for health and beauty aids, over-the-counter products and,
through Bergen Brunswig's Medi-Mail mail order pharmacy subsidiary,
prescription drug orders. HealthCentralRx.com also has an agreement with
Bergen Brunswig for access to the PlusCare Provider Network of pharmacy
benefit managers, which has approximately 80 million covered lives. We expect
that access to the PlusCare Provider Network will enable many of our
customers' prescription drug orders to be covered by their pharmacy benefit
managers.

   HealthCentralRx.com also has an agreement with America Online through
August 2001 under which it is one of five health anchor tenants on the America
Online HealthOnline Pharmacy Channel.

 Products Available on Our HealthCentralRx.com Website

   We provide our customers with access to over 23,000 SKUs of prescription
pharmaceuticals, health and beauty aids and health-related over-the-counter
products through our relationship with Bergen Brunswig. Products are organized
on the HealthCentralRx.com website into the following categories:

  . Health. The health category includes over-the-counter remedies, such as
    cough, cold, allergy and pain relief medications, and products for eye
    and ear care, family planning, and home health. Representative brands
    carried in our health category include Bayer, Advil, Excedrin,
    Robitussin, Vicks and Alka-Seltzer.

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  . Personal Care. The personal care market category includes products
    related to deodorants, foot care, men's care, oral hygiene, soaps and
    women's care. Representative brands carried in our personal care product
    category include Gillette, Revlon, Desenex, Rogaine, Crest, Ivory and
    Playtex.

  . Supplements. The supplements category includes adult nutritionals, diet,
    herbs, minerals, natural health, sports and fitness, and vitamins.
    Representative brands carried in our supplements category include Slim-
    Fast, Twin Labs, Weider, Centrum, Geritol and Power Bar.

  . Beauty. The beauty category includes cosmetics, fragrances, hair care,
    nail care, skin care and sun protection products. Representative brands
    carried in our beauty category include Cover Girl, L'Oreal, Christian
    Dior, Vidal Sassoon and Clairol.

  . Parenting. The parenting category includes baby care, child care and
    prenatal products. Representative brands carried in our parenting
    category include Infant's Tylenol, Advil, and Huggies.

  . Prescriptions. This category consists of prescription medication for
    chronic illnesses, such as high blood pressure, osteoporosis and
    depression, as well as for acute illnesses.

 Shopping @ HealthCentralRx.com

   Customers at HealthCentralRx.com can fill prescriptions and shop for brand
name health and beauty aids online from the privacy and convenience of their
homes. The HealthCentralRx.com site has a virtual shopping bag that keeps a
running tab of selected items and prices, allowing shoppers to quickly
purchase their needed healthcare products. The shopping bag remains to the
right of their screen while browsing so that consumers do not have to click to
a different page to select each product. To quickly find a particular item,
shoppers can use our search engine, browsing the entire inventory by key word,
such as the product name, brand name or description.

   To further enhance the shopping experience, we plan to supply the following
interactive tools and decision-support functionality:

  . My HealthCentralRx.com--personalization manager that creates custom
    shopping lists according to set preferences and past behavior.

  . Rx Reminder--customizable shopping calendar for pre-order and re-
    order/refill.

   Currently, our customers can have their general questions about account
information, ordering products, and shipping status addressed by
HealthCentralRx.com customer care representatives. In addition, licensed
pharmacists at Medi-Mail are available to provide guidance, advice or
information about prescription medications concerning correct use and dosage,
generic alternatives, potential side effects and drug interactions.

 Prescription Pharmaceutical Orders

   Orders placed on our HealthCentralRx.com website for prescription
pharmaceuticals are processed, adjudicated and fulfilled under our agreement
with Medi-Mail, a mail order pharmacy, which is a wholly owned subsidiary of
Bergen Brunswig.

  . Accepting Prescriptions. Our customers can initiate the prescription
    process by any one of the following methods: ordering online, directing
    their physician to call or fax the prescription to Medi-Mail or having
    Medi-Mail contact their physician directly to obtain prescription
    information. Medi-Mail is licensed to fill prescriptions in 47 of the 50
    states as well as Guam, Puerto Rico and the U.S. Virgin Islands. A
    license to fill prescriptions is pending in Arkansas, Michigan and
    Tennessee.

  . Verifying Prescriptions. Medi-Mail's licensed pharmacists are required to
    verify the validity and completeness of prescription drug orders.


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  . Verifying Prescription Drug Coverage. Medi-Mail determines the
    availability of prescription drug coverage and obtains all necessary
    approvals from healthcare providers within one business day of the
    placement of the order. If health insurance coverage is not available or
    denied for any reason, Medi-Mail will advise us so that we can arrange
    for payment in full by the consumer. Medi-Mail will not ship any order
    unless we have advised them that we have received payment in full from
    the consumer.

  . Drug Utilization Review. In the future, we intend to build a database for
    each customer based upon his or her historical prescription usage at
    HealthCentralRx.com. We expect that the pharmacists at Medi-Mail will
    eventually be able to crosscheck each prescription received for
    allergies, therapeutic overlap, overuse/underuse and drug interactions
    with other drugs or foods.

  . Delivery of Prescription Products. We offer our customers various
    shipping options, including next-day delivery service. These orders are
    currently delivered by UPS two-day air or three to five-day ground
    transportation. By June 2000, we plan to offer U.S. mail as an additional
    shipping option.

 Distribution and Order Fulfillment for Non-Prescription Healthcare Products

   We outsource our distribution and order fulfillment operations for health
and beauty aids and over-the-counter product orders on an exclusive basis with
Bergen Brunswig. Our agreement with Bergen Brunswig for these services ends in
August 2004.

   Orders for health and beauty aids and over-the-counter products are placed
on our website and then forwarded to Bergen Brunswig by electronic data
interchange. Each order provides a description of the product, SKU
designations, quantities, method of payment, requested method of delivery and
the designated delivery location. We expect that Bergen Brunswig will maintain
sufficient inventory in an effort to facilitate the delivery of orders placed
on our sites. We currently offer approximately 18,000 SKUs of health and
beauty aids and over-the-counter products on our sites. We offer a variety of
shipping options, including UPS three to five day ground service, UPS 2nd day
air and UPS Next Day Air. By June 2000, we plan to offer U.S. mail as an
additional shipping option.

Customers

 Consumer

   In January 2000, according to an audit completed by Nielsen I/PRO, the
HealthCentral.com network of websites experienced the following pageviews and
visits and, according to DoubleClick the following unique visitors:

<TABLE>
<CAPTION>
                                              I/PRO      I/PRO     DoubleClick
      January 2000                          Pageviews   Visits   Unique Visitors
      ------------                          ---------- --------- ---------------
      <S>                                   <C>        <C>       <C>
      HealthCentral.com....................  9,378,798 2,421,750    1,356,170
      RxList...............................  3,942,596   917,649      540,061
      HealthCentralRx......................  2,726,468   557,675          N/A
      HealthCentral.ca.....................    523,414    97,988          N/A
      TOTAL................................ 16,571,276       N/A          N/A
</TABLE>


Any aggregation of the figures in the above table may result in double-
counting of total visits and/or unique visits because one person may visit
more than one of our websites. Page views are the total number of complete
pages retrieved and viewed by visitors to each of the websites. Each single-
session use of any of the websites constitutes a visit, and a unique user is
an individual visitor to the HealthCentral.com or RxList.com website. We do
not have the ability to track unique visitors to HealthCentralRx.com or
MediaLinx.

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 Institutional

   The following is a list of our largest institutional customers, to whom we
are currently licensing applications or providing website development
services:

<TABLE>
<CAPTION>
   Name                      Description
   ----                      -----------
   <S>                       <C>
   Brown & Toland Medical    Partnership of University of California at San
    Group                    Francisco and California Pacific Medical Centers
                             with over 1,800 physicians

   Catholic Healthcare West  Network of 48 hospitals based in California,
                             Nevada and Arizona

   Mills Peninsula Health    Acute care hospital and health center affiliated
    Services                 with Sutter Health

   Palo Alto Medical         Non-profit organization affiliated with Sutter
    Foundation               Health providing healthcare services, research
                             and education

   Scripps Clinic            Medical group and clinical research organization
                             with over 320 physicians based in San Diego,
                             California
</TABLE>

Strategic Relationships

   We have the following strategic relationships:

     Dr. Dean Edell. In May 1999, we entered into a 15-year agreement with
  Dr. Edell, in which he granted us the exclusive right to the use of his
  name in connection with our business and exclusive commercialization rights
  to his services over the Internet, except for the publication of radio
  transcripts and Internet broadcasts of his radio program. Under this
  agreement, we own all content that Dr. Edell creates for our
  HealthCentral.com network.

     America Online. In August 1999, HealthCentralRx.com entered into a two-
  year agreement with America Online, under which HealthCentral.com will
  appear as one of five health-related anchor tenants on the America Online
  HealthOnline Pharmacy Channel. HealthCentralRx.com is required to pay
  approximately $14 million over the term of the agreement for a minimum
  number of advertising impressions.

     AltaVista. In September 1999, we entered into a three year agreement
  with AltaVista for the creation of a co-branded website on the AltaVista
  Health Channel. We expect to launch an expanded version of our co-branded
  health channel in the second quarter of 2000. We are the exclusive content
  provider on this co-branded site unless we fail to provide desired content
  within a given period. Under the agreement, AltaVista must deliver a
  minimum of advertising impressions and will receive payments from us of up
  to $65.6 million in cash and stock issued at fair market value over the
  three year term, of which $5 million had been paid as of March 1, 2000. In
  addition, we have agreed to issue AltaVista warrants to purchase stock if
  they meet higher performance thresholds. If AltaVista fails to deliver the
  minimum advertising impressions, we reduce our payments to them. Either
  AltaVista or we may cancel the agreement after two years.

     Bergen Brunswig. Bergen Brunswig is one of our stockholders and a
  strategic partner. In July and September 1999, we entered into a series of
  agreements whereby Bergen Brunswig provides us with fulfillment services
  for health and beauty aids, over-the-counter products and prescription drug
  orders. The fulfillment agreement with Bergen Brunswig for health and
  beauty aids and over-the-counter products is a five-year agreement and
  provides our customers with access to over 18,000 SKUs. Our pharmacy
  services fulfillment agreement is with Bergen Brunswig's mail order
  pharmacy, Medi-Mail, has a term of five years and provides our customers
  with access to over 5,000 prescription pharmaceutical SKUs. Our
  relationship

                                       9
<PAGE>

  with Bergen Brunswig provides us access to the Good Neighbor Pharmacy
  Network of approximately 2,000 independent pharmacies and access to the
  PlusCare Provider Network of over 85 pharmacy benefit managers covering
  approximately 80 million lives. Each of the PBMs has entered into an
  agreement with Medi-Mail, pursuant to which it provides pharmacy benefits
  for customers of approximately 2,000 individual pharmacies.

     The People's Pharmacy. In September 1999, we entered into a four-year
  agreement with Joe and Teresa Graedon to launch a co-branded website,
  PeoplesPharmacy.HealthCentral.com, to provide users with exclusive Internet
  access to pharmacy-related content produced by the Graedons in the form of
  books, newspaper columns, and radio shows. The People's Pharmacy, a
  newspaper column written by the Graedons and syndicated by King Features,
  is published in over 75 newspapers, including in markets such as New York,
  Baltimore, Los Angeles, Boston and Chicago. They also host a weekly radio
  show that is broadcast on over 700 stations around the world. The Graedons
  have agreed to participate in an interactive pharmacy chat room on the co-
  branded site. We make annual payments to the Graedons and have issued them
  an option to purchase up to a maximum of 250,000 shares of our common
  stock.

     MediaLinx. In November 1999, we launched our co-branded website with
  MediaLinx, an Internet portal in Canada. MediaLinx manages Sympatico, the
  largest Internet service provider in Canada. Canadian users accessing
  MediaLinx have access to our co-branded channel offering Canadian-specific
  health content and editorials.

     Covert Bailey. In December 1999, we entered into a four-year license
  agreement with Covert Bailey, a fitness and nutrition expert, author and
  television host. We feature proprietary content from Covert Bailey,
  including recipes, fitness and nutrition tips, diet and exercise logs, and
  tools that measure body fat and caloric needs and answer site visitors'
  questions. We make annual payments to Mr. Bailey over the life of the
  agreement, issued him 6,250 shares of our common stock upon signing of the
  contract and have granted him an option to purchase 30,000 shares of our
  common stock which vests over the four year term of the agreement.

   We also have promotional, content distribution and portal relationships
with Microsoft, Looksmart, NetPulse, Snap.com and Yahoo!.

Technology

   Our HealthCentral.com and HealthCentralRx.com websites employ similar
three-tier software architectures, and each is hosted on a different third-
party web hosting service. We plan to integrate the RxList.com and
HealthCentralRx.com applications, services and databases into the
HealthCentral.com network architecture.

   Physical Architecture. We employ a reliable and scalable server
architecture in a mixed LINUX, UNIX and Windows NT environment. Our
HealthCentral.com network, as well as our institutional clients' websites, are
protected by an industry standard firewall. All sensitive data is stored on a
separate, private network that is not directly accessible from the Internet.
In addition, there is a security system that includes video surveillance of
all servers 24 hours a day and a well-defined audit mechanism.

   Software Architecture. We employ a three-tier software architecture,
consisting of a user interface layer, an engine layer and a database layer,
which allows customization, updating and repair of each layer without
interfering with the operation of the other layers. An institutional client
may choose to have its database reside with us or remain at the client's
location. Our database servers are Oracle, Sybase on Sun Solaris for high end
applications and MS SQL servers for low-end applications. We are in the
process of improving the scalability of our database servers.

                                      10
<PAGE>

Sales and Marketing

 HealthCentral.com and RxList.com

   Our current sales and marketing strategy is to quickly build our revenues,
brand recognition and brand loyalty from sponsorships and advertising. Our
advertising campaigns target both online and traditional audiences and are
designed to promote an enhanced customer experience.

   Our online advertising efforts are focused on Internet portals and other
websites. We employ DoubleClick, the largest Internet advertising company, to
conduct advertising and sponsorship sales for our HealthCentral.com and
RxList.com websites. Our senior management participates with DoubleClick
representatives in important sales efforts. Under the terms of the agreement,
we cannot sell advertising, with some exceptions, for our HealthCentral.com
website through alternate avenues; however, the agreement is terminable by
either party on 90 days notice. 100% of our advertising inventory for the
HealthCentral.com website has been sold each month from January 1999 through
February 2000. We intend to continue to use the unique resources of the
Internet as a means of marketing in an effort to drive traffic and repeat
purchases.

 HealthCentralRx.com

   Our current sales and marketing strategy is to establish brand awareness
and build brand loyalty of HealthCentralRx.com in order to drive sales of
prescription and non-prescription items. Our advertising and promotional
activities target both online and offline audiences and have been initially
designed to attract first-time customers. To induce customer loyalty, we
intend to employ frequency reward programs based upon repeat purchases. In the
first half of 2000, we plan to target healthy people and people who suffer
from chronic conditions by offering disease-specific information and building
communities around common health concerns and prevention and health management
topics.

   Our online marketing efforts are focused on identifying and marketing to
early adopters of healthcare e-commerce, who are typically Internet users aged
35 to 54, with an emphasis on women. We intend to reach these groups through
co-marketing initiatives with affiliate websites targeting adults, e.g.,
women's interests, parenting and family, investing, travel planning, real
estate, and senior-oriented sites. We intend to employ incentive programs for
affiliate sites to co-register users for our newsletter, as well as reward
affiliates for directing traffic to our site that results in purchases. We
also intend to acquire or rent opt-in e-mail lists to market through e-mail
based communications. We also plan to reinforce our online marketing efforts
through branded giveaway items in our product packaging, e.g.,
HealthCentralRx.com-branded pill boxes, thermometer strips, pens, water bottle
straps, first-aid kits and band-aids.

   In addition to marketing through online channels, we intend to use
traditional marketing and promotional efforts, including print media
campaigns, TV, radio and billboards. We intend to increase our brand awareness
through associating with health and family-related events.

 Enterprise Web Services

   Our current sales and marketing strategy is to quickly build our
institutional customer base, while deriving revenues from licensing and
development fees. We are in the process of building our direct sales teams for
our enterprise web services.

Competition

   To be competitive, we must increase our site traffic and market share both
rapidly and significantly. Thus, we must attract and retain users to our
HealthCentral.com network by offering unique content and services, including
the ability to purchase health-related products, of particular interest to our
users.


                                      11
<PAGE>

 HealthCentral.com and RxList.com

   There are currently over 15,000 Internet websites that provide health-
related information. As a result, our industry is fragmented and competition
is extremely intense. Our HealthCentral.com and RxList.com consumer websites
compete directly for users, advertisers, e-commerce merchants and other
partners with numerous Internet and non-Internet businesses, including:

  . health-related websites targeted at consumers, such as drkoop.com,
    AllHealth.com, DiscoveryHealth.com, InteliHealth, Medscape.com,
    OnHealth.com, Thrive.com and Healtheon/WebMD.com (which has announced an
    acquisition of OnHealth.com);

  . online portal companies, such as America Online, Excite, Inc., The
    GoNetwork, Lycos Corporation, Microsoft Network, and Yahoo!;

  . hospitals, HMOs, managed care organizations, insurance companies and
    other healthcare providers and payors that offer healthcare information
    through the Internet; and

  . consumer affinity groups, such as the American Association of Retired
    Persons and SeniorNet, which offer online healthcare-related content to
    special demographic groups.

 HeathCentralRx.com

   The online e-commerce markets in the health, beauty, wellness, personal
care and pharmacy categories are fragmented and intensely competitive. Our
competitors in these areas can be divided into several groups:

  . chain drugstores, such as CVS, Eckerd and Walgreen's, and independent
    drug stores;

  . mass market retailers, such as Kmart, Target and Wal-Mart;

  . supermarkets and warehouse clubs;

  . online retailers of health, beauty, personal care and/or pharmaceutical
    products, such as planetRx and drugstore.com;

  . mail-order pharmacies and prescription benefits managers, such as Express
    Scripts and Merck-Medco;

  . Internet-portals and online service providers that feature shopping
    services, such as America Online, Yahoo!, Excite and Lycos; and

  . cosmetics departments at major department stores.

   Each of these competitors operates within one or more of the health,
beauty, wellness, personal care and pharmacy product categories. In addition,
nearly all of our competitors have, or have announced their intention to have,
the capability to accept orders for products online. In particular,
Walgreen's, CVS, Albertson's and Wal-Mart already are accepting prescription
refill or other orders on their websites.

   Many of these competitors have substantial competitive advantages over us,
such as:

  . greater name recognition;

  . larger user bases;

  . greater financial, technical and other resources;

  . the ability to offer a wider array of online products and services; and

  . more diversified content offerings.

   We believe the main competitive factors in the health-related e-commerce
market are the availability of branded products, selection, convenience,
price, quality of search tools, and reliability and speed of fulfillment for
products ordered.


                                      12
<PAGE>

 Enterprise Web Services

   In the market for enterprise web services, we compete mainly with payors'
and providers' internal systems development teams, with local web development
companies, with consumer-oriented websites that are selling applications to
institutions, such as drkoop.com, WebMD and BabyCenter's CHI division. The
main competitive factors in the enterprise web services market are depth of
content, cost, development and maintenance ability and the ability to allow
the institutional client to promote its own brand.

Intellectual Property Rights

   Our intellectual property rights are important to our business. We rely on
a combination of copyright, trade secret, trademark and trade dress laws,
confidentiality procedures and contractual provisions to protect our
proprietary rights. We have obtained federal trademark registrations for the
trademarks and logos "HealthCentral," "HealthCentralRx" and "RxList." We have
a 15-year agreement with Dr. Edell, in which he has granted us the exclusive
right to the use of his name in connection with our business and exclusive
commercialization rights to his services over the Internet, except for the
publication of radio transcripts and Internet broadcasts of his radio program.
Under this agreement, all content that Dr. Edell creates for our
HealthCentral.com network is owned by us. Windom Health developed some
elements of HealthView, the Personal Health Record and the general
architecture of the HealthCentral.com consumer website during its
participation in a project funded by a grant from the National Institute of
Standards and Technology. Under the terms of the grant, Windom Health owns the
intellectual property it developed for the project and granted a nonexclusive,
nontransferable license to the U.S. government of that intellectual property.
In addition, we have various other exclusive contractual rights. See "--
Strategic Relationships."

   Our policy is to enter into confidentiality and invention assignment
agreements with all employees and consultants, and nondisclosure agreements
with all potential business partners. These protections, however, may not be
adequate to protect our intellectual property rights. In addition, we may be
sued by third parties alleging, with or without merit, that we have violated
their intellectual property rights. See "Risk Factors--Any failure to protect
our intellectual property rights impair our ability to establish our brands"
and "--We may be sued by third parties for infringement of their proprietary
rights."

Government Healthcare Regulation

   General. Numerous state and federal laws regulate our health business, as
described below. Generally, the laws and regulations governing the healthcare
industry have not been tested in relation to e-commerce in healthcare products
and/or the provision of healthcare information on the Internet. The laws may
be interpreted in such a way that we may not be permitted to conduct our
business as described. The requirement that we comply with any new legislation
or regulations, or any unanticipated application or interpretation of existing
laws or regulations, may decrease the growth in the use of the Internet, which
could in turn decrease the demand for our products, services and information
offered through our HealthCentral.com network, increase our cost of doing
business or otherwise harm our business. See "Risk Factors--Extensive and
changing government regulation of the healthcare industries is expensive to
comply with and exposes us to the risk of substantial governmental penalties."

   Regulation of the Practice of Medicine. The practice of medicine is
generally defined by state law and varies from state to state. Often it is
defined as engaging in, with or without compensation, diagnosis or treatment
of a physical or mental condition. The practice of medicine requires a license
under state law and, depending on state law, practice of medicine without a
license can be a civil or criminal violation. We have endeavored to structure
our site and, in particular our health risk assessment tools and our
descriptions of various healthcare products, to avoid violation of state
licensing requirements. For example, we have included within our website
disclaimers and other notices that we have deemed appropriate to advise users
that the information provided is not intended to be a substitute for
consultation with a licensed physician. However, the application of this area
of the law to Internet services such as ours is novel and a key element of our
strategy is to encourage consumers to identify us

                                      13
<PAGE>

with Dr. Dean Edell, a licensed physician. Also, we have not conducted a state
by state survey of licensing requirements and policies. Accordingly, a state
regulatory authority and/or one or more licensed physicians or physician
advocacy groups or consumers may allege that one or more elements of our
business requires a license to practice medicine under existing or future laws
or statutes and/or that the disclaimer is ineffective as to particular
consumers who claim to rely upon advice or information provided by us. Any
application of practice of medicine regulations to our business could harm our
business or require us to change our business model. Further, liability based
on a determination that we engaged in the practice of medicine without a
license may cause us to be excluded from coverage under the terms of our
current general liability insurance policy and may also subject us to a higher
standard of care than would be applicable to activities that do not require a
professional license.

   Regulation of Other Healthcare Professions. We provide information on
pharmacology, nutrition and mental health on our website, including
electronically accessible information regarding prescription drugs and answers
to frequently asked questions about prescription drugs. The practice of
pharmacology, nutrition, psychology and certain personal counseling is also
defined by and regulated by state law, which also varies from state to state.
While we have taken the same precautions to avoid the practice of other
healthcare professions as we have with the practice of medicine, a local
professional licensing board, local professionals, professional advocacy
groups, or consumers may seek to impose state law licensing requirements on
some aspects of our business. Any application of the regulation of the
practice of another healthcare profession to our business could harm our
business or require us to change our business model. Further, any liability
based on a determination that we engaged in the practice of a healthcare
profession without a license may cause us to be excluded from coverage under
the terms of our current general liability insurance policy and may also
subject us to a higher standard of care than would be applicable to activities
which do not require a professional license.

   Regulation of Pharmacy Prescription Drug Activities. Our business of
providing prescription drugs and other medical products is subject to federal,
state and local regulations, many of which are specific to pharmacies. For
example, pursuant to the Omnibus Budget Reconciliation Act of 1990 and related
state and local regulations, pharmacists are required to offer counseling,
without additional charge, to prescription drug customers about medication,
dosage, delivery systems, common side effects, adverse effects or interactions
and therapeutic contraindications, proper storage, prescription refill, and
other information deemed significant by the pharmacists. In addition, the FTC
and many state agencies regulate advertising and product performance claims
for prescription drugs. Pharmacy operations are subject to federal, state and
local licensing and registration regulations with respect to the Controlled
Substances Act and federal Drug Enforcement Agency regulations, as well as
related state and local laws and regulations, relating to pharmacy operations,
including registration, security, recordkeeping, and reporting requirements
related to the purchase, storage and dispensing of controlled substances and
prescription drugs, and certain over-the-counter drugs. We have attempted to
structure our agreement with Medi-Mail, for the fulfillment of prescription
orders, such that we do not have to qualify as a pharmacy under federal, state
and territorial laws and regulations; however, in some jurisdictions we may be
considered pharmacies and be required to register as a pharmacy within those
jurisdictions. While Medi-Mail is required to provide pharmacist support to
respond to consumer inquiries, and we are required to provide consumer
accessible electronic information including answers to frequently asked
questions about prescription drugs. Nevertheless, because we are the interface
with the consumer for the purchasing of prescription drugs, we may be
considered a "pharmacy" under state regulations as well as being the subject
of FDA, FTC, DEA and state agency enforcement actions and could be liable to
the consumer in the case of adulterated drugs, false or misleading advertising
or claims or problems with the transport and sale of controlled substances.
While we have rights against the drug manufacturer as to adulteration issues
and rights against Medi-Mail for problems relating to compounding and
dispensing drugs, we may have liability if the manufacturer and/or Medi-Mail
cannot or will not indemnify us in a specific situation.

   The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing, especially focused on those who prescribe drugs online and on
pharmacies that fill invalid prescriptions, including those that are written
online. The

                                      14
<PAGE>

committee requested that the General Accounting Office undertake a formal
review of a number of issues pertaining to online pharmacies, including an
assessment of mechanisms to ensure that online pharmacies are obeying the
various state and federal regulations for the industry. We rely exclusively on
Medi-Mail to meet the requirements imposed for verifying and filling
prescriptions received on-line and have structured our contracts with Medi-
Mail accordingly. However, because we may be considered a pharmacy in some
jurisdictions due to our interface directly with customers, we may become
regulated by any future laws which are enacted or enforcement efforts by the
federal government or states relating to our on-line pharmacy activities.

   The National Association of Boards of Pharmacy, a coalition of state
pharmacy boards, has developed a program, the Verified Internet Pharmacy
Practice Sites, or VIPPS, as a model for self-regulation for online
pharmacies. As of September 15, 1999, the first VIPPS certifications were
issued to drugstore.com, Merck-Medco Rx Services and planetRx.com, which are
now entitled to display the VIPPS seal on their websites. To the extent that
consumers rely upon the VIPPS seal, it may be a competitive disadvantage if
Medi-Mail/HealthCentralRx.com does not obtain certification. In addition,
various state legislatures are considering new legislation related to the
regulation of nonresident pharmacies. The inclusion of prescription drugs as a
Medicare benefit has been the subject of numerous bills in the U.S. Congress.
Should legislation on prescription drug coverage for Medicare recipients be
enacted into law, compliance with any corresponding rules and regulations
would be required, even though at this time we do not accept Medicare and
Medicaid prescriptions.

   Regulation of the Sale of OTC Drugs, Nutritional Supplements, Cosmetics and
Medical Devices. The FDA and FTC and similar state agencies regulate drug and
cosmetic advertising and promotion, including direct-to-consumer advertising,
done by or on behalf of drug and cosmetic manufacturers and marketers. In
addition, the FDA regulates product safety for nutritional supplements as well
as over-the-counter drugs, medical devices and prescription drugs. Many of our
products and services are subject to FDA and FTC regulation and enforcement
for false advertising and misleading advertising, including overstatements
regarding product performance, especially regarding nutritional supplements.
While we have rights against the manufacturer as to adulteration issues and
product claims (to the extent we have received the claims as a result of the
manufacturer), we may have liability if the manufacturer cannot or will not
indemnify us in a specific situation.

   Application of State and Foreign Laws. Although our business offices are
located in California, our website is available to users all over the United
States and the world. Therefore, the governments of other states and foreign
countries also regulate our activity and our transmissions and may take action
against us for violations of their laws. For example, many states have enacted
laws related to telemedicine, where physicians are practicing medicine by
various means of communication over state lines. The states have varied
tremendously in their approaches to this issue, including, among others,
requiring full licensing of the out of state practitioner or by requiring the
involvement of a state licensed practitioner. The states have uniformly
asserted their right to regulate telemedicine activity, based upon the
location of patients in their state, and we would expect the states to take
the same approach as to other electronic activities directed to consumers in
their states. In addition, our pharmacy business requires that our fulfillment
partner be registered as a pharmacy in any state where it delivers
prescription drugs. We have not undertaken a state by state or a country by
country review of the health-related laws that could apply to our business.
Violations of these laws may be alleged or charged by state or foreign
governments or may be modified, or new laws may be enacted, in the future. Any
of such changes in laws could harm our business.

   Liability for Health Information and Health Products. Due to the nature of
our business, we may become involved in litigation regarding the information
transmitted from our site with the risk of adverse publicity, significant
defense costs and substantial damage awards. In addition, if we are deemed to
be engaged in the practice of medicine or another healthcare profession,
including pharmacy, we could be subject to claims and/or malpractice liability
exposure for which we may not be insured. We may also be liable for personal
and property damage from products provided by us, including from prescription
drugs. Finally, the FDA could look to us first in enforcing a product recall.
In recent years, participants in the healthcare industry have been subject to
an increasing number of lawsuits alleging malpractice, product liability and
related legal theories, many of which

                                      15
<PAGE>

involve large claims and significant defense costs. We have legal rights
against the manufacturer and fulfillment companies, with some limits, for
their activities related to the products we provide. To date, we have not been
the subject of any claim involving the operation of our site. However, claims
may be brought against us. Even if these claims ultimately prove to be without
merit, defending against them can be time-consuming and expensive, and any
adverse publicity associated with these claims could adversely affect our
business. Our liability insurance does not provide coverage for professional
malpractice, so these claims would not come within the scope of or be covered
by our insurance. We may not be able to maintain existing coverage or expand
its scope to address evolving risks, or obtain increased amounts of coverage
on acceptable terms or at all.

   Medical Information and Data. There are changing federal and state laws
governing the storage, transmission and disclosure of medical information and
healthcare records. Our site does and will contain information submitted by
users, in response to questions on our personal health risk assessment form
and in connection with prescription drug and other healthcare product orders.
We expect that our site will also contain information compiled by users for
their personal healthcare histories. While this information is not intended to
constitute or be treated as medical records, users or regulatory agencies may
seek to characterize this information as medical records and impose
requirements and/or sanctions upon us related to the maintenance and handling
of medical records. Maintaining this information could also expose us to
claims if unauthorized persons gain access to it notwithstanding our efforts
to maintain its security.

   Federal and State Anti-Kickback Laws. Provisions of the Social Security Act
known as the Federal Anti-Kickback Law prohibit knowingly or willfully,
directly or indirectly, paying or offering to pay, or soliciting or receiving,
any remuneration in exchange for the referral of patients to a person
participating in, or for the order, purchase or recommendation of items or
services that are subject to reimbursement by, Medicare, Medicaid and similar
other federal or state healthcare programs. Violations may result in civil and
criminal sanctions and penalties. Civil penalties include exclusion from
government health programs. Criminal sanctions include imprisonment for up to
five years and fines of up to $25,000 or both, for each violation. Recent
federal legislation expanded the sanctions to include civil monetary penalties
up to $50,000 for each prohibited act and up to three times the total amount
of remuneration offered, paid, solicited or received, even in circumstances
where a portion of such remuneration is offered, paid, solicited or received
for a lawful purpose. Certain courts reviewing the statute have taken a broad
view of the Federal Anti-Kickback Law and have ruled that it can be violated
if only one purpose of a payment arrangement is to induce referrals. Many
states also have enacted similar local anti-kickback laws.

   At present, neither Medicare nor Medicaid reimburses outpatient
prescription drugs, with the exception of a few items. While we believe that
we have structured our fee relationships with our pharmacy and health product
affiliates so that the Federal Anti-Kickback Law is not implicated for any
items or services covered by it, the agency may take a contrary position,
especially if Medicare and Medicaid benefits are expanded to cover
prescription drugs. If this were to happen, our prescription drug arrangement
with our e-commerce pharmaceutical and healthcare supply affiliates, as
currently structured, may not qualify as among the practices exempted from
federal prosecution or other enforcement under the Federal Anti-Kickback Law
by the regulatory safe harbors promulgated by the Department of Health and
Human Services. Failure to meet a safe harbor, however, does not mean that an
arrangement violates the statute. Many activities engaged in by healthcare
providers and related entities fall outside the safe harbors yet are not
deemed illegal. While we believe that our fee arrangements are not illegal as
to products and services reimbursable by Medicare or other federal programs
covered by the statute, given the breadth of the Federal Anti-Kickback Law,
the limited scope of the existing safe harbors and the desire of the agencies
to eliminate programs that create financial incentives to provide excessive
care, we may face adverse regulatory positions. The Office of Inspector
General is authorized to issue advisory opinions regarding the interpretation
and applicability of the Federal Anti-Kickback Law, including whether an
activity or proposed activity constitutes grounds for the imposition of civil
or criminal sanctions. We have not sought this kind of opinion and are aware
of no opinion that has been issued regarding website sponsorships or planned
sales activities.


                                      16
<PAGE>

   In addition, most states have enacted anti-kickback, or illegal
remuneration, laws that are similar to the Federal Anti-Kickback laws. Some of
these state laws are very closely patterned on the Federal Anti-Kickback Law;
others, however, are broader and reach reimbursement by private payors, and
still others are more narrow, applying, for example, only to kickbacks paid or
received by providers. We have not conducted a survey of these laws in all
fifty states and therefore, our arrangements with our e-commerce affiliates
may result in investigation or prosecution by state regulators or attorneys
general.

   If our activities were deemed to be inconsistent with the Federal Anti-
Kickback Law or with state anti-kickback or illegal remuneration laws, we
could face civil and criminal penalties or be barred from such activities, any
of which could harm our business. Further, we could be required to restructure
our existing or planned sponsorship compensation arrangements and e-commerce
activities in a manner that could harm our business.

   Federal and State Self-Referral Prohibitions. The federal physician self-
referral statute, often identified as the Stark Law, generally forbids
payments, under Medicare or Medicaid, based on a physician referral for
"designated health services" to any entity with which the physician or an
immediate family member has a financial relationship. The financial
relationship can be direct or indirect. The financial relationship can take
the form of an ownership or investment interest or a compensation
relationship. A referral, under the Stark Law, can include prescribing or
requesting designated health services, and also establishing a plan of care
for the designated health services. The Stark Law applies to clinical
laboratory services and other designated health services, including outpatient
prescription drugs and durable medical equipment. Penalties for violating the
Stark Law include denial of payment from Medicare and Medicaid programs for
any services referred to an entity in violation of the Stark Law, civil
monetary penalties of up to $15,000 for each offense and exclusions from the
Medicare and Medicaid programs. Many states have adopted similar self-referral
laws, which may extend to governmental and third-party payors. We have not
conducted a survey of these laws in all fifty states.

   We have attempted to structure our physician relationships and our
information delivered to customers so that we are not viewed as practicing
medicine, either directly or as a vehicle for the practice of medicine by an
affiliated physician. However, if we were deemed to be a vehicle for a
physician referral for services or equipment covered by federal or state self-
referral laws, the manner in which we are paid by the referral recipient could
subject us to action under Stark or state self-referral laws, which could harm
our business and subject us to sanctions under these laws.

   FDA Regulation of Medical Devices. Some computer applications and software
are considered medical devices and are subject to regulation by the United
States Food and Drug Administration. We do not believe that our current
applications or services will be regulated by the FDA; however, our
applications and services may become subject to FDA regulation. Additionally,
we may expand our application and service offerings into areas that subject us
to FDA regulation. We have no experience in complying with FDA regulations. We
believe that complying with FDA regulations would be time consuming,
burdensome and expensive and could delay or prevent our introduction of new
applications or services.

Other Governmental Regulation

   General. There is an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, it may take years to determine whether and
how existing laws such as those governing issues such as intellectual property
ownership and infringement, privacy, libel, copyright, trade mark, trade
secret, obscenity, personal privacy, taxation, regulation of professional
services, regulation of medical devices and the regulation of the sale of
other specified goods and services apply to the Internet and Internet
advertising. The requirement that we comply with any new legislation or
regulation, or any unanticipated application or interpretation of existing
laws, may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our service, increase our cost of doing business or
otherwise harm our business.

                                      17
<PAGE>

   Online Content Regulations. Several federal and state statutes prohibit the
transmission of indecent, obscene or offensive content over the Internet to
certain persons. In addition, pending legislation seeks to ban Internet
gambling and federal and state officials have taken action against businesses
that operate Internet gambling activities. The enforcement of these statutes
and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and
advertisements available on HealthCentral.com. Legislation regulating online
content could slow the growth in use of the Internet generally and decrease
the acceptance of the Internet as an advertising and e-commerce medium, which
could impair our ability to generate revenues.

   Privacy. There has been recently increased activity on privacy by foreign
and United States federal and state entities.

   In November 1999, the Department of Health and Human Services issued
proposed regulations regarding standards to protect the privacy of
individually identifiable health information transmitted electronically. In
February 2000, the Federal Trade Commission proposed a rule which would
implement the financial privacy provisions of the Gramm-Leach-Bliley Act,
placing restrictions on when financial institutions may disclose nonpublic
personal information about consumers to nonaffiliated third parties, and
requiring that financial institutions disclose their privacy policies and
practices with respect to information sharing with both affiliates and
nonaffiliated third parties. Industry groups are also proposing various
privacy and ethics standards in an effort to maintain self-regulation.
Finally, even in the absence of regulations, the FTC has been recently active
in investigations into the privacy practices of companies that collect
information on the Internet. One such investigation has resulted in a consent
decree pursuant to which an Internet company agreed to establish programs to
implement certain privacy principles. In February 2000, the Federal Trade
Commission commenced an investigation of online ad server DoubleClick for
possible privacy violations. DoubleClick is the exclusive ad server for our
website and is also subject to several state attorney general and private
party lawsuits regarding privacy.

   In addition, in January 2000, the California HealthCare Foundation issued a
Report on the Privacy Policies and Practices of Health Web Sites (the
"Report"). The Report surveyed 21 health-related web sites, including our
website, and for most surveyed websites, including our website, cited "areas
of concern" in privacy policies and practices. After the Report was issued,
the FTC contacted us requesting a meeting to discuss our privacy policies and
practices. In February 2000, we voluntarily met with the staff of the FTC to
discuss such policies and practices and provided supporting information to the
staff. The FTC may have follow-up questions for us regarding these issues.

   Our website retains personally identifiable information about our users,
which we obtain with their consent. We have a stringent privacy policy
covering this information, and we only grant access to this information to
third party contractors who are also bound by a stringent privacy policy or,
as disclosed to our users, to third parties where it is necessary for the
delivery of goods or services ordered by the user. However, if third persons
were able to penetrate our network security and gain access to, or otherwise
misappropriate or misuse, our users' personal information, we could be subject
to liability. This liability could include claims for misuses of personal
information, such as for unauthorized marketing purposes or unauthorized use
of credit cards. These claims could result in litigation, our involvement in
which, regardless of the outcome, could require us to expend significant
financial resources. Moreover, to the extent any of the data constitute or are
deemed to constitute patient health records, a breach of privacy could violate
federal law.

   It is possible that the use of "cookies" may become subject to laws
limiting or prohibiting their use. The term cookies refers to information
keyed to a specific server, file pathway or directory location that is stored
on a user's hard drive, possibly without the user's knowledge and which is
used to track demographic information and to target advertising. Cookies do
not personally identify the user, unless the owner of the cookie also has
personally identifiable information about the user which can be linked to the
cookie numerical identifier. Both we and DoubleClick use cookies to
personalize the website and to target advertising. Most currently available

                                      18
<PAGE>

Internet browsers allow users to modify their browser settings to remove
cookies at any time or prevent cookies from being stored on their hard drives.
In addition, a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of
the use of cookies could limit our ability to personalize the website for the
user, and could limit the effectiveness of the targeting of advertisements,
both of which could impair our ability to generate advertising revenue.

   Foreign countries and political entities, such as the European Union have
adopted legislation and regulatory requirements regarding notification of
Internet users about the use of information collected by them by website
usage, including notification that data may be used by both the website and
third party marketing entities. The EU has adopted a directive that imposes
restrictions on the collection and use of personal data. Under this EU
directive, persons in the EU are guaranteed rights, including the right of
access to their data, the right to know where the data originated, the right
to have inaccurate data rectified, the right to recourse in the event of
unlawful processing and the right to withhold permission to use their data for
direct marketing. The EU directive could, among other things, affect U.S.
companies that collect information over the Internet from individuals in EU
member countries, and may impose restrictions that are more stringent than
current Internet privacy standards in the United States. In particular,
companies with offices located in EU countries may not be allowed to send
personal information to countries that do not maintain standards of privacy
that are determined not to be equivalent to those of the EU. The EU directive
does not, however, define what standards of privacy are adequate. As a result,
the EU directive may adversely affect the activities of companies like ours,
which plan to engage in data collection from users in EU member countries.

   We will likely incur additional expenses regarding privacy practices and
policies. We continually review our policies to provide notice of the use of
information to users and to improve our practices and technology to maintain
confidentiality of user information. Any changes in policies and practices,
whether self-imposed or imposed by government regulation could affect the way
in which we conduct our business, especially those aspects that involve the
collection, use and access to personal identifying information, and could have
a material adverse effect on our business, financial condition and operating
results.

   Data Protection. Legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information, such as stock quotes and sports scores. This kind of protection
already exists in the EU. If enacted, this legislation could result in an
increase in the price of services that provide data to websites. In addition,
this legislation could create potential liability for unauthorized use of this
data.

   Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet, and some
states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further,
once this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation or other attempts at
regulating commerce over the Internet may substantially impair the growth of
commerce on the Internet and, as a result, adversely affect our opportunity to
derive financial benefit from these activities.

   Domain Names. Domain names are the user's Internet address. Domain names
have been the subject of significant trademark litigation in the United
States. Third parties may bring claims for infringement against us for the use
of the HealthCentral.com or the HealthCentralRx.com trademarks. Moreover,
because domain names derive value from the individual's ability to remember
these names, our domain names may lose their value if, for example, users
begin to rely on mechanisms other than domain names to access online
resources.


                                      19
<PAGE>

   The current system for registering, allocating and managing domain names
has been the subject of litigation and of proposed regulatory reform. Our
domain names may lose their value, or we may have to obtain entirely new
domain names in addition to or in lieu of our current domain names if
litigation or reform efforts result in a restructuring in the current system.

   State Insurance Regulation. In the future we may market insurance online.
The use of the Internet in the marketing of insurance products is a relatively
new practice. It is not clear whether or to what extent state insurance
licensing laws apply to these activities. If we were required to comply with
such licensing laws, compliance could be costly or impossible, which could
harm our business or require us to change our business plans.

   Jurisdiction. Due to the global reach of the Internet, it is possible that,
although our transmissions over the Internet originate primarily in the State
of California, the governments of other states and foreign countries might
attempt to regulate Internet activity and our transmissions or take action
against us for violations of their laws. Violations of these laws may be
alleged or charged by state or foreign governments, or these laws may be
modified, or new laws enacted, in the future. Any of the foregoing could harm
our business.

Employees

   As of February 29, 2000, we had 120 employees, of which 24 were employed in
sales and marketing, 40 were employed in engineering, 29 were employed in
production, and 27 were employed in general management and administration.
None of our employees is covered by any collective bargaining agreement. We
believe that our relations with our employees is good.

Executive Officers

   The following table sets forth information regarding our executive officers
as of February 29, 2000:

<TABLE>
<CAPTION>
            Name        Age Position
            ----        --- --------
      <S>               <C> <C>
      Albert L.
       Greene.........  50  President, Chief Executive Officer and Director

      C. Fred Toney...  34  Executive Vice President and Chief Financial Officer

      Deryk Van Brunt.  40  Executive Vice President of Operations

      Robert M. Cudd..  45  Senior Vice President of Marketing

      Marcos A.
       Athanasoulis...  32  Vice President of Engineering

      Ann-Marie
       Buddrus........  47  Vice President of Production
</TABLE>

   Albert L. Greene has served as HealthCentral.com's President and Chief
Executive Officer since joining HealthCentral.com in July 1998 and as a
director since October 1998. From May 1990 to February 1998, Mr. Greene served
as President of Alta Bates Medical Center, a hospital in Berkeley, California.
From January 1996 to July 1998, Mr. Greene served as Chief Executive Officer
of the East Bay Service Area of Sutter Health, a healthcare provider. He
presently serves on the boards of directors of Quadramed Corporation, a
developer of healthcare software and services, Lumisys Incorporated, a
supplier of medical imaging products, and Acuson Corporation, a manufacturer
of medical ultrasound equipment. Mr. Greene received a B.A. in Psychology from
Ithaca College and an M.H.A. in Hospital Administration from the University of
Michigan.

   C. Fred Toney has served as the HealthCentral.com's Executive Vice
President and Chief Financial Officer since January 2000 and served as
HealthCentral.com's Senior Vice President and Chief Financial Officer from
July 1999, when he joined HealthCentral.com, until January 2000. From August
1992 to July 1999, Mr. Toney served as Research Analyst, Director of Research
and Senior Managing Director at Pacific Growth Equities, Inc., an investment
banking firm. He also serves on the boards of directors of two private
companies. Mr. Toney received a B.A. in both Economics and English from the
University of California, Davis.


                                      20
<PAGE>

   Deryk Van Brunt has served as the HealthCentral.com's Executive Vice
President of Operations since January 2000 and served as HealthCentral.com's
Senior Vice President of Operations from August 1999, when HealthCentral.com
acquired Windom Health, until January 2000. From June 1994 to August 1999, Dr.
Van Brunt was Chief Operating Officer of Windom Health. Dr. Van Brunt received
a B.S. in Natural Resources, an M.P.H. in Epidemiology and a Dr.P.H. in Health
Informatics from the University of California, Berkeley.

   Robert M. Cudd has served as the HealthCentral.com's Senior Vice President
of Marketing since January 2000 and served as HealthCentral.com's Vice
President of Marketing from October 1999, when he joined HealthCentral.com,
until January 2000. From March 1998 to September 1999, Mr. Cudd served as Vice
President of Marketing and Editorial at Fatbrain.com, an Internet retailer of
professional books and documents. From September 1996 to March 1998, Mr. Cudd
served as Vice President of Marketing for West Marine, Inc., a boating supply
and accessory retailer and, from February 1994 to May 1996, he served as the
Director of Marketing at Computer City, a reseller of computer hardware and
software. Mr. Cudd holds a B.S. degree in Business from Ferris State College.

   Marcos A. Athanasoulis has served as the Company's Vice President of
Engineering since HealthCentral.com acquired Windom Health in August 1999. At
Windom Health, Mr. Anthanasoulis served as Director of Engineering from June
1998 to August 1999, and as Director of Research and Development from June
1996 to June 1998. From June 1990 to May 1996, Mr. Athanasoulis was a Research
Scientist at Impact Assessment, Inc., a consulting company. He was also an
independent consultant in health information systems from June 1995 to June
1998. Mr. Athanasoulis received a B.A. in Social Science and an M.P.H. in
Epidemiology and Biostatistics from the University of California, Berkeley,
and is a doctoral fellow in Health Information Sciences at the University of
California Berkeley.

   Ann-Marie Buddrus has served as the Company's Vice President of Production
since HealthCentral.com acquired Windom Health in August 1999. At Windom
Health, Ms. Buddrus served as Vice President of Production from March 1999 to
August 1999. From May 1997 to March 1999, she served as President of JUMP
Design, an Internet development consulting company. From February 1997 to
April 1997, she served as Vice President, Production at NetChannel, Inc., an
Internet media company. From March 1994 to February 1997, Ms. Buddrus was
Director of Production in the Interactive Television Division of Pacific Bell
Video Services, where she helped pioneer the development of interactive
shopping mall prototypes. Ms. Buddrus received a B.A. in Art History from
Maryville University.

Item 2. Properties

   We lease a total of approximately 22,600 square feet at our three
facilities in Emeryville, California. The lease for approximately 7,300 square
feet expires in March 2004, the lease for approximately 8,800 feet expires in
December 2003 and the lease for approximately 6,500 square feet expires in
June 2002. We have also entered into a license agreement to use facilities in
Stamford, Connecticut. This agreement renews every three months. We believe
that our existing facilities are adequate for our needs through April 2000,
and we are currently in the process of negotiating a lease for additional
facilities. If we are unable to agree to lease terms for additional
facilities, we will need to secure alternative facilities, which may not be
available on commercially reasonable terms, if at all. We anticipate that
these facilities will be adequate for our needs through January 2001. We may
need additional space at that time, and yet none may be available on
commercially reasonable terms, if at all.

Item 3. Legal Proceedings

   We have no pending legal proceedings, but we may become subject to lawsuits
from time to time.

                                      21
<PAGE>

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

   On November 11, 1999, we held our 1999 annual meeting of stockholders (the
"Annual Meeting"). Out of 12,220,641 shares outstanding as the Record Date
(September 30, 1999), 11,334,726 shares were represented by being present at
the Annual Meeting or by Proxy. The following summarizes the matters submitted
to a vote of our stockholders:

     1. The election of the following nominees to serve as members of the
  Board of Directors:

<TABLE>
<CAPTION>
      Name of Director Nominee                              In Favor  Withheld
      ------------------------                             ---------- --------
      <S>                                                  <C>        <C>
      James J. Hornthal................................... 11,334,726       0
      Michael D. McDonald................................. 11,002,996 331,730
      Albert L. Greene.................................... 11,334,726       0
      Louis M. Andersen................................... 11,334,726       0
      Sheryle J. Bolton................................... 11,334,726       0
      Annette Campbell-White.............................. 11,334,726       0
      Dean S. Edell....................................... 11,334,726       0
      Wesley D. Sterman................................... 11,334,726       0
      Robin Wolaner....................................... 11,334,726       0
</TABLE>

     2. The amendment to our Certificate of Incorporation to effect a five-
  for-four stock split of our then outstanding Common Stock and Preferred
  Stock:

<TABLE>
<CAPTION>
              In Favor                                                 Opposed
              --------                                                 -------
             <S>                                                       <C>
             11,334,726                                                    0
</TABLE>

     3. Our reincorporation from California to Delaware, which transaction
  also contemplated the execution of indemnification agreements between us
  and each of our officers and directors:

<TABLE>
<CAPTION>
              In Favor                                                 Opposed
              --------                                                 -------
             <S>                                                       <C>
             11,334,726                                                    0
</TABLE>

     4. The adoption of our 1999 Directors' Stock Plan and the reservation of
  312,500 shares of our Common Stock for issuance thereunder:

<TABLE>
<CAPTION>
              In Favor                                                 Opposed
              --------                                                 -------
             <S>                                                       <C>
             11,334,726                                                    0
</TABLE>

     5. The adoption of our 1999 Employee Stock Purchase Plan and the
  reservation of 1,250,000 shares of our Common Stock for issuance
  thereunder, plus an automatic annual increase in shares in each of our
  fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 of a maximum of
  437,500 shares of our Common Stock for issuance thereunder:

<TABLE>
<CAPTION>
              In Favor                                                 Opposed
              --------                                                 -------
             <S>                                                       <C>
             11,334,726                                                    0
</TABLE>

     6. The amendment to our 1999 Stock Plan, including amendments to (a)
  increase the number of shares of Common Stock reserved for issuance
  thereunder by 4,375,000 shares to an aggregate of 4,625,000, plus an
  automatic annual increase in shares in each of the Company's fiscal years
  beginning in 2001, 2002, 2003, 2004 and 2005 of a maximum of 787,500 shares
  of the Company's Common Stock for issuance thereunder, and (b) set the
  maximum number of shares subject to options or stock purchase rights that
  may be issued to any one employee during a fiscal year equal to 2,000,000
  shares:

<TABLE>
<CAPTION>
              In Favor                                                 Opposed
              --------                                                 -------
             <S>                                                       <C>
             11,334,726                                                    0
</TABLE>

     7. The ratification of the appointment of PricewaterhouseCoopers LLP, as
  independent auditors of the Company for the fiscal year ended December 31,
  1999:

<TABLE>
<CAPTION>
              In Favor                                                 Opposed
              --------                                                 -------
             <S>                                                       <C>
             11,334,726                                                    0
</TABLE>


                                      22
<PAGE>

   In addition, we also submitted certain matters to a vote of our
stockholders during the fourth quarter of 1999. Out of 14,550,411 shares
outstanding, 9,924,003 shares approved the following matters by the written
consent of our stockholders on November 19, 1999:

     A. The amendment of our Certificate of Incorporation to increase the
  number of shares of Common Stock to 100,000,000 shares and to increase the
  number of shares of Preferred Stock to 5,000,000 shares

     B. The amendment of our Certificate of Incorporation to provide that any
  action by stockholders of the Company must be taken at an annual or special
  meeting of stockholders and may not be taken by written consent.

     C. The amendment of our Bylaws to include a provision restricting the
  ability of stockholders to call meetings or take other actions, including
  elimination of the ability of holders of 10% of the Company's stock to call
  a special meeting.

     D. The division of the Board of Directors, contigent on the closing of
  our IPO, into three classes, designated as Class I, Class II and Class III,
  respectively.

     E. The amendment of our 1998 Stock Plan, to include, among other things,
  language regarding the acceleration of certain unvested shares in the event
  of a Change of Control, as set forth in the 1998 Stock Plan.

     F. The amendment of our 1999 Stock Plan, to include, among other things,
  language regarding the acceleration of certain unvested shares in the event
  of a Change of Control, as set forth in the 1999 Stock Plan.

   The above share amounts have been adjusted to reflect our five-for-four
stock split and the conversion of the outstanding Preferred Stock into Common
Stock upon completion of the initial public offering in December 1999.

                                    PART II

Item 5. Market for Registrant's Common Equity And Related Stockholder Matters

Price Range of Common Stock

   Our Common Stock has been listed for quotation on the Nasdaq National
Market under the symbol "HCEN" since our initial public offering on December
7, 1999. The following table shows the high and low sale price per share of
our Common Stock as reported by the Nasdaq National Market for the period
indicated.

<TABLE>
<CAPTION>
      1999                                                          High   Low
      ----                                                         ------ ------
      <S>                                                          <C>    <C>
      From IPO date (December 7, 1999) to December 31, 1999....... 12.750 $6.875
</TABLE>

   The closing sale price of our Common Stock as reported on the Nasdaq
National Market on February 29, 2000 was $5.81 per share. As of that date,
there were approximately 156 holders of record of the our Common Stock. This
does not include the number of persons whose stock is in nominee or in "street
name" accounts through brokers.

   The market price of our Common Stock has been and may continue to be
subject to wide fluctuations in response to a number and events and factors,
such as quarterly variations in our operating results, announcements of
technological or competitive developments, changes in estimates of our
financial performance or changes in recommendations by securities analysts,
acquisitions or strategic alliances by us or our competitors, the operating
and stock performance of other companies that investors may deem comparable to
us, and news reports relating to trends in the markets. These fluctuations may
be exaggerated if the trading volume of our Common Stock is low. In addition,
the stock market in recent years has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many high
technology and Internet-related companies that have often been unrelated or
disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of our common stock.

                                      23
<PAGE>

Dividend Policy

   We have never declared or paid any cash dividends on our capital stock. We
currently anticipate that we will retain all available funds to support
operations and to finance the growth and development of our business.
Therefore, we do not anticipate paying cash dividends for the foreseeable
future.

Unregistered Equity Securities Sold in 1999

   Between January 1, 1999 and December 31, 1999, the Company sold and issued
the following unregistered securities:

  . In May 1999, the Company issued a warrant to purchase 12,249 shares of
    Series A Convertible Preferred Stock at a purchase price of $2.00 per
    share to individuals affiliated with a lender in connection with a
    financing transaction.

  . In April 1999, the Company issued a warrant to purchase 73,896 shares of
    Common Stock at a purchase price of $6.50 per share to a strategic
    partner.

  . In July 1999, the Company issued convertible promissory notes in the
    aggregate principal amount of $600,000 to investors, the principal amount
    of which was converted into shares of Series B Convertible Preferred
    Stock in August 1999, and warrants to purchase an aggregate of 16,664
    shares of common stock at a purchase price of $3.60 per share to
    investors.

  . In July 1999, the Company issued a promissory note in the principal
    amount of $100,000 to an individual. The principal amount of this note
    was converted into shares of Series B Convertible Preferred Stock in
    August 1999.

  . In August 1999, the Company issued 2,104,770 shares of its common stock
    to individuals in connection with an acquisition of a company.

  . In August 1999, the Company issued promissory notes in the aggregate
    principal amount of $300,000 and warrants to purchase 8,333 shares of
    Series B Convertible Preferred Stock at a purchase price of $3.60 per
    share to a stockholder. The principal amount of this note was converted
    into shares of Series B Convertible Preferred Stock in August 1999.

  . In August and September 1999, the Company issued and sold shares of
    Series B Convertible Preferred Stock convertible into an aggregate of
    4,038,455 shares of common stock to investors for an aggregate purchase
    price of $20,999,998.50. These shares were issued in a private placement
    in which Hambrecht & Quist acted as placement agent, for which it
    received a cash commission of $1,090,000 as well as the warrant described
    below.

  . In August 1999, the Company issued to Hambrecht & Quist LLC a warrant to
    purchase 69,231 shares of Series B Convertible Preferred Stock at a
    purchase price of $5.20 per shares.

  . In October 1999, the Company issued or reserved for issuance upon the
    exercise of options a total of 1,579,065 shares of its common stock to
    individuals and entities in connection with an acquisition of a company.

  . In October 1999, the Company issued 836,422 shares to individuals in
    connection with an acquisition of a company.

  . Under its 1998 Stock Plan during 1999, the Company granted stock options
    to purchase 2,539,563 shares of the Company's Common Stock (net of
    cancellations) to employees, directors and consultants at exercise prices
    varying from $0.25 to $11.00 per share. From January 1, 1999 through
    December 31, 1999, 376,250 shares of common stock were issued upon the
    exercise of options.

  . Under its 1999 Stock Plan during 1999, the Company granted stock options
    to purchase 406,843 shares of the Company's Common Stock (net of
    cancellations) to employees, directors and consultants at exercise prices
    varying from $7.312 to $10.08 per share. No options were exercised under
    the 1999 Plan during 1999.

                                      24
<PAGE>

  . On December 2, 1999, the Company effected a five-for-four split of its
    outstanding common stock in which every outstanding share of common stock
    was split into 1.25 shares of common stock.

  . In December 1999, in connection with the Company's initial public
    offering, 506,589 shares of common stock were issued in connection with
    the exercise of outstanding warrants, and 5,050,955 shares of common
    stock were issued in connection with the conversion of Preferred Stock.

   There were no underwritten offerings employed in connection with any of the
transactions set forth above. All the foregoing information gives effect to
the five-for-four split of the Company's Common Stock that occurred in
December 1999. Other than the five-for-four split of the Company's Common
Stock and the conversion of Preferred Stock into Common Stock, the sales and
issuances of the unregistered securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(2) of the Securities Act as transactions by an issuer
not involving any public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under Rule
701. The issuance of securities as a result of the five-for-four stock split
and the conversion of Preferred Stock into Common Stock in December 1999 were
exempt from registration under Section 2(3) of the Securities Act on the basis
that such transactions did not involve "sales" of securities. All shares of
preferred stock issued and outstanding were automatically converted, on a one-
to-one basis, into shares of common stock on the closing of our IPO. All
warrants to purchase shares of preferred stock that remained outstanding after
our IPO became automatically exercisable for shares of common stock on a one-
to-one basis. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the securities issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Company.

Use of Proceeds from Sales of Registered Securities

   On December 7, 1999, in connection with the Company's initial public
offering, a Registration Statement on Form S-1 (File No. 333-88019) was
declared effective by the Securities and Exchange Commission, pursuant to
which 7,500,000 shares of the Company's Common Stock were offered and sold on
December 10, 1999 for the account of the Company at a price of $11.00 per
share, generating aggregate proceeds of $82.5 million. The managing
underwriters for the offering were Lehman Brothers, Hambrecht & Quist, Pacific
Growth Equities, Inc., Wit Capital Corporation and Fidelity Capital Markets.
After deducting approximately $7.85 million in expenses, of which $5.78
million represented underwriting discounts and commissions and the remaining
$2.07 million represented other offering-related expenses, the net proceeds of
the offering were approximately were $74.7 million. None of our offering-
related expenses represented direct or indirect payments to the Company's
directors, officers, persons owning more than 10 percent of any class of the
Company's equity securities, or affiliates. As of December 31, 1999, the
Company had not used any of the net proceeds of the offering. The net proceeds
were invested in short-term, investment-grade, interest bearing securities.

                                      25
<PAGE>

Item 6. Selected Financial Data

   The following selected statement of operations data for the years ended
December 31, 1999, 1998 and 1997 and the period from inception to December 31,
1999, 1998, 1997 and 1996 are derived from the consolidated financial
statements included elsewhere in the Form 10-K. The selected financial data
should be read in conjunction with the Company's consolidated financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in the Form
10-K.

<TABLE>
<CAPTION>
                                                                    Period from
                                   Years Ended December 31,         Inception to
                              ------------------------------------  December 31,
                                  1999         1998        1997         1996
                              ------------  ----------  ----------  ------------
<S>                           <C>           <C>         <C>         <C>
Statement of Operations Data
Revenues:
  Advertising and eCommerce.  $    901,331  $   15,259  $      --    $      --
  Content subscription and
   license..................       287,422         --          --           --
                              ------------  ----------  ----------   ----------
    Total revenues..........     1,188,753      15,259         --           --
                              ------------  ----------  ----------   ----------
Operating and other
 expenses:
  Product, content and
   product development......     4,398,580     136,788         --           --
  Sales and marketing.......     9,159,290     141,516         848          --
  General and
   administrative...........     2,045,795      78,549         300           86
  Amortization of intangible
   assets...................     3,333,961         --          --           --
  Stock compensation........     4,939,694     104,641         --           --
  Acquired in-process
   research and development.       804,525         --          --           --
                              ------------  ----------  ----------   ----------
    Total operating and
     other expenses.........    24,681,845     461,494       1,148           86
                              ------------  ----------  ----------   ----------
Loss from operations........   (23,493,092)   (446,235)     (1,148)         (86)
Interest income, net........       493,706         --          --           --
                              ------------  ----------  ----------   ----------
Net loss....................   (22,999,386)   (446,235)     (1,148)         (86)
Preferred stock dividend....    11,388,000         --          --           --
Net loss attributable to
 common stockholders........  $(34,387,386) $ (446,235) $   (1,148)  $      (86)
                              ============  ==========  ==========   ==========
Basic and diluted net loss
 per share(1)...............  $      (4.96) $    (0.10) $      --    $      --
                              ============  ==========  ==========   ==========
Shares used in computing
 basic and diluted net loss
 per share(1)...............     6,926,485   4,669,628   4,610,000    3,855,486
                              ============  ==========  ==========   ==========

<CAPTION>
                                               December 31,
                              --------------------------------------------------
                                  1999         1998        1997         1996
                              ------------  ----------  ----------  ------------
<S>                           <C>           <C>         <C>         <C>
Balance Sheet Data:
Cash and cash equivalents...  $ 77,654,947  $1,091,551  $    6,773   $    7,414
Working Capital.............    75,766,503   1,039,092       6,773        7,414
Total assets................   118,143,101   1,670,281       6,773        7,414
Long-term obligations.......       292,010         --          --           --
Total stockholder's equity..   112,173,104   1,602,633       6,773        7,414
</TABLE>
--------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
    explanation of the method employed to determine the number of shares used
    to compute per share amounts.

                                      26
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

   The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's consolidated financial statements
and notes thereto included elsewhere in this Form 10-K. Except for the
historical information contained herein, the discussion in this Report
contains certain statements of the Company's plans, objectives, expectations
and intentions. These forward-looking statements are based on the current
expectations of the Company, and the Company assumes no obligation to update
this information. The cautionary statements made in this Report should be read
as being applicable to all related forward-looking statements wherever they
appear in this Report. The Company's actual results could differ materially
from those discussed here.

Overview

   HealthCentral.com was co-founded by Dr. Dean S. Edell and James J. Hornthal
in August 1996, and, beginning in July 1998, was primarily involved in capital
raising activities and recruiting management personnel. In August 1998,
HealthCentral.com and Windom Health, a company providing website development
and consulting services to healthcare institutions, entered into a License and
Management Agreement under which HealthCentral.com took over the daily
management of Windom Health and undertook the development of the
HealthCentral.com website. The website was based largely on Windom Health's
software architecture and was launched in November 1998. Since the launch of
the website, HealthCentral.com has focused on refining the technological
architecture of the HealthCentral.com website, developing programs and content
to market the HealthCentral.com brand name and attract users to the network,
recruiting personnel and raising capital. In August 1999, HealthCentral.com
acquired Windom Health, and in October 1999 HealthCentral.com acquired
HealthCentralRx.com, an online drug store, and RxList.com, an online
pharmaceutical database company.

   HealthCentral.com has historically derived revenues from advertising
activities consisting of short-term banner advertisements. As of December 31,
1999 HealthCentral.com had not entered into any barter arrangements.
HealthCentral.com records advertising revenues in the period the advertising
impressions are delivered to customers. The Company currently uses an outside
vendor, DoubleClick, to solicit potential advertisers, to serve the ads to
HealthCentral.com's website and to bill and collect for these services. This
outside vendor provides monthly reports indicating impressions delivered, the
amount billed for advertising services and the related administrative fee. The
Company records advertising revenues, as reported by the outside vendor, net
of this administrative fee because HealthCentral.com bears no collection risk
for the gross amount of the advertising fees. The Company's advertising
contracts do not guarantee a minimum number of impressions to be delivered.

   HealthCentral.com enters into exclusive sponsorship agreements and in the
future intends to provide customers with enhanced promotional opportunities
and customized co-branded web pages. HealthCentral.com recognizes sponsorship
revenues ratably over the term of the sponsorship agreement. Costs incurred in
connection with sponsorship agreements will be included in production, content
and product development expense.

   HealthCentral.com also acts as an application service provider, which means
that HealthCentral.com designs, hosts and maintains private label websites for
healthcare institutions. Revenues derived from the Company's application
service contracts principally consist of license fees for website development
applications, consulting fees from custom website development and hosting, and
website maintenance fees. The Company's license, hosting and maintenance fees
are recognized ratably over the term of the license, generally between 12 and
24 months. For consulting projects, revenues are recognized at the time
services are rendered based on charges for time and materials.

   In September 1999, the Company entered into an agreement with the People's
Pharmacy in which a co-branded website was developed. The Company is entitled
to all advertising revenues from the co-branded website in exchange for a cash
payment of $50,000 per annum. The Company also granted options to the
principals of the People's Pharmacy to purchase up to 250,000 shares of the
Company's common stock at an exercise price of $1.28 per share.

                                       27
<PAGE>

   In order to implement the Company's e-commerce strategy, HealthCentral.com
acquired HealthCentralRx.com in October 1999 in exchange for 1,579,065 shares
of common stock, including 86,969 shares reserved for issuance pursuant to the
assumption of options held by HealthCentralRx.com stockholders, and the
assumption of liabilities, representing a total purchase price of
approximately $15.9 million. This acquisition was accounted for using the
purchase method of accounting. HealthCentral.com recorded intangibles and
goodwill of approximately $14.5 million, which will be amortized on a straight
line basis over two to three years. HealthCentral.com also recorded a charge
for acquired in-process research and development of $250,000.

   In July and September 1999, HealthCentralRx.com entered into a series of
agreements with Bergen Brunswig and its Medi-Mail subsidiary. These agreements
include various arrangements relating to the fulfillment of orders placed on
HealthCentral.com's website for healthcare products as well as access to the
PlusCare Provider Network of pharmacy benefit managers. Under these
agreements, Bergen Brunswig will be HealthCentral.com's exclusive fulfillment
provider for over-the-counter and health and beauty aid products and Medi-Mail
will be the exclusive fulfillment provider for most prescription drug orders.
The Company recognizes revenues for sales of over-the-counter and health and
beauty aid products and prescription drugs, net of discounts, when products
are shipped to customers. Further, HealthCentral.com recognizes commissions
for the use of its website from sales made by Medi-Mail for all prescription
drugs. HealthCentralRx.com is responsible for all refunds relating to sales
where a customer is not satisfied with the products received. The Company
provides an allowance for such returns in the period when the sales are made.
HealthCentralRx.com retains the ultimate credit risk for all sales made by
Bergen Brunswig and Medi-Mail.

   In October 1999, HealthCentral.com acquired RxList.com in exchange for
836,422 shares of common stock and a total of $2.6 million in notes payable to
the RxList.com shareholders discounted at a deemed interest rate of 10% over 6
months, representing a total purchase price of approximately $11 million. This
acquisition was accounted for using the purchase method of accounting.
HealthCentral.com recorded intangibles and goodwill of approximately $11.2
million that will be amortized on a straight line basis over two to three
years.

   HealthCentral.com incurred net losses of approximately $1,000 in 1997,
$446,000 in 1998 and $34.4 million for the year ended December 31, 1999.
HealthCentral.com anticipates additional operating losses for the foreseeable
future.

Results of Operations

 Years Ended December 31, 1999, 1998 and 1997

   Revenues. Revenues consist of advertising revenues from short-term banner
advertisements, institutional sales revenues derived from designing, hosting
and maintaining private label websites for healthcare institutions and
eCommerce revenue. Total revenues were $1,189,000 for the year ended December
31, 1999 compared to $15,000 for the year ended December 31, 1998. Revenue in
1999 consisted of $901,000 in advertising revenues and eCommerce revenues and
$287,000 in institutional sales revenues. In 1998 revenue consisted solely of
advertising. HealthCentral.com had no revenues in 1997.

   Production, Content and Product Development. Production, content and
product development expenses consist primarily of personnel costs for
engineering and production personnel, expenditures related to editorial
content, payments to editorial consultants, server maintenance costs, and
software development and operations expenses. Production, content and product
development expenses increased to $4.4 million for the year ended December 31,
1999 compared to $137,000 for 1998 and zero for 1997. During 1999 the increase
was primarily attributable to $3.8 million in production and engineering staff
costs and $455,000 of amortization expense related to warrants issued in
connection with content licensing agreements. Production, content and product
development expenses in 1998 were attributable to personnel costs associated
with the development of the

                                      28
<PAGE>

HealthCentral.com website. HealthCentral.com expects production, content and
product development expenses to increase substantially in the future as
HealthCentral.com enhances its websites by developing and licensing additional
content.

   Sales and Marketing. Sales and marketing expenses consist primarily of
advertising, public relations and personnel expenses. Sales and marketing
expenses were $9.2 million for the year ended December 31, 1999 compared to
$142,000 for the year ended December 31, 1998 and $1,000 for 1997. The
increase in 1999 was primarily attributable to $7.9 million in advertising and
public relations expenses and $1.2 million in sales staff costs. In 1998
expenses consisted primarily of $38,000 in sales and marketing personnel
expenses and $103,000 in public relations expenses. HealthCentral.com expects
that sales and marketing expenses will increase in absolute dollars for the
foreseeable future, as the Company increases expenditures for branding,
promotion and marketing, enters into new promotional agreements, and expands
the sales and marketing staff.

   General and Administrative. General and administrative expenses consist
primarily of personnel costs and related costs for general corporate
functions, including executive management and finance fees for legal, audit
and other professional services. General and administrative expenses increased
to $2.0 million for the year ended December 31, 1999 from $79,000 for the year
ended December 31, 1998. The increase in 1999 was due to $1.7 million in
personnel-related costs and $336,000 in legal and accounting expenses incurred
to support the growth of the Company's business. General and administrative
expenses in 1998 consisted primarily of $67,000 in personnel expenses and
$6,000 in professional services fees. In 1997 general and administrative
expenses were $300. HealthCentral.com expects general and administrative
expenses to increase in the future as the Company hires additional personnel
and incurs additional costs related to the growth and operations as a public
company. In addition, HealthCentral.com expects to expand facilities and incur
associated expenses to support its anticipated growth.

   Stock Compensation. Options granted in the fourth quarter of 1998 and in
1999 have been considered to be compensatory as their deemed value for
accounting purposes was greater than the exercise prices as determined by the
board of directors on the dates of grant. For the year ended December 31,
1999, HealthCentral.com recorded $9.7 million of deferred stock compensation
and amortized $4.9 million in stock compensation expense. Through December 31,
1998, HealthCentral.com had recorded a total of $389,000 of deferred stock
compensation. HealthCentral.com recognized amortization of stock compensation
of $105,000 for the year ended December 31, 1998. Deferred stock compensation
is being amortized over the respective vesting periods of the outstanding
options, generally four years.

   Preferred Stock Dividend. In August 1999 the Company sold 4,038,455 shares
of Series B convertible preferred stock at $5.20 per share, for total cash
proceeds to the Company of approximately $21 million. The difference between
the sales price and the deemed value per share of the common stock on the
transaction date resulted in a beneficial conversion feature in the amount of
$11.4 million. The beneficial conversion feature has been reflected as a
preferred stock dividend in the statement of operations in the year ended
December 31, 1999.

   Income Taxes. No provision for federal and state income taxes has been
recorded as HealthCentral.com has incurred net operating losses through
December 31, 1999. As of December 31, 1999, HealthCentral.com had
approximately $13.6 million of federal and state net operating loss
carryforwards available to offset future taxable income. Due to the change in
ownership interests in connection with its IPO and prior sales of equity
securities, the Company's use of these federal and state net operating loss
carryforwards will be subject to annual limitations.

Liquidity and Capital Resources

   Since inception, HealthCentral.com has financed operations primarily
through its initial public offering, the sale of preferred stock and the
issuance of notes payable. As of December 31, 1999, HealthCentral.com had
$77.7 million in cash and cash equivalents. Net cash provided by financing
activities was $95 million in 1999. In August and September 1999,
HealthCentral.com sold 4,038,455 shares of Series B preferred stock resulting
in net cash proceeds of approximately $18.3 million. In 1999 HealthCentral.com
also issued notes payable in the amount of $1.5 million which were
subsequently converted into shares of Series B convertible preferred stock.

                                      29
<PAGE>

On December 7, 1999 HealthCentral.com issued 7,500,000 shares of common stock
for its initial public offering and raised $74.7 million in cash, net of
underwriting fees and IPO expenses. Net cash provided by financing activities
was $1.9 million in 1998, which was the result of the preferred stock
financing in December 1998. There was no net cash provided by financing
activities in 1997.

   Net cash used in operating activities was $14.6 million in the year ended
December 31, 1999 and $287,000 in 1998. Net cash used in operating activities
in 1999 was comprised primarily of a $23 million net operating loss and a $2.0
million increase in prepaid expenses. This was partially reduced by $4.9
million in non-cash stock compensation expense, $3.5 million in depreciation
and amortization of fixed and intangible assets, $971,000 increase in accounts
payables and $374,000 in amortization of a prepaid license. Net cash used in
operating activities in 1998 was comprised primarily of a $446,000 net
operating loss reduced by stock compensation expense of $105,000, and a
decrease in accounts payable and accrued liabilities of $68,000. Net cash used
in operating activities was $1,000 in 1997 which was the result of net
operating losses.

   Net cash used in investing activities was $4.1 million for the year ended
December 31, 1999 and $564,000 in 1998. Cash used in investing activities in
1999 was primarily attributable to cash paid related to the acquisition of
Windom Health Enterprises, HealthCentralRx.com and RxList. In addition,
HealthCentral.com purchased $1.2 million in property and equipment during
1999. Cash used in 1998 was related to bridge loans made to Windom Health.

   Although HealthCentral.com has no material commitments for capital
expenditures, HealthCentral.com anticipates substantial increases in capital
expenditures, minimum advertising payments and lease commitments consistent
with anticipated growth in operations, infrastructure and personnel.

   In September 1999, the HealthCentral.com entered into a three-year
agreement with AltaVista to develop a co-branded health channel. The agreement
states that, in exchange for a minimum number of user impressions on the co-
branded health channel, the Company is obligated to pay AltaVista
approximately $65.6 million in cash and stock over the three-year term of the
agreement; however, either AltaVista or the Company may terminate the
relationship after two years, in which case the aggregate payment obligation
over the first two years in cash and stock would be $34.5 million, of which $5
million had been paid as of March 1, 2000. In addition, if AltaVista meets
given performance thresholds based on the number of impressions delivered in
excess of guaranteed minimum amounts, the Company will issue to AltaVista
warrants to purchase shares of common stock, with the number of shares
dependent on the amount by which AltaVista exceeds the thresholds. These
warrants will have varying exercise prices. The fair value of any warrants
earned will be measured on the date the performance commitment is met in
accordance with Emerging Issues Task Force 96-18, "Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
conjunction with Selling, Goods or Services," and the warrants will be valued
using the Black-Scholes option pricing model in accordance with Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The fair value of the warrants will be expensed immediately and
included in sales and marketing expense.

   In August 1999, HealthCentralRx.com entered into a two-year agreement with
America Online under which HealthCentralRx.com appears as one of five anchor
tenants on the America Online HealthOnline Pharmacy Channel and receives a
minimum number of advertising impressions in exchange for payments of
$12.3 million. As of March 1, 2000, $5.2 million had been paid under this
agreement.

   HealthCentral.com's capital requirements depend on numerous factors,
including market acceptance of the HealthCentral.com network, and the
resources HealthCentral.com allocates to building the network, marketing,
selling products and services and promoting the HealthCentral.com brand name.
HealthCentral.com has experienced substantial increases in expenditures since
inception, consistent with growth in operations and personnel, and
HealthCentral.com anticipates that expenditures will continue to increase for
the foreseeable future. HealthCentral.com currently expects to use its
existing cash balances to fund working capital and sales and marketing, to
make cash payments of $30.5 million and $10.6 million over the next two years
to AltaVista and America Online, and to fund website, content development,
infrastructure improvements and operating losses. Additionally,
HealthCentral.com is continuing to evaluate possible acquisitions of its
investments in complementary businesses, technologies, services or products.
HealthCentral.com currently believes that its

                                      30
<PAGE>

available cash and cash equivalents at December 31, 1999 will be sufficient to
meet anticipated needs for working capital and capital expenditures until
approximately January 2001. HealthCentral.com may need to raise additional
capital in order to fund a more rapid expansion including significant
increases in personnel and office facilities; to develop new or enhanced
services or products; to respond to competitive pressures; to enter into
significant promotional partnerships; or to acquire or invest in complementary
businesses, technologies, services or products. In addition, in order to meet
long term liquidity needs, HealthCentral.com may need to raise additional
funds, establish a credit facility or seek other financing arrangements,
although additional funding may not be available on favorable terms or at all.

Recent Accounting Pronouncements

   In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In July 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The Company will adopt SFAS No. 133 during its year
ending December 31, 2001. To date, the Company has not engaged in derivative
or hedging activities.

   In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
Financial Statements, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or result of operations of the Company.

Year 2000 Compliance

   HealthCentral.com has completed its Year 2000 project as scheduled,
including addressing leap year calendar date calculation concerns. The
possibility of significant interruptions of normal operations has been
reduced. As of February 9, 2000, the Company has operated without Y2K related
problems. The company believes that all its critical systems are Y2K ready.

   HealthCentral.com is heavily dependent on a significant number of third
party vendors to provide both network services and equipment. A significant
year 2000-related disruption of service or equipment that third party vendors
provide to the Company could cause the Company's users, advertisers, or
sponsors to consider seeking alternate content providers or cause an
unmanageable burden on its technical support, which in turn could harm the
Company's business. The Company is not aware that any of its major customers
or third party suppliers have experienced significant Y2K related problems.

   To date, the Company has spent a minimal amount on Y2K issues because a
majority of its equipment was purchased in 1999. All of the Company's expenses
relate to the operating costs associated with time spent by employees and
consultants in the evaluation process for year 2000 readiness matters.

                                      31
<PAGE>

Risk Factors That May Affect Future Results and Market Price of Stock.

   You should carefully consider the following risk factors, in addition to
the other information in this Report. We believe the following risks and
uncertainties are material to our business and our industry.

We only launched our HealthCentral.com website in November 1998 and our
HealthCentralRx.com website in September 1999, and thus have a limited
operating history .

   We have a limited operating history and are subject to the risks, expenses
and difficulties frequently encountered by early stage companies in new and
rapidly evolving markets such as the Internet healthcare market. These
challenges include our ability to:

  . attract and retain a large audience of users to our HealthCentral.com
    network;

  . compete effectively against better-established Internet health companies,
    such as Healtheon/WebMD (which has announced an acquisition of
    OnHealth.com), drkoop.com, OnHealth.com, drugstore.com and planetRx;

  . gain advertising and sponsorship revenue from vendors of health-related
    products and services;

  . implement a successful e-commerce strategy through our
    HealthCentralRx.com subsidiary;

  . create and maintain successful strategic alliances with portals, provider
    groups, content providers and other third parties;

  . develop our enterprise web services business;

  . develop and upgrade our technology; and

  . attract, retain and motivate qualified personnel.

We had an accumulated deficit of $34.8 million at December 31, 1999 and expect
our expenses to increase, and thus we may never become profitable.

   We expect our operating expenses to substantially exceed revenues for the
foreseeable future, and we may never become profitable. Since our inception,
we have had very limited revenues and have incurred net losses in each year.
While we are unable to predict accurately our future operating expenses, we
currently expect these expenses to increase substantially, as we, among other
things:

  . make substantial payments to both our existing and future business
    partners to gain advertising revenue, traffic or otherwise expand our
    HealthCentral.com network;

  . promote our HealthCentral brand;

  . develop or acquire health-related content, technologies or other
    complementary businesses;

  . hire additional employees;

  . develop and expand our systems infrastructure and support functions; and

  . offer product promotions.

A failure to build our brand names quickly and significantly will result in
lower than expected revenues.

   If we do not gain significant brand recognition quickly, we may lose the
opportunity to build a critical mass of customers and our business may fail.
Some of our competitors, such as Healtheon/WebMD (which has announced an
acquisition of OnHealth.com), drkoop.com, drugstore.com and planetRx have much
stronger name recognition than we do. The increasing competition in our
markets makes building a brand more expensive and difficult than it otherwise
would be. To increase brand recognition, we will need to increase
substantially our sales and marketing efforts, our third party alliances, and
our content, product and service offerings, all of which are expensive.

                                      32
<PAGE>

   We intend to market our HealthCentralRx.com brand in conjunction with the
Good Neighbor Pharmacy service mark, which we have licensed from Bergen
Brunswig. However, there already exists a Good Neighbor Pharmacy website and
one or more of the 2,000 independent pharmacies in the Good Neighbor Pharmacy
Network may develop their own websites for the promotion of their own stores.
This possible proliferation of websites using the Good Neighbor Pharmacy mark
could cause confusion and dilute our HealthCentralRx.com brand.

Consumer protection privacy concerns may result in a decrease in traffic or
decrease in revenues.

   Our network of websites captures information regarding our users in order
to personalize our websites for them and to assist advertisers in targeting
their advertising campaigns to particular demographic groups. Any changes in
privacy policies and practices, whether self-imposed or imposed by government
regulation, could affect the way in which we conduct our business, especially
those aspects that involve the collection, use and access to personal
identifying information. For example, limitations on or elimination of the use
of cookies could limit our ability to personalize our website for the user,
and could limit the effectiveness of the targeting of advertisements, both of
which could impair our ability to generate advertising revenue. Any perception
of security and privacy concerns by the public, whether or not valid, could
inhibit market acceptance of our network of websites. Privacy concerns may
cause users not to visit our websites or, if they visit, not to provide the
personal data necessary to target our content and advertising.

   In response to a verbal request by the FTC, in February 2000 we voluntarily
met with the staff of the FTC and discussed privacy policies and practices.
The FTC may have follow-up questions for us regarding these issues. There can
be no assurance that either we, any other ehealth company or the ehealth
industry in general will not become either a target of or a witness in, a
formal FTC investigation or state agency or private party claim regarding
privacy issues, any of which could be expensive and time-consuming, could
divert the attention of senior management from our core business and could
harm our business.

We depend on Dr. Dean Edell to provide us with unique content and credibility,
and any failure by Dr. Edell to participate in our business could result in
reduced site traffic and revenues.

   We rely on Dr. Dean Edell, one of our co-founders, to provide unique
content for, and drive traffic to, our HealthCentral.com network. Dr. Edell is
not contractually obligated to provide content or drive traffic to our
network, and he is not compensated for such activity. If Dr. Edell ceased
providing us with content or ceased mentioning our HealthCentral.com network
on his television and radio shows, we would have to find a replacement for
this unique content or an alternative means of driving traffic to our site,
both of which would be difficult and expensive to do.

   In addition, under his agreement with Premiere Radio Networks, the
syndicator of his radio show, Dr. Edell has agreed not to authorize the use of
his name or likeness to promote any product or service in any way that would
conflict with his programs' advertisers or potential advertisers, or would
impair his credibility as a program host.

   Any diminishment in Dr. Edell's reputation as a medical expert and advisor,
his death or incapacity, the expiration of his 15 year agreement with us, or
any other development that would cause us to lose the benefits of our
affiliation with Dr. Edell could diminish our standing with healthcare
consumers as a credible source of healthcare information. Although we maintain
key person life insurance for Dr. Edell, his role in our company is
sufficiently critical that the insurance would not adequately protect us in
the event of his death. See "Business--Strategic Relationships."

We face substantial competition from better-established companies, which could
result in our failure to gain needed market share.

   Over 15,000 healthcare websites compete with us for users, advertisers,
content and product providers, institutional clientele and other sources of
online revenue. We compete with other dedicated healthcare websites, such as
Healtheon/WebMD (which has announced an acquisition of OnHealth), drkoop.com,
OnHealth, and DiscoveryHealth.com. In addition, we compete with online portal
companies, healthcare providers and payors and consumer affinity groups. See
"Business--Competition--HealthCentral.com and RxList.com."

                                      33
<PAGE>

   Through HealthCentralRx.com, we compete with:

  . other online drug stores, such as drugstore.com and planetRx,

  . pharmacy benefit managers, or PBMs, that sell pharmaceuticals directly,

  . traditional brick-and-mortar drug stores, including drug store chains,
    supermarkets, mass market retailers and independent drug stores, many of
    whom have begun or have announced their intention to offer online
    services, and

  . hospitals, HMOs and mail order prescription drug providers, many of whom
    are beginning to offer products and services over the Internet.

   Most of our current and potential competitors enjoy substantial competitive
advantages, such as:

  . greater name recognition and larger marketing budgets and resources;

  . established marketing relationships with manufacturers and advertisers;

  . larger customer and user bases;

  . substantially greater financial, technical and other resources; and

  . larger production and technical staffs.

   We believe that we may face a significant competitive challenge from our
online competitors forming alliances with brick and mortar drug stores, HMOs,
PBMs or other competitors, which could both strengthen our competitors and/or
preclude us from entering into similar relationships with their partners. For
instance, drugstore.com has formed an alliance with RiteAid, and planetRx has
formed a strategic alliance with Express Scripts, Inc. Increased competition
could result in price reductions, fewer customer orders, reduced margins and
loss of, or failure to build, market share.

   In the market for enterprise web services, we compete mainly with payors'
and providers' internal systems development teams, with local web development
companies, and with other consumer-oriented websites that are selling
applications to institutions, such as drkoop.com, Baby Center's CHI division
and WebMD. Healthcare participants may determine that our tools and website
development and maintenance services are inferior to those of our competitors,
that our product mix is inappropriate for their needs, or that it would be
better for them to independently develop and manage their own websites. See
"Business--Competition--Enterprise Web Services."

We need to generate substantial revenues from our e-commerce business for
healthcare products, this market is unproven, and we have limited experience
in it.

 The healthcare e-commerce market is unproven.

   Our rate of revenue growth could be significantly less than that of online
merchants in other industries because the online market for pharmaceutical and
other health products is in its infancy. This market is significantly less
developed than the online market for books, music, software, toys, auctions
and a number of other consumer products. Even if Internet usage and electronic
commerce continues to increase, the rate of growth, if any, of the online
pharmacy and health products market could be significantly less than the
online market for other products.

 Consumers may reject the concept of an online drug store in favor of a brick-
 and-mortar drug store.

   Historically, many pharmaceutical products have been sold through the
personal referral of a physician or pharmacist, and thus there is no
established business model for the sale of healthcare products or services
over the Internet. Specific factors that could prevent widespread customer
acceptance of our online drug store include:

  . lack of coverage of customer prescriptions by, or additional steps
    required to obtain reimbursement from, insurance carriers or pharmacy
    benefit managers;

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  . lack of consumer awareness of our online drug store;

  . longer delivery times for Internet orders, delays in responses to
    customer inquiries and/or difficulties in returning products, as compared
    to brick-and-mortar drug stores;

  . shipping charges and problems related to shipping, such as product damage
    or failure to ship the correct order;

  . lack of face-to-face interaction with a pharmacist;

  . failure to meet shoppers' pricing expectations for prescription drugs,
    over-the-counter medicines and health and beauty products;

  . customer concerns about security and privacy with regard to transmitting
    personal health information over the Internet; and

  . inability to meet immediate delivery or pick-up requirements for
    prescriptions for acute conditions.

 We have limited experience in the healthcare e-commerce market.

   Our HealthCentralRx.com website was launched in September 1999, and thus we
have limited experience to date in the sale of healthcare products and
services online. We may need to expand the breadth and depth of our product
offerings, which could be both expensive and time-consuming.

We are dependent on Bergen Brunswig and Medi-Mail for fulfillment of our
orders and access to pharmacy benefit managers.

   In July and September 1999, HealthCentralRx.com entered into a series of
agreements with Bergen Brunswig and its Medi-Mail subsidiary relating to the
fulfillment of orders placed on our HealthCentralRx.com website for healthcare
products and access to the PlusCare Provider Network of pharmacy benefit
managers, or PBMs. This fulfillment mechanism is complex and will require us
to develop reporting systems and integrate Bergen Brunswig's fulfillment
systems with our web-based systems. Developing and integrating operational
systems is technically difficult and may be delayed, which could delay our
receipt of revenues and diminish customer acceptance. Because Bergen Brunswig
is our exclusive fulfillment partner for some products, any failure by Bergen
Brunswig to supply sufficient quantities and types of products in a timely
manner could result in customer dissatisfaction and harm our e-commerce
business. In addition, these agreements expire in five years, and they may not
be renewed on favorable terms, or at all. If for any reason we could not renew
these agreements or enter into similar contractual arrangements with a
licensed pharmacy, we could not operate our online pharmacy business without
becoming a licensed pharmacy ourselves. This process is extremely expensive
and difficult. If the intended benefits are not realized from our relationship
with Bergen Brunswig, customer perceptions, revenues and our ability to
execute our e-commerce strategy may be jeopardized.

   Notwithstanding assurances from Bergen Brunswig regarding PBM access,
Bergen Brunswig may be subject to restrictions in the agreements with its
individual PBMs that are unknown to us. In addition, these contracts are
typically subject to periodic renewal, and thus we are subject to the risk of
these contracts not being renewed at all, or being renewed on terms that are
not favorable to us. Many PBMs are in the early stages of evaluating the
impact of the Internet and online pharmacies on their businesses. Thus, PBMs
may determine in the future to move business away from Medi-Mail for a variety
of reasons, including competitive reasons. As a result of these contractual
and business uncertainties, our revenue may be less than currently expected.
In addition, under our Medi-Mail agreement we bear the ultimate credit risk of
collecting from both consumers and payors. Finally, Bergen Brunswig may enter
into additional agreements with other online pharmacy companies and grant them
access rights to these PBMs, which could diminish any competitive advantage we
may have. See "Business--Strategic Relationships--Bergen Brunswig."


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Because we need to make substantial cash outlays and do not expect a
significant near-term improvement in our cash flows, we may need to raise
additional capital in the future and may not be able to raise it on acceptable
terms, or at all.

   We expect existing cash and cash equivalents to fund our operations until
approximately January 2001. We do not expect a significant improvement in cash
flows from operations over this period, and we need to make substantial
investments in our marketing and sales, our e-commerce capability and our
technology and other operations infrastructure. Moreover, we are contractually
obligated to pay AltaVista $30.5 million over the next two years and America
Online $10.6 million over the next two years. In addition, we may enter into
additional business relationships that require us to make additional cash
payments.

   The sale of additional equity or convertible debt securities could result
in dilution to our stockholders. Any debt securities issued could have rights
senior to holders of common stock and could contain covenants that would
restrict our operations. Any additional financing may not be available in
amounts or on terms acceptable to us, if at all.

We are obligated to pay AltaVista and America Online combined approximately
$48.6 million in cash and stock over the next two years, and if we do not
receive expected revenues from these relationships, our business could suffer.

   We have an agreement with AltaVista through December 15, 2002 to develop a
co-branded health channel and an agreement with America Online through August
2001 under which our online drug store will be one of five health-related
anchor tenants on the America Online HealthOnline Pharmacy Channel. Each of
these agreements requires us to make large payments over the respective terms
of the agreements in exchange for minimum numbers of user impressions--$65.6
million in cash and stock to AltaVista over the three year term, and $12.3
million in cash to America Online over the two year term, of which $10.2
million had been paid to these two companies as of March 1, 2000. Either
AltaVista or we may terminate the AltaVista agreement after two years, in
which case our total payment obligation over the first two years would be
$34.5 million in cash and stock. However, even if AltaVista delivers the
minimum required impressions, we may not generate revenues exceeding the
payments due under the contract because AltaVista retains all of the
advertising revenues generated from the co-branded channel. In addition, we
may not generate traffic from the co-branded channel to the HealthCentral.com
website sufficient to justify our expenses. If we do not receive the revenues
we currently expect from these relationships, or if either the AltaVista
Health Channel or the America Online HealthOnline Pharmacy Channel is
unsuccessful in attracting traffic to our websites or in enhancing our brands,
these substantial investments may not be recovered.

Any errors in filling or packaging the prescription drugs that Medi-Mail or
the Good Neighbor Pharmacy Network dispense on our behalf may expose us to
liability and negative publicity.

   Pharmacy errors relating to prescriptions, dosage and other aspects of the
medication dispensing process could produce liability for us. Pharmacists are
required by law to offer counseling, without additional charge, to their
customers about medication, dosage, delivery systems, common side effects and
other information they deem important. With HealthCentralRx.com's proposed
mail order delivery through Medi-Mail, this counseling is expected to be
accomplished by telephone access to pharmacists, but also in part through
inserts included with the prescription, which may increase the risk of
miscommunication because the customer is not personally present. We also plan
to post product information on our HealthCentralRx.com and RxList.com
websites, which creates additional potential for claims to be made against us.
Our insurance may not cover potential claims of this type or may not be
adequate to protect us from all liability that may be imposed.

   Prescription orders are currently filled by mail order through Medi-Mail.
We have limited control over Medi-Mail and no control over any of the
pharmacies in the Good Neighbor Pharmacy Network, and they may make errors.
Pharmacy errors either by Medi-Mail, one of the

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<PAGE>

pharmacies in the Good Neighbor Pharmacy Network or our competitors may
produce significant adverse publicity either for us or the entire online
pharmacy industry. Because our HealthCentralRx.com service mark will be
displayed with the Good Neighbor Pharmacy Network mark, any negligence by any
of the pharmacies in the Good Neighbor Pharmacy Network in filling orders or
advising customers regarding prescription drugs, whether through
HealthCentralRx.com or otherwise, could harm our reputation or result in
lawsuits, with or without merit, against us. The amount of negative publicity
that we or the online pharmacy industry may receive as a result of pharmacy or
prescription processing errors could be disproportionate in relation to the
negative publicity received by traditional pharmacies making similar mistakes.
We believe that any negative publicity could erode consumer trust and result
in an immediate reduction in product purchases.

We may be sued by consumers as a result of the health-related products we sell
through HealthCentralRx.com.

   Consumers may sue us if any of our products or services that are sold
through our website are defective, fail to perform properly or injure the
user, even if such goods and services are provided by unrelated third parties.
We have some contractual limits on our recourse against Bergen Brunswig in the
case of some product liability claims. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages
and could seriously damage our reputation.

Extensive and changing government regulation of the healthcare and pharmacy
industries is expensive to comply with and exposes us to the risk of
substantial government penalties.

   Numerous state and federal laws regulate our health business covering areas
such as:

  . storage, transmission and disclosure of medical information and
    healthcare records;

  . the practice of medicine and other healing arts professions;

  . the sale of controlled products such as pharmaceuticals and other
    healthcare products;

  . prohibitions against the offer, payment or receipt of remuneration to
    induce referrals to entities providing healthcare services or goods;

  . dispensing and delivering prescription, over-the-counter drugs and other
    medical products;

  . advertising drugs, cosmetics and nutritional supplements; and

  . state insurance regulations.

   Further, because the Internet health business is novel, federal and state
agencies may apply laws and regulations to us in unanticipated ways, and may
produce new legislation regulating our business, which could increase our
costs or reduce or eliminate certain of our activities or our revenues. See
"Business--Government Healthcare Regulation" and "Business--Other Governmental
Regulation."

In order to gain market share, we need to continue to provide unique content,
which is expensive and difficult to obtain.

   To attract and retain users to our HealthCentral.com network, we need to
continue to provide unique and informative content. We will need to purchase
or license much of this content from third persons. Competition for content
from people with the professional reputation, name recognition and expertise
that we require is intense and increasing. This competition may increase the
fees charged by high quality content providers, resulting in increased
expenses for us. We will not only have to expend significant funds to obtain
and improve our content, but we must also properly anticipate and respond to
consumer preferences for this content. If we are unable to enter into
agreements for the delivery of desirable content, or lose any existing
agreements, it could delay market acceptance of the HealthCentral.com network.

If consumers perceive our healthcare content to be influenced by our
relationships with advertisers or health-related product vendors, our
reputation could suffer.

   We receive sponsorship revenues from advertisers of health-related products
on our websites and revenues from sales of health-related products. However,
our success in attracting and retaining users to our websites depends on our
being a trusted source of independent health-related information. There has
been recent press

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<PAGE>

attention focused on possible conflicts of interest within the online
healthcare information industry. Any consumer perception that our editorial
content is influenced by our commercial relationships could harm our
reputation and business.

We rely on relationships with other Internet companies, which are short-term
or non-exclusive, to drive traffic and build brand awareness.

   We have entered into agreements with third parties such as Microsoft,
NetPulse Communications, Snap.com and Yahoo! to provide them with content in
exchange for either impressions or traffic. Many of our current agreements
are, or possible future agreements may be, short-term, non-exclusive or may be
terminated at the convenience of either party. We may be unable to develop and
maintain these relationships and generate sufficient traffic and revenues from
them. In addition, these third parties may never achieve market acceptance
themselves.

We face the risk of systems interruptions and capacity constraints on the
HealthCentral.com network, possibly resulting in adverse publicity, revenue
losses and erosion of customer trust.

   Any systems problems in the HealthCentral.com network, including our
HealthCentralRx.com online drug store, such as system disruptions, slower
system response times, and degradation in customer service levels, could
result in negative publicity, cause our users to use our competitors'
services, and reduce our revenues. Additionally, if we fail to meet the
website performance standards in our contracts with our institutional clients,
they may terminate their agreements, require refunds or fail to renew
contracts with us, any of which could decrease our institutional revenues.

   From time to time, we have experienced temporary system interruptions for a
variety of reasons, including power and telecommunications failures, flaws in
our software and greater than expected site traffic. We are also vulnerable to
breaches in our security and natural disasters. We may not be able to correct
any problem in a timely manner. Because we outsource the server hosting
function to a third party, some systems interruptions may be outside of our
control. We have no formal disaster recovery plan, and our insurance may not
adequately compensate us for losses that may occur due to systems
interruptions.

We depend significantly on our relationship with DoubleClick to generate
advertising revenues, and DoubleClick can terminate this relationship on short
notice.

   A significant portion of our revenues consists of the sale of advertising,
all of which is currently derived through our relationship with DoubleClick,
an online advertising sales agency. DoubleClick is our exclusive
representative for advertising sold on our HealthCentral.com website, except
for limited non-cash barter arrangements, if any; however DoubleClick can
enter into advertising sales contracts with our competitors, and either party
can terminate the contract on 90 days notice. We have no control over
DoubleClick's sales efforts, and if it fails to sell advertising in accordance
with our expectations, our revenues would likewise be lower. In addition,
while we anticipate that we may transition part or all of our advertising
sales activities to our own direct sales force over time, if DoubleClick were
to terminate our agreement before we completed a buildup in our direct sales
force, we would be forced to accelerate this process, which could be expensive
and difficult to do.

Our business model relies on developing and hosting websites for institutional
clients in the healthcare industry; this institutional market is new and
unproven and the institutions may not accept our Internet solutions.

   We expect to derive a substantial amount of our revenues from license and
development fees related to the designing, hosting and maintenance of private
label websites for our institutional clients. To date, the healthcare industry
has resisted adopting new information technology solutions. Healthcare payors
and providers may determine that our solutions are too costly to implement or
unnecessary to manage their relationships with consumers. Moreover, these
healthcare industry participants may be unwilling to allow sensitive
information to be stored in our databases.


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<PAGE>

If the Internet does not prove to be an effective or profitable marketing
media for advertisers, especially those in the health industry, our business
model could fail.

 The Internet is a relatively new advertising medium.

   Our success depends on the increased use of the Internet as an advertising
medium. This advertising medium is unproven and may not become an effective
medium as compared to traditional advertising media. If the market for
Internet advertising fails to develop or develops more slowly than we
anticipate, then our ability to generate advertising revenue would be
diminished. Various pricing models are currently used to sell advertising on
the Internet. It is difficult to predict which, if any, will emerge as the
industry standard, thereby making it difficult to project our future
advertising rates and revenues. Widespread adoption of filter software, which
limits or prevents advertising from being delivered to an Internet user's
computer, could adversely affect the commercial viability of Internet
advertising, which could significantly impair our ability to generate revenues
from advertising. See also "--A failure to build our brand names quickly and
significantly will result in lower than expected revenues."

 Companies buying advertising for healthcare products over the Internet face
 special advertising issues.

   Health-related companies, which comprise our advertising and sponsorship
target market, face special problems with regard to Internet advertising.
Historically, these companies have marketed their products through physicians
and pharmacologists, and thus direct-to-consumer marketing, whether on the
Internet or in traditional media, is relatively new and unproven. In addition,
advertising and product claims of companies marketing or selling drugs and
cosmetics, including over-the-counter drugs and nutritional supplements, are
subject to regulation and enforcement by the FDA, FTC and similar state
agencies.

Our quarterly operating results are subject to significant fluctuations, and
our stock price may decline if we do not meet quarterly expectations of
investors and analysts.

   Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter as a result of a variety
of factors, including:

  . shifts in user traffic levels on HealthCentral.com and
    HealthCentralRx.com and associated costs;

  . shifts in the rate at which visitors to our HealthCentralRx.com website
    convert into customers;

  . demand for our products and mix of products sold;

  . shifts in the nature and amount of publicity about us or our competitors;

  . changes in our pricing policies or the pricing policies of our
    competitors;

  . changes in the frequency and size of repeat purchases by customers of our
    online drug store;

  . shifts in our ability, and that of our fulfillment partners, Bergen
    Brunswig and Medi-Mail, to ensure sufficient product supply;

  . seasonal patterns of spending by advertisers and sponsors and trends in
    advertising rates;

  . long sales cycles and delays in website development for institutional
    projects;

  . costs related to acquisitions of businesses or the timing of payments to
    our strategic partners;

  . fluctuations in expected revenues from our strategic relationships;

  . changes in reimbursement policies and practices of pharmacy benefit
    managers and insurance companies for prescription drugs;

  . our technological capabilities to accommodate any future growth in our
    operations or customers; and

  . changes in government regulation.

   If we do not meet the expectations of investors and analysts in any given
quarter, our stock price could decline.

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<PAGE>

Our recent growth has strained our existing personnel and other resources, and
any failure to manage this growth could increase our operating costs.

   We have experienced and are currently experiencing a period of significant
growth, which has placed, and will continue to place, a significant strain on
our resources. Any failure to successfully manage our growth could distract
management attention and result in our failure to execute on our business
plan. As a result of the acquisition of our online drug store, we need to
assimilate the operations of HealthCentralRx.com into our operations. Our
senior management has no prior operational experience in the online drug store
business. In order to manage this growth effectively, we have to implement new
transaction-processing, operational, reporting, and financial systems, expand
and train our employee base, and maintain close coordination among our
technical, finance, marketing, sales and editorial staffs. We also need to
devote significant management time and financial resources to website and
content development, strategic relationships, technology infrastructure and
operational infrastructure.

Our management team is new, and we need these individuals to work together
effectively to manage our growth.

   Because we only began operating our HealthCentral.com website in November
1998, virtually our entire management team is relatively new. Our future
success depends on the successful integration of this management team and
their ability to work together effectively. Also, we need to successfully
integrate HealthCentralRx.com's employees into our existing team.

In order to execute our growth plan we must attract, retain and motivate
highly skilled employees, and we face significant competition from other
Internet, healthcare and new media companies in doing so.

   If we fail to attract new personnel or retain and motivate our current
personnel, our business and future growth prospects could be severely harmed.
We need to hire additional personnel in virtually all operational areas,
including engineering, sales and marketing, production, research and
development, customer service and administration. Approximately six engineers
have ceased employment with us over the past few months. Competition for
personnel throughout the Internet and healthcare industries is intense. We
have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications.

Lengthy sales cycles for our private label websites for healthcare
institutions could adversely affect our revenue growth.

   We expect that the sales process for our institutional web site development
business will be lengthy and will involve a significant business and technical
evaluation and possible commitment of capital and other resources by our
customers. The sales of our solutions are subject to delays due to our
customers' internal budgets and procedures for approving capital expenditures
and deploying new technologies within their networks.

If we are unable to acquire the necessary web domain names, our brands and
reputation could be damaged, and we could lose customers.

   We currently hold the Internet domain names healthcentral.com,
peoplespharmacy.healthcentral.com, healthcentralrx.com and rxlist.com. The
regulation of domain names in the United States and in foreign countries is
subject to change. Regulatory bodies could establish additional top-level
domains, appoint additional domain name registrars or modify the requirements
for holding domain names. As a result, we may not acquire or maintain the
healthcentral.com, peoplespharmacy.healthcentral.com, healthcentralrx.com or
rxlist.com domain names in all of the countries in which we conduct business.


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   The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
could be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our brands, trademarks and other
proprietary rights. In addition, we may be unable to prevent third parties
from acquiring and using domain names relating to our brands. Any confusion
that may result from information on or related to any websites with domain
names relating to our brands could impair both our ability to capitalize upon
our brands and our marketing strategy.

We may not achieve the expected benefits of the acquisition of
HealthCentralRx.com, and the integration of HealthCentralRx.com may result in
a disruption to our business or the distraction of our management and
employees.

   We may not be able to successfully assimilate the HealthCentralRx.com
personnel and operations or fund or accomplish the execution of this e-
commerce business plan. The integration of HealthCentralRx.com into our
business may strain our existing technology and operations systems as we
attempt to assimilate HealthCentralRx.com into our existing operations. In
addition, several key HealthCentralRx.com employees have ceased employment
with us, and additional HealthCentralRx.com personnel may decide not to work
for us. These difficulties could disrupt our ongoing business, distract our
management and employees or increase our expenses.

Any future acquisitions of companies or technologies may result in disruptions
to our business and/or the distraction of our management.

   To date we have completed acquisitions of three companies, Windom Health,
HealthCentralRx.com and RxList.com. We may acquire or make investments in
other complementary businesses and technologies in the future. We may not be
able to identify other future suitable acquisition or investment candidates,
and even if we do identify suitable candidates, we may not be able to make
these acquisitions or investments on commercially acceptable terms, or at all.
If we do acquire or invest in other companies, we may not be able to realize
the benefits we expected to achieve at the time of entering into the
transaction. In any future acquisitions we will likely face the same
integration risks as discussed above with respect to the integration of the
business of HealthCentralRx.com. In addition, we may face additional risks,
including but not limited to:

  . expenses related to funding the operation, development and/or integration
    of complementary businesses;

  . expenses associated with the transactions;

  . additional expenses associated with amortization of acquired intangible
    assets;

  . the difficulty of maintaining uniform standards, controls, procedures and
    policies;

  . the impairment of relationships with employees and customers as a result
    of any integration of new management personnel;

  . the potential unknown liabilities associated with acquired businesses;
    and

  . the issuance of convertible debt or equity securities, which could be
    dilutive to our existing stockholders.

   Our failure to adequately address these issues could harm our business.

Breaches in our security and other unexpected problems could result in
lawsuits by customers and a violation of federal law.

   We retain confidential customer and patient information on our servers. Any
breach of security from a physical break-in, computer virus, programming error
or attack by a third party or an unexpected natural disaster could subject us
to a lawsuit. We may be required to expend significant sums to protect against
security breaches or to alleviate problems caused by breaches. In addition, a
breach of privacy of patient health records could constitute a violation of
federal law. We do not have full redundancy for all of our computer and
telecommunications facilities and do not maintain a back-up data facility.

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<PAGE>

Any failure to protect our intellectual property rights could impair our
ability to establish our brands.

   If we fail to adequately protect our proprietary rights in our content,
technology, products and services, our competitors could use the intellectual
property that we have developed to enhance their products and services, which
could harm our business. We rely on a combination of copyright and trademark
laws, trade secrets, confidentiality provisions and other contractual
provisions to protect our proprietary rights, but these legal means afford
only limited protection. Unauthorized parties may attempt to copy aspects of
our websites or to obtain and use information that we regard as proprietary.
Our competitors or others may adopt service names similar to ours, thereby
impeding our ability to build our brand identity and potentially confusing
consumers. We also rely on a variety of technologies that are licensed from
third parties, including our database and Internet server software. These
third-party licenses may not be available to us on commercially reasonable
terms in the future. See "Business--Intellectual Property Rights."

We may be sued by third parties for infringement of their proprietary rights.

   The healthcare and Internet industries are characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement or other violations of intellectual property rights. As
the number of entrants into our market increases, the possibility of an
intellectual property claim against us grows. Our content, technology,
products and services may not be able to sustain any third party claims or
rights against their use. Some of the information in our RxList.com database
regarding drug descriptions, clinical pharmacology, indications and usage,
warnings and the like is copied from package inserts, which accompany the
particular drug. We have not obtained licenses to reproduce this information
from the various pharmaceutical companies. Although we have not received a
copyright claim to date, we could face potential copyright infringement claims
in this regard. Any intellectual property claims, with or without merit, could
be time-consuming and expensive to litigate or settle and could divert
management attention from administering our core business.

As a publisher of online content, we may have liability for information we
provide on, or which is accessed from, the HealthCentral.com network.

   Because users of our network and the websites of our institutional
licensees access health-related information, including with regard to possible
adverse reactions or side effects from medications or a particular medical
condition they may have, or may distribute our content to others, third
parties may sue us for various causes of action based on the nature and
content of materials that we publish. We could also become liable if
confidential information is disclosed inappropriately. These types of claims
have been brought successfully against online services in the past. Others
could also sue us for the content and services that are accessible from our
network through links to other websites or through content and materials that
may be posted by our users in chat rooms or bulletin boards, none of which we
edit.

   Any indemnification provisions that we may have in agreements may not be
adequate to protect us. Our insurance may not adequately protect us against
these types of claims. Further, our business is based on establishing the
HealthCentral.com network as a trustworthy and dependable provider of health
care information and services. Allegations of impropriety, even if unfounded,
could therefore harm our reputation and business.

Our executive officers and directors own a large percentage of our voting
stock and could delay or prevent a change in our corporate control or other
matters requiring stockholder approval, even if favored by our other
stockholders.

   Our executive officers and directors, and their respective affiliates own
approximately 34.5% of our outstanding common stock, based on shares
outstanding as of February 29, 2000. Accordingly, these stockholders may, as a
practical matter, be able to exert significant influence over matters
requiring approval by our stockholders, including the election of directors
and the approval of mergers or other business combinations. This concentration
could have the effect of delaying or preventing a change in control that other
shareholders view as favorable.

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The success of our business model is dependent on continued growth and
acceptance of the Internet and growth of the online market for healthcare
information, products and services.

   Our business model assumes that consumers will be attracted to and use
healthcare information and related content available on our Internet-based
consumer healthcare network which will, in turn, allow us the opportunity to
sell advertising and sponsorships designed to reach those consumers. Our
business model also assumes that those consumers will purchase health-related
products online using our website and that healthcare organizations and other
Internet healthcare companies will partner with us to reach these consumers.
This business model is not yet proven and may not be successful. Our future
revenues and profits, if any, substantially depend upon the widespread
acceptance and use of the Internet as an important channel for the delivery of
healthcare information, products and services. The Internet may not prove to
be a viable commercial medium due to inadequate development of a reliable
network, delays in development of high speed modems, or delays in the adoption
of new standards required to handle increased levels of Internet activity.

If we do not respond to rapid technological changes affecting the Internet
healthcare industry, our products and services could become obsolete.

   Any failure to respond to technological advances and emerging industry
standards could impair our ability to attract and retain customers. As the
Internet and online commerce industry evolve, we must address the increasingly
sophisticated and varied needs of our prospective customers and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis. We may not be able to successfully implement
new technologies or adapt our network, proprietary technology and transaction-
processing systems to customer requirements or emerging industry standards.

Governmental regulation of the Internet could increase our operating costs.

   We receive confidential medical and credit card information from our
customers and website visitors. Laws and regulations directly applicable to
communications or commerce over the Internet are becoming more prevalent, and
compliance with any new laws could increase our operating expenses. In
particular, many government agencies and consumers are focused on the privacy
and security of medical and pharmaceutical records. The law of the Internet,
however, remains largely unsettled, even in areas where there has been some
legislative action. The rapid growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online and, in particular, on companies that maintain
medical or pharmaceutical records.

   A number of proposals have been made to impose additional taxes on the sale
of goods through the Internet. Taxation of online commerce could impair the
growth of our e-commerce business and add to the complexity of our transaction
processing system. See "Business--Other Governmental Regulation."

The health industry is extremely dynamic and constantly changing, and thus our
business may be affected by pricing pressures and healthcare reform
initiatives.

   The pressures of cost management, consumer demand for quality and safety
and professional concern about consumer reliance on non-professional advice
will dominate the healthcare marketplace for the foreseeable future. Any
efforts to contain costs by managed care entities will place downward
pressures on gross margins from sales of prescription drugs and other over-
the-counter healthcare products. Healthcare reform initiatives may further
impact our prescription drug sales. Any company in the health business is
subject to the risk of an extremely changeable marketplace, which could result
in our need to continually modify our business model, which could harm our
business.


                                      43
<PAGE>

Our stock price, like that of many companies in the Internet industry, may be
volatile.

   We expect that the market price of our common stock will fluctuate as a
result of variations in our quarterly operating results. These fluctuations
may be exaggerated if the trading volume of our common stock is low. In
addition, due to the technology-intensive and emerging nature of our business,
the market price of our common stock may rise and fall in response to:

  . announcements of technological or competitive developments;

  . acquisitions or strategic alliances by us or our competitors; and

  . the gain or loss of a significant strategic partner or media personality
    to our network; and

  . changes in estimates of our financial performance or changes in
    recommendations by securities analysts.

   In the past, securities class action litigation has often been brought
against a company after a period of volatility in the market price of its
stock. Any securities litigation claims brought against us could result in
substantial expense and the diversion of management's attention from our core
business.

Future sales of shares by existing stockholders could affect our stock price.

   All of the 7,500,000 shares of common stock sold in the initial public
offering on December 7, 1999 are freely tradeable. The remaining 15,084,964
shares of our common stock, based on shares outstanding as of February 29,
2000, are subject to lock-up agreements of varying lengths with Lehman
Brothers Inc or us and may only be sold upon the expiration of these lock-up
agreements . All such shares are "restricted securities" within the meaning of
Rule 144, which means that they may only be sold in the public market if
registered or if they qualify for an exemption from registration promulgated
under the Securities Act. Subject to restrictions with respect to the amount
of shares that may be sold by any one person, the manner in which such shares
may be sold, notice and public information limitations, approximately half of
these restricted securities will be eligible for sale in June 2000, and the
remaining restricted securities will be eligible for sale at various times
between June and December 2000. In addition, beginning in June 2000, some
stockholders have the right, subject to limitations, to require us to register
their shares for sale on the public market. Should our stockholders sell
substantial amounts of our common stock in the public market, the market price
of our common stock could fall, potentially resulting in substantial losses to
investors. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate.

It may be difficult for a third party to acquire us even if doing so would be
beneficial to our stockholders.

   Provisions of our certificate of incorporation and bylaws and Delaware law
may discourage, delay or prevent a merger or acquisition that a stockholder
may consider favorable. These provisions include the following:

  . establishing a classified board in which only a portion of the total
    board members will be elected at each annual meeting;

  . authorizing the board to issue preferred stock;

  . prohibiting cumulative voting in the election of directors;

  . establishing advance notice requirements for nominations for election of
    the board of directors or for proposing matters that can be acted on by
    stockholders at stockholder meetings.

Management has broad discretion over how the proceeds of our initial public
offering are being used.

   Our management has broad discretion with respect to the use of the net
proceeds from our initial public offering. Presently, anticipated uses of the
proceeds of our initial public offering include making substantial cash
payments under various contractual commitments and funding working capital,
sales and marketing, website and content development, infrastructure
improvements, operating losses, and potential acquisitions and strategic
alliances.

                                      44
<PAGE>

The market prices of Internet-related companies have been extremely volatile,
and an active trading market for our stock may not develop or be sustained.

   If an active trading market does not develop for our stock, investors may
have difficulty selling shares of our stock at a desirable price, or at all.
Investors may not be able to resell their shares at or above the initial
public offering price. In the past, securities class action litigation has
often been brought against a company after a period of volatility in the
market price of its stock. Any securities litigation claims brought against us
could result in substantial expense and the diversion of management's
attention from our core business.

Some shares in our initial public offering may have been offered in violation
of the Securities Act of 1933, which could give purchasers of these shares the
right to seek refunds or damages.

   Prior to the effectiveness of our registration statement for our initial
public offering, Lehman Brothers sent a letter and other written materials,
accompanied by a preliminary prospectus, to approximately 114 employees,
consultants and directors of HealthCentral.com whom we had designated as
potential purchasers of up to 90,900 shares of common stock in a directed
share program in connection with the initial public offering. We then sent a
follow-up email to this group of people regarding the directed share program,
which did not contain a legend delineated under Rule 134 of the Securities
Act, and which thus may have constituted a prospectus that does not meet the
requirements of the Securities Act. If this follow-up email did constitute a
violation of the Securities Act of 1933, the recipients of the email who
purchased common stock in the initial public offering could have the right,
for a period of one year from the date of their purchase of common stock, to
obtain recovery of the consideration paid in connection with their purchase of
common stock or, if they already sold the stock, sue us for damages resulting
from their purchase of common stock. These refunds or damages could total up
to $1 million, based on the public offering price of $11.00 per share, if the
investors suffer a total loss of their investment during this period and seek
refunds or damages. If this were to occur, our results of operations and cash
position could suffer.

Item 7a. Qualitative and Quantitative Disclosure About Market Risk.

   Our exposure to market risk is limited to interest income sensitivity,
which is affected by changes in the general level of U.S. interest rates. Our
cash equivalents are invested with high quality issuers and limit the amount
of credit exposure to any one issuer. Due to the short-term nature of the cash
equivalents, we believe that we are not subject to any material interest rate
risk. We did not have any foreign currency hedging or other derivative
financial instruments as of December 31, 1999.

   We do not enter into financial instruments for trading or speculative
purposes and do not currently utilize derivative financial instruments. Our
operations are conducted primarily in the United States and as such are not
subject to material foreign currency exchange rate risk. We have no long-term
debt.

Item 8. Financial Statements and Supplementary Data.

   See Part IV, Item 14 of this Report.

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

   None.

                                   PART III

   The Company's Proxy Statement for its 2000 Annual Meeting of Stockholders,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, will be incorporated by reference in this Form 10-K pursuant to
General Instruction G(3) of Form 10-K and will provide the information
required under Part III (Items 10-13), except for the information with respect
to the Company's executive officers, which is included in "Item 1. Business--
Executive Officers."

                                      45
<PAGE>

                                    PART IV

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

    (a) The following documents are filed as part of this Form 10-K:

    (1)  Consolidated Financial Statements and Report of
         PricewaterhouseCoopers LLP, which are set forth in the Index to
         Consolidated Financial Statements at page F-1.

    (2)Financial Statement Schedules.

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

    (3)Exhibits.

<TABLE>
<CAPTION>
  Number   Description
  ------   -----------
 <C>       <S>                                                              <C>
    3.3*   Amended and Restated Certificate of Incorporation of the
           Registrant.
    3.5*   Amended and Restated Bylaws of the Registrant.
    4.1*   Form of Registrant's Common Stock Certificate.
   10.1*   First Amended and Restated Investors' Rights Agreement dated
           August 27, 1999 between the Registrant and certain investors.
   10.2++  1999 Stock Plan, as amended on January 2000, and form of stock
           option agreements and restricted stock purchase agreements.
   10.3++  Amended and Restated 1998 Stock Plan, as amended on January
           2000, and form of stock option agreements and restricted stock
           purchase agreements.
   10.4*   1999 Employee Stock Purchase Plan, and form of subscription
           agreement.
   10.5*   1999 Directors' Stock Option Plan, and form of stock option
           agreement.
   10.6*   Form of Common Stock Agreement between the Registrant and each
           of Dean S. Edell M.D. and James J. Hornthal.
   10.7*   Engagement Letter between the Registrant and Hambrecht & Quist
           dated March 22, 1999.
   10.8*   Consulting Agreement between the Registrant and Michael D.
           McDonald dated August 12, 1999.
   10.9*   Employment Agreements between the Registrant and each of Deryk
           Van Brunt and Marcos A. Athanasoulis.
   10.10*  Employment Agreement between the Registrant and Albert Greene
           dated August 16, 1999.
   10.11*  Offer Letter from the Registrant to C. Fred Toney dated June
           16, 1999.
   10.12*  Letter Agreement between the Registrant and Ann Marie Buddrus
           dated August 4, 1999.
   10.13*  Lock-Up Agreement between the Registrant and Dr. Dean S. Edell
           dated August 27, 1999.
   10.14*  Form of Change of Control Agreement between the Registrant
           Albert L. Greene.
   10.15*  License and Confidential Information Agreement between the
           Registrant and Dr. Dean S. Edell dated May 14, 1999.
   10.16*  Office Lease between the Registrant and Christie Avenue
           Partners JS dated March 26, 1999.
   10.17*  Landlord's Consent and Agreement (Sublease) between the
           Registrant and Burnham Pacific Operating Partnership, L.P.
           dated July 22, 1999.
</TABLE>


                                      46
<PAGE>

<TABLE>
<CAPTION>
  Number   Description
  ------   -----------
 <C>       <S>                                                              <C>
  10.18*   Joint Development Agreement/Base Agreement by and between the
           Registrant, Windom Health Enterprises and Global Health
           Initiatives dated August 12, 1999.
  10.19+*  Co-Branded Site Agreement by and between the Registrant,
           Graedon Enterprises, Inc., and Joe Graedon and Teresa Graedon
           dated September 9, 1999.
  10.20+*  Agreement between the Registrant and AltaVista Company dated
           September 27, 1999.
  10.21*   Agreement and Plan of Reorganization by and between the
           Registrant, HC Acquisition Corporation and ePills, Inc. dated
           September 28, 1999.
  10.22+*  Internet Fulfillment Services Agreement between ePills, Inc.
           and Bergen Brunswig Drug Company dated September 16, 1999.
  10.23+*  Pharmacy Services Fulfillment Agreement between ePills, Inc.
           and Medi-Mail, Inc. dated August 1999.
  10.24*   Form of Indemnification Agreement.
  10.25*   Agreement and Plan of Reorganization by and between Registrant
           and RxList.com dated October 25, 1999.
  10.26*   Industrial Lease between ePills.com and H.S.P. dated May 4,
           1999.
  10.27+*  Co-Branding Content Agreement between Registrant and MediaLinx
           Interactive, L.P. dated June 30, 1999.
  10.28+*  Advertising Insertion Order between ePills, Inc. and America
           Online, Inc. dated August 20, 1999.
  10.29*   Assumed HealthCentralRx.com 1999 Stock Option Plan and form of
           incentive stock option agreement.
  10.30    Agreement with Covert Bailey dated December 1999.
  21.1*    List of subsidiaries.
  23.1     Consent of Independent Accountants.
  24.1     Power of Attorney (see page 48)
  27.1     Financial Data Schedule.
</TABLE>
--------
   *Incorporated herein by reference to the exhibit filed with the Company's
   Registration Statement on Form S-1 (Commission File No. 333-88019)
   +Confidential treatment has been granted by the Securities and Exchange
   Commission with respect to certain information in these exhibits.
  ++Supersedes previously filed exhibit.

    (b) Reports on Form 8-K.

     None.

                                      47
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                          HealthCentral.com

                                                  /s/ C. Frederick Toney
                                          By: _________________________________
                                                    C. Frederick Toney,
                                            Executive Vice President and Chief
                                                     Financial Officer

Date: March 10, 2000

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Albert L. Greene and C. Frederick
Toney, jointly and severally, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign any
amendments to this 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 of said
attorneys-in-fact, or his or her substitute or substitutes may do or cause to
be done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----

<S>                                  <C>                           <C>
        /s/ Albert L. Greene         President, Chief Executive    March 9, 2000
____________________________________  Officer and Director
          Albert L. Greene            (Principal Executive
                                      Officer)

       /s/ C. Frederick Toney        Executive Vice President and  March 10, 2000
____________________________________  Chief Financial Officer
         C. Frederick Toney           (Principal Financial and
                                      Accounting Officer)

                                     Co-Chairman of the Board
____________________________________
           James Hornthal

      /s/ Michael D. McDonald        Co-Chairman of the Board      March 9, 2000
____________________________________
        Michael D. McDonald

         /s/ Louis Andersen          Director                      March 10, 2000
____________________________________
           Louis Andersen

         /s/ Sheryle Bolton          Director                      March 9, 2000
____________________________________
           Sheryle Bolton

     /s/ Annette Campbell-White      Director                      March 8, 2000
____________________________________
       Annette Campbell-White

           /s/ Dean Edell            Director                      March 8, 2000
____________________________________
             Dean Edell

       /s/ Wesley D. Sterman         Director                      March 8, 2000
____________________________________
         Wesley D. Sterman

                                     Director
____________________________________
           Robin Wolaner
</TABLE>

                                      48
<PAGE>

                               HEALTHCENTRAL.COM

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>

  Report of Independent Accountants........................................ F-2

  Consolidated Balance Sheets.............................................. F-3

  Consolidated Statements of Operations.................................... F-4

  Consolidated Statements of Stockholders' Equity.......................... F-5

  Consolidated Statements of Cash Flows.................................... F-6

  Notes to Consolidated Financial Statements............................... F-7
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
HealthCentral.com

   In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
HealthCentral.com and its subsidiaries at December 31, 1999 and 1998 and the
results of their operations and their 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. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

/s/ PricewaterhouseCoopers LLP

San Jose, California
February 1, 2000

                                      F-2
<PAGE>

                               HEALTHCENTRAL.COM

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           December 31,
                                                      ------------------------
                       ASSETS                             1999         1998
                       ------                         ------------  ----------
<S>                                                   <C>           <C>
Current assets:
  Cash and cash equivalents.......................... $ 77,654,947  $1,091,551
  Accounts receivable, net of allowance for doubtful
   accounts of $64,609 and $0 respectively...........      578,314      15,189
  Other receivables..................................       67,080         --
  Prepaid expenses...................................    3,144,149         --
                                                      ------------  ----------
    Total current assets.............................   81,444,490   1,106,740
Receivable from a related party......................          --      563,541
Property and equipment, net..........................    1,784,879         --
Intangible assets....................................   33,763,444         --
Other assets.........................................    1,150,288         --
                                                      ------------  ----------
    Total assets..................................... $118,143,101  $1,670,281
                                                      ============  ==========
<CAPTION>
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
<S>                                                   <C>           <C>
Current liabilities:
  Accounts payable................................... $  1,787,428  $   28,482
  Accrued expenses...................................    1,052,910      39,166
  Deferred revenue...................................      149,367         --
  Current portion of obligations under capital
   leases............................................      147,498         --
  Note payable.......................................    2,540,784         --
                                                      ------------  ----------
    Total current liabilities........................    5,677,987      67,648
Obligations under capital leases.....................      292,010         --
                                                      ------------  ----------
    Total liabilities................................    5,969,997      67,648
                                                      ------------  ----------
Commitments and contingencies (Note 10)
Stockholders' equity:
  Convertible preferred stock, $0.001 par value,
   5,875,000 and 1,875,000 shares authorized at
   December 31, 1999 and 1998, respectively, 0 and
   1,012,500 issued and outstanding at December 31,
   1999 and 1998, respectively.......................          --        1,134
  Common stock, $0.001 par value, 100,000,000 and
   27,750,000 shares authorized at December 31, 1999
   and 1998, respectively, 22,581,238 and 4,689,906
   shares issued and outstanding at December 31, 1999
   and 1998, respectively............................       22,396       4,468
  Additional paid-in capital.........................  152,397,459   2,334,912
  Note receivable from stockholder...................     (405,931)     (5,931)
  Deferred stock compensation........................   (5,005,965)   (284,481)
  Accumulated deficit................................  (34,834,855)   (447,469)
                                                      ------------  ----------
    Total stockholders' equity.......................  112,173,104   1,602,633
                                                      ------------  ----------
    Total liabilities and stockholders' equity....... $118,143,101  $1,670,281
                                                      ============  ==========
</TABLE>

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

                                      F-3
<PAGE>

                               HEALTHCENTRAL.COM

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               Years Ended December 31,
                                          ------------------------------------
                                              1999         1998        1997
                                          ------------  ----------  ----------
<S>                                       <C>           <C>         <C>
Revenues:
  Advertising and eCommerce.............. $    901,331  $   15,259  $      --
  Content subscription and license.......      287,422         --          --
                                          ------------  ----------  ----------
    Total revenues.......................    1,188,753      15,259         --
                                          ------------  ----------  ----------
Operating and other expenses:
  Product, content and product
   development...........................    4,398,580     136,788         --
  Sales and marketing....................    9,159,290     141,516         848
  General and administrative.............    2,045,795      78,549         300
  Amortization of intangible assets......    3,333,961         --          --
  Stock compensation.....................    4,939,694     104,641         --
  Acquired in-process research and
   development...........................      804,525         --          --
                                          ------------  ----------  ----------
    Total operating and other expenses...   24,681,845     461,494       1,148
                                          ------------  ----------  ----------
Loss from operations.....................  (23,493,092)   (446,235)     (1,148)
Interest income, net.....................      493,706         --          --
                                          ------------  ----------  ----------
Net loss.................................  (22,999,386)   (446,235)     (1,148)
Preferred stock dividend.................   11,388,000         --          --
                                          ------------  ----------  ----------
Net loss attributable to common
 stockholders............................ $(34,387,386) $ (446,235) $   (1,148)
                                          ============  ==========  ==========
Basic and diluted net loss per share..... $      (4.96) $    (0.10) $      --
                                          ============  ==========  ==========
Shares used in computing basic and
 diluted net loss per share..............    6,926,485   4,669,628   4,610,000
                                          ============  ==========  ==========
</TABLE>



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

                                      F-4
<PAGE>

                               HEALTHCENTRAL.COM

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                   Preferred Stock       Common Stock     Additional  Note Receivable   Deferred                      Total
                  ------------------  ------------------   Paid-In         from          Stock      Accumulated   Stockholders'
                    Shares    Amount    Shares   Amount    Capital     Stockholders   Compensation    Deficit        Equity
                  ----------  ------  ---------- ------- ------------ --------------- ------------  ------------  -------------
<S>               <C>         <C>     <C>        <C>     <C>          <C>             <C>           <C>           <C>
Balances at
December 31,
1996............         --   $  --    4,610,000 $ 4,379 $      3,628   $      --      $      --     $       (86) $      7,921
Net loss........         --      --          --      --           --           --             --          (1,148)       (1,148)
                  ----------  ------  ---------- ------- ------------   ----------    -----------   ------------  ------------
Balance at
December 31,
1997............         --      --    4,610,000   4,379        3,628          --             --          (1,234)        6,773
Issuance of
Series A
preferred stock
and warrants,
net.............   1,012,500   1,134         --      --     1,933,891          --             --             --      1,935,025
Issuance of
common stock....         --      --       79,906      89        8,271       (5,931)           --             --          2,429
Deferred
compensation
expense in
connection with
issuance of
stock options...         --      --          --      --       389,122          --        (389,122)           --            --
Amortization of
deferred
compensation....         --      --          --      --           --           --         104,641            --        104,641
Net loss........         --      --          --      --           --           --             --        (446,235)     (446,235)
                  ----------  ------  ---------- ------- ------------   ----------    -----------   ------------  ------------
Balance at
December 31,
1998............   1,012,500   1,134   4,689,906   4,468    2,334,912       (5,931)      (284,481)      (447,469)    1,602,633
Deferred
compensation
expense in
connection with
issuance of
stock options...         --      --          --      --     9,390,973          --      (9,661,178)           --       (270,205)
Amortization of
deferred
compensation....         --      --          --      --           --           --       4,939,694            --      4,939,694
Issuance of
Series B
convertible
preferred stock
and warrants,
net.............   4,038,455   4,523         --      --    19,810,542          --             --             --     19,815,065
Common stock
issued for
acquisitions....         --      --    4,433,288   4,685   31,734,986          --             --             --     31,739,671
Stock option
exercises.......         --      --      376,250     301      416,799     (400,000)           --             --         17,100
Issuance of
Series A
convertible
preferred stock
warrants .......         --      --          --      --        49,372          --             --             --         49,372
Issuance of
common stock
warrants and
options.........         --      --          --      --     1,747,848          --             --             --      1,747,848
Preferred stock
dividend........         --      --          --      --    11,388,000          --             --     (11,388,000)          --
Issuance of
common stock in
IPO, net........         --      --    7,500,000   7,500   74,651,321          --             --             --     74,658,821
Conversion of
preferred stock.  (5,050,955) (5,657)  5,050,955   5,051          606          --             --             --            --
Exercise of
warrants........         --      --      524,589     385      809,606          --             --             --        809,991
Common stock
issued for
services........         --      --        6,250       6       62,494          --             --             --         62,500
Net loss........         --      --          --      --           --           --             --     (22,999,386)  (22,999,386)
                  ----------  ------  ---------- ------- ------------   ----------    -----------   ------------  ------------
Balance at
December 31,
1999............         --   $  --   22,581,238 $22,396 $152,397,459   $ (405,931)   $(5,005,965)  $(34,834,855) $112,173,104
                  ==========  ======  ========== ======= ============   ==========    ===========   ============  ============
</TABLE>

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

                                      F-5
<PAGE>

                               HEALTHCENTRAL.COM

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                             ---------------------------------
                                                 1999         1998      1997
                                             ------------  ----------  -------
<S>                                          <C>           <C>         <C>
Cash flows from operating activities:
  Net loss.................................. $(22,999,386) $ (446,235) $(1,148)
  Adjustments to reconcile net loss to net
   cash used in operating activities:
    Common stock issued for services........       62,500       2,429      --
    Stock compensation expense..............    4,939,694     104,641      --
    Amortization of prepaid license.........      373,884         --       --
    Depreciation and amortization expense...    3,486,000         --       --
    Acquired in-process research and
     development............................      804,525         --       --
    Changes in assets and liabilities:
      Accounts and other receivables........     (238,883)    (15,189)     --
      Prepaid expenses and other assets.....   (1,947,673)        --       --
      Accounts payable......................      970,768      28,482      --
      Accrued expenses......................       27,392      39,166      --
      Deferred revenues.....................      (77,319)        --       --
                                             ------------  ----------  -------
        Net cash used in operating
         activities.........................  (14,598,498)   (286,706)  (1,148)
                                             ------------  ----------  -------
Cash flows from investing activities:
  Purchase of property and equipment........   (1,153,110)        --       --
  Cash paid in connection with acquisitions,
   net of cash received.....................     (636,897)        --       --
  Payments to related party.................   (2,302,901)   (563,541)     --
                                             ------------  ----------  -------
        Net cash used in investing
         activities.........................   (4,092,908)   (563,541)     --
                                             ------------  ----------  -------
Cash flows from financing activities:
  Proceeds from issuance of convertible
   preferred stock..........................   18,315,065   1,935,025      --
  Proceeds from stock option exercises......       17,100         --       --
  Payments on capital leases................      (46,175)        --       --
  Proceeds from issuance of notes payable...    1,500,000         --       --
  Proceeds from warrant exercises...........      809,991         --       --
  Proceeds from initial public offering.....   74,658,821         --       --
                                             ------------  ----------  -------
        Net cash provided by financing
         activities.........................   95,254,802   1,935,025      --
                                             ------------  ----------  -------
Net increase (decrease) in cash and cash
 equivalents................................   76,563,396   1,084,778   (1,148)
Cash and cash equivalents at beginning of
 period.....................................    1,091,551       6,773    7,921
                                             ------------  ----------  -------
Cash and cash equivalents at end of period.. $ 77,654,947  $1,091,551  $ 6,773
                                             ============  ==========  =======
Supplemental disclosures of cash flows
 information:
  Cash paid for interest.................... $    130,460  $      --   $   --
                                             ============  ==========  =======
Supplemental disclosures of non-cash
 investing and financing activities:
  Deferred stock compensation............... $  9,661,178  $  389,122  $   --
  Warrants issued in connection with
   agreements...............................    1,496,153         --       --
  Common stock purchased with note
   receivables..............................      400,000       5,931      --
  Warrants issued in connection with sale of
   preferred stock..........................      301,317     408,629      --
  Issuance of stock in connection with
   acquisitions.............................   31,739,671         --       --
  Payment of note payable with preferred
   stock....................................    1,500,000         --       --
  Preferred stock dividend..................   11,388,000         --       --
  Assets acquired under capital leases......       96,129         --       --
</TABLE>

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

                                      F-6
<PAGE>

                               HEALTHCENTRAL.COM

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--The Company and Summary of Significant Accounting Policies:

 The Company

   HealthCentral.com (the "Company") was incorporated in California on August
12, 1996. The Company commenced operations in 1998 and provides online
healthcare information and products to consumers through the company's
HealthCentral.com network. The Company emerged from the development stage
during 1999 and operates in one business segment.

   In November 1999, the Company reincorporated in the state of Delaware. Also
in November 1999, the Board of Director's and shareholders of the Company
approved a 5-for-4 stock split of its common and preferred stock which became
effective December 2, 1999.

   The Company sold 7,500,000 shares of common stock at $11 per share upon
completing its initial public offering on December 10, 1999 and raised cash of
$74.7 million, net of underwriting fees and expenses.

   The Company has a limited operating history and its prospects are subject
to risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and expand the Company's online service
brands, the rejection of the Company's products and services by Internet
consumers, vendors and/or advertisers, the inability of the Company to
maintain and increase the levels of traffic on its HealthCentral.com network
of websites, as well as other risks and uncertainties.

 Principles of consolidation and basis of presentation

   The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Windom Health Enterprises, Inc., and
HealthCentralRx.com, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.

 Use of estimates

   The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

 Cash and cash equivalents

   The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31, 1999
and 1998, the Company maintained its cash and cash equivalents in bank
accounts in amounts which, at times, exceed federally insured limits. Cash
equivalents consist primarily of corporate bonds and money market auction
instruments with maturities of three months or less for which the carrying
value approximated fair value. The cost of these investments at December 31,
1999 was $69,941,902.

 Property and Equipment

   Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
assets, as follows:

<TABLE>
      <S>                                                                <C>
      Computer and office equipment..................................... 3 years
      Furniture and fixtures............................................ 5 years
</TABLE>

   Leasehold improvements are amortized on a straight-line basis over the life
of the lease, or the useful life of the assets, whichever is shorter.

                                      F-7
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Impairment of long-lived assets

   The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. ("SFAS") 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.

 Intangible Assets

   Intangible assets consist primarily of goodwill, which is being amortized
on a straight-line basis over three years.

   The Company considers potential impairments of its intangible assets on an
exception basis when evidence exists that events or changes in circumstances
may have made a recovery of the carrying value unlikely. An impairment of loss
is recognized when the expected undiscounted future net cash flows is less
than the carrying amount of the asset. No such losses have been identified to
date.

 Comprehensive income

   The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income. This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. To date the Company has not had any transactions that
are required to be reported in comprehensive income.

 Revenue recognition

   Advertising revenues are recorded in the period the advertising impressions
are delivered to customers. The Company uses an outside vendor to solicit
customers to use its advertising services, to serve the ads to its website and
to bill and collect for these services. This outside vendor provides monthly
reports indicating the impressions delivered, amounts billed for the Company's
advertising services and the related administrative fee. The Company records
advertising revenues, as reported by the outside vendor, net of this
administrative fee as the Company bears no collection risk for the gross
amount of the advertising fees. The Company's advertising contracts do not
guarantee a minimum number of impressions to be delivered.

   eCommerce revenues are recognized for sales of over-the-counter and health
and beauty aid products, net of discounts, when products are shipped to
customers. The Company recognizes commission revenues for the use of its
website related to sales made by the pharmacy fulfillment partner for all
prescription drugs. The Company is responsible for all refunds relating to
sales where a customer is not satisfied with the products received. The
Company provides an estimated allowance for such returns in the period of
sale. The Company also retains the credit risk for sales of all products made
by its fulfillment partners.

   Content subscription and license revenues are derived from contracts with
healthcare providers, health product resellers, and third party organizations
and principally consist of license fees for website development applications,
consulting fees from custom website development and hosting and maintenance
fees related to the websites' maintenance. The Company recognizes software
license revenue under Statement of Position ("SOP") 97-2, Software Revenue
Recognition, and SOP 98-9, Modifications of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. When contracts contain
multiple elements and vendor-specific objective evidence exists for all
undelivered elements, the Company accounts for the delivered elements in
accordance with the "Residual Method" prescribed by SOP 98-9. To date, vendor-
specific objective evidence has not been

                                      F-8
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

available for all undelivered elements and, accordingly, the Company has
recognized the revenues from licenses, hosting and maintenance ratably over
the term of the agreement, generally 12 to 24 months. For consulting projects,
revenues are recognized at the time services are rendered based on charges for
time and materials. Deferred revenues represent the amount of cash received or
invoices rendered prior to revenue recognition.

 Production, content and product development expense

   Production, content and product development expenses consist primarily of
salaries and benefits, consulting fees and other costs related to content
acquisition and licensing, software development, application development and
website operations.

   Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. To date, costs incurred
following the establishment of technological feasibility, but prior to general
product release, have been insignificant.

 WebSite Development Costs

   The Company accounts for website development costs in accordance with the
AICPA Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Website development costs
consist of external and internal costs incurred to purchase and implement the
website software and significant enhancements used in the Company's business.
These costs are capitalized and amortized using the straight-line method over
the estimated useful life of the asset. Amortization expense for the year
ended December 31, 1999 was not significant.

   Internal and external costs of developing website content are expensed as
incurred and included in product, content and product development expense in
the accompanying consolidated statements of operations.

 Advertising expenses

   Internet advertising expenses are recognized based on the terms of the
individual agreements, but generally over the greater of the ratio of the
number of impressions received over the total number of contracted
impressions, or on a straight-line basis over the term of the contract.
Advertising expense for the year ended December 31, 1999 was $7,462,731 and
has been included in sales and marketing expense in the consolidated statement
of operations. There were no advertising expenses for the years ended December
31, 1998 and 1997.

 Net loss per share

   The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share and SEC
Staff Accounting Bulletin ("SAB") No. 98. Basic and diluted net loss per share
are computed by dividing the net loss available to holders of common stock for
the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential common stock if their effect is antidilutive. Potential
common stock consists of restricted common stock, incremental common shares
issuable upon the exercise of stock options and warrants. The net loss per
share at December 31, 1999 includes 5,050,955 shares of convertible preferred
stock that converted into common shares on a one-to-one basis upon completion
of the Company's initial public offering in December 1999.

                                      F-9
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share attributable to common
stockholders because to do so would be antidilutive for the periods indicated:

<TABLE>
<CAPTION>
                                                                Years ended
                                                               December 31,
                                                            -------------------
                                                              1999      1998
                                                            --------- ---------
      <S>                                                   <C>       <C>
      Series A convertible preferred stock.................       --  1,012,500
      Series B convertible preferred stock.................       --        --
      Convertible preferred stock warrants.................       --    486,000
      Convertible common stock warrants....................    86,145       --
      Common stock options................................. 2,844,874   274,718
      Common stock subject to repurchase...................   312,500    17,937
                                                            --------- ---------
                                                            3,243,519 1,791,155
                                                            ========= =========
</TABLE>

   The restricted shares subject to repurchase are excluded from the
calculation of basic and diluted earnings per share attributable to common
stockholders until the restrictions lapse.

 Income taxes

   Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.

 Concentration of credit risk

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. The Company's accounts receivable are derived from revenues earned
from customers located in the U.S. The Company performs ongoing credit
evaluations of it's customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of accounts
receivable.

   In 1999 and 1998, 62% and 100% of the Company's revenues were generated
from one customer. At December 31, 1999 and 1998 one customer accounted for
73% and 100% of the total outstanding receivables.

 Financial instruments

   Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accrued liabilities
and accounts payable, approximate fair value due to their short maturities.

 Stock options

   The Company accounts for employee stock compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, stock compensation is based on the difference, if any, on the date of
grant, between the estimated fair value of the Company's common stock and the
exercise price. Deferred stock compensation is amortized in accordance with
Financial Accounting Standards Board ("FASB") Interpretation No. ("FIN") 28.
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18,
Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling Goods or Services.

                                     F-10
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 New accounting pronouncements

   In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In July 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The Company will adopt SFAS No. 133 during its year
ending December 31, 2001. To date, the Company has not engaged in derivative
or hedging activities.

   In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
Financial Statements, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or result of operations of the Company.

Note 2--Balance Sheet Components:

<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                  1999     1998
                                                               ----------  ----
      <S>                                                      <C>         <C>
      Property and equipment:
        Furniture and office equipment........................ $  325,287   --
        Computer and network equipment........................  1,599,853   --
        Leasehold improvements................................     11,777   --
                                                               ----------  ----
                                                                1,936,917   --
        Less accumulated depreciation.........................   (152,038)  --
                                                               ----------  ----
                                                               $1,784,879  $--
                                                               ==========  ====
</TABLE>

   Property and equipment includes $473,679 of computer equipment under
capital leases at December 31, 1999. Accumulated amortization of assets under
capital leases totaled $51,293 at December 31, 1999.

<TABLE>
<CAPTION>
                                                              December 31,
                                                           --------------------
                                                              1999       1998
                                                           -----------  -------
      <S>                                                  <C>          <C>
      Intangible assets:
        Goodwill.......................................... $33,369,577
        Core technology...................................   1,615,573      --
        Acquired workforce................................     357,829      --
        Contracts.........................................   1,189,103      --
        Tradenames........................................     443,062      --
        Other.............................................     122,260      --
                                                           -----------  -------
                                                            37,097,404      --
        Less accumulated amortization.....................  (3,333,960)     --
                                                           -----------  -------
                                                           $33,763,444  $   --
                                                           ===========  =======
      Accrued expenses:
        Accrued compensation.............................. $       --   $39,166
        Accrued advertising...............................     455,314      --
        Accrued vacation..................................      97,470      --
        Accrued professional fees and other...............     500,126      --
                                                           -----------  -------
                                                           $ 1,052,910  $39,166
                                                           ===========  =======
</TABLE>

                                     F-11
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 3--Acquisitions

 Windom Health Enterprises, Inc.

   On May 6, 1999, the Company entered into a definitive merger agreement with
Windom Health Enterprises, Inc. ("Windom Health") and completed the merger on
August 12, 1999. Windom Health is engaged in offering institutions the ability
to license specialized tools and services to provide their members with
personalized online health information and health risk assessments.

   This transaction was recorded using the purchase method of accounting. The
allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on estimated fair values as determined by management.
The allocation is summarized below:

<TABLE>
      <S>                                                           <C>
      Goodwill..................................................... $10,751,000
      Identifiable assets..........................................     842,000
      Core technology..............................................     375,000
      Acquired workforce...........................................     180,000
      In-process research and development..........................     555,000
                                                                    -----------
          Total purchase price..................................... $12,703,000
                                                                    ===========
</TABLE>

   The total purchase price of $12.7 million consisted of cash of $51,000, a
note payable of $458,000, 2,104,770 shares of the Company's common stock
valued at $9,311,514, assumed liabilities of $2,868,457 and estimated
transaction costs of $65,000. The deemed value of the Company's common stock
on the date the definitive merger agreement was signed was $4.42 per share.

   The valuation of the purchased in-process research and development of
$555,000 was based on the result of an independent appraisal using the income
approach. The income approach estimates the value of the asset based on its
expected economic benefit. The valuation analysis considered the contribution
of the core technology as well as the percentage of completion of the in-
process research and development. The expected cash flows associated with the
in-process research and development were discounted to the present value using
a rate of return that is commensurate with the risk of the asset. The
purchased in-process technology was not considered to have reached
technological feasiblility and had no alternative future use.

   Goodwill and other intangibles are being amortized on a straight-line basis
over the estimated period of benefit of two to three years.

 HealthCentralRx.com

   On October 5, 1999, the Company acquired HealthCentralRx.com, Inc.
HealthCentralRx.com operates an online drug store that provides retail sales
of prescription pharmaceuticals, over-the-counter products and health and
beauty aids on the Internet.

                                     F-12
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   This transaction was recorded using the purchase method of accounting. The
allocation of the aggregate purchase price to the tangible and identifiable
intangible assets acquired and liabilities assumed in connection with this
acquisition was based on the estimated fair values as determined by
management. The purchase price allocation is summarized below:

<TABLE>
      <S>                                                           <C>
      Goodwill..................................................... $11,441,000
      Identifiable assets..........................................   1,147,000
      Contracts....................................................   1,189,000
      Core technology..............................................   1,241,000
      Tradename....................................................     443,000
      Acquired workforce...........................................     177,000
      In-process research and development..........................     250,000
                                                                    -----------
          Total purchase price..................................... $15,888,000
                                                                    ===========
</TABLE>

   The total purchase price of the $15.9 million consisted of 1,492,096 shares
of common stock valued at $13,533,000 based upon the deemed value of the
Company's common stock of $9.07 per share on the date the definitive merger
agreement was signed. The purchase price also included the assumption of
86,969 employee stock options valued at $6.11 per share, assumed liabilities
of $1,653,000 and transaction costs of $171,000.

   The valuation of the purchased in-process research and development of
$250,000 was based on the result of an independent appraisal using the income
approach. The income approach estimates the value of the asset based on its
expected economic benefit. The valuation analysis considered the contribution
of the core technology as well as the percentage completion of the in-process
research and development. The expected cash flow associated with the in-
process research and development was discounted to the present value using a
rate of return that is commensurate with the risk of the asset. The purchased
in-process technology was not considered to have reached technological
feasibility and had no alternative future use.

   Goodwill and other intangibles are being amortized on a straight-line basis
over the estimated period of benefit of two to three years.

 RxList.com

   On October 28, 1999, the Company acquired RxList.com. RxList.com maintains
a website that allows visitors to search for information regarding
prescription and other medications.

   This transaction was recorded using the purchase method of accounting. The
allocation of the purchase price to the tangible and identifiable intangible
assets acquired and liabilities assumed in connection with this acquisition
was based on estimated fair values as determined by management. The purchase
price allocation is summarized below:

<TABLE>
      <S>                                                           <C>
      Goodwill..................................................... $11,212,000
      Net liabilities assumed......................................    (287,000)
      Pharmaceutical database......................................     123,000
                                                                    -----------
          Total purchase price..................................... $11,048,000
                                                                    ===========
</TABLE>

   The total purchase price of $11.0 million consisted of 836,422 shares of
the Company's common stock valued at $8,364,216, an aggregate of $2.6 million
in notes payable issued to RxList.com shareholders discounted at a deemed
interest rate of 10% over 6 months and transaction costs of $143,000. The
deemed value of the Company's common stock on the date the acquisition
agreement was signed was $10.00.

                                     F-13
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Goodwill and other intangibles are being amortized on a straight-line basis
over the estimated period of benefit of two to three years.

   The following unaudited pro forma financial information presents the
consolidated results of the Company as if the acquisitions had occurred at the
beginning of each period, and includes adjustments for amortization of
intangibles. This pro forma financial information is not intended to be
indicative of future results. Unaudited pro forma consolidated results of
operations are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                               Years Ended
                                                               December 31,
                                                             -----------------
                                                               1999     1998
                                                             --------  -------
      <S>                                                    <C>       <C>
      Revenues.............................................. $  1,469  $   580
      Net loss attributable to common stockholders..........  (49,726)  (8,451)
      Basic and diluted net loss per share attributable to
       common stockholders..................................    (4.96)   (1.11)
</TABLE>

Note 4--Related Party Transactions:

   In August 1998, in association with a letter of intent relating to a merger
with Windom Health Enterprises, Inc., the Company entered into a License and
Management Agreement (the "Agreement") with Windom Health Enterprises, Inc.
Pursuant to the Agreement, the Company had full management responsibility for
the operations of Windom Health Enterprises, Inc. In this capacity, the
Company advanced Windom Health Enterprises, Inc. funds to finance its
operations. At December 31, 1998, the net outstanding balance due from Windom
Health Enterprises, Inc. amounted to $563,541. The cumulative amount due from
Windom Health Enterprises, Inc. at the merger date (August 12, 1999) was
eliminated in consolidation.

   In April 1999, the Company borrowed an amount of $500,000 in the form of
convertible notes from a related party. The notes bore interest at 4.99% per
annum. In August 1999, the notes were canceled upon the issuance of 96,153
shares of the Company's Series B convertible preferred stock at $5.20 per
share. In August 1999, the Company borrowed an additional $300,000 under the
same agreement. The new notes bore interest at the rate of ten percent per
annum. In connection with this additional borrowing the Company issued
warrants to purchase 8,333 shares of the Company's Series B convertible
preferred stock at an exercise price of $3.60 per share. The warrants expire
at the earlier of (a) August 2002, (b) the closing of an acquisition or (c)
the effective date of the Company's initial public offering. The Company
valued the warrants using the Black-Scholes option pricing model using an
expected life of two years, a weighted average risk-free rate of 5.76%, an
expected divided yield of zero percent, a volatility of 70% and a deemed value
of the common stock of $7.39 per share. The estimated fair value of the
warrants of $39,008 was amortized over the period of the borrowing agreement
and included within interest expense in the statement of operations until the
notes were canceled in August 1999 upon the issuance of 57,691 shares of the
Company's Series B convertible stock at $5.20 per share. In December 1999 the
warrants were exercised and 8,333 shares of the Company's common stock were
issued.

   In July 1999, the Company borrowed $100,000 from an officer in the Company
pursuant to a convertible promissory note. The note bears interest at the rate
of ten percent per annum. In August 1999, the note was cancelled upon the
issuance of 19,230 shares of the Company's Series B convertible preferred
stock at $5.20 per share.

   In July 1999, the Company borrowed an aggregate of $600,000 from four
stockholders in the form of promissory notes. The notes bear interest at the
rate of ten percent per annum. In connection with these notes, the Company
issued warrants to purchase an aggregate of 16,664 shares of the Company's
common stock at

                                     F-14
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$3.60 per share. The warrants expire upon the earliest of (a) July 1, 2003,
(b) the closing of an acquisition, or (c) immediately prior to the effective
date of the Company's registration statement under the Securities Act of 1933
with respect to an initial public offering. The Company valued the warrants
using the Black-Scholes option pricing model, applying an expected life of
four years, a weighted average risk-free rate of 5.7%, an expected dividend
yield of zero percent, a volatility of 70% and deemed values of common stock
of $6.07 and $6.92 per share. The estimated fair value of the warrants of
$64,017 was amortized over the period the notes became exercisable and
included within interest expense in the statement of operations. In August
1999, the notes were canceled upon the issuance of 115,383 shares of the
Company's Series B convertible preferred stock at $5.20 per share. In December
1999, the warrants were exercised and 16,664 shares of the Company's common
stock were issued.

   In August 1999, in connection with the acquisition of Windom Health, the
Company entered into a three year consulting agreement with a member of the
Board of Directors. The agreement provided that an $85,000 bonus be paid on
the closing of the Company's Series B preferred stock financing and a monthly
fee of $5,000 for consulting services be paid for the term of the agreement.
If the Company terminates the consulting agreement without releasing the
individual from its non-competition provision, he will continue to receive, as
severance, the monthly fee due for the remainder of the initial term of the
consulting agreement.

   In August 1999, the Company and Windom Health Enterprises, Inc., entered
into a joint development agreement with Global Health Initiatives, Inc.
("GHI"). A member of the Board of Directors of the Company, is also the
President and CEO of GHI. As of December 31, 1999, GHI completed one project
for the Company at a cost of $37,338. Also, in September 1999, the Company
subleased a portion of its offices to GHI. Rent under the lease was $1,250 per
month. The original lease term expired on October 31, 1999 at which time the
lease was converted to a month to month basis. The agreement will be
terminated on February 29, 2000.

Note 5--Convertible Preferred Stock:

   The holders of preferred stock have various rights and preferences as
follows:

 Voting

   Each share of Series A and Series B convertible preferred stock has voting
rights equal to an equivalent number of shares of common stock into which it
is convertible and votes together as one class with the common stock.

   As long as at least 1,250,000 shares of convertible preferred stock remain
outstanding, the Company must obtain approval from a majority of the holders
of convertible preferred stock in order to alter the Articles of Incorporation
as they relate to convertible preferred stock, authorize a dividend for any
class or series other than convertible preferred stock, create a new class of
stock or effect a merger, consolidation or sale of assets where the existing
shareholders retain less than 50% of the voting stock of the surviving entity.

 Dividends

   Holders of Series A and Series B convertible preferred stock are entitled
to receive noncumulative dividends at the per annum rate of $0.13 and $0.33
per share respectively, when and if declared by the Board of Directors. The
holders of Series A and Series B convertible preferred stock are entitled to
participate in dividends on common stock, when and if declared by the Board of
Directors, based on the number of shares of common stock held on an as-if
converted basis. No dividends on convertible preferred stock or common stock
have been declared by the Board from inception through December 31, 1999.

                                     F-15
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Liquidation

   In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible preferred stock own less than
51% of the resulting voting power of the surviving entity, the holders of
Series A and Series B convertible preferred stock are entitled to receive an
amount of $2.00 and $5.20 per share respectively, plus any declared but unpaid
dividends, prior to and in preference to any distribution to the holders of
common stock. The remaining assets, if any, shall be distributed ratably to
the common stockholders. Should the Company's legally available assets be
insufficient to satisfy the liquidation preferences, the funds will be
distributed ratably to the Series A and Series B convertible preferred
stockholders.

 Conversion

   Each share of Series A and Series B convertible preferred stock is
convertible into shares of the Company's common stock, at the option of the
holder, on a one to one basis subject to adjustment for dilution. Each share
of Series A and Series B convertible preferred stock automatically converts
into the number of shares of common stock into which such shares are
convertible at the then effective conversion ratio upon (1) the closing of a
public offering of common stock in which the pre-money valuation of the
Company, as defined in the Articles of Incorporation, is at least $125 million
with gross proceeds of at least $15,000,000, (2) a merger, sale of
substantially all of the assets or other transactions which result in a change
in control, or (3) the consent of 66 2/3% of convertible preferred stock.

   In December 1999, in connection with the Company's initial public offering,
5,050,955 shares of common stock were issued in connection with the conversion
of all outstanding shares of preferred stock.

 Preferred stock dividend

   In August 1999 the Company sold 4,038,455 shares of Series B convertible
preferred stock at $5.20 per share, for total cash proceeds to the Company of
approximately $21 million. The difference between the sales price and the
deemed value per share of the common stock on the transaction date resulted in
a beneficial conversion feature in the amount of $11.4 million. The beneficial
conversion feature has been reflected as a preferred stock dividend in the
statement of operations in the year ended December 31, 1999.

 Warrants for convertible preferred stock

   In connection with the sale of Series A convertible preferred stock in
December 1998, the Company issued warrants for 486,000 shares of Series A
convertible preferred stock at an exercise price of $2.00 per share. The
Company valued the warrants using the Black-Scholes option pricing model,
applying an expected life of five years, a weighted average risk-free rate of
4.36%, an expected dividend yield of zero percent, a volatility of 70% and a
deemed value of common stock of $1.52 per share. The estimated fair value of
the warrants of $408,629 has been netted against the proceeds of the offering.
In December 1999 the warrants were exercised and 463,089 shares of the
Company's common stock were issued.

   In May 1999, in connection with entering into facility leases, the Company
issued an aggregate of 12,249 Series A convertible preferred stock warrants at
an exercise price of $2.00 per share. The warrants expire at the earlier of
(a) two years following the closing of an initial public offering, or (b) May
2009. The Company valued the warrants using the Black-Scholes option pricing
model, applying an expected life of ten years, a weighted average risk free
rate of 5.39%, an expected dividend yield of zero percent, a volatility of 70%
and a deemed value of common stock of $4.59 per share. The fair value of the
warrants of $49,372 is being amortized over the period of the leases.

                                     F-16
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In August, 1999, in connection with investment banking services provided
during the Series B preferred stock offering, the Company issued warrants to
purchase an aggregate of 69,231 shares of Series B preferred stock at an
exercise price of $5.20 per share. The warrants were exercised in December
1999. The Company valued the warrants using the Black-Scholes option pricing
model, applying an expected life of two years, a weighted average risk-free
rate of 5.74%, an expected dividend yield of zero percent, a volatility of 70%
and a deemed value of common stock of $7.95. The estimated fair value of the
warrants of $301,317 was netted against the proceeds from the offering. In
December 1999 the warrants were exercised and 36,503 shares of the Company's
common stock were issued.

Note 6--Common Stock:

   The Company's Articles of Incorporation, as amended, authorize the Company
to issue 27,750,000 shares of $0.001 par value common stock. Portions of the
shares sold are subject to a right of repurchase by the Company subject to
vesting over a one-year period. At December 31, 1999 there were 312,500 shares
subject to this repurchase provision at the original issuance price.

   In April 1999, in connection with a content license agreement, the Company
issued a warrant to purchase 73,896 shares of the Company's common stock at an
exercise price of $6.50 per share. The warrant is exercisable at the earlier
of a) May 2002, b) the one year anniversary of an initial public offering, c)
the sale of 50% of the Company's equity, or d) the date of termination of the
content license agreement or the date in which all of the Company's material
is removed from the website according to the agreement. The Company valued the
warrant using the Black-Scholes option pricing model, applying an expected
life of three years, a weighted average risk-free rate of 5.40%, an expected
dividend yield of zero percent, an expected volatility of 80% and a deemed
value of common stock of $4.97 per share. The fair value of the warrant of
$155,301 is being amortized over the period of the content license agreement.

   In June 1999, the Company granted an officer immediately exercisable
options to purchase as aggregate of 312,500 shares of common stock at an
exercise price of $1.28 per share. In July 1999, in connection with the
exercise of these options, the officer issued a promissory note in the amount
of $400,000 bearing interest at the rate of 5.74% per annum, due upon the
earlier of July 12, 2003 or the termination of employment. Under the
restricted stock purchase agreement, 100% of the shares exercised are
initially subject to repurchase and held in escrow by the Company. The shares
will be released from the repurchase option in accordance with the original
vesting schedule of the underlying common stock option grant.

   The Company has reserved 7,647,395 shares of common stock at December 31,
1999 for future issuance in connection with stock options and warrants.

Note 7--Stock Option Plan:

   In August 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan"). The 1998 Plan provides for the granting of stock options to employees
and consultants of the Company. Options granted under the 1998 Plan may be
either incentive stock options or nonqualified stock options. Incentive stock
options ("ISO") may be granted only to employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to employees and consultants. An aggregate of 3,000,000 shares of
common stock have been reserved for issuance under the 1998 Plan.

   Options under the 1998 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on
the date of grant as determined by the Board of Directors, provided, however,
that a) the exercise price of an ISO and NSO shall not be less than 100% and
85% of the estimated fair value of the shares on the date of grant,
respectively, and b) the exercise price of an ISO and NSO granted to a 10%
stockholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant.

                                     F-17
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In August 1999, the Company adopted the 1999 Stock Option Plan (the "1999
Plan"). The 1999 Plan provides for the grant of incentive stock options to
employees, including employee directors, and of nonstatutory stock options and
stock purchase rights to employees, directors (including employee directors)
and consultants. At the time of adoption, 250,000 shares of common stock were
reserved for issuance under the 1999 Plan. The 1999 Plan was amended by the
Board of Directors in September 1999 to increase the total number of shares
reserved for issuance by 4,375,000 shares, and to incorporate certain other
changes, after which a total of 4,625,000 shares of common stock have been
reserved for issuance under the 1999 Plan.

   During the period from January 1, 1998 through December 31, 1999, the
Company recorded $10,050,300 of deferred stock compensation in accordance with
APB 25, SFAS 123 and Emerging Issues Task Force 96-18, related to options
granted to consultants and employees in 1999 and 1998. During this period the
Company determined the fair value of options granted to consultants using the
Black-Scholes option pricing model with the following assumptions: expected
lives of one to four years; weighted average risk-free rates between 4.2% and
6.2%; expected dividend yield of zero percent; expected volatility of 80% and
deemed values of common stock between $1.52 and $10.08 per share. Stock
compensation expense is being recognized in accordance with FIN 28 over the
vesting periods of the related options, generally four years. The Company
recognized stock compensation expense of $4,939,694 and $104,641 for the years
ended December 31, 1999 and 1998, respectively.

   The following table summarizes activity under the 1998 Plan:

<TABLE>
<CAPTION>
                                   Shares Available Number of  Weighted Average
                                      for Grant      Shares     Exercise Price
                                   ---------------- ---------  ----------------
      <S>                          <C>              <C>        <C>
      Balances, December 31,
       1997......................            --           --        $  --
        Shares reserved for
         grant...................      3,000,000          --           --
        Options granted..........       (274,718)     274,718         0.25
        Restricted stock granted.        (23,916)         --          0.25
                                      ----------    ---------
      Balances, December 31,
       1998......................      2,701,366      274,718         0.25
        Options granted..........     (2,567,063)   2,567,063         3.80
        Options exercised........            --      (376,250)        1.11
        Options canceled.........         27,500      (27,500)       10.06
                                      ----------    ---------
      Balances, December 31,
       1999......................        161,803    2,438,031       $ 3.75
                                      ==========    =========
</TABLE>

   During 1999, the Company issued stock options under the 1998 Plan, with the
following weighted average fair values:

<TABLE>
<CAPTION>
                                                       Options  Weighted Average
                                                       Granted     Fair Value
                                                      --------- ----------------
      <S>                                             <C>       <C>
      Below fair value............................... 1,747,689      $5.42
      At fair value..................................   819,374       9.90
</TABLE>

                                     F-18
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes information under the 1998 Plan at December
31, 1999:

<TABLE>
<CAPTION>
                                                                  Options Exercisable
                         Options Outstanding                      -------------------------
                 ---------------------------------------------
                                  Weighted
                                   Average
                                  Remaining        Weighted                     Weighted
                                 Contractual       Average                      Average
   Exercise                         Life           Exercise                     Exercise
    Prices        Number           (Years)          Price         Number         Price
   --------      ---------       -----------       --------       -------       --------
   <S>           <C>             <C>               <C>            <C>           <C>
   $ 0.25          791,157          8.97            $ 0.25        316,386        $ 0.25
     1.28          855,000          9.59              1.28        122,293          1.28
     8.19           68,750          9.67              8.19            --           8.19
    10.00          299,375          9.91             10.00            --          10.00
    10.08          409,999          9.77             10.08            --          10.08
    11.00           13,750          9.93             11.00            --          11.00
                 ---------                                        -------
                 2,438,031                                        438,679
                 =========                                        =======
</TABLE>

   The following table summarizes activity under the 1999 Plan:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                      Shares    Number  Average
                                                     Available    of    Exercise
                                                     for Grant  Shares   Price
                                                     ---------  ------- --------
      <S>                                            <C>        <C>     <C>
      Balances, December 31, 1998...................       --       --    $--
        Shares reserved for grant................... 4,625,000      --     --
        Options granted.............................  (406,843) 406,843   4.44
                                                     ---------  -------
      Balances, December 31, 1999................... 4,218,157  406,843   4.44
                                                     =========  =======
</TABLE>

   During 1999, the Company issued stock options under the 1999 Plan with the
following weighted average fair values:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                                Options   Fair
                                                                Granted  Value
                                                                ------- --------
      <S>                                                       <C>     <C>
      Below fair value......................................... 250,000  $8.41
      At fair value............................................ 156,843   9.47
</TABLE>

   The following summarizes information under the 1999 Plan at December 31,
1999:

<TABLE>
<CAPTION>
                                                                        Options
                          Options Outstanding at                     Exercisable at
                    -------------------------------------------    ------------------------
                                   Weighted
                                    Average
                                   Remaining        Weighted                    Weighted
                                  Contractual       Average                     Average
    Exercises                        Life           Exercise                    Exercise
      Prices        Number          (Years)          Price         Number        Price
   ------------     -------       -----------       --------       ------       --------
   <S>              <C>           <C>               <C>            <C>          <C>
   $       1.28     250,000          3.90            $ 1.28        72,917        $ 1.28
     7.31- 8.25      31,000          9.99              8.01           --           8.01
     8.69- 8.75      18,700          9.99              8.74           --           8.74
    10.00-10.08     107,143          9.85             10.03           --          10.03
                    -------                                        ------
                    406,843                                        72,917
                    =======                                        ======
</TABLE>

                                     F-19
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Fair value disclosures

   If compensation cost for the Company's stock based compensation plans had
been determined based on the fair value at grant dates for awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                      ------------------------
                                                          1999         1998
                                                      ------------- ----------
      <S>                                             <C>           <C>
      Net loss attributable to common stockholders:
        As reported.................................. $(34,387,386) $(466,235)
        Pro forma....................................  (37,912,047)  (466,235)
      Basic and diluted net loss per share
       attributable to common stockholders:
        As reported.................................. $      (4.96) $   (0.10)
        Pro forma....................................        (5.47)     (0.10)
</TABLE>

   The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing method with the following
assumptions: expected dividend yield of zero percent; weighted average
expected option term of four years; risk interest rates of 5.62% to 6.24% and
for 1999 a volatility of 80%.

 Employee Stock Purchase Plan

   In September 1999, the Company adopted an Employee Stock Purchase Plan (the
"ESPP") to provide substantially all employees, whose customary employment is
more than 20 hours per week for more than five months in any calendar year
eligibility, with the ability to purchase shares of its common stock through
payroll deductions, up to 10% of eligible compensation. Participant's account
balances are used to purchase shares of the Company's common stock at the
lesser of 85 percent of the fair market value of the shares on either the
first day or the last day of the designated payroll deduction period (the
"Offering Period"), as chosen by the Board of Directors at its discretion,
whichever is lower. The aggregate number of shares purchased by an employee
may not exceed 2,500 per calendar year or 10,000 per any one Offering Period.
An Offering period is generally 24 months or less (subject to limitations
imposed by the Internal Revenue Code). A total of 1,250,000 shares are
available in 2000 for purchase under the ESPP.

 1999 Directors' Stock Option Plan

   The 1999 Directors' Stock Option Plan (the "Director's Plan") was adopted
by the Board of Directors in September 1999 and became effective December
1999. A total of 312,500 shares of common stock have been reserved for
issuance under the 1999 Directors' Plan, all of which remain available for
future grants. The Directors' Plan provides for the grant of nonstatutory
stock options to non-employee directors.

Note 8--Income Taxes:

   At December 31, 1999, the Company has net operating loss carryforwards of
approximately $13.6 million for federal and state income tax purposes,
respectively. The net operating loss carryforwards expire primarily in the
year 2018 for federal and 2003 for state purposes.

   The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income may be subject to annual limitations attributable
to equity transactions that result in changes in ownership as defined in the
Tax Reform Act of 1986.

                                     F-20
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Deferred tax assets and (liabilities) comprise the following:

<TABLE>
<CAPTION>
                                                             December 31,
                                                         ----------------------
                                                            1999        1998
                                                         -----------  ---------
      <S>                                                <C>          <C>
      Net operating loss carryforwards.................. $ 5,514,000  $  95,600
      Allowances........................................      26,000        --
      Deferred compensation.............................     849,000     42,900
                                                         -----------  ---------
        Gross deferred tax asset........................   6,389,000    138,500
      Valuation allowance...............................  (6,389,000)  (138,500)
                                                         -----------  ---------
        Net deferred tax assets......................... $       --   $     --
                                                         ===========  =========
</TABLE>

Note 9--Debt:

   In conjunction with the acquisition of RxList on October 28, 1999, an
aggregate of $2.6 million in promissory notes payable were issued to the
RxList.com shareholders. The annual interest rate on the notes was 5%, payable
at the earlier of 10 days after the initial public offering or 6 months after
the closing of the merger. The estimated present value of the notes on October
28, 1999 was $2,541,000. The notes were repaid in full on January 3, 2000.

Note 10--Commitments and Contingencies:

   In April 1999, the Company entered into an advertising agreement with
Excite, Inc. Excite, Inc. is to provide advertising to the Company ratably
over a one-year period in exchange for total payments of approximately
$139,000. As of December 31, 1999 the Company had paid approximately $126,706
under the agreement.

   In April 1999, the Company entered into a one-year content license
agreement with a publisher of physician rating information. The Company will
pay a $50,000 advertising allowance and the greater of $100,000 due in
quarterly $25,000 payments, or 30% of all net advertising revenue generated
from the publisher's content pages. Advertising expenses associated with the
agreement will be recognizable ratably over the term of the agreement,
adjusted for any increases due to greater than estimated advertising revenue
generated from the content pages. The publisher will pay the Company between
10% and 30% for each transaction where a user enters the publisher's website
to obtain assistance in identifying medical providers. In addition, the
publisher will pay the Company 30% of net advertising revenues derived from
HealthCentral.com content pages. As of December 31, 1999, $50,000 was paid by
the Company under this agreement.

   In May 1999, the Company entered into an agreement with LookSmart, Ltd.
LookSmart, Ltd. is to provide advertising to the Company ratably over a one-
year period for a fee not to exceed $480,000. As of December 31, 1999, the
Company had paid approximately $224,600 under this agreement.

   In June 1999, the Company entered into a two-year agreement with Medialinx
Interactive, L.P. Pursuant to the terms of the agreement, the companies
jointly developed a co-branded site and the Company is to receive the net
revenues from advertising and e-commerce transactions generated by Canadian
companies up to a maximum amount of $160,000 per year, and 50% for any amounts
thereafter. The Company is obligated to pay $300,000 per year in equal monthly
payments to Medialinx Interactive, L.P. commencing upon the launch of the
site. In January 2000, the contract was amended such that if the Company's
revenue exceeds one million Canadian dollars in any given year, the Company
shall pay $80,000 to Medialinx Interactive, L.P.

   In August 1999, HealthCentralRx entered into an agreement with Medi-Mail,
Inc. (a subsidiary of Bergen Brunswig) in which Medi-Mail is to provide
pharmacy dispensing and related support services to the Company including the
processing, adjudication or verification, and fulfillment of prescription
drugs. As of December 31, 1999, the Company had paid approximately $5,378 to
Medi-Mail, Inc. under this agreement.

                                     F-21
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In August 1999, the Company entered into a two-year agreement with America
Online, Inc. ("AOL") under which the Company will appear as one of five
health-related anchor tenants on the AOL HealthOnline Pharmacy. The Company is
required to pay AOL approximately $14.1 million over the term of the
agreement. As of December 31, 1999, the Company had paid $3,520,155 in
conjunction with this agreement.

   In September 1999, HealthCentralRx entered into an agreement with Bergen
Brunswig Drug Company ("Bergen") to be its fulfillment service provider for
over-the-counter and health and beauty aid products and provide related
services to the Company's customers in the United States. Under the terms of
the agreement, the Company paid a database license fee of $25,000 upon signing
of the contract and is obligated to pay a monthly service fee to Bergen of
$1,000 and a fulfillment charge of $.75 per item ordered or minimum of $2.03
per order. As of December 31, 1999, the Company paid approximately $25,183 to
Bergen under this agreement.

   In September 1999, the HealthCentral.com entered into a three-year
agreement with AltaVista to develop a co-branded health channel. The agreement
provides that, in exchange for a minimum number of user impressions on the co-
branded health channel, the Company is obligated to pay AltaVista
approximately $65.6 million in cash and stock over the three-year term of the
agreement; however, either AltaVista or the Company may terminate the
relationship after two years, in which case the aggregate payment obligation
over the first two years in cash and stock would be $34.5 million. In the
first year an initial deposit of $1 million was paid that will be expensed
equally over a two year period. The required annual payments will be expensed
equally over the term of the contract, $12.2 million in year one, $19.3
million in year two and $30 million in year three. The remaining $3 million
relates to equity grants of $1 million that will be issued to Alta Vista at
the end of each of the three years. The company will also expense these
equally over the contract term. In addition, if AltaVista meets given
performance thresholds, ranging from 25% to 150% based on the number of
impressions delivered in excess of guaranteed minimum amounts, the Company
will issue to AltaVista warrants to purchase up to a maximum of 375,000 shares
of common stock, with the number of shares dependent on the amount by which
AltaVista exceeds the thresholds. These warrants will have varying exercise
prices. The fair value of any warrants earned will be measured on the date the
performance commitment is met in accordance with EITF 96-18, and the warrants
will be valued using the Black-Scholes option pricing model in accordance with
SFAS 123. As of December 31, 1999 the Company had paid $2,012,500 to Alta
Vista.

   In September 1999, the Company entered into an agreement with the People's
Pharmacy in which a co-branded website was developed. The Company is entitled
to all advertising revenues from the co-branded website in exchange for a cash
payment of $50,000 per annum. The Company also granted options to the
principals of the People's Pharmacy to purchase up to 250,000 shares of the
Company's common stock at an exercise price of $1.28 per share. Pursuant to
the terms of the agreement, options for 31,250 shares of stock vested upon
signing the agreement. Accordingly, the fair value of these options of
$234,000 was included in production, content and product development expense
in the year ended December 31, 1999. Additionally, 31,250 shares of stock
vested at the closing of the Company's initial public offering. The fair value
of these options was $209,000 and was also included in production, content and
product development expense in the year ended December 31, 1999. Further,
options for 125,000 shares of common stock with a fair value of $630,000,
which will be subject to periodic remeasurement, will be amortized over the
performance period of the agreement. The Company valued these options using
the Black-Scholes option pricing model, applying an expected life of 4 years,
a weighted average risk-free rate of 6.24%, an expected dividend yield of zero
percent, a volatility of 80% and a deemed value of common stock of $7.31 per
share. With regard to the remaining 62,500 options, the Company will not
receive the related services stipulated in the agreement and, therefore, these
options will never vest. Accordingly, no value has been ascribed to these
options.

   In November 1999, the Company entered into a one-year agreement with
ADAM.com, Inc. ("ADAM") to license content, to advertise on the ADAM web site
and to sublicense content to institutional clients.

                                     F-22
<PAGE>

                               HEALTHCENTRAL.COM

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company paid a one-time set-up fee of $50,000 upon signing the contract.
Payments related to advertising are based on the number of page views
delivered. If the number of page views exceeds a certain threshold, ranging
from 15 million to 45 million, the Company will pay ADAM a percent of net
advertising revenue. ADAM is guaranteed a minimum amount of $100,000. In
addition, the Company will pay ADAM $3,000 to $7,500 per year under the
agreement. ADAM is guaranteed a minimum sublicense fee of $50,000. These
expenses will be recognized ratably over the term of the agreement.

   In December 1999, the Company entered into a four-year license agreement
with Covert Bailey whereby Mr. Bailey will supply health, fitness and
nutrition content to the Company. The Company is required to pay Mr. Bailey
approximately $36,000 annually over the term of the contract. The Company also
issued 6,250 shares of the Company's common stock valued at $62,500 upon
signing of the contract and granted him non-qualified options to acquire
30,000 shares of the Company's common stock which vests over the 4 year term
of the agreement. The fair value of these options was $123,000. The options
will be subject to periodic remeasurement and will be amortized over the life
of the agreement and included in production, content and product development
expense. The Company valued these options using the Black-Scholes option
pricing model, applying an expected life of 4 years, a weighted average risk-
free rate of 6.24%, an expected dividend yield of zero percent, a volatility
of 80% and a deemed value of common stock of $7.31 per share.

   In December 1999, the Company entered into an eleven month agreement with
Microsoft Corporation ("Microsoft") whereby the Company would be the premier
provider of health and fitness newsletters to Microsoft News Hotmail
subscribers. Under the terms of the agreement, the Company will pay Microsoft
a minimum fee of $1,833,000 based on $.01 per copy distributed to each
subscriber, but not to exceed $2,433,000 over term of the contract. In
addition, the Company agreed to purchase an aggregate of $640,000 in
advertising from Microsoft during the term of the agreement. These expenses
will be recognized ratably over the term of the agreement.

 Leases

   The Company leases office space and equipment under noncancellable
operating and capital leases with various expiration dates through March 2005.
Rent expense for the three years ended December 31, 1999 was $0, $1,560 and
$161,443, respectively. The terms of the facility leases provide for rental
payments on a graduated scale.

   Future minimum lease payments under noncancellable operating and capital
leases are as follows:

<TABLE>
<CAPTION>
                                                           Capital   Operating
      Year Ending December 31,                             Leases      Leases
      ------------------------                            ---------  ----------
      <S>                                                 <C>        <C>
      2000............................................... $ 207,069  $  466,852
      2001...............................................   200,271     475,108
      2002...............................................   131,843     418,516
      2003...............................................       --      359,348
      2004...............................................       --       87,335
      2005 and thereafter................................       --          --
                                                          ---------  ----------
          Total minimum lease payments...................   539,183  $1,807,159
                                                                     ==========
      Amount representing interest.......................   (99,675)
                                                          ---------
      Present value of net minimum lease payments........   439,508
      Less current portion of obligations under capital
       leases............................................  (147,498)
                                                          ---------
      Obligations under capital leases................... $ 292,010
                                                          =========
</TABLE>

 Contingencies

   The Company is subject to claims and assessments from time to time in the
ordinary course of business. Management does not believe that any such
matters, individually or in the aggregate, will have a material adverse effect
on the Company's financial condition.

                                     F-23