<PAGE>

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

                                       FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                           OR

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

FOR THE TRANSITION PERIOD FROM _________________ TO _________________

                             COMMISSION FILE NUMBER 0-27501

                       THE TRIZETTO GROUP, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                         33-0761159
       (STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)          IDENTIFICATION NUMBER)

                        567 SAN NICOLAS DRIVE, SUITE 360
                         NEWPORT BEACH, CALIFORNIA 92660
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 719-2200

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.001
PAR VALUE, AND SERIES A JUNIOR PARTICIPATING PREFERRED STOCK, $0.001 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X]  No [ ]

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

As of January 31, 2002, 45,310,262 shares of common stock were outstanding and
the aggregate market value of such common stock held by non-affiliates (based
upon the closing price as reported by the Nasdaq National Market) was
approximately $649.3 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Proxy Statement relating to its 2002 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report.
<PAGE>



                                    FORM 10-K

                   For the Fiscal Year Ended December 31, 2001

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                                          PART I

  Item 1  Business..................................................................         1
  Item 2  Properties................................................................        16
  Item 3  Legal Proceedings.........................................................        16
  Item 4  Submission of Matters to a Vote of Security Holders.......................        16

                                     PART II

  Item 5  Market for Registrant's Common Equity and Related Stockholder Matters.....        17
  Item 6  Selected Financial Data...................................................        18
  Item 7  Management's Discussion and Analysis of Financial Condition and Results
          of Operations.............................................................        19
  Item 7A Quantitative and Qualitative Disclosures About Market Risk................        25
  Item 8  Financial Statements and Supplementary Data...............................        25
  Item 9  Changes in and Disagreements with Accountants on Accounting and Financial
          Disclosure................................................................        25

                                    PART III

  Item 10 Directors and Executive Officers of the Registrant........................        26
  Item 11 Executive Compensation....................................................        26
  Item 12 Security Ownership of Certain Beneficial Owners and Management............        26
  Item 13 Certain Relationships and Related Transactions............................        26

                                     PART IV

  Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K...........        27
  SIGNATURES.......................................................................         28
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                                     PART I

   THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT
TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE
STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. IN SOME
CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY",
"WILL", "SHOULD", "FORECASTS", "EXPECTS", "PLANS", "ANTICIPATES", "BELIEVES",
"ESTIMATES", "PREDICTS", "POTENTIAL", OR "CONTINUE" OR THE NEGATIVE OF SUCH
TERMS AND OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS.
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING THESE STATEMENTS,
YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED
BELOW UNDER THE CAPTION "RISK FACTORS." THESE FACTORS MAY CAUSE OUR ACTUAL
EVENTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT. WE DO NOT
UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT.

ITEM 1 -- BUSINESS

COMPANY OVERVIEW

   We offer a broad portfolio of healthcare information technology products and
services that can be provided individually or combined to create a comprehensive
solution. Focused exclusively on healthcare, we deliver industry-leading
proprietary and third-party software on a licensed or hosted basis, as well as
outsourcing and consulting services. Our target markets include health plans,
benefits administrators and physician groups. As of December 31, 2001, we served
approximately 540 customers representing more than 110 million health plan
lives or approximately 40% of the insured population in the United States.

   We offer five categories of complementary products and services: hosted
solutions, business services, enterprise software, e-business solutions and
consulting services. Our hosted solutions provide proprietary enterprise
software as well as leading third-party applications on a monthly subscription
fee basis. We also offer business services such as claims and enrollment
processing and information technology department outsourcing. TriZetto's
enterprise software offerings include our industry-leading Facets(R) and
QicLink(TM) applications and our e-business solutions include our HealthWeb(R)
Internet platform. In addition, we provide consulting services, including
information technology assessment, software development and implementation
services. Our five product and service areas create numerous cross-selling
opportunities and diverse revenue sources.

OUR SOLUTIONS

   Our comprehensive suite of information technology solutions and services
provides our customers with the following key benefits:

   - RAPID DEPLOYMENT AND FLEXIBILITY. Our hosted solutions business offers
     software applications that typically are already installed in our customer
     connectivity centers, allowing rapid deployment to our customers. In
     addition, customers pay only for the services they need and can change
     these services as required. In contrast, most traditional in-house software
     implementations are more time-consuming and the cost structure is less
     flexible.

   - LOWER AND MORE PREDICTABLE COSTS. Our hosted solutions customers pay a
     predictable monthly subscription fee to gain access to software
     applications we host over a secure network. We estimate that these
     customers can save approximately 30% or more over the term of their
     contract with us, compared with the cost of implementing and maintaining
     applications in-house.

   - ACCESS TO THE BEST HEALTHCARE APPLICATIONS. Through our relationships with
     third-party software providers and through our proprietary enterprise
     applications, our hosted solutions customers have access to the most
     sophisticated healthcare applications. Facets(R) and QicLink(TM)
     applications offer essential administrative software for healthcare payers
     and benefits administrators. These brands are widely recognized in their
     respective markets for providing advanced, highly functional and scalable
     solutions that create operational efficiencies and reduce costs. Facets(R)
     and QicLink(TM) can be licensed for a client/server system or they can be
     purchased on a hosted basis.

   - PRESERVATION OF INVESTMENT IN EXISTING SYSTEMS. Our hosted solutions and
     our e-business product, HealthWeb(R), allow our customers to continue using
     their existing systems rather than replacing them. This benefit is
     particularly attractive to healthcare entities that have already committed
     significant capital to legacy systems and lack resources to invest in new
     systems.

   - INFORMATION EXCHANGE OVER THE INTERNET. HealthWeb(R) allows health plans to
     communicate and conduct business with physician groups, members, employers
     and brokers over the Internet. It provides an effective way for health
     plans to reduce


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     administrative costs, thus increasing resources for medical services or
     other uses. HealthWeb(R) can be implemented rapidly and is designed to work
     with virtually any existing software being used by a health plan. In
     addition, HealthWeb(R) has been integrated with Facets(R) and QicLink(TM).

   - OUTSTANDING SERVICE AND SUPPORT. We believe that excellent customer support
     is essential to the success of our business. For all of our applications,
     we operate customer service centers 24 hours a day, seven days a week and
     employ account managers assigned to each customer. We employ functional and
     technical support personnel who work directly with our account management
     team and customers to resolve technical, operational and application
     problems or questions.

OUR STRATEGY

   Our goal is to be the leading single-source provider of information
technology solutions and services for the healthcare markets we serve. Key
elements of our strategy include:

   - OFFER A COMPELLING VALUE PROPOSITION. We plan to expand our customer base
     by offering a quantified, compelling value proposition that includes such
     advantages as reduced or more predictable information technology costs,
     more cost efficient administrative processes, scalability and a more rapid
     return on investment.

   - CAPITALIZE ON CROSS-SELLING OPPORTUNITIES TO EXISTING CUSTOMERS. We will
     continue to aggressively market our hosted solutions, business services and
     our HealthWeb(R) product to our Facets(R) and QicLink(TM) customers. Our
     strategy is to encourage customers to adopt our complementary and complete
     solutions in order to realize the full benefit of their information
     technology investments.

   - MARKET OUR HOSTED SOLUTIONS THROUGH PRODUCT "BUNDLES". We plan to increase
     customer demand for our hosted solutions by selling pre-integrated product
     bundles specific to the payer, benefits administrator and provider markets.
     We believe customers will find product bundles appealing because they
     consist of best-of-class software applications, are faster to implement and
     come with performance warranties.

   - BUILD UPON OUR MARKET-LEADING INTERNET PLATFORM. Our HealthWeb(R) Internet
     platform has already captured the largest market share among health plans.
     HealthWeb(R)'s integration with our Facets(R) and QicLink(TM) applications
     has helped to build HealthWeb(R)'s market share substantially.

   - MAINTAIN OUR TECHNOLOGY LEADERSHIP POSITION. We intend to maintain our
     technology leadership position held by our hosted solutions and enterprise
     software applications. We will continue to invest in research and
     development to bring new services to market and to develop new application
     features.

   - LEVERAGE OUR STRATEGIC RELATIONSHIPS. We intend to leverage our current
     strategic relationships and enter into new relationships to expand our
     customer base and service offerings. We have established co-marketing and
     sales arrangements with other systems integrators and with our third-party
     software vendors. As our customer base grows, we intend to expand and
     strengthen these relationships.

   - PURSUE ACQUISITIONS. We continually evaluate acquisitions of companies that
     expand our market share, product offerings or our technical capabilities.
     Since our initial public offering in 1999, we have made six acquisitions.
     We intend to pursue strategic acquisitions that create shareholder value.

OUR PRODUCTS AND SERVICES

HOSTED SOLUTIONS

   Our hosted solutions integrate, host, monitor and manage our proprietary
Facets(R) and QicLink(TM) applications and other leading software applications
from multiple vendors. We deliver software on a cost-predictable subscription
basis, through multi-year contracts that include guaranteed service levels.

   Our hosted solutions free customers from capital investment in information
technology, the operating costs associated with owning software and hardware,
and the cost of managing their information infrastructure. Other advantages of
using our hosted solutions include rapid deployment, reliability, scalability,
lower implementation risk and preservation of legacy systems.

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   Through our customer connectivity centers in Colorado and Illinois, we host
and maintain software for our customers on most of the widely used computing,
networking and operating platforms. We provide access to our hosted applications
across high-speed electronic communications channels, such as frame relay,
virtual private networks or the Internet. Each center operates with
state-of-the-art environmental protection systems to maintain high availability
to host systems and wide area network access. Connection to our host application
servers and services is provided using the industry-standard TCP/IP protocol. We
believe this provides the most efficient and cost-effective transport for
information systems services, as well as simplified support and management. Our
network connectivity infrastructure eliminates our customers' need to manage and
support their own computer systems, network and software.

   Our hosted solutions provide complete, professionally managed information
technology systems that include desktop and network connections, primary
software applications that are essential to running the business, ancillary
software, and information access and reporting capabilities to aid in data
analysis and decision-making. Customers can choose the combination of our
products and services to best meet their business requirements.

VENDOR PARTNER RELATIONSHIPS

   We have acquired rights to license and/or deploy numerous commercially
available software applications from a variety of healthcare software vendors.
For example, we offer managed care information systems from Quality Care
Solutions, Inc. and Amisys LLC; imaging and workflow applications from MACESS
Corporation; financial management solutions from Great Plains; practice
management systems from Medic Computer Systems and Millbrook Corporation;
electronic medical records solutions from Amicore, Inc. and Epic Systems
Corporation. These relationships range from perpetual, reusable software
licenses and contracts to preferred installer agreements to informal
co-marketing arrangements. We enter into relationships with software vendors in
order to offer our customers the widest possible variety of solutions tailored
to their unique information technology needs. Our relationships with our vendor
partners are designed to provide both parties with numerous mutual benefits.

      VENDOR BENEFITS                        TRIZETTO BENEFITS

       - web-enablement of their products;    - access to market leading
                                                products and technology
                                                solutions;

       - professional installation and        - ability to focus on service and
         operation of their products;           delivery rather than software
                                                development;

       - pre-integration with other           - co-marketing with industry
         third-party products and services;     leading brands;

       - easier software version control;     - enhanced distribution channels;
                                                and

       - easier add-on product capability;    - competitive pricing.

       - lower implementation risk;

       - enhanced distribution channels;

       - shorter sales cycle;

       - lower maintenance and support
         costs; and

       - potentially higher margins.


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BUSINESS SERVICES

   We provide payer and provider customers with technology and staffing support
for numerous healthcare business transactions, including claims processing,
health plan enrollment, receivables management, credentialing, billing and
customer service. We also staff and operate key administrative departments for
health plans, such as information technology.

ENTERPRISE SOFTWARE

   We offer our enterprise software on a licensed basis to healthcare payers and
benefits administrators. The Facets(R), QicLink(TM) and HealthWeb(R)
applications are widely recognized in their respective markets for providing
advanced solutions that create operational efficiencies and reduce costs.

   FACETS(R). Facets(R) is a widely implemented, scalable client/server solution
for healthcare payers. Facets(R) supports the transaction demands of all sizes
of managed care organizations. Facets(R) allows healthcare payers to select from
a variety of modules to meet specific business requirements -- including claims
processing, claims re-pricing, capitation/risk fund accounting, premium billing,
provider network management, group/membership administration, referral
management, hospital and medical pre-authorization, case management, customer
service and electronic commerce. We acquired Facets(R) in connection with our
acquisition of Erisco Managed Care Technologies, Inc. ("Erisco") in October
2000.

   Facets(R) can also be combined with complementary software to address the
enterprise-wide needs of a managed care organization. Facets(R) has been
expanded through alliances with complementary solutions for physician
credentialing, document imaging, workflow management, data warehousing, decision
support, provider profiling and health plan employer data information set
reporting. As of December 31, 2001, Facets(R) and related products were used by
approximately 50 payer organizations serving approximately 47 million lives,
including managed care organizations, managed indemnity carriers, third-party
administrators, and 30% of all Blue Cross Blue Shield organizations.

   Facets(R) is available to customers on a license or hosted basis. Facets(R)
also has been integrated with HealthWeb(R) and is currently offered to health
plans as a single solution. This combined Facets(R)-HealthWeb(R) product allows
customers to communicate and engage in commerce with physician groups, employer
groups and members on a real-time basis over the Internet.

   FACTS(TM). Introduced in 1980, Facts(TM) is designed for the indemnity
insurance market, specifically managed indemnity and group insurance. Facts(TM)
software, which we acquired in our acquisition of Erisco, is used for the
essential administrative transactions of an indemnity plan, including
enrollment, rating and premium calculation, billing and claims processing. As of
December 31, 2001, approximately 67 customers serving approximately 47 million
lives were using Facts(TM) -- more than any other competing packaged software in
the U.S. healthcare industry.

   QICLINK(TM). We believe that QicLink(TM) is the nation's most widely-used
automated claims processing technology for benefits administrators. As of
December 31, 2001, QicLink(TM) served over 304 customers with 16 million
lives, and its software was used to process nearly 141 million claims
annually, or over 8% of the non-pharmacy claims processed in the United
States. QicLink(TM) automates and simplifies the claims adjudication, re-pricing
and payment process, and is available to customers on a licensed or hosted
basis. QicLink(TM) has been integrated with HealthWeb(R) under the product name
StatusLink(TM). We acquired QicLink(TM) in connection with our acquisition of
Resource Information Management Systems, Inc. ("RIMS") in December 2000.

   NETWORX(TM). Our NetworX(TM) product was the first enterprise-wide management
system and claims re-pricing solution for preferred provider organizations.
NetworX(TM), which was acquired in our acquisition of RIMS, complements
ClaimsExchange(TM), which provides Internet connections that allow preferred
provider organizations and healthcare claims payers to exchange information
online. ClaimsExchange(TM) allows access to electronic transaction routing
between physician groups and payers 24 hours a day, seven days a week, such as
exchange of re-priced claims, claims tracking and reporting capabilities.

   In addition, we offer Facets(R) and QicLink(TM) solutions, our proprietary
administrative software for payers and benefits administrators, on a hosted
basis. As of December 31, 2001, we had approximately 185 customers accessing
our services on a hosted basis.

E-BUSINESS SOLUTIONS

   HEALTHWEB(R). HealthWeb(R) is our Internet platform designed specifically for
healthcare administrators and professionals. Through a standard Internet
browser, HealthWeb(R) allows health plans to exchange information and conduct
business with physician groups, members, employers and brokers on a secure basis
over the Internet. HealthWeb(R) is installed on the health plan's web servers or


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offered on a hosted basis and then configured according to customer preferences.
As of December 31, 2001, HealthWeb(R) had 34 health plan customers
representing 28 million lives.

   HealthWeb(R) provides an effective way for health plans to reduce
administrative costs and increase resources for medical services or other uses.
HealthWeb(R) creates an on-line "self-service" vehicle, reducing delays and
phone calls and increasing customer satisfaction with prompt access to key
information. HealthWeb(R)'s business-to-business transaction capabilities
improve workflow and reduce costs throughout the healthcare system.

   HealthWeb(R)'s electronic desktop is easy to use and personalized for each
customer, providing access to the business applications and content needed to
perform typical healthcare tasks. HealthWeb(R) is designed to manage online
eligibility, authorizations, referrals, benefit verification, claims status,
claims adjudication and many other transactions benefiting physician offices. It
also supports enrollment, demographic changes, primary care physician selection,
identification card requests and other transactions for employers, brokers and
health plan members.

   HealthWeb(R) works across multiple platforms to ensure comprehensive access
to data for all users and provides an advanced method of security to protect
information. HealthWeb(R) is designed to work with legacy healthcare
applications that do not have graphical user interfaces as well as with newer
client/server applications. We believe that the abandonment of legacy systems
will generally not serve the best interests of our customers, especially in
light of significant capital outlays customers have recently made in addressing
year 2000 system requirements. HealthWeb(R)'s proprietary technology used to
access and connect to these legacy systems allows us to maximize value to our
customers while minimizing risks of business interruption.

   We anticipate that the number of offerings available through HealthWeb(R)
will grow, as we continue to develop proprietary products and relationships with
additional Internet service and content partners. HealthWeb(R) has been
integrated with Facets(R). HealthWeb(R) also has been integrated with
QicLink(TM) under the product name StatusLink(TM). Our enterprise software and
HealthWeb(R) products are offered under the HealtheWare(TM) product line.

CONSULTING SERVICES

As of December 31, 2001, our consulting services group had approximately 190
consultants. Our consultants:

   - Analyze customers' information technology capabilities and business
     strategies and processes and assist customers in achieving competitive
     advantage by managing information and data electronically.

   - Assist customers in installing and implementing software applications and
     technology products through systems analysis and planning, selection,
     design, construction, data conversion, testing, business process
     development, training and systems support.

   - Apply a proprietary methodology to assist customers in identifying
     deficiencies in complying with the Health Insurance Portability and
     Accountability Act of 1996 ("HIPAA") and develop and implement solutions
     that assist customers in complying with HIPAA.

   - Assist customers in designing and implementing an effective electronic
     commerce strategy, including Internet portals, web sites, intranets and
     extranets that allow business-to-business and business-to-consumer
     transactions.

   - Through the Virtual Information Officer program, provide senior-level
     management services for customers who either do not employ their own
     information technology management or wish to supplement it.

SALES AND MARKETING

   Our sales and marketing approach is to promote TriZetto as the single source
for a broad range of healthcare information technology products and services. As
of December 31, 2001, we had approximately 50 sales and marketing employees
throughout the United States. Our professional sales force, comprised of
experienced sales executives with established track records, sells our entire
range of offerings, including hosted solutions, business services, enterprise
software, e-business solutions and consulting services to


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current and prospective customers. The sales force is specifically focused on
three target markets -- payers, physician groups and benefits administrators. A
structured sales methodology is employed throughout all stages of the sales
cycle, including lead generation, qualification and close. We also dedicate
resources to work at the executive level to understand the customer's business
strategy and requirements.

   Our marketing organization is organized by target market and is closely
aligned with the sales force to provide market specific campaigns and lead
generation initiatives for our hosted solutions, business services, enterprise
software, e-business solutions and consulting services. These initiatives
include direct mail campaigns, marketing collateral, trade shows, seminars and
events. The marketing organization also develops and supports our corporate
positioning and brands. Our comprehensive corporate communications program
includes advertising, media relations and industry analyst relations.

   Our consulting services group works closely with the sales organization to
provide a consultative, executive selling approach that complements our sales
program. This team of healthcare information technology professionals is trained
in a proprietary assessment methodology that allows a quick and comprehensive
analysis of a customer's information technology capabilities and requirements.
In conjunction with their consulting responsibilities, our consulting services
group identifies opportunities to introduce customers to the broad range of
applications and technology solutions available to them, including those that we
offer.

CUSTOMER SERVICE

   We believe that a high level of support is necessary to maintain long-term
relationships with our customers. An account manager is assigned to each of our
customers and is responsible for proactively monitoring customer satisfaction,
exposing customers to additional training and process-improvement opportunities
and coordinating issue resolution. We employ functional and technical support
personnel who work directly with our account management team and customers to
resolve technical, operational and application problems or questions. Our
service desk provides a wide range of customer support functions. Our customers
may contact the service desk through a toll-free number 24 hours a day, seven
days a week.

   Because we support multiple applications and technology solutions, our
functional and technical support staff are grouped and trained by specific
application and by application type. These focused staff groups have
concentrated expertise that we can deploy as needed to address customer needs.
We cross-train employees to support multiple applications and technology
solutions to create economies-of-scale in our support staff.

   We further leverage the capabilities of our support staff through the use of
sophisticated computer software that tracks solutions to common computer and
software-related problems. This allows our support staff to learn from the
experience of other people within the organization and it reduces the time it
takes to solve problems. As of December 31, 2001, we had approximately 451
employees and independent contractors providing technical support functions for
our customers.

   In addition, we provide business services support for our customers in the
areas of claims processing, billing and enrollment, membership services,
provider contracting and provider credential verification services. As of
December 31, 2001, we had approximately 584 employees and independent
contractors providing such support services.

COMPETITION

   The market for healthcare information technology services is intensely
competitive, rapidly evolving, highly fragmented and subject to rapid
technological change. By using proprietary technologies and methodologies, we
integrate and deliver packaged software applications, Internet connections,
electronic communication infrastructure and information technology consulting
services. Our competitors provide some or all of the services that we provide.
Our competitors can be categorized as follows:

   - information technology and outsourcing companies, such as Computer Sciences
     Corporation, Electronic Data Systems Corporation and Perot Systems
     Corporation;

   - healthcare information software vendors, such as Quality Care Solutions,
     Inc. and Amisys LLC;

   - healthcare information technology consulting firms, such as First
     Consulting Group, Inc., Superior Consultant Holdings Corporation and the
     consulting divisions or former affiliates of the major accounting firms;
     and

   - healthcare e-commerce and portal companies, such as WebMD Corporation,
     NaviMedix and HealthTrio.

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   Each of these types of companies can be expected to compete with us within
various segments of the healthcare information technology market. Furthermore,
major software information systems companies and other entities, including those
specializing in the healthcare industry that are not presently offering
applications that compete with our products and services, may enter our markets.
In addition, some of our third-party software vendors compete with us from time
to time by offering their software on a licensed or hosted basis.

   We believe companies in our industry primarily compete based on performance,
price, software functionality, customer awareness, ease of implementation and
level of service. Although our competitive position is difficult to characterize
due principally to the variety of current and potential competitors and the
evolving nature of our market, we believe that we presently compete favorably
with respect to all of these factors. While our competition comes from many
industry segments, we believe no single segment offers the integrated,
single-source solution that we provide to our customers.

   To be competitive, we must continue to enhance our products and services, as
well as our sales, marketing and distribution channels to respond promptly and
effectively to:

   - changes in the healthcare industry;

   - constantly evolving standards affecting healthcare transactions;

   - the challenges of technological innovation and adoption;

   - evolving business practices of our customers;

   - our competitors' new products and services;

   - new products and services developed by our vendor partners and suppliers;
     and

   - challenges in hiring and retaining information technology professionals.

INTELLECTUAL PROPERTY

   Our intellectual property is important to our business. We rely on certain
developed software assets and internal methodologies for performing customer
services. Our consulting services group develops and utilizes information
technology life-cycle methodology and related paper-based and software-based
toolsets to perform customer assessments, planning, design, development,
implementation and support services. We rely primarily on a combination of
copyright, trademark and trade secret laws, confidentiality procedures and
contractual provisions to protect our intellectual property.

   Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of some
foreign countries do not protect proprietary rights as well as the laws of the
United States. In the future, litigation may be necessary to enforce our
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Any such litigation could be time consuming and
costly.

   We could be subject to intellectual property infringement claims as we expand
our product and service offerings and the number of our competitors increases.
Defending against these claims, even if not meritorious, could be expensive and
divert our attention from operating our company. If we become liable to third
parties for infringing upon their intellectual property rights, we could be
required to pay a substantial damage award and be forced to develop
noninfringing technology, obtain a license or cease using the applications that
contain the infringing technology or content. We may be unable to develop
noninfringing technology or content or obtain a license on commercially
reasonable terms, or at all.

   We also rely on a variety of technologies that are licensed from third
parties to perform key functions. These third-party licenses are an essential
element of our hosted solutions business. These third-party licenses may not be
available to us on commercially reasonable terms in the future. The loss of or
inability to maintain any of these licenses could delay the introduction of
software enhancements and other features until equivalent technology can be
licensed or developed. Any such delay could materially adversely affect our
ability to attract and retain customers.



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SIGNIFICANT CUSTOMERS

   As of December 31, 2001, we served approximately 540 customers. QualChoice of
Arkansas, Inc., Preferred Health Network of Maryland, Inc., and Maxicare each
represented approximately 8%, 5% and 5%, respectively, of our total revenue for
the twelve months ended December 31, 2001. In May 2001, Maxicare filed a Chapter
11 petition for relief under the federal Bankruptcy Code in the United States
Bankruptcy Court for the Central District of California. We are currently in
negotiations with Maxicare to settle amounts owed for pre-petition and
post-petition services and to define the scope of services on a continuing
basis.

EMPLOYEES

   As of January 31, 2002, we had approximately 1,911 employees. Our employees
are not subject to any collective bargaining agreements, and we generally have
good relations with our employees.

BACKLOG

   Our 12-month recurring and software license revenue backlog at December 31,
2001, was approximately $174.6 million. The 12-month recurring revenue backlog
at December 31, 2001, was approximately $148.7 million. Total recurring and
software license revenue backlog at December 31, 2001, was approximately $623.4
million. Total recurring revenue backlog at December 31, 2001, was approximately
$590.0 million. Our orders that constitute current backlog are subject to
unforeseen changes in implementation schedules and may be cancelled subject to
penalties. Our backlog at any date may not be indicative of demand for our
products and services or actual revenue for any period in the future.

                                       8
<PAGE>

                                  RISK FACTORS

OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE.

   Our quarterly operating results have varied in the past, and we expect that
they will continue to vary in future periods. Our quarterly operating results
can vary significantly based on a number of factors, such as our mix of
non-recurring and recurring revenue, our ability to add new customers, renew
existing accounts, sell additional products and services to existing customers,
meet project milestones and customer expectations, and the timing of new
customer sales. The variation in our quarterly operating results could affect
the market price of our common stock in a manner that may be unrelated to our
long-term operating performance.

   We expect to increase activities and spending in substantially all of our
operational areas. We base our expense levels in part upon our expectations
concerning future revenue, and these expense levels are relatively fixed in the
short-term. If we record lower revenue, we may not be able to reduce our
short-term spending in response. Any shortfall in revenue would have a direct
impact on our results of operations. For these and other reasons, we may not
meet the earnings estimates of securities analysts or investors, and our stock
price could decline.

   We have experienced long sales and implementation cycles for our enterprise
software. Enterprise software typically requires significant capital
expenditures by customers. Major decisions for large payer organizations
typically range from six to 12 months or more from initial contact to contract
execution. Historically, our implementation cycle has ranged from 12 to 24
months or longer from contract execution to completion of implementation. During
the sales cycle and the implementation cycle, we will expend substantial time,
effort and financial resources preparing contract proposals, negotiating the
contract and implementing the solution. We may not realize any revenue to offset
these expenditures, and, if we do, accounting principles may not allow us to
recognize the revenue during corresponding periods, which could harm our future
operating results. Additionally, any decision by our customers to delay
implementation may adversely affect our revenues.

WE HAVE A HISTORY OF OPERATING LOSSES AND CANNOT PREDICT WHEN, OR IF, WE WILL
ACHIEVE PROFITABILITY.

   We have lost money in eleven of our past twelve quarters (through December
31, 2001). Although our revenue has grown in recent periods, we cannot assure
you that our revenue will be maintained at the current level or increase in the
future. In addition, we have a limited operating history and it is difficult to
evaluate our business. Our stockholders must consider the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in rapidly evolving markets. We
cannot assure you that we will achieve or sustain profitability on either a
quarterly or annual basis.

   We currently derive our revenue primarily from providing hosted solutions,
software licensing and maintenance, and other services such as consulting. We
depend on the continued demand for healthcare information technology and related
services. We plan to continue investing in administrative infrastructure,
research and development, sales and marketing, and acquisitions. As a result, we
expect that we will lose money through at least the fiscal year ending December
31, 2002, and we may never achieve or sustain profitability.

WE DEPEND ON OUR SOFTWARE APPLICATION VENDOR RELATIONSHIPS, AND IF OUR SOFTWARE
APPLICATION VENDORS TERMINATE OR MODIFY EXISTING CONTRACTS OR EXPERIENCE
BUSINESS DIFFICULTIES, OR IF WE ARE UNABLE TO ESTABLISH NEW RELATIONSHIPS WITH
ADDITIONAL SOFTWARE APPLICATION VENDORS, IT COULD HARM OUR BUSINESS.

   We depend, and will continue to depend, on our licensing and business
relationships with third-party software application vendors. Our success depends
significantly on our ability to maintain our existing relationships with our
vendors and to build new relationships with other vendors in order to enhance
our services and application offerings and remain competitive. Although most of
our licensing agreements are perpetual or automatically renewable, they are
subject to termination in the event that we materially breach such agreements.
We cannot assure you that we will be able to maintain relationships with our
vendors or establish relationships with new vendors. We cannot assure you that
the software, products or services of our third-party vendors will achieve or
maintain market acceptance or commercial success. Accordingly, we cannot assure
you that our existing relationships will result in sustained business
partnerships, successful product or service offerings or the generation of
significant revenue for us.

   Our arrangements with third-party software application vendors are not
exclusive. We cannot assure you that these third-party vendors regard our
relationships with them as important to their own respective businesses and
operations. They may reassess their commitment to us at any time and may choose
to develop or enhance their own competing distribution channels and product
support services. If we do not maintain our existing relationships or if the
economic terms of our business relationships change, we may not be able to
license and offer these services and products on commercially reasonable terms
or at all. Our inability to obtain any of these

                                       9
<PAGE>
licenses could delay service development or timely introduction of new services
and divert our resources. Any such delays could materially adversely affect our
business, financial condition and operating results.

   Our licenses for the use of third-party software applications are essential
to the technology solutions we provide for our customers. Loss of any one of our
major vendor agreements may have a material adverse effect on our business,
financial condition and operating results.

REVENUE FROM A LIMITED NUMBER OF CUSTOMERS COMPRISE A SIGNIFICANT PORTION OF OUR
TOTAL REVENUE, AND IF THESE CUSTOMERS TERMINATE OR MODIFY EXISTING CONTRACTS OR
EXPERIENCE BUSINESS DIFFICULTIES, IT COULD ADVERSELY AFFECT OUR EARNINGS.

   As of December 31, 2001, we were providing services to approximately 540
customers. Three of our customers, QualChoice of Arkansas, Inc., Preferred
Health Network of Maryland, Inc. and Maxicare represented an aggregate of
approximately 18% of our total revenue for the twelve months ended December 31,
2001. In May 2001, Maxicare filed a Chapter 11 petition for relief under the
federal Bankruptcy Code in the United States Bankruptcy Court for the Central
District of California. We are currently in negotiations with Maxicare to
settle amounts owed for pre-petition and post-petition services and to define
the scope of services on a continuing basis.

   Although we typically enter into multi-year customer agreements, a majority
of our customers are able to reduce or cancel their use of our services before
the end of the contract term, subject to monetary penalties. We also provide
services to some hosted customers without long-term contracts. In addition, many
of our contracts are structured so that we generate revenue based on units of
volume, which include the number of members, number of physicians or number of
users. If our customers experience business difficulties and the units of volume
decline or if a customer ceases operations for any reason, we will generate less
revenue under these contracts and our operating results may be materially and
adversely impacted.

   Our operating expenses are relatively fixed and cannot be reduced on short
notice to compensate for unanticipated contract cancellations or reductions. As
a result, any termination, significant reduction or modification of our business
relationships with any of our significant customers could have a material
adverse effect on our business, financial condition and operating results.

WE ARE GROWING RAPIDLY, AND OUR INABILITY TO MANAGE THIS GROWTH COULD HARM OUR
BUSINESS.

   We have rapidly and significantly expanded our operations and expect to
continue to do so. This growth has placed, and is expected to continue to place,
a significant strain on our managerial, operational, financial, information
systems and other resources. As of December 31, 2001, we had grown to
approximately 1,900 employees, from approximately 75 employees and independent
contractors in December 1997. We expect to hire a significant number of new
employees to support our business. If we are unable to manage our growth
effectively, it could have a material adverse effect on our business, financial
condition and operating results.

OUR ACQUISITION STRATEGY MAY DISRUPT OUR BUSINESS AND REQUIRE ADDITIONAL
FINANCING.

   Since inception, we have made several acquisitions and expect to continue to
seek strategic acquisitions as part of our growth strategy. We compete with
other companies to acquire businesses. We expect this competition to increase,
making it more difficult in the future to acquire suitable companies on
favorable terms.

   We may be unable to successfully integrate companies that we have acquired or
may acquire in the future in a timely manner. If we are unable to successfully
integrate acquired businesses, we may incur substantial costs and delays or
other operational, technical or financial problems. In addition, the failure to
successfully integrate acquisitions may divert management's attention from our
existing business and may damage our relationships with our key customers and
employees.

   To finance future acquisitions, we may issue equity securities that could be
dilutive to our stockholders. We may also incur debt and additional amortization
expenses related to goodwill and other intangible assets as a result of
acquisitions. The interest expense related to this debt and additional
amortization expense may significantly reduce our profitability and have a
material adverse effect on our business, financial condition and operating
results.

OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED.

   If we continue to incur losses, we may need additional financing to fund
operations or growth. We cannot assure you that we will be able to raise
additional funds through public or private financings, at any particular point
in the future or on favorable terms. Future financings could adversely affect
your ownership interest in comparison with those of other stockholders.

OUR BUSINESS WILL SUFFER IF OUR SOFTWARE PRODUCTS CONTAIN ERRORS.

                                       10
<PAGE>

   The proprietary and third-party software products we offer are inherently
complex. Despite testing and quality control, we cannot be certain that errors
will not be found in current versions, new versions or enhancements of our
products. Significant technical challenges also arise with our products because
our customers purchase and deploy those products across a variety of computer
platforms and integrate them with a number of third-party software applications
and databases. If new or existing customers have difficulty deploying our
products or require significant amounts of customer support, our costs would
increase. Moreover, we could face possible claims and higher development costs
if our software contains undetected errors or if we fail to meet our customers'
expectations. As a result of the foregoing, we could experience:

   - loss of or delay in revenue and loss of market share;

   - loss of customers;

   - damage to our reputation;

   - failure to achieve market acceptance;

   - diversion of development resources;

   - increased service and warranty costs;

   - legal actions by customers against us which could, whether or not
     successful, increase costs and distract our management; and

   - increased insurance costs.

   Our software products contain components developed and maintained by
third-party software vendors, and we expect that we may have to incorporate
software from third-party vendors in our future products. We may not be able to
replace the functions provided by the third-party software currently offered
with our products if that software becomes obsolete, defective or incompatible
with future versions of our products or is not adequately maintained or updated.
Any significant interruption in the availability of these third-party software
products or defects in these products could harm the sale of our products unless
and until we can secure or develop an alternative source. Although we believe
there are adequate alternate sources for the technology currently licensed to
us, such alternate sources may not be available to us in a timely manner, may
not provide us with the same functions as currently provided to us or may be
more expensive than products we currently use.

WE COULD LOSE CUSTOMERS AND REVENUE IF WE FAIL TO MEET THE PERFORMANCE STANDARDS
IN OUR CONTRACTS.

   Many of our service agreements contain performance standards. If we fail to
meet these standards, our customers could terminate their agreements with us or
require that we refund part or all of the fees charged under those agreements.
The termination of any of our material services agreements and/or any associated
refunds could have a material adverse effect on our business, financial
condition and operating results.

IF OUR ABILITY TO EXPAND OUR NETWORK INFRASTRUCTURE IS CONSTRAINED IN ANY WAY,
WE COULD LOSE CUSTOMERS AND DAMAGE OUR OPERATING RESULTS.

   We must continue to expand and adapt our network and technology
infrastructure to accommodate additional users, increased transaction volumes
and changing customer requirements. We may not be able to accurately project the
rate or timing of increases, if any, in the use of our hosted solutions or
HealthWeb(R) or be able to expand and upgrade our systems and infrastructure to
accommodate such increases. We may be unable to expand or adapt our network
infrastructure to meet additional demand or our customers' changing needs on a
timely basis, at a commercially reasonable cost or at all. Our current
information systems, procedures and controls may not continue to support our
operations while maintaining acceptable overall performance and may hinder our
ability to exploit the market for healthcare applications and services. Service
lapses could cause our users to switch to the services of our competitors.

                                       11
<PAGE>

PERFORMANCE OR SECURITY PROBLEMS WITH OUR SYSTEMS COULD DAMAGE OUR BUSINESS.

   Our customers' satisfaction and our business could be harmed if we, or our
customers experience any system delays, failures or loss of data.

   Although we devote substantial resources to meeting these demands, errors may
occur. Errors in the processing of customer data may result in loss of data,
inaccurate information and delays. Such errors could cause us to lose customers
and be liable for damages. We currently process substantially all of our
customers' transactions and data at our customer connectivity centers in
Colorado and Illinois. Although we have safeguards for emergencies and we have
contracted backup processing for our customers' critical functions, the
occurrence of a major catastrophic event or other system failure at any of our
facilities could interrupt data processing or result in the loss of stored data.
In addition, we depend on the efficient operation of telecommunication providers
which have had periodic operational problems or experienced outages.

   A material security breach could damage our reputation or result in liability
to us. We retain confidential customer and patient information in our customer
connectivity centers. Therefore, it is critical that our facilities and
infrastructure remain secure and that our facilities and infrastructure are
perceived by the marketplace to be secure. Despite the implementation of
security measures, our infrastructure may be vulnerable to physical break-ins,
computer viruses, programming errors, attacks by third parties or similar
disruptive problems.

   Our services agreements generally contain limitations on liability, and we
maintain insurance with coverage limits of $25 million for general liability and
$10 million for professional liability to protect against claims associated with
the use of our products and services. However, the contractual provisions and
insurance coverage may not provide adequate coverage against all possible claims
that may be asserted. In addition, appropriate insurance may be unavailable in
the future at commercially reasonable rates. A successful claim in excess of our
insurance coverage could have a material adverse effect on our business,
financial condition and operating results. Even unsuccessful claims could result
in litigation or arbitration costs and may divert management's attention from
our existing business.

OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT, RETAIN AND MOTIVATE MANAGEMENT
AND OTHER KEY PERSONNEL.

   Our success will depend in large part on the continued services of management
and key personnel. Competition for personnel in the healthcare information
technology market is intense, and there are a limited number of persons with
knowledge of, and experience in, this industry. We do not have employment
agreements with most of our executive officers, so any of these individuals may
terminate his or her employment with us at any time. The loss of services from
one or more of our management or key personnel, or the inability to hire
additional management or key personnel as needed, could have a material adverse
effect on our business, financial condition and operating results. Although we
currently experience relatively low rates of turnover for our management and key
personnel, the rate of turnover may increase in the future. In addition, we
expect to further grow our operations, and our needs for additional management
and key personnel will increase. Our continued ability to compete effectively in
our business depends on our ability to attract, retain and motivate these
individuals.

WE RELY ON AN ADEQUATE SUPPLY AND PERFORMANCE OF COMPUTER HARDWARE AND RELATED
EQUIPMENT FROM THIRD PARTIES TO PROVIDE SERVICES TO LARGER CUSTOMERS AND ANY
SIGNIFICANT INTERRUPTION IN THE AVAILABILITY OR PERFORMANCE OF THIRD-PARTY
HARDWARE AND RELATED EQUIPMENT COULD ADVERSELY AFFECT OUR ABILITY TO DELIVER OUR
PRODUCTS TO CERTAIN CUSTOMERS ON A TIMELY BASIS.

   As we offer our hosted solution services and software to a greater number of
customers and particularly to larger customers, we may require specialized
computer equipment which may be difficult to obtain on short notice. Any delay
in obtaining such equipment may prevent us from delivering large systems to our
customers on a timely basis. We also rely on such equipment to meet required
performance standards. If such performance standards are not met, we may be
adversely impacted under our service agreements with our customers.

ANY FAILURE OR INABILITY TO PROTECT OUR TECHNOLOGY AND CONFIDENTIAL INFORMATION
COULD ADVERSELY AFFECT OUR BUSINESS.

   Our success depends in part upon proprietary software and other confidential
information. The software and information technology industries have experienced
widespread unauthorized reproduction of software products and other proprietary
technology. We do not own any patents. We rely on a combination of copyright,
trademark and trade secret laws, confidentiality procedures and contractual
provisions to protect our intellectual property. However, these protections may
not be sufficient, and they do not prevent independent third-party development
of competitive products or services.

                                       12
<PAGE>

   We believe that our proprietary rights do not infringe upon the proprietary
rights of third parties. However, third parties may assert infringement claims
against us in the future, and we could be required to enter into a license
agreement or royalty arrangement with the party asserting the claim. We may also
be required to indemnify customers for claims made against them.

IF OUR CONSULTING SERVICES REVENUE DOES NOT GROW SUBSTANTIALLY, OUR REVENUE
GROWTH COULD BE ADVERSELY IMPACTED.

   Our consulting services revenue represents a significant component of our
total revenue and we anticipate that consulting services revenue will continue
to represent a significant percentage of total revenue in the future. To a large
extent, the level of consulting services revenue depends upon the healthcare
industry's demand for outsourced information technology services and our ability
to deliver products which generate implementation and follow-on consulting
services revenue. Our ability to increase services revenue will depend in large
part on our ability to increase the capacity of our transformation services
group, including our ability to recruit, train and retain a sufficient number of
qualified personnel.

IF WE FAIL TO MEET THE CHANGING DEMANDS OF TECHNOLOGY, WE MAY NOT CONTINUE TO BE
ABLE TO COMPETE SUCCESSFULLY WITH OTHER PROVIDERS OF SOFTWARE APPLICATIONS.

   The market for our technology and services is highly competitive and rapidly
changing and requires potentially expensive technological advances. We believe
our ability to compete in this market will depend in part upon our ability to:

   - maintain and continue to develop partnerships with vendors;

   - enhance our current technology and services;

   - respond effectively to technological changes;

   - introduce new technologies; and

   - meet the increasingly sophisticated needs of our customers.

   Competitors may develop products or technologies that are better or more
attractive than those offered by us or that may render our technology and
services obsolete. Many of our current and potential competitors are larger and
offer broader services and have significantly greater financial, marketing and
other competitive resources than us.

PART OF OUR BUSINESS WILL SUFFER IF HEALTH PLAN CUSTOMERS DO NOT ACCEPT INTERNET
SOLUTIONS.

   The success of HealthWeb(R) depends on the adoption of Internet solutions by
health plan customers. Our business could suffer dramatically if Internet
solutions are not accepted or not perceived to be effective. The Internet may
not prove to be a viable commercial marketplace for a number of reasons,
including:

   - inadequate development of the necessary infrastructure for communication
     speed, access and server reliability;

   - security and confidentiality concerns;

   - lack of development of complementary products, such as high-speed modems
     and high-speed communication lines;

   - implementation of competing technologies;

   - delays in the development or adoption of new standards and protocols
     required to handle increased levels of Internet activity; and

   - governmental regulation.

   We expect Internet use to continue to grow in number of users and volume of
traffic. The Internet infrastructure may be unable to support the demands placed
on it by this continued growth.

   Growth in the demand for our application and Internet platform services
depends on the adoption of Internet solutions by healthcare participants, which
requires the acceptance of a new way of conducting business and exchanging
information. To maximize

                                       13
<PAGE>
the benefits of our solutions, our customers must be willing to allow their
applications and data to be hosted in our customer connectivity centers.

THE INTENSIFYING COMPETITION WE FACE FROM BOTH ESTABLISHED ENTITIES AND NEW
ENTRIES IN THE MARKET MAY ADVERSELY AFFECT OUR REVENUE AND PROFITABILITY.

   We face intense competition. Many of our competitors and potential
competitors have significantly greater financial, technical, product
development, marketing and other resources and greater market recognition than
we have. Many of our competitors also have, or may develop or acquire,
substantial installed customer bases in the healthcare industry. As a result,
our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the development, promotion and sale of their applications or services than we
can devote.

   Our competitors can be categorized as follows:

   - information technology and outsourcing companies, such as Computer Sciences
     Corporation, Electronic Data Systems Corporation and Perot Systems
     Corporation;

   - healthcare information software vendors, such as Quality Care Solutions,
     Inc. and Amisys, Inc.;

   - healthcare information technology consulting firms, such as First
     Consulting Group, Inc., Superior Consultant Holdings Corporation and the
     consulting divisions or former affiliates of the major accounting firms;
     and

   - healthcare e-commerce and portal companies, such as WebMD Corporation,
     NaviMedix and HealthTrio.

   Each of these types of companies can be expected to compete with us within
the various segments of the healthcare information technology market.
Furthermore, major software information systems companies and other entities,
including those specializing in the healthcare industry that are not presently
offering applications that compete with our technology and services, may enter
these markets. In addition, some of our third-party software vendors may compete
with us from time to time by offering their software on a licensed or hosted
basis.

   We cannot assure you that we will be able to compete successfully against
current and future competitors or that competitive pressures faced by us will
not have a material adverse effect on our business, financial condition and
operating results.

THE INSOLVENCY OF OUR CUSTOMERS OR THE INABILITY OF OUR CUSTOMERS TO PAY FOR OUR
SERVICES WOULD DECREASE OUR REVENUE.

   Healthcare payer organizations are often required to maintain restricted cash
reserves and satisfy strict balance sheet ratios promulgated by state regulatory
agencies. In addition, healthcare payer organizations are subject to risks that
physician groups or associations within their organizations become subject to
costly litigation or become insolvent, which may adversely affect the financial
stability of the payer organizations. If healthcare payer organizations are
unable to pay for our services because of their need to maintain cash reserves
or failure to maintain balance sheet ratios or solvency, our ability to collect
fees for services rendered would be impaired and our financial condition could
be adversely affected.

CONSOLIDATION OF HEALTHCARE PAYER ORGANIZATIONS COULD DECREASE THE NUMBER OF OUR
EXISTING AND POTENTIAL CUSTOMERS.

   There has been and continues to be acquisition and consolidation activity in
the healthcare payer organizations industry. Mergers or consolidations of payer
organizations in the future could decrease the number of our existing and
potential customers. A smaller market for our products and services could result
in lower revenue.

CHANGES IN GOVERNMENT REGULATION OF THE HEALTHCARE INDUSTRY COULD ADVERSELY
AFFECT OUR BUSINESS.

   During the past several years, the healthcare industry has been subject to
increasing levels of government regulation of, among other things, reimbursement
rates and certain capital expenditures. In addition, proposals to reform the
healthcare system have been considered by Congress. These proposals, if enacted,
may further increase government involvement in healthcare, lower reimbursement
rates and otherwise adversely affect the healthcare industry which could
adversely impact our business. The impact of regulatory developments in the
healthcare industry is complex and difficult to predict, and our business could
be adversely affected by existing or new healthcare regulatory requirements or
interpretations.

                                       14
<PAGE>
   Participants in the healthcare industry, such as our payer and provider
customers, are subject to extensive and frequently changing laws and
regulations, including laws and regulations relating to the confidential
treatment and secure transmission of patient medical records and other
healthcare information. Legislators at both the state and federal levels have
proposed additional legislation relating to the use and disclosure of medical
information, and the federal government is likely to enact new federal laws or
regulations in the near future. Pursuant to the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"), the Department of Health and Human
Services ("DHHS") has issued a series of regulations setting forth security,
privacy and transactions standards for all health plans, clearinghouses and
healthcare providers to follow with respect to individually identifiable health
information. DHHS has issued final regulations mandating the use of standard
transactions and code sets, with compliance initially required by October 16,
2002. In December 2001, President Bush signed HR 3323 into law enabling covered
entities under HIPAA to delay compliance with the standard transactions and code
sets rule by one year until October 16, 2003. To qualify for the extension,
covered entities must submit a compliance plan to the DHHS by October 16, 2002.
The plan must include a budget, schedule, work plan and implementation strategy
for achieving compliance. DHHS has also issued final HIPAA privacy regulations,
with a scheduled compliance date of April 14, 2003, and proposed HIPAA security
regulations. Many of our customers will also be subject to state laws
implementing the federal Gramm-Leach-Bliley Act, relating to certain disclosures
of nonpublic personal health information and nonpublic personal financial
information by insurers and health plans.

   Our payer and provider customers must comply with HIPAA, its regulations and
other applicable healthcare laws and regulations. Accordingly, in order for our
products and services to be marketable, they must contain features and functions
that allow our customers to comply with these laws and regulations. We believe
our products currently allow our customers to comply with existing laws and
regulations. However, because some HIPAA regulations have yet to be issued and
because the proposed HIPAA regulations may be modified prior to becoming final,
our products may require modification in the future. If we fail to offer
solutions that permit our customers to comply with applicable laws and
regulations, our business will suffer.

   We perform billing and claims services that are governed by numerous federal
and state civil and criminal laws. The federal government in recent years has
imposed heightened scrutiny on billing and collection practices of healthcare
providers and related entities, particularly with respect to potentially
fraudulent billing practices, such as submissions of inflated claims for payment
and upcoding. Violations of the laws regarding billing and coding may lead to
civil monetary penalties, criminal fines, imprisonment or exclusion from
participation in Medicare, Medicaid and other federally funded healthcare
programs for us and our customers. Any of these results could have a material
adverse effect on our business, financial condition and operating results.

   Federal and state consumer protection laws may apply to us when we bill
patients directly for the cost of physician services provided. Failure to comply
with any of these laws or regulations could result in a loss of licensure or
other fines and penalties. Any of these results could have a material adverse
effect on our business, financial condition and operating results.

   In addition, laws governing healthcare payers and providers are often not
uniform among states. This could require us to undertake the expense and
difficulty of tailoring our products in order for our customers to be in
compliance with applicable state and local laws and regulations.

PART OF OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION RELATING TO THE
INTERNET THAT COULD IMPAIR OUR OPERATIONS.

   The Internet and its associated technologies are subject to increasing
government regulation. 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, on-line content regulation, user privacy, taxation and quality of
products and services. Many existing laws and regulations, when enacted, did not
anticipate the methods of the Internet-based hosted, software and information
technology solutions we offer. We believe, however, that these laws may be
applied to us. We expect our products and services to be in substantial
compliance with all material federal, state and local laws and regulations
governing our operations. However, new legal requirements or interpretations
applicable to the Internet could decrease the growth in the use of the Internet,
limit the use of the Internet for our products and services or prohibit the sale
of a particular product or service, increase our cost of doing business, or
otherwise have a material adverse effect on our business, results of operations
and financial conditions. To the extent that we market our products and services
outside the United States, the international regulatory environment relating to
the Internet and healthcare services could also have an adverse effect on our
business.

   A number of legislative proposals have been made that would impose additional
taxes on the sale of goods and services over the Internet. Although in October
1998 Congress 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. Once this
moratorium is lifted, some type of federal and/or state taxes may be imposed
upon Internet commerce which could adversely affect our opportunity to derive
financial benefit from such activities.

                                       15
<PAGE>

ITEM 2 -- PROPERTIES

FACILITIES

   As of December 31, 2001, we leased 26 facilities located within the United
States. Our principal executive and corporate offices are located in Newport
Beach, California. Our customer connectivity centers are located in Colorado and
Illinois. Our leases have expiration dates ranging from 2002 to 2009. We believe
that our facilities are adequate for our current operations and that additional
leased space can be obtained if needed.

ITEM 3 -- LEGAL PROCEEDINGS

   From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. We currently are
not a party to any legal proceedings, the adverse outcome of which, in
management's opinion, individually or in the aggregate, would have a material
adverse effect on our results of operations or financial position.

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

   No matters were submitted to a vote of our stockholders during the quarter
ended December 31, 2001.


                                       16
<PAGE>

                                        PART II

ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


   The following table shows the high and low sales prices of our common stock
as reported on the Nasdaq National Market for the periods indicated:

<TABLE>
<CAPTION>
QUARTERS ENDED                                 HIGH                   LOW
--------------                                 ----                   ---
<S>                                           <C>                     <C>
December 31, 2001 ........................... $13.70                   $7.50
September 30, 2001 .......................... $13.51                   $6.40
June 30, 2001 ............................... $15.13                   $8.53
March 31, 2001 .............................. $16.75                   $9.38
December 31, 2000 ........................... $23.94                  $13.13
September 30, 2000 .......................... $19.73                   $8.75
June 30, 2000 ............................... $35.75                  $10.06
March 31, 2000 .............................. $91.25                  $27.00
</TABLE>

   As of February 7, 2002, there were 163 holders of record based on the records
of our transfer agent which do not include beneficial owners of common stock
whose shares are held in the names of various securities brokers, dealers and
registered clearing agencies.

   We have never paid cash dividends on our common stock. We currently
anticipate that we will retain earnings, if any, to support operations and to
finance the growth and development of our business and do not anticipate paying
cash dividends in the foreseeable future. The payment of cash dividends by us is
restricted by our current bank credit facilities, which contain restrictions
prohibiting us from paying any cash dividends without the bank's prior approval.

RECENT SALES OF UNREGISTERED SECURITIES

   The following is a summary of transactions by us from October 1, 2001 through
the date hereof involving sales of our securities that were not registered with
the SEC:

   - On December 7, 2001, we issued 43,802 shares of common stock to HME as a
     market guarantee in connection with our acquisition of HME on January 11,
     2000.

   - On December 7, 2001, we issued 647,107 shares of common stock to RIMS as a
     market guarantee in connection with our acquisition of RIMS on December 1,
     2000.

   The sales of the securities listed above were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder. 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
instruments representing such securities issued in such transactions. These
sales were made without general solicitation or advertising. Each recipient was
either an accredited investor or a sophisticated investor. All recipients had
adequate access, through their relationships with us, to all relevant
information about us.


                                       17
<PAGE>

ITEM 6 -- SELECTED FINANCIAL DATA

   The following selected consolidated financial data, except as noted herein,
has been taken or derived from our audited consolidated financial statements and
should be read in conjunction with the full consolidated financial statements
included herein. The Company made acquisitions in 1999, 2000 and 2001 which
affects comparability of all years.

<TABLE>
<CAPTION>
                                                     THE TRIZETTO GROUP, INC.
                                   -----------------------------------------------------------------
                                    PERIOD FROM
                                    MAY 27, 1997
                                      (DATE OF
                                     INCEPTION)                  YEARS ENDED DECEMBER 31,
                                    TO DECEMBER 31, ------------------------------------------------
                                      1997           1998          1999           2000           2001
                                      ----           ----          ----           ----           ----
                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                <C>            <C>            <C>            <C>            <C>
Revenue:
  Recurring revenue ............   $   1,191      $   5,300      $  19,448      $  61,811      $ 142,706
  Non-recurring revenue ........       1,328          6,131         13,478         27,245         75,466
                                   ---------      ---------      ---------      ---------      ---------
Total revenue ..................       2,519         11,431         32,926         89,056        218,172
                                   ---------      ---------      ---------      ---------      ---------
Cost of revenue:
  Recurring revenue ............       1,250          3,978         17,350         54,929        103,854
  Non-recurring revenue ........         422          3,498         10,037         20,089         42,806
                                   ---------      ---------      ---------      ---------      ---------
Total cost of revenue ..........       1,672          7,476         27,387         75,018        146,660
                                   ---------      ---------      ---------      ---------      ---------
Gross profit ...................         847          3,955          5,539         14,038         71,512
                                   ---------      ---------      ---------      ---------      ---------
Operating expenses:
  Research and development .....          --          1,084          2,394          8,463         16,402
  Selling, general and
  administrative ...............         672          2,887          9,366         34,144         51,938
  Amortization of goodwill and
  acquired intangibles .........          --             --            783         18,622         69,076
  Write-off of acquired
  in-process technology(1) .....          --             --          1,407          1,426             --
  Restructuring and related
  impairment charges ...........          --             --             --             --         12,140
                                   ---------      ---------      ---------      ---------      ---------
Total operating expenses .......         672          3,971         13,950         62,655        149,556
                                   ---------      ---------      ---------      ---------      ---------
Income (loss) from operations ..         175            (16)        (8,411)       (48,617)       (78,044)
Interest income ................          15            210            527          1,394          2,048
Interest expense ...............         (13)           (52)          (256)          (883)        (1,333)
                                   ---------      ---------      ---------      ---------      ---------
Income (loss) before provision
for income taxes ...............         177            142         (8,140)       (48,106)       (77,329)
Provision for (benefit from)
income taxes ...................          74             82           (213)        (5,848)       (16,175)
                                   ---------      ---------      ---------      ---------      ---------
  Net income (loss) ............   $     103      $      60      $  (7,927)     $ (42,258)     $ (61,154)
                                   =========      =========      =========      =========      =========
Net income (loss) per share:
  Basic ........................   $    0.05      $    0.01      $   (0.85)     $   (1.80)     $   (1.53)
                                   =========      =========      =========      =========      =========
  Diluted ......................   $    0.03      $    0.00      $   (0.85)     $   (1.80)     $   (1.53)
                                   =========      =========      =========      =========      =========
Shares used in computing net
income (loss) per share:
  Basic ........................       2,065          4,937          9,376         23,444         40,094
                                   =========      =========      =========      =========      =========
  Diluted ......................       4,074         12,783          9,376         23,444         40,094
                                   =========      =========      =========      =========      =========
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                           THE TRIZETTO GROUP, INC.
                                              ------------------------------------------------------------
                                                            YEARS ENDED DECEMBER 31,
                                              ------------------------------------------------------------
                                               1997          1998        1999         2000         2001
                                              -------     --------     ---------     --------     --------
                                                            (in thousands)
<S>                                          <C>          <C>           <C>          <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash,
and short-term investments .............      $   773     $  3,681      $ 24,806     $ 28,384     $ 84,633
Total assets ...........................        2,634        8,720        68,418      363,751      390,721
Total short-term debt and capital lease
obligations ............................           --           80         1,857       14,555       19,607
Total long-term debt and capital lease
obligations ............................          520          645         2,728        4,440        9,699
Mandatorily redeemable convertible
preferred stock(2) .....................           --        6,449            --           --           --
Total stockholders' equity (deficit) ...          563         (741)       51,296      269,430      280,955
</TABLE>

(1)  In connection with our acquisitions in 1999 and 2000, we wrote off $1.4
     million per year of the total purchase price to acquired in-process
     technology as technological feasibility of the products had not been
     established. See Note 12 of Notes to Consolidated Financial Statements for
     an explanation of the acquisitions and the acquired in-process technology.

(2)  The mandatory redeemable convertible preferred stock was converted to
     common stock at the time of our initial public offering.

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

OVERVIEW

   We provide industry-leading information technology solutions and services to
the healthcare industry, including remotely hosted applications, client/server
software systems, an Internet platform, and consulting and business outsourcing
services. Our customers include managed care organizations, preferred provider
organizations, third-party administrators, provider groups and physician
practice management companies. As of December 31, 2001, we served approximately
540 customers representing more than 110 million lives, approximately 40%
of the insured population in the United States.

   We were incorporated in Delaware in May 1997. Since completing our initial
public offering in October 1999, we have completed the following acquisitions,
all of which were accounted for using the purchase method of accounting:


<TABLE>
<CAPTION>

ACQUISITION                             CLOSING DATE           PURCHASE PRICE       CONSIDERATION

<S>                                     <C>                    <C>                  <C>
 Novalis Corporation                    November 29, 1999      $18.2 million        Cash and stock

 Finserv Health Care Systems, Inc.      December 22, 1999      $5.8 million         Cash and stock
   (Finserv)

 Healthcare Media Enterprises,          January 11, 2000       $7.0 million         Cash and stock
   Inc. (HME)

 Erisco Managed Care                    October 2, 2000        $228.4 million       Stock
   Technologies, Inc.

 Resource Information Management        December 1, 2000       $96.8 million        Cash and stock
   Systems, Inc. (RIMS)

 Infotrust Company                      April 12, 2001         $15.4 million        Stock
</TABLE>

   On October 2, 2000, we acquired all of the issued and outstanding capital
stock of Erisco from IMS Health Incorporated and Erisco became our wholly owned
subsidiary. The purchase price of approximately $228.4 million consisted of
12,142,857 shares of common stock with a value of $15.89 per share, assumed
liabilities of $30.0 million, which includes $14.2 million of deferred tax
liability resulting from the differences between the book and tax bases of the
intangible assets arising as a result of the acquisition, and acquisition costs
of approximately $5.5 million. At the time of the transaction, Erisco's balance
sheet included $32.0 million of cash. Pursuant to the merger agreement and
related stockholders agreement, IMS Health has appointed one member to our Board
of Directors.

   On December 1, 2000, we acquired all of the issued and outstanding capital
stock of RIMS and RIMS became our wholly owned subsidiary. The purchase price of
approximately $96.8 million consisted of 2,588,427 shares of common stock with a
value of $21.20

                                       19
<PAGE>
per share, $3.0 million in cash, assumed liabilities of $32.8 million, which
includes $13.7 million of deferred tax liability resulting from the differences
between the book and tax bases of the intangible assets arising as a result of
the acquisition, and acquisition costs of approximately $1.4 million. Of the
2,588,427 shares of common stock which were issued in connection with this
acquisition, 517,685 shares of the common stock were held in escrow and released
in December 2001. In addition, we assumed employee stock options to purchase
approximately 300,000 shares of our common stock valued at $4.7 million and
agreed to issue up to 94,354 shares of restricted common stock to certain
employees, of which 82,553 shares have been issued to date. In December 2001, an
additional 647,107 contingent shares of common stock were issued in accordance
with a market guarantee which had no effect on the purchase price or goodwill.

   On April 12, 2001, we acquired all of the issued and outstanding shares of
Infotrust Company ("Infotrust") from Trustco Holdings, Inc. and Infotrust became
our wholly owned subsidiary. The purchase price of approximately $15.4 million
consisted of 923,077 shares of common stock with a value of $13.96 per share,
assumed liabilities of $1.9 million, which includes $1.6 million of deferred tax
liability resulting from the difference between the book and tax basis of the
intangible assets arising as a result of the acquisition, and acquisition costs
of $647,000. Of the 923,077 shares of common stock which were issued in
connection with this acquisition, 138,462 shares of the common stock were held
in escrow and are scheduled to be released in April 2002.


   RESTRUCTURING AND RELATED IMPAIRMENT CHARGES. In December 2001, the Company
initiated a number of restructuring actions focused on eliminating redundancies,
streamlining operations and improving overall financial results. These
initiatives include workforce reductions, office closures, and business line
simplifications and related asset write-offs.

   In December 2001, the Company announced a planned workforce reduction in Los
Angeles, California; Novato, California; Baltimore, Maryland; Little Rock,
Arkansas; Provo, Utah; Salt Lake City, Utah; Westmont, Illinois; Albany, New
York; Glastonbury, Connecticut; and Trivandrum, India. Severance and other costs
related to this workforce reduction totaled $1.7 million, of which $1.0 million
was included in restructuring and related impairment charges in 2001 and
$745,000 will be charged to restructuring and related impairment charges in
2002. The $745,000 of severance and other costs that will be charged to expense
in 2002 is made up of $149,000, $35,000, and $561,000 occurring in the first
quarter, second quarter and third quarter, respectively. Such workforce
reductions are expected to be completed by the end of third quarter 2002. When
these workforce reductions have been completed, the Company will have 168 fewer
employees.

   Facility closures include the closure of the Novato, California; Birmingham,
Alabama; Provo, Utah; Salt Lake City, Utah; Westmont, Illinois; Naperville,
Illinois; Louisville, Kentucky; and Trivandrum, India. Such closures are
expected to be completed during the first quarter of 2002.

   The following table summarizes the activities in the Company's restructuring
reserves (amounts in thousands):

<TABLE>
<CAPTION>
                                      Costs for
                                      Terminated       Facility
                                      Employees        Closures          Total
                                   ---------------------------------------------
<S>                                 <C>             <C>              <C>
Restructuring charges               $     959       $   2,419        $   3,378
Cash payments                             (91)             --              (91)
                                   ---------------------------------------------
Accrued restructuring charges       $     868       $   2,419        $   3,287
                                   =============================================
</TABLE>


   In addition to the workforce reductions and facility closures described
above, the Company has undertaken business line simplifications and related
asset write-offs. Specifically, the Company has discontinued certain website
and software development activities and its hospital billing and accounts
receivable business line and has written off the assets associated with these
activities. The Company has also written off assets associated with the
closure of facilities. The following table summarizes the Company's write-
off of assets (amounts in thousands):

<TABLE>
<CAPTION>
                                Accounts         Property and
                               Receivable      Equipment, net        Goodwill      Other Assets        Total
                            -----------------------------------------------------------------------------------
<S>                         <C>               <C>               <C>               <C>               <C>
Business line
simplifications             $       302       $       933       $     5,716       $     1,389       $     8,340
Office closures                                       422                                                   422
                            -----------------------------------------------------------------------------------
Total                       $       302       $     1,355       $     5,716       $     1,389       $     8,762
                            ===================================================================================

</TABLE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

   The Company's revenue is classified into two categories: (i) recurring or
multi-year contractually-based revenue and (ii) revenue generated from
non-recurring agreements. Revenue is recognized when persuasive evidence of an
arrangement exists, the product or service has been delivered, fees are fixed
and determinable, collectibility is probable and when all other significant
obligations have been fulfilled.

   The Company generates recurring revenue from several sources, including the
sale of maintenance and support on its software products, and from its hosted
solutions. Recurring software maintenance revenue is typically based on one-year
renewable contracts. Software maintenance and support revenues are recognized
ratably over the contract period. Cash received in advance is recorded as
deferred revenue. Recurring revenue from hosted solutions is subscription-based
and billed monthly over a contract term of typically three to seven years. Many
of the agreements associated with hosted solutions contain performance standards
that require the Company to maintain a certain level of operating performance
related to those applications. This performance is measured on a monthly basis
by the Company prior to the recording of the hosted solutions revenues. Software
license fees under arrangements where the Company hosts the software and the
customer does not have the ability to take possession of the software during the
hosting period, are recognized ratably over the hosting periods in accordance
with Emerging Issues Task Force ("EITF") 00-3, "Applications of AICPA Statement
of Position 97-2 to Arrangements That Include the Rights to Use Software Stored
on Another Entity's Hardware".

   The Company generates non-recurring revenue from the licensing of its
software. The Company follows the provisions of AICPA Statements of Position
("SOP") 97-2 "Software Revenue Recognition," SOP 98-4 "Deferral of the Effective
Date of Certain Provisions of SOP 97-2", and SOP 98-9 "Modification of SOP 97-2,
Software Revenue Recognition, With Respect of Certain Transactions" as well as
the preliminary conclusions of EITF issue 00-21, "Multiple Element
Arrangements". Software license revenue is recognized upon the execution of a
license agreement, upon deliverance, fees are fixed and determinable,
collectibility is probable and when all other significant obligations have been
fulfilled. For software license agreements in which customer acceptance is a
condition of earning the license fees, revenue is not recognized until
acceptance occurs. For arrangements containing multiple elements, such as
software license fees, consulting services and maintenance, and where
vendor-specific objective evidence ("VSOE") of fair value exists for all
undelivered elements, the Company accounts for the delivered elements in
accordance with the "residual method" prescribed by SOP 98-9. For arrangements
in which VSOE does not exist for each element, including specified upgrades,
revenue is deferred and not recognized until delivery of the element without
VSOE has occurred. The Company also generates non-recurring revenue from
consulting fees for implementation, installation, data conversion, and training
related to the use of the Company's proprietary and third-party licensed
products. The Company recognizes revenues for these services as they are
performed, as they are principally contracted for on a time and material basis.

   The Company incurs certain up front fees in connection with the establishment
of some of its hosting contracts. The costs are capitalized and amortized over
the life of the contract, provided that such amounts are recoverable from future
revenue under the contract. The Company is subject to financial statement risk
to the extent that these up front fees become nonrecoverable from the future
revenue including any cancellation penalties to be paid by the Company's
customers. Total up front fees outstanding as of December 31, 2001 were $8.2
million.

   Cost of revenue are those costs related to the products and services we
provide to our customers and costs associated with the operation and maintenance
of our customer connectivity centers. These costs include salaries and related
expenses for consulting personnel, customer connectivity centers personnel,
customer support personnel, application software license fees, amortization of
capitalized software development costs, telecommunications costs and maintenance
costs.

   Research and development expenses are salaries and related expenses
associated with the development of software applications prior to establishment
of technological feasibility and services and include compensation paid to
engineering personnel and fees to outside contractors and consultants. Costs
incurred internally in the development of our software products are expensed as
incurred as research and development expenses until technological feasibility
has been established, at which time any future production costs are properly
capitalized and amortized to cost of revenue based on current and future revenue
over the remaining estimated economic life of the product.

   Selling, general and administrative expenses consist primarily of salaries
and related expenses for sales, account management, marketing, administrative,
finance, legal, human resources and executive personnel, commissions, expenses
for marketing programs and trade shows and fees for professional services.

   In accordance with Financial Accounting Standards Board Statement No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but, instead will be subject to annual impairment tests. The Company
will apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. During 2002, the Company will perform
the first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002, and has not yet determined what effect,
if any, applying those tests will have on the Company's financial position and
results of operations. The Company is subject to financial statement risk to the
extent that the goodwill and indefinite lived intangible assets become impaired.
At December 31, 2001, the Company had $141.6 million in goodwill and intangible
assets with indefinite lives and recognized $42.3 million of amortization
expense related to these balances for the year ended December 31, 2001.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000.

   REVENUE. Total revenue in 2001 increased $129.1 million, or 145%, to $218.2
million from $89.1 million in 2000. Of this increase, $11.3 million was
generated by the acquisition of Infotrust and $100.3 million reflected the
impact of a full year of operations of Erisco and RIMS, which we acquired in
late 2000. The remaining increase of $17.5 million primarily represented growth
in both our recurring and non-recurring hosted solutions revenue.

   Recurring revenue in 2001 increased $80.9 million, or 131%, to $142.7 million
from $61.8 million in 2000. Of this increase, $10.1 million was generated by our
acquisition of Infotrust and $50.5 million reflected the impact of a full year
of operations of Erisco and RIMS. The remaining increase of $20.3 million
primarily represented growth in our hosted solutions. Included in recurring
revenue in 2001 is $1.0 million from IMS Health Incorporated, a related party.

   Non-recurring revenue in 2001 increased $48.3 million, or 177%, to $75.5
million from $27.2 million in 2000. Of this increase, $1.2 million was generated
by our acquisition of Infotrust and $49.8 million reflected the impact of a
full year of operations of Erisco and RIMS. The remaining decrease of $2.7
million resulted primarily from the signing of long-term contracts by two
customers of $6.4 million resulting in a reclassification to recurring revenue,
which was partially offset by an increase of $3.7 million in consulting revenues
and one-time software licenses.


                                       20

<PAGE>
         COST OF REVENUE. Cost of revenue in 2001 increased $71.7 million, or
96%, to $146.7 million from $75.0 million in 2000. Of this increase, $8.1
million represented incremental costs associated with our acquisition of
Infotrust and $46.1 million reflected the impact of a full year of operations of
Erisco and RIMS. The remaining increase of $17.5 million was primarily due to
the costs incurred to support the overall expansion of our hosted solutions and
other costs required to support our increased consulting revenue. As a
percentage of total revenue, cost of revenue approximated 67% in 2001 and 84% in
2000.

         Cost of recurring revenue in 2001 increased $49.0 million, or 89%, to
$103.9 million from $54.9 million in 2000. Of this increase, $6.9 million
represented incremental costs associated with our acquisition of Infotrust and
$27.0 million reflected the impact of a full year of operations of Erisco and
RIMS. The remaining increase of $15.1 million was due to additional expenses for
personnel and facilities to support our growing hosted solutions, as well as
increased network operation costs and software license fees. As a percentage of
recurring revenue, cost of recurring revenue approximated 73% in 2001 and 89% in
2000.

         Cost of non-recurring revenue in 2001 increased $22.7 million, or 113%,
to $42.8 million from $20.1 million in 2000. Of this increase, $1.2 million
represented incremental costs associated with our acquisition of Infotrust and
$19.1 million reflected the impact of a full year of operations of Erisco and
RIMS. The remaining increase of $2.4 million was primarily due to the costs
incurred to support the increased consulting revenues and one-time software
license sales. As a percentage of non-recurring revenue, cost of non-recurring
revenue approximated 57% in 2001 and 74% in 2000.

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $7.9 million, or 94%, to $16.4 million from $8.5 million in 2000. Of
this increase, $9.8 million reflected the impact of a full year of operations of
Erisco and RIMS. The remaining decrease of $1.9 million was primarily due to a
$800,000 capitalization of HealthWeb research and development costs and $1.1
million related to the sunsetting of certain in-house products. As a percentage
of total revenue, research and development expenses approximated 8% in 2001 and
10% in 2000.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 2001 increased $17.8 million, or 52%, to $51.9
million from $34.1 million in 2000. Of this increase, $1.4 million represented
incremental costs associated with our acquisition of Infotrust and $10.1 million
reflected the impact of a full year of operations of Erisco and RIMS. The
remaining increase of $6.3 million was due primarily to growing our sales force
and expanding our market presence while introducing new products and integrated
solutions to the market. As a percentage of total revenue, selling, general and
administrative expenses approximated 24% in 2001 and 38% in 2000.

         AMORTIZATION OF INTANGIBLES. Amortization of intangibles in 2001
increased $50.5 million, or 271%, to $69.1 million from $18.6 million in 2000.
Of this increase, $1.4 million represented incremental costs associated with our
acquisition of Infotrust and $48.3 million reflected the impact of a full year
of amortization expense related to acquisitions of Erisco and RIMS. The
remaining increase of $758,000 was due primarily to the increase of amortization
of goodwill from other acquisitions.

         WRITE-OFF OF ACQUIRED IN-PROCESS TECHNOLOGY. Write-off of acquired
in-process technology was zero in 2001 and $1.4 million in 2000. Our
acquisitions of HME, Erisco and RIMS in 2000 resulted in an excess of purchase
price over the fair market value of the net assets acquired of $278.0 million.
Of this amount, $1.4 million related to HME and RIMS was allocated to acquired
in-process technology and was written off in 2000.

         INTEREST INCOME. Interest income in 2001 increased $654,000, or 47%, to
$2.0 million from $1.4 million in 2000. The increase was due to the investment
of $47.6 million of net proceeds from the secondary offering of common stock
completed in June 2001 and $7.2 million of net proceeds in connection with the
exercise of the underwriters' over-allotment option relating to the June public
offering.

         INTEREST EXPENSE. Interest expense in 2001 increased $450,000, or 51%,
to $1.3 million from $883,000 in 2000. The increase was primarily due to
increased borrowings under our revolving line of credit and secured term note in
2001, as well as additional borrowings on new capital lease agreements during
the year.

         BENEFIT FROM INCOME TAXES. Benefit from income taxes in 2001 increased
$10.4 million, or 177%, to $16.2 million from $5.8 million in 2000. The benefit
was primarily generated from the net reduction of deferred tax liabilities,
primarily resulting from the amortization of intangible assets relating to the
Erisco, RIMS and Infotrust acquisitions.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999.

         REVENUE. Total revenue in 2000 increased $56.2 million, or 171%, to
$89.1 million from $32.9 million in 1999. Of this increase, $14.6 million was
generated by the acquisitions of HME, Erisco and RIMS and $21.1 million
reflected the impact of a full year of operations of Finserv and Novalis, which
we acquired in late 1999. The remaining increase of $20.5 million primarily
represented growth in both our recurring and non-recurring hosted solutions
revenue.


                                       21
<PAGE>
         Recurring revenue in 2000 increased $42.4 million, or 218%, to $61.8
million from $19.4 million in 1999. Of this increase, $9.1 million was generated
by our acquisitions in 2000 and $17.7 million reflected the impact of a full
year of operations of Finserv and Novalis. The remaining increase of $15.6
million primarily represented growth in our hosted solutions. Included in
recurring revenue in 2000 is $167,000 from IMS Health Incorporated, a
related party.

         Non-recurring revenue in 2000 increased $13.8 million, or 102%, to
$27.2 million from $13.5 million in 1999. Of this increase, $5.5 million was
generated by our acquisitions in 2000 and $3.5 million reflected the impact of
a full year of operations of Finserv and Novalis. The remaining increase of $4.8
million reflected increases in hosted solutions revenue relating to consulting
services provided by our transformation services group.

         COST OF REVENUE. Cost of revenue in 2000 increased $47.6 million, or
174%, to $75.0 million from $27.4 million in 1999. Of this increase, $9.9
million represented incremental costs associated with our acquisitions in 2000
and $19.7 million reflected the impact of a full year of operations of Finserv
and Novalis. The remaining increase of $18.0 million was primarily due to the
costs incurred to support the overall expansion of our hosted solutions and
other costs required to support our increased consulting revenue related to our
hosted solutions. As a percentage of total revenue, cost of revenue approximated
84% in 2000 and 83% in 1999.

         Cost of recurring revenue in 2000 increased $37.6 million, or 217%, to
$54.9 million from $17.4 million in 1999. Of this increase, $5.1 million
represented incremental costs associated with our acquisitions in 2000 and $17.0
million reflected the impact of a full year of operations of Finserv and
Novalis. The remaining increase of $15.5 million was due to additional expenses
for personnel and facilities to support our growing hosted solutions, as well as
increased network operation costs and software license fees. As a percentage of
recurring revenue, cost of recurring revenue approximated 89% in 2000 and 89% in
1999.

         Cost of non-recurring revenue in 2000 increased $10.1 million, or 100%,
to $20.1 million from $10.0 million in 1999. Of this increase, $4.8 million
represented incremental costs associated with our acquisitions in 2000 and $2.7
million reflected the impact of a full year of operations for Finserv and
Novalis. The remaining increase of $2.6 million resulted mainly from the
increase in staffing levels and the use of outside services necessary to support
the increasing demand for our consulting revenue related to our hosted
solutions. As a percentage of non-recurring revenue, cost of non-recurring
revenue approximated 74% in 2000 and 75% in 1999.

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $6.1 million, or 254%, to $8.5 million from $2.4 million in 1999. Of
this increase, $3.1 million represented incremental research and development
costs associated with our acquisitions in 2000 and $2.3 million reflects the
impact of a full year of operations of Finserv and Novalis. The remaining
increase of approximately $700,000 was primarily due to an increase in costs
related to the design and development of our applications and services,
primarily HealthWeb. As a percentage of total revenue, research and development
expenses approximated 10% in 2000 and 7% in 1999.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 2000 increased $24.7 million, or 265%, to $34.1
million from $9.4 million in 1999. Of this increase, $4.6 million represented
incremental costs associated with our acquisitions in 2000 and $3.9 million
reflected the impact of a full year of operations of Finserv and Novalis. The
remaining increase of $16.2 million was due primarily to growing our sales force
and expanding our market presence while introducing new products and integrated
solutions to the market, including growing the management and support functions
during the year. As a percentage of total revenue, selling, general and
administrative expenses approximated 38% in 2000 and 28% in 1999.

         AMORTIZATION OF INTANGIBLES. Amortization of intangibles in 2000
increased $17.8 million, or 2,278% to $18.6 million from $783,000 in 1999. Of
this increase, $13.9 million represented incremental costs associated with our
acquisitions in 2000 and $4.3 million of the increase reflects the impact of a
full year of amortization expense related to our 1999 acquisitions of Finserv
and Novalis. The remaining decrease of $367,000 was due primarily to the
write-off of certain intangibles.

         WRITE-OFF OF ACQUIRED IN-PROCESS TECHNOLOGY. Write-off of acquired
in-process technology was $1.4 million in both 2000 and 1999. Our acquisitions
of Creative Business Solutions, Inc. and HealthWeb Systems, Ltd. in February
1999 and Novalis in November 1999 resulted in an excess of purchase price over
the fair market value of the net assets acquired of $15.7 million. Of this
amount, $1.4 million was allocated to acquired in-process technology and was
written off in 1999. Our acquisitions of HME, Erisco and RIMS in 2000 resulted
in an excess of purchase price over the fair market value of the net assets
acquired of $278.0 million. Of this amount, $1.4 million related to HME and RIMS
was allocated to acquired in-process technology and was written off in 2000.

         INTEREST INCOME. Interest income in 2000 increased $867,000, or 165%,
to $1.4 million from $527,000 in 1999. The increase was due to the increase in
cash available for investing for the entire year from proceeds received from our
initial public offering and the $32.0 million cash received from IMS when we
acquired Erisco.

                                       22
<PAGE>
         INTEREST EXPENSE. Interest expense in 2000 increased $627,000, or 245%,
to $883,000 from $256,000 in 1999. The increase was primarily due to borrowings
under our line of credit and term note in 2000, as well as additional borrowings
on new capital lease agreements during the year.

         BENEFIT FROM INCOME TAXES. Benefit from income taxes in 2000 increased
$5.6 million to $5.8 million from $213,000 in 1999. The benefit was primarily
generated from the net reduction of deferred tax liabilities, primarily
resulting from the amortization of intangible assets relating to the RIMS and
Erisco acquisitions.

SELECTED QUARTERLY RESULTS OF OPERATIONS

         The following table sets forth certain unaudited consolidated
statements of operations data for the eight quarters ended December 31, 2001.
This data has been derived from unaudited consolidated financial statements
that, in the opinion of our management, include all adjustments consisting only
of normal recurring adjustments that we consider necessary for a fair
presentation of the information when read in conjunction with our audited
consolidated financial statements and the attached notes included herein. The
operating results for any quarter are not necessarily indicative of the results
for any future period.

<TABLE>
<CAPTION>
                                                                          QUARTERS ENDED
                                ----------------------------------------------------------------------------------------------------
                                MARCH 31,  JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,  JUNE 30,  SEPTEMBER 30, DECEMBER 31,
                                  2000       2000         2000            2000         2001       2001         2001        2001
                                --------   --------     --------        --------     --------   --------    --------     --------
                                                       (restated)      (restated)
<S>                             <C>        <C>        <C>             <C>            <C>        <C>       <C>           <C>
                                                                      (IN THOUSANDS, EXCEPT
                                                                          PER SHARE DATA)

Revenue:
  Recurring revenue             $ 11,967   $ 12,377     $ 13,856        $ 23,611     $ 30,323   $ 33,333    $ 39,407     $ 39,643
  Non-recurring revenue            5,750      5,382        5,170          10,943       15,716     19,986      17,809       21,955
                                --------   --------     --------        --------     --------   --------    --------     --------
Total revenue                     17,717     17,759       19,026          34,554       46,039     53,319      57,216       61,598
                                --------   --------     --------        --------     --------   --------    --------     --------
Cost of revenue:
  Recurring revenue               11,366     11,505       12,953          19,106       24,271     24,734      27,701       27,148
  Non-recurring revenue            4,071      3,827        3,682           8,509        9,656     11,473      10,091       11,586
                                --------   --------     --------        --------     --------   --------    --------     --------
Total cost of revenue             15,437     15,332       16,635          27,615       33,927     36,207      37,792       38,734
                                --------   --------     --------        --------     --------   --------    --------     --------
Gross profit                       2,280      2,427        2,391           6,939       12,112     17,112      19,424       22,864
                                --------   --------     --------        --------     --------   --------    --------     --------
Operating expenses:
  Research and development         1,640      1,575        1,436           3,811        4,844      4,720       3,768        3,070
  Selling, general and
    administrative                 6,593      8,021        7,274          12,257       13,010     13,574      11,987       13,367
  Amortization of goodwill
    and acquired intangibles       1,628      1,670        1,584          13,740       17,284     16,985      17,367       17,440
  Write-off of in-process
    technology                       536         --           --             890           --         --          --           --
  Restructuring and related
    impairment charges                --         --           --              --           --         --          --       12,140
                                --------   --------     --------        --------     --------   --------    --------     --------
Total operating expenses          10,397     11,266       10,294          30,698       35,138     35,279      33,122       46,017
                                --------   --------     --------        --------     --------   --------    --------     --------
Loss from operations              (8,117)    (8,839)      (7,903)        (23,759)     (23,026)   (18,167)    (13,698)     (23,153)
Interest income                      263        346          315             472          408        450         815          375
Interest expense                     (27)      (156)        (466)           (235)        (334)      (364)       (282)        (353)
                                --------   --------     --------        --------     --------   --------    --------     --------
Loss before provision
  for income taxes                (7,881)    (8,649)      (8,054)        (23,522)     (22,952)   (18,081)    (13,165)     (23,131)
Benefit from income taxes             --         --           --          (5,848)      (5,018)    (3,100)     (1,561)      (6,496)
                                --------   --------     --------        --------     --------   --------    --------     --------
Net loss                        $ (7,881)  $ (8,649)    $ (8,054)       $(17,674)    $(17,934)  $(14,981)   $(11,604)    $(16,635)
                                ========   ========     ========        ========     ========   ========    ========     ========


Net loss per share:

  Basic and diluted             $  (0.42)  $  (0.43)    $  (0.39)       $  (0.52)    $  (0.50)  $  (0.40)   $  (0.27)    $  (0.38)
                                ========   ========     ========        ========     ========   ========    ========     ========
Shares used in computing
  net loss per share:

  Basic and diluted               18,888     20,225       20,908          33,823       35,764     37,298      43,356       43,834
                                ========   ========     ========        ========     ========   ========    ========     ========
</TABLE>

         The figures stated above give effect to the reclassification of
deferred stock compensation from selling, general and administrative to cost of
revenue and research and development. The figures also give effect to the
reclassification of amortization of goodwill and acquired intangibles from
selling, general and administrative expense to its own line item.

     The consolidated statements of operations for the three months ended
September 30, 2000, have been restated. As a result of the revision, revenue was
reduced by $381,000 for the period to defer additional revenue erroneously
recognized on a software sales contract and selling, general and administrative
expense was reduced $26,000 for the period to correct the recognition of the
amortization of additional cost associated with an acquisition. The net result
was an increase to net loss and net loss per share of $355,000 and $0.02,
respectively, for the period. For the three months ended December 31, 2000,
revenue was increased by $381,000 and selling, general and administrative
expense was decreased by $26,000 resulting in a net decrease to net loss and net
loss per share of $355,000 and $0.01, respectively. There was no effect on the
year ended December 31, 2000, as a result of the revision.

LIQUIDITY AND CAPITAL RESOURCES

         Since inception, we have financed our operations primarily through a
combination of cash from operations, private financings, an initial public
offering of our common stock, cash obtained from our acquisition of Erisco and a
secondary offering of our common stock. As of December 31, 2001, we had
approximately $84.6 million of cash, cash equivalents and short-term
investments, including $2.2 million in restricted cash.

         Cash provided by operating activities in 2001 was $12.2 million. Cash
provided during this period resulted from net losses of $61.2 million being
offset by depreciation and amortization, provision for doubtful accounts,
reserve for sales returns, amortization of deferred stock compensation and
warrants, amortization of goodwill and acquired intangibles, deferred taxes and
other net changes in operating assets and liability accounts.

         The cash used in investing activities of $32.7 million in 2001 was
primarily the result of our purchase of $12.7 million in property and equipment
and software licenses, the net purchases and sales of $12.0 million in
short-term investments, $6.2 million for


                                       23
<PAGE>
the purchase of intangible assets, and $2.5 million of payments for acquisition
and restructuring and related impairment charges, which was offset by the
$846,000 cash acquired from the Infotrust acquisition.

         The cash provided by financing activities of $64.0 million in 2001 was
primarily the result of net proceeds of $54.8 million from the secondary
offering of common stock, $6.0 million in proceeds from the secured term note,
$3.1 million of proceeds from debt financing of certain equipment, $2.0 million
of proceeds from the issuance of common stock related to employee exercise of
stock options and employee purchases of common stock, $1.7 million of net
proceeds from our revolving line of credit, and $854,000 of proceeds from a
capital lease. The increase in cash from these proceeds was reduced by payments
made on the line of credit, as well as principal payments on notes payable and
capital lease obligations of $4.5 million.

         In September 2001, we amended our revolving credit facility of $15.0
million to a maximum principal amount of $14.0 million. The revolving credit
facility is collateralized by all of our receivables and expires in March 2004.
Borrowings under the revolving credit facility are limited to and shall not
exceed 80% of qualified accounts as defined in the loan documents. Interest on
the revolving credit facility is prime plus 1.5%. Interest is payable monthly in
arrears on the first business day of the month. The revolving credit facility
contains certain covenants, including minimum tangible net worth as defined in
the loan documents, the generation of specified monthly net earnings before
interest, depreciation and amortization, and minimum cash balances. Our current
credit facility prohibits us from paying cash dividends without our lender's
prior consent. As of December 31, 2001, we had outstanding borrowings on the
revolving credit facility of $13.1 million.

         In December 1999, we entered into a lease line of credit with a
financial institution. This lease line of credit was specifically established to
finance computer equipment purchases. The ability to borrow under the lease line
of credit, which had a limit of $2.0 million, expired as scheduled in December
2000. Borrowings under the lease line of credit at December 31, 2001 totaled
approximately $873,000 and are secured by the assets under lease. In accordance
with the terms of the lease line of credit, the outstanding balance is being
repaid in monthly installments of principal and interest through June 2003.

         As of December 31, 2001, we have nine outstanding standby letters of
credit in the aggregate amount of $2.2 million which serve as security deposits
for our capital leases. We are required to maintain a cash balance equal to the
outstanding letters of credit, which is classified as restricted cash on the
balance sheet.

         In June 2001, we completed a public offering of 5,520,000 shares of
common stock, at a price of $9.25 per share, that raised approximately $47.6
million, net of underwriting discounts, commissions and other offering costs. In
connection with the offering, an additional 480,000 shares of our common stock
were sold by selling stockholders at $9.25 per share, for which we received no
proceeds.

         In July 2001, in connection with the exercise of the underwriters'
over-allotment option relating to the June public offering, we sold 828,000
shares of common stock, at a price of $9.25 per share, that raised approximately
$7.2 million, net of underwriting discounts, commissions and other offering
costs. In connection with the exercise of the underwriters' over-allotment
option, an additional 72,000 shares of our common stock were sold by selling
stockholders at $9.25 per share, for which we received no proceeds.

         In September 2001, we executed a Secured Term Note facility with a
lending institution for $6.0 million. Monthly principal payments are due on the
first of each month for $200,000. Additionally, the note bears interest at prime
plus 1% and is payable monthly in arrears. The note contains certain covenants
that the Company must adhere to during the terms of the agreement, including a
minimum tangible net worth and cash balance. As of December 31, 2001, we had
outstanding borrowings on the Secured Term Note facility of $5.4 million.

         In November 2001, we entered into an agreement with an equipment
financing company for $3.1 million, specifically to finance certain equipment.
Principal and interest is payable and the note is due in November 2005. Interest
accrues monthly at LIBOR rate plus 3.13%. As of December 31, 2001, there was
approximately $3.1 million principal balance remaining on the note.

The following tables summarize the Company's contractual obligations and other
commercial commitments:


<TABLE>
<CAPTION>
                                                      PAYMENTS DUE BY PERIOD
                                             LESS THAN 1                              AFTER 5
CONTRACTUAL OBLIGATIONS          TOTAL          YEAR       1-3 YEARS     4-5 YEARS     YEARS
----------------------------------------------------------------------------------------------
<S>                             <C>           <C>           <C>          <C>          <C>
Long Term Debt                  $ 8,884       $ 2,945       $ 5,939            --         --
Capital Lease Obligations         7,268         3,344         3,924            --         --
Operating Leases                 36,221         8,846        18,351       $ 9,024         --
Total Contractual               --------------------------------------------------------------
Obligations                     $52,373       $15,135       $28,214       $ 9,024         --
                                ==============================================================
</TABLE>

<TABLE>
<CAPTION>
                                                AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                    TOTAL
   OTHER COMMERCIAL                 AMOUNTS     LESS THAN 1      1-3        4-5     OVER 5
     COMMITMENTS                   COMMITTED       YEAR         YEARS      YEARS     YEARS
------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>
Lines of Credit                    $14,018       $13,863       $   155        --       --
Standby Letters of Credit            2,233         1,305           928        --       --
                                   -------------------------------------------------------
Total Commercial Commitments       $16,251       $15,168       $ 1,083        --       --
                                   =======================================================
</TABLE>

         Based on the our current operating plan, we believe existing cash, cash
equivalents and short-term investments balances, cash forecasted by management
to be generated by operations and borrowings from existing credit facilities
will be sufficient to meet our working capital and capital requirements for at
least the next twelve months. However, if events or circumstances occur such
that the we do not meet our operating plan as expected, we may be required to
seek additional capital and/or to reduce certain discretionary spending, which
could have a material adverse effect on our ability to achieve our intended
business objectives. We may seek additional financing, which may include debt
and/or equity financing or funding through third party agreements. There can be
no


                                       24
<PAGE>
assurance that any additional financing will be available on acceptable terms,
if at all. Any equity financing may result in dilution to existing stockholders
and any debt financing may include restrictive covenants.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, Business Combinations ("Statement 141") and No. 142, Goodwill
and Other Intangible Assets ("Statement 142"), effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but, instead,
will be subject to annual impairment tests in accordance with Statements 141 and
142. Other intangible assets will continue to be amortized over their useful
lives.

         The Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what effect, if any, applying those tests will have on the Company's
financial position and results of operations. For the year ended December 31,
2001, we recognized $42.3 million of amortization expense related to goodwill
and intangible assets with indefinite lives.

         In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS 121, and the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a
Segment of a Business. SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company expects to
adopt SFAS 144 as of January 1, 2002 and has not yet determined the effect, if
any, the adoption of SFAS 144 will have on the results of operations and
financial condition of the Company.

ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk represents the risk of loss that may impact our financial
position, operating results, or cash flows due to adverse changes in financial
and commodity market prices and rates. We are exposed to market risk due to
changes in United States interest rates. This exposure is directly related to
our normal operating and funding activities. Historically, and as of December
31, 2001, we have not used derivative instruments or engaged in hedging
activities.

         The interest rate on our $14.0 million revolving credit facility is
prime plus 1.5%. The revolving credit facility expires in March 2004. As of
December 31, 2001, we had outstanding borrowings on the revolving line of credit
of $13.1 million.

         In September 2001, we executed a Secured Term Note facility with a
lending institution for $6.0 million. Monthly principal payments are due on the
first of each month for $200,000. Additionally, the note bears interest at prime
plus 1% and is payable monthly in arrears. The note contains certain covenants
that we must adhere to during the terms of the agreement, including a minimum
tangible net worth and cash balance. As of December 31, 2001 we had outstanding
borrowings on the Secured Term Note of $5.4 million.

         In November 2001, we entered into an agreement with an equipment
financing company for $3.1 million, specifically to finance certain equipment.
Principal and interest is payable and the note is due in November 2005. Interest
accrues monthly at LIBOR rate plus 3.13%.

         Changes in interest rates have no impact on our other debt as all of
our other notes have fixed interest rates between 8% and 14%.

         We manage interest rate risk by investing excess funds in cash
equivalents and short-term investments bearing variable interest rates, which
are tied to various market indices. As a result, we do not believe that
near-term changes in interest rates will result in a material effect on our
future earnings, fair values or cash flows.

ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and supplementary data required by this Item 8
are set forth at the pages indicated at Item 14(a)(1).

ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None.

                                       25
<PAGE>
                                    PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item is set forth under the caption
"Executive Compensation" in our definitive Proxy Statement, which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities and Exchange Act of 1934 and is incorporated herein by reference.

ITEM 11 -- EXECUTIVE COMPENSATION

         The information required by this Item is set forth under the caption
"Executive Compensation" in our definitive Proxy Statement, which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities and Exchange Act of 1934 and is incorporated herein by reference.

ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in our
definitive Proxy Statement, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities and Exchange Act of
1934 and is incorporated herein by reference.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN TRANSACTIONS

         The information required by this Item is set forth under the caption
"Certain Relationships and Related Transactions" in our definitive Proxy
Statement, which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A under the Securities and Exchange Act of 1934 and is
incorporated herein by reference.


                                       26
<PAGE>
                                     PART IV

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

(a) List of documents filed as part of this Form 10-K:

    (1) FINANCIAL STATEMENTS.

    See Index to Financial Statements and Schedule on page F-1.

    (2) FINANCIAL STATEMENT SCHEDULES.

    See Index to Financial Statements and Schedule on page F-1.

    (3) EXHIBITS.

    The following exhibits are filed (or incorporated by reference herein) as
part of this Form 10-K:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER            DESCRIPTION OF EXHIBIT
------            ----------------------
<S>               <C>
2.1*              Agreement and Plan of Reorganization, dated as of May 16,
                  2000, by and among TriZetto, Elbejay Acquisition Corp., IMS
                  Health Incorporated and Erisco Managed Care Technologies, Inc.
                  (Incorporated by reference to Exhibit 2.1 of TriZetto's Form
                  8-K as filed with the SEC on May 19, 2000, File No. 000-27501)

2.2*              Agreement and Plan of Merger, dated as of November 2, 2000, by
                  and among TriZetto, Cidadaw Acquisition Corp., Resource
                  Information Management Systems, Inc. ("RIMS"), the
                  shareholders of RIMS, Terry L. Kirch and Thomas H. Heimsoth
                  (Incorporated by reference to Exhibit 2.1 of TriZetto's Form
                  8-K as filed with the SEC on December 18, 2000, File No.
                  000-27501)

2.3*              First Amendment to Agreement and Plan of Merger, dated as of
                  December 1, 2000, by and among TriZetto, Cidadaw Acquisition
                  Corp., RIMS, the shareholders of RIMS, Terry L. Kirch and
                  Thomas H. Heimsoth (Incorporated by reference to Exhibit 2.2
                  of TriZetto's Form 8-K as filed with the SEC on December 18,
                  2000, File No. 000-27501)

3.1*              Form of Amended and Restated Certificate of Incorporation of
                  TriZetto, as filed with the Delaware Secretary of State
                  effective as of October 14, 1999 (Incorporated by reference to
                  Exhibit 3.2 of TriZetto's Registration Statement on Form
                  S-1/A, as filed with the SEC on September 14, 1999, File No.
                  333-84533)

3.2*              Certificate of Amendment of Amended and Restated Certificate
                  of Incorporation of TriZetto, dated October 3, 2000
                  (Incorporated by reference to Exhibit 3.1 of TriZetto's Form
                  10-Q as filed with the SEC on November 14, 2000, File No.
                  000-27501)

3.3*              Certificate of Designation of Rights, Preferences and
                  Privileges of Series A Junior Participating Preferred Stock of
                  TriZetto, dated October 17, 2000 (Incorporated by reference to
                  Exhibit 3.2 of TriZetto's Form 10-Q as filed with the SEC on
                  November 14, 2000, File No. 000-27501)

3.4*              Amended and Restated Bylaws of TriZetto effective as of
                  October 7, 1999 (Incorporated by reference to Exhibit 3.4 of
                  TriZetto's Registration Statement on Form S-1/A, as filed with
                  the SEC on August 18, 1999, File No. 333-84533)

4.1*              Specimen common stock certificate (Incorporated by reference
                  to Exhibit 4.1 of TriZetto's Registration Statement on Form
                  S-1/A as filed with the SEC on September 14, 1999, File No.
                  333-84533)

4.2*              Rights Agreement, dated October 2, 2000, by and between
                  TriZetto and U.S. Stock Transfer Corporation (Incorporated by
                  reference to Exhibit 2.1 of TriZetto's Form 8-A12G as filed
                  with the SEC on October 19, 2000, File No. 000-27501)

10.1*             First Amended and Restated 1998 Stock Option Plan
                  (Incorporated by reference to Exhibit 4.1 of TriZetto's Form
                  S-8 as filed with the SEC on August 7, 2000, File No.
                  333-43220)

10.2*             Form of 1998 Incentive Stock Option Agreement (Incorporated by
                  reference to Exhibit 10.2 of TriZetto's Registration Statement
                  on Form S-1 as filed with the SEC on August 5, 1999, File No.
                  333-84533)

10.3*             Form of 1998 Non-Qualified Stock Option Agreement
                  (Incorporated by reference to Exhibit 10.3 of TriZetto's
                  Registration Statement on Form S-1 as filed with the SEC on
                  August 5, 1999, File No. 333-84533)

10.4*             1999 Employee Stock Purchase Plan (Incorporated by reference
                  to Exhibit 10.4 of TriZetto's Registration Statement on Form
                  S-1/A as filed with the SEC on August 18, 1999, File No.
                  333-84533)

10.5*             RIMS Stock Option Plan (Incorporated by reference to Exhibit
                  4.1 of TriZetto's Form S-8 as filed with the SEC on December
                  21, 2000, File No. 000-27501)

10.6*             Employment Agreement, dated April 30, 1998, by and between
                  TriZetto and Jeffrey H. Margolis (Incorporated by reference to
                  Exhibit 10.5 of TriZetto's Registration Statement on Form S-1
                  as filed with the SEC on August 5, 1999, File No. 333-84533)

10.7*             Promissory Note, dated April 30, 1998, by and between TriZetto
                  and Jeffrey H. Margolis (Incorporated by reference to Exhibit
                  10.6 of TriZetto's Registration Statement on Form S-1 as filed
                  with the SEC on August 5, 1999, File No. 333-84533)

10.8*             Form of Indemnification Agreement (Incorporated by reference
                  to Exhibit 10.7 of TriZetto's Registration Statement on Form
                  S-1 as filed with the SEC on August 5, 1999, File No.
                  333-84533)

10.9*             Form of Restricted Stock Agreement between TriZetto and
                  certain consultants and employees (Incorporated by reference
                  to Exhibit 10.3 of TriZetto's Form 10-Q as filed with the SEC
                  on August 14, 2000, File No. 000-27501)

10.10*            Form of Change of Control Agreement entered into by and
                  between TriZetto and certain executive officers of TriZetto
                  effective as of February 18, 2000 (Incorporated by reference
                  to Exhibit 10.1 of TriZetto's Form 10-Q as filed with the SEC
                  on May 15, 2000, File No. 000-27501)

10.11*            First Amended and Restated Investor Rights Agreement, dated
                  April 9, 1999 by and among Raymond Croghan, Jeffrey Margolis,
                  TriZetto, and Series A and Series B Preferred Stockholders
                  (Incorporated by reference to Exhibit 10.8 of TriZetto's
                  Registration Statement on Form S-1/A, as filed with the SEC on
                  August 18, 1999, File No. 333-84533)

10.12*            Office Lease Agreement, dated April 26, 1999, between St. Paul
                  Properties, Inc. and TriZetto (including addendum)
                  (Incorporated by reference to Exhibit 10.10 of TriZetto's
                  Registration Statement on Form S-1 as filed with the SEC on
                  August 5, 1999, File No. 333-84533)

10.13*            Sublease Agreement, dated December 18, 1998, between TPI
                  Petroleum, Inc. and TriZetto (including underlying Office
                  Lease Agreement by and between St. Paul Properties, Inc. and
                  Total, Inc.) (Incorporated by reference to Exhibit 10.11 of
                  TriZetto's Registration Statement on Form S-1 as filed with
                  the SEC on August 5, 1999, File No. 333-84533)

10.14*            First Modification and Ratification of Lease, dated November
                  1, 1999, by and between TriZetto and St. Paul Properties, Inc.
                  (Incorporated by reference to Exhibit 10.22 of TriZetto's Form
                  10-K as filed with the SEC on March 30, 2000, File No.
                  000-27501)

10.15*            Second Modification and Ratification of Lease, dated December
                  1999, by and between TriZetto and St. Paul Properties, Inc.
                  (Incorporated by reference to Exhibit 10.23 of TriZetto's Form
                  10-K as filed with the SEC on March 30, 2000, File No.
                  000-27501)

10.16*            Third Modification and Ratification of Lease, dated January
                  15, 2000, by and between TriZetto and St. Paul Properties,
                  Inc. (Incorporated by reference to Exhibit 10.16 of TriZetto's
                  Form 10-K as filed with the SEC on April 2, 2001, File No.
                  000-27501)

10.17*            Fourth Modification and Ratification of Lease, dated October
                  15, 2000, by and between TriZetto and St. Paul Properties,
                  Inc. (Incorporated by reference to Exhibit 10.17 TriZetto's
                  Form 10-K as filed with the SEC on April 2, 2001, File No.
                  000-27501)

10.18*            Form of Voting Agreement (Incorporated by reference to Exhibit
                  2.1 of TriZetto's Form 8-K as filed with the SEC on May 19,
                  2000, File No. 000-27501)

10.19*            Secured Term Note, dated September 11, 2000, payable by
                  TriZetto and each of TriZetto's subsidiaries to Heller
                  Healthcare Finance, Inc. (Incorporated by reference to Exhibit
                  10.1 of TriZetto's Form 10-Q as filed with the SEC on November
                  14, 2000, File No. 000-27501)

10.20*            Loan and Security Agreement, dated September 11, 2000, by and
                  among TriZetto, each of TriZetto's subsidiaries, and Heller
                  Healthcare Finance, Inc. (Incorporated by reference to Exhibit
                  10.2 of TriZetto's Form 10-Q as filed with the SEC on November
                  14, 2000, File No. 000-27501)

10.21*            Revolving Credit Note, dated September 11, 2000, payable by
                  TriZetto and each of TriZetto's subsidiaries to Heller
                  Healthcare Finance, Inc. (Incorporated by reference to Exhibit
                  10.3 of TriZetto's Form 10-Q as filed with the SEC on November
                  14, 2000, File No. 000-27501)

10.22*            Amendment No. 1 to Loan and Security Agreement, dated October
                  17, 2000, by and among TriZetto, each of TriZetto's
                  subsidiaries, and Heller Healthcare Finance, Inc.
                  (Incorporated by reference to Exhibit 10.4 of TriZetto's Form
                  10-Q as filed with the SEC on November 14, 2000, File No.
                  000-27501)

10.23*            Amended and Restated Revolving Credit Note, dated October 17,
                  2000, payable by TriZetto and each of TriZetto's subsidiaries
                  to Heller Healthcare Finance, Inc. (Incorporated by reference
                  to Exhibit 10.5 of TriZetto's Form 10-Q as filed with the SEC
                  on November 14, 2000, File No. 000-27501)

10.24*            Amendment No. 2 to Loan and Security Agreement, dated December
                  28, 2000, by and among TriZetto, each of TriZetto's
                  subsidiaries, and Heller Healthcare Finance, Inc. (Incorporated
                  by reference to Exhibit 10.24 of TriZetto's Form 10-K as filed
                  with the SEC on April 2, 2001, File No.000-27501)


10.25*            Second Amended and Restated Revolving Credit Note, dated
                  December 28, 2000, payable by TriZetto and each of TriZetto's
                  subsidiaries to Heller Healthcare Finance, Inc. (Incorporated
                  by reference to Exhibit 10.25 of TriZetto's Form 10-K as filed
                  with the SEC on April 2, 2001, File No.000-27501)


10.26*            Bank One Credit Facility (including Promissory Note, Business
                  Loan Agreement and Commercial Pledge and Security Agreement),
                  dated October 27, 1999 (Incorporated by reference to Exhibit
                  10.21 of TriZetto's Form 10-K as filed with the SEC on March
                  30, 2000 File No. 000-27501)

10.27*            Amendment to Bank One Credit Facility, dated June 22, 2000
                  (including Promissory Note Modification Agreement, Business
                  Loan Agreement and Commercial Pledge and Security Agreement)
                  (Incorporated by reference to Exhibit 10.27 of TriZetto's Form
                  10-K as filed with the SEC on April 2, 2001, File No.000-27501)


10.28*            Amendment to Bank One Credit Facility, dated November 4, 2000
                  (including Change in Terms Agreement) (Incorporated by reference
                  to Exhibit 10.28 of TriZetto's Form 10-K as filed with the SEC
                  on April 2, 2001, File No.000-27501)


10.29*            Stockholder Agreement, dated as of October 2, 2000, by and
                  between TriZetto and IMS Health Incorporated (Incorporated by
                  reference to Exhibit 10.29 of TriZetto's Form 10-K as filed with
                  the SEC on April 2, 2001, File No.000-27501)


10.30*            Registration Rights Agreement, dated as of October 2, 2000, by
                  and between TriZetto and IMS Health Incorporated (Incorporated
                  by reference to Exhibit 10.30 of TriZetto's Form 10-K as filed
                  with the SEC on April 2, 2001, File No.000-27501)

10.31*            Amendment to Bank One Credit Facility, dated March 29, 2001
                  (including Business Loan Agreement) (Incorporated by reference
                  to Exhibit 10.1 of TriZetto's Form 10-Q as filed with the SEC
                  on May 15, 2001, File No.000-27501)

10.32*            Second Amended and Restated Stock Option Plan (Incorporated by
                  reference to Exhibit 4.1 of TriZetto's Form S-8 as filed with
                  the SEC on June 26, 2001, File No. 333-63902) (Incorporated by
                  reference to Exhibit 10.1 of TriZetto's Form 10-Q as filed with
                  the SEC on August 14, 2001, File No.000-27501)

10.33*            Secured Term Note (Incorporated by reference to Exhibit 10.1 of
                  TriZetto's Form 10-Q as filed with the SEC on November 14, 2001,
                  File No.000-27501)

10.34*            Third Amended and Restated Revolving Credit Note (Incorporated
                  by reference to Exhibit 10.2 of TriZetto's Form 10-Q as filed
                  with the SEC on November 14, 2001, File No.000-27501)

10.35*            Amendment No. 3 to Loan and Security Agreement (Incorporated by
                  reference to Exhibit 10.3 of TriZetto's Form 10-Q as filed with
                  the SEC on November 14, 2001, File No.000-27501)

16.1*             Letter regarding Change in Certifying Accountants (Incorporated
                  by reference to Exhibit 16.1 of TriZetto's Form 10-Q as filed
                  with the SEC on August 14, 2001, File No.000-27501)

21.1*             Current Subsidiaries of TriZetto

23.1              Consent of PricewaterhouseCoopers LLP
</TABLE>
* Previously filed.

(b) REPORTS ON FORM 8-K.

    None.


                                       27
<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 on February
19, 2002.

                          THE TRIZETTO GROUP, INC.

                          By:             /s/JEFFREY H. MARGOLIS
                               -------------------------------------------------
                                              Jeffrey H. Margolis,
                                       President, Chief Executive Officer
                                             and Chairman of the Board

                  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 date indicated.

<TABLE>
<CAPTION>
                       SIGNATURE                                                 TITLE                                   DATE
                       ---------                                                 -----                                   ----
<S>                                                      <C>                                                       <C>
                 /s/JEFFREY H. MARGOLIS                  President, Chief Executive Officer and                    February 19, 2002
-----------------------------------------------------
                  Jeffrey H. Margolis                    Chairman of the Board (Principal executive
                                                         officer)

              /s/MICHAEL J. SUNDERLAND                   Senior Vice President of Finance, Chief                   February 19, 2002
-----------------------------------------------------
                 Michael J. Sunderland                   Financial Officer and Secretary (Principal
                                                         financial and accounting officer)

              /s/WILLARD A. JOHNSON, JR.                 Director                                                  February 19, 2002
-----------------------------------------------------
                Willard A. Johnson, Jr.

                  /s/DONALD J. LOTHROP                   Director                                                  February 19, 2002
-----------------------------------------------------
                   Donald J. Lothrop

                  /s/PAUL F. LEFORT                      Director                                                  February 19, 2002
-----------------------------------------------------
                    Paul F. LeFort

                /s/ERIC D. SIPF                          Director                                                  February 19, 2002
-----------------------------------------------------
                     Eric D. Sipf

                  /s/DAVID M. THOMAS                     Director                                                  February 19, 2002
-----------------------------------------------------
                    David M. Thomas
</TABLE>

                                       28

<PAGE>
                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                                                               PAGE
                                                                                                                               ----
<S>                                                                                                                            <C>
Report of Independent Auditors............................................................................................      F-2
Report of Independent Accountants ........................................................................................      F-3
Consolidated Balance Sheets -- December 31, 2001 and 2000.................................................................      F-4
Consolidated Statements of Operations -- For the years ended December 31, 2001, 2000 and 1999.............................      F-5
Consolidated Statements of Comprehensive Loss -- For the years ended December 31, 2001, 2000 and 1999.....................      F-6
Consolidated Statement of Stockholders' Equity (Deficit) -- For the years ended December 31, 2001, 2000 and 1999..........      F-7
Consolidated Statements of Cash Flows -- For the years ended December 31, 2001, 2000 and 1999.............................      F-8
Notes to Consolidated Financial Statements................................................................................      F-9
Financial Statement Schedule -- Valuation and Qualifying Accounts.........................................................     F-29
</TABLE>

                                       F-1
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
of the TriZetto Group, Inc.

     We have audited the accompanying consolidated balance sheet of The TriZetto
Group, Inc. and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the year then ended. Our audit also included the financial statement
schedule listed in the Index at Item 14. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The TriZetto
Group, Inc. and subsidiaries at December 31, 2001, and the consolidated results
of their operations and their cash flows for the year ended December 31, 2001,
in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                             /s/ERNST & YOUNG LLP

Orange County, California
February 1, 2002


                                      F-2


<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of The TriZetto Group, Inc.

In our opinion, the consolidated balance sheet as of December 31, 2000 and the
related consolidated statements of operations, comprehensive loss, stockholders'
equity (deficit) and cash flows for each of the two years in the period ended
December 31, 2000 present fairly, in all material respects, the financial
position, results of operations and cash flows of The TriZetto Group, Inc. and
its subsidiaries at December 31, 2000 and for each of the two years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in Item 14(a)(2) presents fairly, in all
material respects, the information set forth therein for each of the two years
in the period ended December 31, 2000 when read in conjunction with the related
consolidated financial statements. 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 of America, 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 our opinion. We have not
audited the consolidated financial statements and financial statement schedule
of The TriZetto Group, Inc. and its subsidiaries for any period subsequent to
December 31, 2000.

/s/PricewaterhouseCoopers LLP

Orange County, California
February 21, 2001


                                      F-3
<PAGE>
                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                  DECEMBER 31,
                                                                                                            ------------------------
                                                                                                               2001          2000
                                                                                                            -----------   ---------
<S>                                                                                                         <C>           <C>
ASSETS
Current assets:

  Cash and cash equivalents............................................................................     $    67,341   $  23,865
  Short-term investments...............................................................................          15,059       3,019
  Restricted cash......................................................................................           2,233       1,500
  Accounts receivable, less allowance for doubtful accounts of $6,236 and $1,220, respectively.........          32,223      18,102
  Current portion of note receivable...................................................................             113       2,263
  Notes receivable from related parties................................................................             124         277
  Prepaid expenses and other current assets............................................................           5,626       4,444
  Income tax receivable................................................................................              75         449
  Deferred tax assets..................................................................................           6,738          --
                                                                                                            -----------   ---------
    Total current assets...............................................................................         129,532      53,919
  Property and equipment, net..........................................................................          34,867      25,623
  Capitalized software products, net...................................................................           7,129         479
  Long-term portion of note receivable from related party..............................................             --           25
  Long-term portion of notes receivable................................................................             141         313
  Goodwill and other intangible assets, net............................................................         211,702     281,607
  Other assets.........................................................................................           7,350       1,785
                                                                                                            -----------   ---------
    Total assets.......................................................................................     $   390,721   $ 363,751
                                                                                                            ===========   =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

  Notes payable........................................................................................     $     2,945   $     343
  Equipment lease and revolving lines of credit........................................................          13,863      12,089
  Capital lease obligations............................................................................           2,799       2,123
  Accounts payable.....................................................................................           8,109       9,502
  Accrued liabilities..................................................................................          23,414      19,967
  Accrued taxes payable................................................................................           1,049         482
  Deferred revenue.....................................................................................          31,208      16,991
  Other liabilities....................................................................................             --          263
                                                                                                            -----------   ---------
    Total current liabilities..........................................................................          83,387      61,760
  Notes payable........................................................................................           5,939         264
  Other long-term liabilities..........................................................................           1,040       1,146
  Capital lease obligations............................................................................           3,605       3,303
  Equipment lease line of credit.......................................................................             155         873
  Deferred revenue.....................................................................................           1,889       1,834
  Deferred taxes.......................................................................................          13,751      25,141
                                                                                                            -----------   ---------
    Total liabilities..................................................................................         109,766      94,321
                                                                                                            -----------   ---------
Commitments and contingencies (Note 8)
Stockholders' equity:
  Preferred stock, $0.001 par value, shares authorized: 4,000 (5,000 authorized net of 1,000
    designated as Series A Junior Participating Preferred); shares issued and outstanding: zero
    in 2001 and 2000 ..................................................................................              --          --
  Series A Junior Participating Preferred Stock: $0.001 par value; shares authorized 1,000: shares
    issued and outstanding: zero in 2001 and 2000 .....................................................              --          --
  Common stock: $0.001 par value; Shares authorized: 95,000
  Shares issued and outstanding: 45,299 in 2001 and 36,597 in 2000.....................................              45          35
Additional paid-in capital.............................................................................         397,740     330,061
Notes receivable from stockholders.....................................................................             (41)        (41)
Deferred stock compensation............................................................................          (4,265)     (9,263)
Accumulated other comprehensive income.................................................................             --            8
Accumulated deficit....................................................................................        (112,524)    (51,370)
                                                                                                            -----------   ---------
  Total stockholders' equity...........................................................................         280,955     269,430
                                                                                                            -----------   ---------
        Total liabilities and stockholders' equity.....................................................     $   390,721   $ 363,751
                                                                                                            ===========   =========
</TABLE>


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

                                      F-4
<PAGE>
                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                                                       ------------------------------------
                                                                                           2001         2000        1999
                                                                                       -----------  ----------    ---------
       <S>                                                                             <C>          <C>           <C>
       Revenue:
         Recurring revenue.........................................................    $  142,706   $   61,811    $  19,448
         Non-recurring revenue.....................................................        75,466       27,245       13,478
                                                                                       ----------   ----------    ---------
           Total revenue...........................................................       218,172       89,056       32,926
                                                                                       ----------   ----------    ---------
       Cost of revenue:
         Recurring revenue(1)......................................................       103,854       54,929       17,350
         Non-recurring revenue(2)..................................................        42,806       20,089       10,037
                                                                                       ----------   ----------    ---------
           Total cost of revenue...................................................       146,660       75,018       27,387
                                                                                       ----------   ----------    ---------
       Gross profit................................................................        71,512       14,038        5,539
                                                                                       ----------   ----------    ---------
       Operating expenses:
         Research and development(3)...............................................        16,402        8,463        2,394
         Selling, general and administrative(4)....................................        51,938       34,144        9,366
         Amortization of goodwill and acquired intangibles.........................        69,076       18,622          783
         Write-off of acquired in-process technology...............................           --         1,426        1,407
         Restructuring and related impairment charges..............................        12,140          --           --
                                                                                       ----------   ----------   ---------
           Total operating expenses................................................       149,556       62,655       13,950
                                                                                       ----------   ----------    ---------
       Loss from operations........................................................       (78,044)     (48,617)      (8,411)
       Interest income.............................................................         2,048        1,394          527
       Interest expense............................................................        (1,333)        (883)        (256)
                                                                                       ----------   ----------    ---------
       Loss before income taxes....................................................       (77,329)     (48,106)      (8,140)
       Benefit from income taxes...................................................       (16,175)      (5,848)        (213)
                                                                                       ----------   ----------    ---------
       Net loss....................................................................    $  (61,154)  $  (42,258)   $  (7,927)
                                                                                       ==========   ==========    =========
       Net loss per share:
         Basic and diluted.........................................................    $    (1.53)  $    (1.80)   $   (0.85)
                                                                                       ==========   ==========    =========
       Shares used in computing net loss per share:
         Basic and diluted.........................................................        40,094       23,444        9,376
                                                                                       ==========   ==========    =========
</TABLE>

----------
(1)      Cost of recurring revenue includes $682, $528 and $294 of amortization
         of deferred stock compensation for the years ended December 31, 2001,
         2000, and 1999, respectively.

(2)      Cost of non-recurring revenue includes $553, $294 and $286 of
         amortization of deferred stock compensation for the years ended
         December 31, 2001, 2000, and 1999, respectively.

(3)      Research and development includes $222, $69 and $23 of amortization of
         deferred stock compensation for the years ended December 31, 2001,
         2000, and 1999, respectively.

(4)      Selling, general and administrative includes $1,575, $1,043 and $454 of
         amortization of deferred stock compensation for the years ended
         December 31, 2001, 2000, and 1999, respectively.


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

                                      F-5
<PAGE>
                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          FOR THE YEARS ENDED
                                                                                               DECEMBER 31,
                                                                                   ----------------------------------
                                                                                       2001        2000        1999
                                                                                   ---------   ----------   ---------
           <S>                                                                     <C>         <C>          <C>
           Net loss............................................................... $ (61,154)  $ (42,258)   $  (7,927)
           Other comprehensive income:
             Foreign currency translation (loss) gain.............................        (8)          8           --
                                                                                   ----------  ----------   ---------
           Comprehensive loss..................................................... $ (61,162)  $ (42,250)   $  (7,927)
                                                                                   ==========  ==========   =========
</TABLE>


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

                                      F-6

<PAGE>
                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           NOTES        ACCUMULATED                      TOTAL
                            COMMON STOCK     ADDITIONAL    RECEIVABLE     DEFERRED         OTHER                      STOCKHOLDERS'
                           ---------------    PAID-IN        FROM           STOCK       COMPREHENSIVE   ACCUMULATED      EQUITY
                           SHARES   AMOUNT    CAPITAL     STOCKHOLDERS   COMPENSATION      INCOME         DEFICIT      (DEFICIT)
                           ------   ------   ----------   ------------   ------------   -------------   -----------   -------------
<S>                        <C>      <C>      <C>          <C>            <C>            <C>             <C>           <C>
Balance, December 31,
  1998 ..................   9,217   $    9   $      940   $       (741)  $       (460)  $          --   $      (489)  $        (741)
Issuance of common
  stock to purchase
  Creative Business
  Solutions, Inc. and
  HealthWeb Systems,
  Ltd ...................     655        1        1,145             --             --              --            --           1,146
Issuance of common
  stock to purchase
  assets of
  Management &
  Technology
  Solutions, Inc. .......      60       --          140             --             --              --            --             140
Issuance of common
  stock for purchase
  of Novalis
  Corporation ...........     549        1        8,999             --             --              --            --           9,000
Issuance of common
  stock for purchase
  of Finserv Health
  Care Systems, Inc. ....      49       --        1,499             --             --              --            --           1,499
Repurchase of common
  stock in exchange
  for notes
  receivable from
  stockholders ..........    (563)      (1)          (3)           700             --              --          (696)             --
Deferred stock
  compensation related
  to employee stock
  options ...............      --       --        6,383             --         (6,383)             --            --              --
Amortization of
  deferred stock
  compensation ..........      --       --           --             --          1,057              --            --           1,057
Stock compensation ......      --       --           53             --             --              --            --              53
Repurchase common
  stock .................      (6)      --           --             --             --              --            --              --
Exercise of common
  stock options and
  warrants ..............     206       --          141             --             --              --            --             141
Issuance of common
  stock related to
  initial public
  offering, net of
  offering costs of
  $4,324 ................   4,480        4       35,992             --             --              --            --          35,996
Conversion of
  preferred stock to
  common stock ..........   6,276        6       10,926             --             --              --            --          10,932
Net loss ................      --       --           --             --             --              --        (7,927)         (7,927)
                           ------   ------   ----------   ------------   ------------   -------------   -----------   -------------
Balance, December 31,
  1999 ..................  20,923       20       66,215            (41)        (5,786)             --        (9,112)         51,296
Issuance of common
  stock to purchase
  Healthcare Media
  Enterprises, Inc. .....     223       --        5,189             --             --              --            --           5,189
Issuance of common
  stock to purchase
  Erisco Managed Care
  Technologies, Inc. ....  12,143       12      192,911             --             --              --            --         192,923
Issuance of common
  stock to purchase
  Resource Information
  Management Systems,
  Inc ...................   2,588        3       54,862             --             --              --            --          54,865
Issuance of common
  stock in exchange
  for services ..........       4       --           99             --             --              --            --              99
Value of options
  assumed for Resource
  Information
  Management Systems,
  Inc. acquisition ......      --       --        4,718             --             --              --            --           4,718
Issuance of stock
  warrants ..............      --       --        1,716             --             --              --            --           1,716
Cancellation of
  Novalis Corporation
  escrowed shares .......    (114)      --       (2,206)            --             --              --            --          (2,206)
Deferred stock
  compensation related
  to restricted stock
  grants ................     325       --        5,070             --         (5,070)             --            --              --
Deferred stock
  compensation related
  to employee stock
  options ...............      --       --          341             --           (341)             --            --              --
Amortization of
  deferred stock
  compensation ..........      --       --           --             --          1,934              --            --           1,934
Exercise of common
  stock options .........     443       --          316             --             --              --            --             316
Employee purchase of
  common stock ..........      62       --          830             --             --              --            --             830
Foreign currency
  translation gain ......      --       --           --             --             --               8            --               8
Net loss ................      --       --           --             --             --              --       (42,258)        (42,258)
                           ------   ------   ----------   ------------   ------------   -------------   -----------   -------------
Balance, December 31,
  2000 ..................  36,597       35      330,061            (41)        (9,263)              8       (51,370)        269,430
Issuance of common
  stock for Healthcare
  Media Enterprises,
  Inc ...................      56       --          (57)            --             --              --            --             (57)
Issuance of common
  stock for Resource
  Information
  Management Systems,
  Inc ...................     647        1           (1)            --             --              --            --              --
Issuance of common
  stock to purchase
  Infotrust Company .....     923        1       12,889             --             --              --            --          12,890
Issuance of common
  stock related to
  secondary offering,
  net of offering
  costs of $800 .........   6,348        7       54,828             --             --              --            --          54,835
Deferred stock
  compensation related
  to stock grants .......      48       --       (1,966)            --          1,966              --            --              --
Amortization of
  deferred stock
  compensation ..........      --       --           --             --          3,032              --            --           3,032
Exercise of common
  stock options .........     510        1          653             --             --              --            --             654
Employee purchase of
  common stock ..........     170       --        1,333             --             --              --            --           1,333
Foreign currency
  translation loss ......      --       --           --             --             --              (8)           --              (8)
Net loss ................      --       --           --             --             --              --       (61,154)        (61,154)
                           ------   ------   ----------   ------------   ------------   -------------   -----------   -------------
Balance, December 31,
  2001 ..................  45,299   $   45   $  397,740   $        (41)  $     (4,265)  $          --   $  (112,524)  $     280,955
                           ======   ======   ==========   ============   ============   =============   ===========   =============
</TABLE>


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

                                      F-7

<PAGE>
                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                                     FOR THE YEAR ENDED
                                                                                                         DECEMBER 31,
                                                                                          ----------------------------------------
                                                                                            2001            2000            1999
                                                                                          --------        --------        --------
<S>                                                                                       <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net loss ........................................................................       $(61,154)       $(42,258)       $ (7,927)
  Adjustments to reconcile net loss to net
    cash provided by (used in) operating activities:
    Provision for doubtful accounts and sales returns .............................          5,918           1,357             505
    Common stock issued for services rendered .....................................             --              99              53
    Amortization of deferred stock compensation ...................................          3,032           1,934           1,057
    Amortization of deferred stock warrants .......................................            241              82              --
    Write-off of acquired in-process technology ...................................             --           1,426           1,407
    Forgiveness of employee notes receivable ......................................             30              29              32
    Deferred taxes ................................................................        (16,371)         (5,636)           (187)
    Loss on disposal of property and equipment ....................................          1,312             234              --
    Depreciation and amortization .................................................          8,771           5,262           1,633
    Amortization of intangibles ...................................................         69,076          18,622             783
    Impairment of other assets ....................................................          1,389              --              --
    Impairment of goodwill and intangible assets ..................................          5,716              --              --
  Changes in assets and liabilities (net of acquisitions):
    Restricted cash ...............................................................           (733)         (1,500)             --
    Accounts receivable ...........................................................        (17,531)         (1,639)         (3,080)
    Prepaid expenses and other current assets .....................................           (217)         (1,339)         (1,271)
    Income tax receivable .........................................................             --              (9)            (34)
    Notes receivable ..............................................................          1,929             357              --
    Accounts payable ..............................................................         (1,501)          3,700           1,364
    Accrued liabilities ...........................................................          5,586           3,531           5,190
    Deferred revenue ..............................................................         14,253           3,931             241
    Deposits and other assets .....................................................         (7,547)           (739)           (110)
                                                                                          --------        --------        --------
      Net cash provided by (used in) operating activities .........................         12,199         (12,556)           (344)
                                                                                          --------        --------        --------
CASH FLOWS FROM INVESTING ACTIVITIES:

  Purchase and sale of short-term investments, net ................................        (12,040)          4,168          (7,187)
  Purchase of property and equipment and software licenses ........................        (12,736)         (7,328)         (3,208)
  Purchase of intangible assets ...................................................         (6,241)         (2,206)         (2,630)
  Net cash acquired in (paid for) acquisitions ....................................            846          27,392          (7,338)
  Payments of acquisition-related expenses ........................................         (2,542)         (7,265)         (2,657)
                                                                                          --------        --------        --------
      Net cash (used in) provided by investing activities .........................        (32,713)         14,761         (23,020)
                                                                                          --------        --------        --------
CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from issuance of common stock, net .....................................         54,835              --          35,996
  Proceeds from issuance of mandatorily redeemable convertible preferred stock, net             --              --           4,483
  Proceeds from revolving line of credit, net .....................................          1,706          11,438              --
  Proceeds from debt financing ....................................................          3,120              --              --
  Payments on notes payable .......................................................         (1,020)         (9,689)         (1,275)
  Proceeds from term note .........................................................          6,000           4,000              --
  Payments on term note ...........................................................           (600)         (4,000)           (265)
  Proceeds from equipment line of credit ..........................................             --           1,855              --
  Payments on equipment line of credit ............................................           (651)           (565)             --
  Proceeds from capital lease .....................................................            854              --              --
  Payments on capital leases ......................................................         (2,233)         (1,382)           (448)
  Repayment of notes receivable ...................................................             --              --              30
  Employee exercise of stock options and purchase of common stock .................          1,987           1,146              11
                                                                                          --------        --------        --------
      Net cash provided by financing activities ...................................         63,998           2,803          38,532
                                                                                          --------        --------        --------
  Net increase in cash and cash equivalents .......................................         43,484           5,008          15,168
  Effect of exchange rate changes on cash and cash equivalents ....................             (8)              8              --
  Cash and cash equivalents at beginning of year ..................................         23,865          18,849           3,681
                                                                                          --------        --------        --------
  Cash and cash equivalents at end of year ........................................       $ 67,341        $ 23,865        $ 18,849
                                                                                          ========        ========        ========
</TABLE>


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

                                      F-8
<PAGE>
                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. FORMATION AND BUSINESS OF THE COMPANY

         The TriZetto Group, Inc. (the "Company"), was incorporated in the state
of Delaware on May 27, 1997. The Company is a provider of remotely hosted
software applications, both third-party packaged and proprietary software, and
related services used primarily in the healthcare industry. The Company also
develops and supports software products for the healthcare industry.
Additionally, the Company offers an Internet browser application that serves as
a portal for the exchange of healthcare information and services over the
Internet. The Company provides access to its hosted solutions either through
the Internet or through traditional networks. The Company markets and sells its
software and services to customers primarily in the United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany transactions have
been eliminated in consolidation.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has incurred net losses of $61.2 million and $42.3 million
for the years ended December 31, 2001 and 2000, respectively, and has an
accumulated deficit of $112.5 million at December 31, 2001. The Company has
generated cash from operating activities of $12.2 million for the year ended
December 31, 2001 and has used cash in operating activities of $12.6 million for
the year ended December 31, 2000. The Company has funded its financial needs
primarily through the net proceeds received through its initial public offering
in 1999 and secondary offering in 2001, as well as other equity (Note 9), debt
financings (Note 6) and during 2001, its cash flows from operating activities.
Also, in connection with the Company's acquisition of Erisco Managed Care
Technologies, Inc. in October 2000 (Note 12), the Company acquired a cash
balance of approximately $32.0 million. The Company has total cash and cash
equivalents, short-term investments, and restricted cash of $84.6 million and
net working capital of $46.1 million at December 31, 2001. Based on the
Company's current operating plan, management believes existing cash, cash
equivalents and short-term investments balances, cash forecasted by management
to be generated by operations and borrowings from existing credit facilities
will be sufficient to meet the Company's working capital and capital
requirements for at least the next twelve months. However, if events or
circumstances occur such that the Company does not meet its operating plan as
expected, the Company may be required to seek additional capital and/or to
reduce certain discretionary spending, which could have a material adverse
effect on the Company's ability to achieve its intended business objectives. The
Company may seek additional financing, which may include debt and/or equity
financing or funding through third party agreements. There can be no assurance
that any additional financing will be available on acceptable terms, if at all.
Any equity financing may result in dilution to existing stockholders and any
debt financing may include restrictive covenants.

USE OF ESTIMATES

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

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. Cash and cash equivalents are deposited in demand and money market
accounts in three financial institutions. Deposits held with banks may exceed
the amount of insurance provided on such deposits. The Company has not
experienced any losses on its deposits of cash and cash equivalents. The
Company's accounts receivable are derived from revenue earned from customers
located in the United States. The Company performs ongoing credit evaluations of
its 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 individual accounts.

         The following tables summarize the revenues and accounts receivable
balances from customers in excess of 10% of total revenues and total accounts
receivable balances, respectively:

                                      F-9
<PAGE>
<TABLE>
<CAPTION>
                                                                                                YEARS ENDED
                                                                                               DECEMBER 31,
                                                                                           --------------------
                                                                                           2001    2000   1999
                                                                                           ----    ----   ----
                   <S>                                                                     <C>     <C>    <C>
                   REVENUES:
                     Company A..........................................................    --      15%    --
                     Company B..........................................................    --      15%    --
                     Company C..........................................................    --      --     16%
                     Company D..........................................................    --      --     19%
                     Company E..........................................................    --      --     --
                     Company F..........................................................    --      --     --
</TABLE>
<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                           --------------------
                                                                                           2001    2000   1999
                                                                                           ----    ----   ----
                   <S>                                                                     <C>     <C>    <C>
                  ACCOUNTS RECEIVABLE:
                    Company A..........................................................     --      --     --
                    Company B..........................................................     --      --     --
                    Company C..........................................................     --      --     --
                    Company D..........................................................     --      --     --
                    Company E..........................................................     --      --     13%
                    Company F..........................................................     --      10%    --
</TABLE>


         As of December 31, 2001, the Company had approximately $3.5 million in
accounts receivable from Maxicare Health Plans, Inc. ("Maxicare"). In May 2001,
Maxicare filed a Chapter 11 petition for relief under the federal Bankruptcy
Code in the United States Bankruptcy Court for the Central District of
California. As of December 31, 2001, the Company believes its allowance for
doubtful accounts is adequate should the Maxicare receivable become fully
uncollectible.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, short-term investments, accounts receivable
and accounts payable approximate fair value due to their short maturities. Based
on borrowing rates currently available to the Company for loans with similar
terms, the carrying value of its debt obligations approximates fair value.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents include money market funds, commercial paper and various deposit
accounts.

SHORT-TERM INVESTMENTS

         Short-term investments include money market funds, commercial paper,
and various deposit accounts. The Company has the ability to convert these
investments to cash upon notice.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives: computer equipment,
equipment and software are depreciated over five to twenty years and furniture
and fixtures are depreciated over seven years. Leasehold improvements are
amortized over their estimated useful lives or the lease term, if shorter. Upon
retirement or sale, the cost and related accumulated depreciation are removed
from the balance sheet and the resulting gain or loss is reflected in
operations. Maintenance and repairs are charged to operations as incurred.

GOODWILL AND OTHER INTANGIBLE ASSETS

         Goodwill arising from the Company's acquisitions is being amortized on
a straight-line basis over their estimated lives of three to seven years. Other
intangible assets arising from the Company's acquisitions consist of acquired
work force, customer lists, core technology, consulting contracts and trade
names which are being amortized on a straight-line basis over their estimated
useful lives of two to five years, respectively. Software technology rights are
amortized on a straight-line basis over the lesser of the contract term or five
years.

                                      F-10
<PAGE>
LONG-LIVED ASSETS

         Long-lived assets and intangible assets, including enterprise level
goodwill, are reviewed for impairment when events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Recoverability
is measured by comparison of the asset's carrying amount to future net
undiscounted cash flows the assets are expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the projected
discounted future net cash flows arising from the asset. The discount rate
applied to these cash flows is based on a discount rate commensurate with the
risks involved. No impairment has been indicated to date other than those
disclosed in restructuring and related impairment charges (Note 13).

REVENUE RECOGNITION

         The Company has adopted the provisions of the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue
Recognition", which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in the financial statements filed with
the SEC. The adoption of SAB 101 had no material impact on the financial
statements.

         The Company's revenue is classified into two categories: (i) recurring
or multi-year contractually-based revenue and (ii) revenue generated from
non-recurring agreements. Revenue is recognized when persuasive evidence of an
arrangement exists, the product or service has been delivered, fees are fixed
and determinable, collectibility is probable and when all other significant
obligations have been fulfilled.

         The Company generates recurring revenue from several sources, including
the sale of maintenance and support on its software products, and from the
hosting of application services. Recurring software maintenance revenue is
typically based on one-year renewable contracts. Software maintenance and
support revenues are recognized ratably over the contract period. Cash received
in advance is recorded as deferred revenue. Recurring revenue from hosted
solutions is subscription-based and billed monthly over a contract term of
typically three to seven years. Many of the agreements associated with hosted
solutions contain performance standards that require the Company to maintain a
certain level of operating performance related to those hosted solutions. This
performance is measured on a monthly basis by the Company prior to the recording
of the hosted solutions revenues. Software license fees under arrangements where
the Company hosts the software and the customer does not have the ability to
take possession of the software during the hosting period, are recognized
ratably over the hosting periods in accordance with EITF issue 00-3.

         The Company generates non-recurring revenue from the licensing of its
software. The Company follows the provisions of AICPA Statements of Position
("SOP") 97-2 "Software Revenue Recognition," SOP 98-4 "Deferral of the Effective
Date of Certain Provisions of SOP 97-2", and SOP 98-9 "Modification of SOP 97-2,
Software Revenue Recognition, With Respect of Certain Transactions" as well as
the tentative conclusions of EITF Issue 00-21, "Multiple Element Arrangements".
Software license revenue is recognized upon the execution of a license
agreement, upon deliverance, fees are fixed and determinable, collectibility is
probable and when all other significant obligations have been fulfilled. For
software license agreements in which customer acceptance is a condition of
earning the license fees, revenue is not recognized until acceptance occurs. For
arrangements containing multiple elements, such as software license fees,
consulting services and maintenance, and where vendor-specific objective
evidence ("VSOE") of fair value exists for all undelivered elements, the Company
accounts for the delivered elements in accordance with the "residual method"
prescribed by SOP 98-9. For arrangements in which VSOE does not exist for each
element, including specified upgrades, revenue is deferred and not recognized
until delivery of the element without VSOE has occurred. The Company also
generates non-recurring revenue from consulting fees for implementation,
installation, data conversion, and training related to the use of the Company's
proprietary and third-party licensed products. The Company recognizes revenues
for these services as they are performed, as they are principally contracted for
on a time and material basis.

RESEARCH AND DEVELOPMENT EXPENSE

         Research and development expenses are salaries and related expenses
associated with the development of software applications prior to establishment
of technological feasibility and services and include compensation paid to
engineering personnel and fees to outside contractors and consultants.

SOFTWARE DEVELOPMENT COSTS

         Software development costs for new software and for enhancements to
existing software are expensed as incurred until the establishment of
technological feasibility, and includes compensation paid to engineering
personnel and fees to outside contractors and consultants. Software development
costs incurred subsequent to the establishment of technological feasibility and
prior to general release of the product are capitalized as capitalized software
products and amortized to cost of revenues

                                      F-11
<PAGE>
on a straight-line basis over the estimated useful life of the related products,
generally five years. Amortization expense for the years ended December 31,
2001, 2000 and 1999 was $130,000, $9,000 and zero, respectively, and is included
in cost of revenues.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. Advertising expense for the
years ended December 31, 2001, 2000, and 1999 was $3.4 million, $1.2 million
and $668,000, respectively.

INCOME TAXES

         The Company accounts for income taxes under the liability method. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

COMPUTATION OF LOSS PER SHARE

         Basic earnings per share ("EPS") is computed by dividing net loss by
the weighted average number of common shares outstanding for the period. Common
shares issued in connection with business combinations, that are held in escrow,
are excluded from the computation of basic EPS until the shares are released
from escrow. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants, shares held in escrow
and other convertible securities. The following is a reconciliation of the
numerator (net loss) and the denominator (number of shares) used in the basic
and diluted EPS calculations (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                            YEARS ENDED DECEMBER 31,
                                                                                      ----------------------------------
                                                                                          2001          2000        1999
                                                                                      -----------   -----------  ---------
         <S>                                                                          <C>           <C>          <C>
         BASIC:
           Net loss...............................................................    $  (61,154)   $  (42,258)  $  (7,927)
                                                                                      ----------    ----------   ---------
           Weighted average common shares outstanding.............................        40,094        23,444       9,376
                                                                                      ----------    ----------   ---------
           Net loss per share.....................................................    $    (1.53)   $    (1.80)  $   (0.85)
                                                                                      ==========    ==========   =========
         DILUTED:
           Net loss...............................................................    $  (61,154)   $  (42,258)  $  (7,927)
                                                                                      ----------    ----------   ---------
           Weighted average common shares outstanding.............................        40,094        23,444       9,376
           Preferred stock........................................................            --            --          --
           Options to purchase common stock.......................................            --            --          --
           Common stock subject to repurchase.....................................            --            --          --
           Warrants...............................................................            --            --          --
                                                                                      ----------    ----------   ---------
           Total weighted common stock and common stock equivalents...............        40,094        23,444       9,376
                                                                                      ----------    ----------   ---------
           Net loss per share.....................................................    $    (1.53)   $    (1.80)  $   (0.85)
                                                                                      ===========   ==========   =========
</TABLE>

    Because their effects are anti-dilutive, diluted EPS excludes the following
potential common shares:

<TABLE>
<CAPTION>
                                                                                              YEARS ENDED DECEMBER 31,
                                                                                           ----------------------------
                                                                                             2001       2000       1999
                                                                                           -------     -----      -----
            <S>                                                                            <C>         <C>        <C>
            Shares held in escrow......................................................        158       686        518
            Options to purchase common stock...........................................      6,128     5,170      3,479
            Unvested portion of restricted stock.......................................        241       325         --
            Common stock subject to repurchase.........................................         --        --      1,698
            Warrants...................................................................        300       300         --
                                                                                           -------     -----      -----
                                                                                             6,827     6,481      5,695
                                                                                           =======     =====      =====
</TABLE>

COMPREHENSIVE INCOME

     The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
for general-purpose financial statements. Comprehensive income (loss) is defined
as net income (loss) plus all revenues, expenses, gains and losses from
non-owner sources that are excluded from net income (loss) in accordance with
generally accepted accounting principles.


RECLASSIFICATIONS

     Certain reclassifications, none of which affected net loss, have been
made to prior year amounts to conform to current year presentation.


RECENT ACCOUNTING PRONOUNCEMENTS


                                      F-12
<PAGE>


         In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, Business Combinations ("SFAS 141") and No. 142, Goodwill and
Other Intangible Assets ("SFAS 142"), effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but, instead SFAS will be
subject to annual impairment tests in accordance with SFAS 141 and SFAS 142.
Other intangible assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what effect, if any, applying those tests will have on the Company's
financial position and results of operations. For the year ended December 31,
2001, the Company recognized $42.3 million of amortization expense related to
goodwill and intangible assets with indefinite lives.

In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes Statement 121, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company expects to
adopt SFAS 144 as of January 1, 2002 and has not yet determined the effect, if
any, the adoption of SFAS 144 will have on the results of operations and
financial condition of the Company.


3. PROPERTY AND EQUIPMENT

         Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                          ----------------------
                                                                                             2001         2000
                                                                                          ---------    ---------
                                                                                              (IN THOUSANDS)
                 <S>                                                                      <C>          <C>
                 PROPERTY AND EQUIPMENT
                   Computer equipment..................................................   $  21,574    $  16,198
                   Furniture and fixtures..............................................       5,507        4,197
                   Equipment...........................................................       4,744        2,026
                   Software............................................................      11,759        6,331
                   Leasehold improvements..............................................       3,235        2,838
                                                                                          ---------    ---------
                                                                                             46,819       31,590
                 Less: Accumulated depreciation........................................     (11,952)      (5,967)
                                                                                          ---------    ---------
                                                                                          $  34,867    $  25,623
                                                                                          =========    =========
</TABLE>

         Depreciation expense for the years ended December 31, 2001, 2000 and
1999 was $8.0 million, $4.6 million and $1.1 million, respectively. Included in
property and equipment at December 31, 2001 and December 31, 2000 is equipment
acquired under capital leases totaling approximately $11.8 million and $10.0
million, respectively, and related accumulated depreciation of $4.0 million and
$3.0 million, respectively. In connection with the Company's restructuring, the
Company recognized an impairment of its property and equipment of $1.4 million
for the year ended December 31, 2001.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

         Goodwill and other intangible assets, net, consist of the following:

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                           ------------------------
                                                                                               2001         2000
                                                                                           -----------   ----------
                                                                                                (IN THOUSANDS)
                 <S>                                                                       <C>           <C>
                 INTANGIBLE ASSETS
                   Goodwill............................................................    $   170,013   $  180,075
                   Acquired workforce..................................................         20,227       19,319
                   Customer lists......................................................         38,764       37,961
                   Core technology.....................................................         52,994       52,713
                   Consulting contracts................................................            125          --
                   Software licenses...................................................          3,188        2,947
                   Trade names.........................................................          9,343        8,870
                                                                                           -----------   ----------
                                                                                               294,654      301,885
                 Less: Accumulated amortization........................................        (82,952)     (20,278)
                                                                                           -----------   ----------
                                                                                           $   211,702   $  281,607
                                                                                           ===========   ==========
</TABLE>

In connection with the Company's restructuring, the Company recognized an
impairment of its goodwill relating to its acquisitions of Creative Business
Solutions, Inc., Finserv Health Care Systems, Inc. and Healthcare Media
Enterprises, Inc. of $5.7 million for the year ended December 31, 2001.

                                      F-13
<PAGE>

5. ACCRUED LIABILITIES

      Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                  YEARS ENDED
                                                                  DECEMBER 31,
                                                                  ------------
                                                                2001       2000
                                                                ----       ----
                                                                 (IN THOUSANDS)
<S>                                                           <C>        <C>
          ACCRUED LIABILITIES
            Accrued payroll and benefits .................    $13,328    $ 8,779
            Accrued professional fees ....................        628        966
            Accrued acquisition expenses .................      1,071      2,393
            Restructuring and related impairment charges..      3,601         --
            Other ........................................      4,786      7,829
                                                              -------    -------
                                                              $23,414    $19,967
                                                              =======    =======
</TABLE>

6. NOTES PAYABLE AND LINES OF CREDIT

      In November 2001, the Company entered into an agreement with a financing
company for $3.1 million, specifically to finance certain equipment. Principal
and interest is payable monthly and the note is due in November 2005. Interest
accrues monthly at LIBOR rate plus 3.13%. As of December 31, 2001, there was
approximately $3.1 million principal balance remaining on the note.

      In September 2001, the Company executed a Secured Term Note facility with
a lending institution for $6.0 million. Monthly principal payments of $200,000
are due on the first of each month. Additionally, the note bears interest at
prime plus 1% and is payable monthly in arrears. The note contains certain
covenants that the Company must adhere to during the terms of the agreement,
including a minimum tangible net worth and cash balance. As of December 31,
2001, there was approximately $5.4 million principal balance remaining on the
note. The note matures in March 2004.

      In March 2001 through August 2001, the Company entered into an agreement
for premium insurance financing for a total of $778,000. The notes bear interest
between 8.47% and 9.25% per annum and are due in February 2002. As of December
31, 2001, there was approximately $124,000 principal balance remaining on the
notes.

      In September 2000, the Company executed a Secured Term Note facility with
a lending institution for a total available amount of $10.0 million. A total of
$4.0 million was borrowed under a Secured Term Note. The Company subsequently
paid the outstanding balance on its existing line of credit of $2.7 million from
borrowings under the Secured Term Note. The Secured Term Note was due and repaid
by the Company in October 2000, after the acquisition of Erisco was consummated.

      In September 2000, the Company also entered into a Loan and Security
Agreement and Revolving Credit Note with the same lender, providing for a
revolving credit facility in the maximum principal amount of $15.0 million. The
revolving credit facility became effective upon repayment of any outstanding
balance on the Secured Term Note. In October and December 2000, the Loan and
Security Agreement and Revolving Credit Note were amended to include Erisco and
RIMS, respectively, as additional borrowers. The revolving credit facility is
secured by all of the Company's receivables. In September 2001, the Revolving
Credit Note and the Loan and Security Agreement were amended to provide for the
maximum principal amount of $14.0 million and an expiration date of March 2004.
As of December 31, 2001, the Company had available $0.9 million to draw on the
Revolving Credit Note.

      Borrowings under the revolving credit facility are limited to and shall
not exceed 80% of qualified accounts as defined in the Loan and Security
Agreement. Interest on the revolving credit facility is prime plus 1.5%. In
addition, there is a monthly 0.0333% usage fee and a monthly 0.083% loan
management fee. Interest is payable monthly in arrears on the first business day
of the month. The revolving credit facility contains certain covenants that the
Company must adhere to during the term of the agreement, including a tangible
net worth, as defined, of at least $12.0 million and the generation of a minimum
monthly net earnings before interest, depreciation and amortization and minimum
cash balances and restrictions prohibiting the Company from paying any cash
dividends without prior approval, as defined in the Loan and Security Agreement.
As of December 31, 2001, the Company had outstanding borrowings on the revolving
line of credit of $13.1 million.

      In December 1999, the Company entered into a lease line of credit with a
financial institution. This lease line of credit was specifically established to
finance computer equipment purchases. The lease line of credit had a limit of
$2.0 million and expired as scheduled in December 2000. Borrowings under the
lease line of credit at December 31, 2001 totaled approximately $873,000 and are
collateralized by the assets under lease. In accordance with the terms of the
lease line of credit, the outstanding balance is being repaid in monthly
installments of principal and interest through June 2003.


                                      F-14
<PAGE>
      In January 1999, the Company entered into a financing agreement for
$675,000 in order to acquire a software license. The non-interest bearing note
(imputed interest rate of 7.80%) is due in sixty equal monthly installments but
no later than December 31, 2003. Borrowings under the financing agreement are
collateralized by the software that the Company purchased with the note
proceeds. At December 31, 2001, there was approximately $259,000 principal
balance remaining on the note.

      In connection with the acquisition of Creative Business Solutions, Inc.
and HealthWeb Systems, Ltd. in February 1999 (Note 12), the Company issued notes
of $270,000. The notes bear interest at 8.00% per annum and the interest is
payable annually in arrears. Fifty percent of the principal balance is payable
on the first anniversary and fifty percent is payable on the second anniversary
of the issue date. The debt was paid in full in February 2001.

      In May 1999, the Company entered into a financing agreement for
approximately $1.1 million. The amount is due in twelve equal monthly
installments and bears interest at 10% per annum. Borrowings under the financing
agreement are collateralized by the license that the Company purchased from the
lender. The debt was paid in full in April 2000.

      In March 1999, the Company entered into a revolving line of credit
agreement with a financial institution. In October 1999, the Company entered
into a subsequent agreement which increased the amount available under the line
of credit. The line of credit has a total capacity of $3.0 million and expired
in December 2001. Borrowings under the line of credit bear interest at prime
plus 0.50% and are collateralized by corresponding cash balances on deposit
classified as restricted cash on the balance sheet. Interest is payable monthly
as it accrues. The line of credit agreement contains covenants that the Company
must adhere to during the term of the agreement including restrictions on the
payment of dividends. As of December 31, 2001, there were no outstanding
borrowings on the line of credit.

      The Company has outstanding nine standby letters of credit in the
aggregate amount of $2.2 million which serve as security deposits for the
Company's capital leases. The Company is required to maintain a cash balance
equal to the outstanding letters of credit, which is classified as restricted
cash on the balance sheet.

      Notes payable and lines of credit consist of the following at December 31:


<TABLE>
<CAPTION>
                                                              NOTES PAYABLE              LINES OF CREDIT
                                                              -------------              ---------------
                                                           2001          2000          2001          2000
                                                           ----          ----          ----          ----
<S>                                                      <C>           <C>           <C>           <C>
Revolving credit facility of $14.0 million,
  interest at prime plus 1.5% (6.25% at
  December 31, 2001), payable monthly in arrears ...     $     --      $     --      $ 13,145      $ 11,438
Equipment lease line of credit, secured by
  equipment, due in monthly installments
  through June 2003, with interest rates
  between 9.72% and 10.18% .........................           --            --           873         1,524
Financing agreement, collateralized by
  software license purchased (imputed interest
  rate of 7.80%) due in equal monthly
  installments through January 2004 ................          259           369            --            --
Related party note issued in connection
  with the acquisition of CBS and HealthWeb,
  repaid in February 2001, interest at 8%,
  payable annually in arrears ......................           --           135            --
Note payable of $3.1 million issued for
  certain equipment due in monthly
  installments through November 2005,
  with interest at LIBOR rate plus 3.13%
  (2.28% LIBOR rate at December 31, 2001) ..........        3,096            --            --            --
Notes payable of $778,000 issued for
  premium insurance financing, due in monthly
  installments through February 2002,
  with interest rates between 8.47% and 9.25% ......          124            --            --            --
Secured Term Note of $6.0 million, interest
  at prime plus 1%, (6.25% at December 31,
  2001), payable monthly in arrears through
  March 2004 .......................................        5,400            --            --            --
Other obligations due in monthly installments
  through October 2002, with interest rates
  up to prime plus 1.5% (6.25% at
  December 31, 2000) ...............................            5           103            --
                                                         --------      --------      --------      --------
Total notes payable and lines of credit ............        8,884           607        14,018        12,962
Less: Current portion ..............................       (2,945)         (343)      (13,863)      (12,089)
                                                         --------      --------      --------      --------
                                                         $  5,939      $    264      $    155      $    873
                                                         ========      ========      ========      ========
</TABLE>

      Future principal payments of notes payable at December 31, 2001 are as
follows:

<TABLE>
<CAPTION>
       FOR THE PERIODS ENDING DECEMBER 31,        NOTES PAYABLE    LINES OF CREDIT
       -----------------------------------        -------------    ---------------
<S>                                               <C>              <C>
            2002 .........................          $  2,945           $ 13,863
            2003 .........................             2,842                155
            2004 .........................               941                 --
            2005 .........................             2,156                 --
            2006 .........................                --                 --
                                                    --------           --------
                                                       8,884             14,018
</TABLE>


                                      F-15



<PAGE>
<TABLE>
<Caption>
<S>                                                          <C>                 <C>
           Less: Current portion .............                   (2,945)              (13,863)
                                                               --------              --------
                                                               $  5,939              $    155
                                                               ========              ========
</TABLE>

7. RELATED PARTY TRANSACTIONS

      In September 1997, the Company entered into a $520,000 financing
agreement, bearing interest at 9% and payable quarterly beginning January 1,
1998. A member of the Company's Board of Directors owns 50% of the financing
company. The principal amount was originally due October 1, 2002. In connection
with the financing agreement, the Company issued to the financing company
warrants to purchase 162,595 shares of common stock with an exercise price of
$0.80 per share (Note 9). In August 1999, the warrant to purchase 162,595 shares
of common stock was exercised. The exercise price was applied to the principal
under the financing agreement, reducing the principal amount by $130,000. In
October 1999, the Company paid off the remaining principal balance of $390,000.

      The Company has a note receivable from an officer of the Company. The note
accrues interest at 6.5% per annum. The principal and accrued interest has been
and will be forgiven annually over a four year period beginning April 30, 1999
provided the officer is an employee of the Company. In the event of termination
of the officer's employment with the Company the note and accrued interest
become due and payable immediately. The note receivable from related party was
$25,000 and $50,000 at December 31, 2001 and 2000, respectively.

      In June 1998 and October 1998, the Company issued full recourse promissory
notes to certain officers for $200,000 and $500,000, respectively. The
promissory notes were collateralized by 200,000 and 362,319 shares,
respectively, of common stock, bore annual interest at 8% and were payable in
1999, or earlier upon employee termination. In May and June 1999, the Company
repurchased the common stock in exchange for the notes.

      In June 1999, the Company entered into an agreement with Garte &
Associates, Inc. pursuant to which the Company would pay Garte & Associates,
Inc. an investment banking fee for certain acquisitions. Harvey Garte, the
Company's Vice President of Corporate Development, is the sole stockholder of
Garte & Associates, Inc. In 1999, the Company paid a total of $256,000 to Garte
& Associates, Inc. in connection with the Company's acquisitions of Novalis
Corporation in November 1999 and Finserv Health Care Systems, Inc. in December
1999. In 2000, the Company paid or accrued a total of $615,000 to Garte &
Associates, Inc. in connection with the Company's acquisitions of Healthcare
Media Enterprises, Inc. in January 2000, Erisco Managed Care Technologies, Inc.
in October 2000 and Resource Information Management Systems, Inc. in December
2000. In 2001, the Company paid a total of $262,170 in connection with the
Company's acquisition of Infotrust Company in April 2001 and other special
projects.

      In November 1999, in connection with the acquisition of Novalis
Corporation, the Company received notes receivable in the aggregate amount of
$475,000 from the eight former stockholders of Novalis. The notes represent the
former stockholders' agreement to repay all legal, financial and accounting fees
and expenses incurred in connection with the acquisition. The notes accrue
interest at 8.0% per annum and are payable one year from the date of
acquisition, which has been extended by the Company. At December 31, 2001, the
remaining balance of the notes receivable from related parties was $99,000.

      In October 2000, in connection with the acquisition of Erisco Managed Care
Technologies, Inc., the Company entered into a software license agreement with
IMS Health Incorporated ("IMS Health") to which IMS will pay three annual
installments of $1.0 million each for a total of $3.0 million. As of December
31, 2001, $2.0 million of cash payments have been received and $1.0 million and
$167,000 was recognized as recurring revenue for the year ended December 31,
2001 and 2000, respectively. IMS Health has beneficial ownership of 12,142,857
shares of common stock representing approximately 27% of the shares of common
stock outstanding of 45,299,061 as of December 31, 2001.

      In December 2001, in connection with the acquisition of Resource
Information Management Systems, Inc. ("RIMS"), the Company carried on a facility
lease agreement with Mill Street Properties (the "Landlord") for the rental of
the 500 Technology Drive, Naperville, IL facility for a future commitment of
$3.1 million, of which monthly base rent, including utilities, is $82,403. As of
December 31, 2001, the future commitment was $2.1 million scheduled to end on
February 28, 2004. Thomas Heimsoth and Terry Kirch, co-founders of RIMS, are
also co-owners of Mill Street Properties.

8. COMMITMENTS AND CONTINGENCIES

      The Company leases office space and equipment under noncancelable
operating and capital leases, respectively, with various expiration dates
through 2009. Capital lease obligations are collateralized by the equipment
subject to the leases. The Company is responsible for maintenance costs and
property taxes on certain of the operating leases. Rent expense for the years
ended December 31, 2001, 2000 and 1999 was $8.2 million, $4.0 million and $1.2
million, respectively. These amounts are net of sublease income of $172,000,
$78,000 and $25,000, respectively.

      Future minimum lease payments under noncancelable operating and capital
leases at December 31, 2001 are as follows:


                                      F-16



<PAGE>
<TABLE>
<CAPTION>
        FOR THE PERIODS ENDING DECEMBER 31,        CAPITAL LEASES    OPERATING LEASES
        -----------------------------------        --------------    ----------------
                                                            (IN THOUSANDS)
<S>                                                <C>               <C>
             2002 .............................       $ 3,344            $ 8,846
             2003 .............................         2,526              7,701
             2004 .............................         1,239              5,872
             2005 .............................           159              4,778
             2006 .............................            --              2,989
             Thereafter .......................            --              6,035
                                                      -------            -------
        Total minimum lease payments ..........         7,268            $36,221
        Less: Interest ........................          (864)           =======
        Less: Current portion .................        (2,799)
                                                      -------
                                                      $ 3,605
                                                      =======
</TABLE>

      In December 2000, the Company received notice from a third party through
its legal counsel, that the Company is allegedly infringing on the third party's
trademark. No damages have been specified. The Company is unable to estimate the
range of possible loss, if any, from this litigation, and no accrual for any
loss related to this matter has been made in the consolidated financial
statements.

      In the opinion of management, the results of the above matters,
individually or in the aggregate, are not expected to have a material effect on
the Company's results of operations, financial condition or cash flows.

9. STOCKHOLDERS' EQUITY

COMMON STOCK

      In October 1999, the Company completed its initial public offering of
4,480,000 shares of common stock, including 630,000 shares issued in connection
with the exercise of the underwriters' over-allotment option, at a price of
$9.00 per share, that raised approximately $36.0 million, net of underwriting
discounts, commissions and other offering costs totaling approximately $4.3
million. In addition, in connection with the offering, 350,000 shares of common
stock of the Company were sold by a selling stockholder at $9.00 per share, for
which the Company received no proceeds. Upon the closing of the offering, all of
the Company's mandatorily redeemable convertible preferred stock converted into
approximately 6,276,000 shares of common stock.

      In June 2001, the Company completed a secondary offering of 5,520,000
shares of common stock, at a price of $9.25 per share, that raised approximately
$47.6 million, net of underwriting discounts, commissions and other offering
costs. In connection with the offering, an additional 480,000 shares of common
stock of the Company were sold by selling stockholders at $9.25 per share, for
which the Company received no proceeds.

      In July 2001, in connection with the exercise of the underwriters'
over-allotment option relating to the secondary offering, the Company issued
828,000 shares of common stock, at a price of $9.25 per share, that raised
approximately $7.2 million, net of underwriting discounts, commissions and other
offering costs. In connection with the exercise of the underwriters'
over-allotment option, an additional 72,000 shares of common stock of the
Company were sold by selling stockholders at $9.25 per share, for which the
Company received no proceeds.

      At December 31, 2001, the Company had reserved approximately 8,973,000
shares of common stock for issuance upon exercise of stock options, warrants and
for shares issuable under the Employee Stock Purchase Plan. Common stockholders
are entitled to


                                      F-17


<PAGE>
dividends as and when declared by the Board of Directors subject to the prior
rights of preferred stockholders. The holders of each share of common stock are
entitled to one vote.

STOCK OPTION PLAN

      In May 1998, the Company adopted the 1998 Stock Option Plan (the "Plan")
under which the Board of Directors may issue incentive and non-qualified stock
options to employees, directors and consultants. The Board of Directors has the
authority to determine to whom options will be granted, the number of shares,
the term and exercise price. Options are to be granted at an exercise price not
less than fair market value for incentive stock options or 85% of fair market
value for non-qualified stock options. For individuals holding more than 10% of
the voting rights of all classes of stock, the exercise price of incentive stock
options will not be less than 110% of fair market value. The options generally
vest and become exercisable annually at a rate of 25% of the option grant over a
four year period. The term of the options will be no longer than five years for
incentive stock options for which the grantee owns greater than 10% of the
voting power of all classes of stock and no longer than ten years for all other
options.

      On November 30, 2000, in connection with the Resource Information
Management Systems, Inc. ("RIMS") acquisition (Note 12), the Company adopted the
RIMS Stock Option Plan based primarily upon RIMS' existing non-statutory stock
option plan. Unless previously terminated by the stockholders the Plan shall
terminate at the close of business on January 1, 2009, and no options shall be
granted under it thereafter. Such termination shall not affect any option
previously granted. Upon a business combination by the Company with any
corporation or other entity, the Company may provide written notice to optionees
that options shall terminate on a date not less than 14 days after the date of
such notice unless theretofore exercised. In connection with such notice, the
Company may, in its discretion, accelerate or waive any deferred exercise
period.

      Activity under the two plans was as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                                                                         OUTSTANDING OPTIONS
                                                              SHARES                     -------------------           WEIGHTED
                                                             AVAILABLE   NUMBER OF                      AGGREGATE       AVERAGE
                                                             FOR GRANT    SHARES     EXERCISE PRICE       PRICE     EXERCISE PRICE
                                                             ---------    ------     --------------       -----     --------------
<S>                                                          <C>         <C>        <C>                 <C>         <C>



   Balances, December 31, 1998 ..........................        451       1,149    $ 0.25  -  $ 0.28    $    295      $   0.26
   Additional options reserved ..........................      2,400          --
   Granted ..............................................     (2,644)      2,644      0.25  -   29.75      16,318          6.17
   Exercised ............................................         --         (60)                0.25         (15)         0.25
   Cancelled ............................................        254        (254)     0.25  -   20.25        (261)         1.03
                                                              ------      ------                         --------
   Balances, December 31, 1999...........................        461       3,479      0.25  -   29.75      16,337          4.70
   Additional options reserved...........................      3,200          --
   Granted...............................................     (2,386)      2,386     12.68  -   63.25      47,735         20.00
   Adopted and assumed...................................         --         300                 7.02       2,107          7.02
   Exercised.............................................         --        (425)     0.25  -   14.50        (312)         0.73
   Cancelled.............................................        570        (570)     0.25  -   57.50      (7,751)        13.58
                                                              ------      ------                         --------
   Balances, December 31, 2000...........................      1,845       5,170      0.25  -   63.25      58,116         11.24
   Additional options reserved...........................      1,800          --
   Granted...............................................     (2,345)      2,345      9.25  -   13.08      26,900         11.47
   Exercised.............................................         --        (510)     0.25  -    6.50        (653)         1.28
   Cancelled.............................................        877        (877)     0.25  -   57.50     (13,547)        15.45
                                                              ------      ------                         --------
   Balances, December 31, 2001...........................      2,177       6,128    $ 0.25  - $ 63.25    $ 70,816      $  11.56
                                                              ======      ======                         ========
</TABLE>

      The options outstanding and currently exercisable by exercise price at
December 31, 2001 are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                      OPTIONS OUTSTANDING AT DECEMBER 31, 2001        OPTIONS EXERCISABLE AT
                                      ----------------------------------------          DECEMBER 31, 2001
                                                     WEIGHTED                           -----------------
                                                      AVERAGE                        NUMBER
                                      NUMBER         REMAINING       WEIGHTED      EXERCISABLE      WEIGHTED
                 RANGE OF           OUTSTANDING     CONTRACTUAL       AVERAGE         AS OF          AVERAGE
              EXERCISE PRICE      AS OF 12/31/01   LIFE (YEARS)   EXERCISE PRICE    12/31/01     EXERCISE PRICE
              --------------      --------------   ------------   --------------    --------     --------------
<S>                               <C>              <C>            <C>              <C>           <C>
           $  0.25  -  $  2.60        1,173            6.96          $  0.77            533         $  0.56
              6.50  -     6.50          235            7.64             6.50            106            6.50
              7.02  -     7.02          300            7.99             7.02            300            7.02
              9.25  -    12.59        1,908            9.37            11.22            --              --
             12.69  -    15.25        2,022            8.74            14.59            484           14.74
             17.81  -    20.25          288            8.07            19.87            140           20.05
             28.75  -    38.98           94            8.05            35.55             28           35.07
             57.50  -    63.25          108            8.13            58.57             19           57.50
                                      -----                                           -----
                                      6,128            8.46          $ 11.56          1,610         $  9.40
                                      =====                                           =====

</TABLE>

STOCK-BASED COMPENSATION


                                      F-18
<PAGE>
      The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." Had compensation cost for the Company's stock
compensation plans been determined based on the fair value at the grant date for
awards during the years ended December 31, 2001, 2000 and 1999 consistent with
the provisions of SFAS No. 123, the Company's net loss would have been as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                    ------------------------
                                               2001           2000           1999
                                               ----           ----           ----
<S>                                         <C>            <C>            <C>
       Net loss, as reported ..........     $ (61,154)     $ (42,258)     $  (7,927)
       Net loss, pro forma ............     $ (69,474)     $ (48,340)     $  (8,695)
       Net loss per share, as reported:
         Basic and diluted ............     $   (1.53)     $   (1.80)     $   (0.85)
       Net loss per share, pro forma:
         Basic and diluted ............     $   (1.73)     $   (2.06)     $   (0.93)
</TABLE>

      Such pro forma disclosures may not be representative of future pro forma
compensation cost because options vest over several years and additional grants
are anticipated to be made each year.

      At December 31, 2001, 2000, and 1999 options exercisable under the Plan
were 1,610,493, 943,299 and 241,921, respectively. The weighted average fair
values of options granted during 2001, 2000 and 1999 were $5.39, $9.31 and
$6.45, respectively.

      The fair value of each option granted prior to October 9, 1999, the date
of the Company's initial public offering, was estimated on the date of grant
using the minimum value method. Thereafter, the fair value of option grants were
estimated using a Black-Scholes pricing model. The following weighted average
assumptions were used in the estimations:

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                    ------------------------
                                                  2001        2000        1999
                                                  ----        ----        ----
<S>                                             <C>         <C>         <C>
           Expected volatility .............         50%         50%        221%
           Risk-free interest rate .........       5.00%       6.00%       6.34%
           Expected life ...................    4 years     4 years     4 years
           Expected dividends ..............         --          --          --
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

      In July 1999, the Board of Directors adopted the Employee Stock Purchase
Plan ("Stock Purchase Plan"), which is intended to qualify under Section 423 of
the Internal Revenue Code. A total of 600,000 shares of common stock have been
reserved for issuance under the Stock Purchase Plan, of which 368,442 remain
available for issuance at December 31, 2001. Employees are eligible to
participate if they are employed for at least 20 hours per week and for more
than five months in any calendar year and who have been employed for at least 90
days. Employees who own more than 5% of the Company's outstanding stock may not
participate. The Stock Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed the lesser of 15%
of an employee's compensation or $25,000.

      The Stock Purchase Plan was implemented by six month offerings with
purchases occurring at six month intervals commencing January 1, 2000. The
purchase price of the common stock under the Stock Purchase Plan will be equal
to 85% of the fair market value per share of common stock on either the start
date of the offering period or on the purchase date, whichever is less. The
Stock Purchase Plan will terminate in 2009, unless terminated sooner by the
Board of Directors. Shares issued under the Stock Purchase Plan were 170,034 in
2001 at a weighted average purchase price of $7.84 per share.

DEFERRED STOCK COMPENSATION

      The Company recorded deferred stock compensation related to stock options
granted to employees where the exercise price is lower than the fair market
value of the Company's common stock on the date of the grant. Total deferred
compensation recorded for these options was zero, $341,000 and $6.4 million in
2001, 2000 and 1999, respectively. Additionally, the Company recorded deferred
stock compensation in the amount of $164,000 related to the issuance of
restricted stock to certain employees of one of its customers in May 2000, $4.9
million in connection with the acquisitions of Erisco and RIMS in October and
December 2000, and $647,000 related to the issuance of restricted stock to
certain employees in connection with performance bonuses in 2001, for a total of
$5.7 million -- see "Restricted Stock". The Company amortizes the deferred stock
compensation charge over the vesting period of the underlying stock option or
restricted stock award. Amortization of deferred stock compensation expense was
$3.0 million, $1.9 million and $1.1 million in 2001, 2000 and 1999,
respectively.


                                      F-19
<PAGE>
WARRANTS

      In September 2000, the Company issued warrants to purchase 300,000 shares
of the Company's common stock, at an exercise price of $13.50 per share and, in
return, received warrants to purchase 100,000 shares of common stock of Maxicare
Health Plans, Inc. at an exercise price of $1.50 per share, in connection with
consummation of an Application Services Provider (hosted) agreement. The
warrants were immediately exercisable upon issuance and expire in 2005. The
values of the warrants issued and received were determined using a Black Scholes
option pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                           WARRANTS     WARRANTS
                                                            ISSUED      RECEIVED
                                                            ------      --------
<S>                                                        <C>          <C>
           Term ......................................     5 years      5 years
           Expected dividends ........................          --           --
           Exercise price ............................     $ 13.50      $  1.50
           Grant date stock price ....................     $ 12.06      $  1.31
           Expected volatility .......................          50%          53%
           Risk-free interest rate ...................        5.91%        5.91%
</TABLE>

      The $1,716,000 net value of the warrants exchanged was being amortized on
a straight-line basis over the agreement term as a reduction of recurring
revenue. A total of $323,000 and $82,000 was charged against recurring revenue
as of December 31, 2001 and 2000, respectively. It has been determined that the
warrants no longer have value and, therefore, the net balance of $1,393,000 at
December 31, 2001 was expensed as restructuring and related impairment charges.

      As of December 31, 2001, the Company has reserved 300,000 shares of its
common stock for the exercise of these warrants.

      In connection with the October 1997 acquisition of Croghan & Associates,
the Company issued a warrant to purchase 162,595 shares of the Company's common
stock at an exercise price of $0.80 per share to replace an existing warrant to
purchase Croghan & Associates stock. The value of the warrant determined using
the Black Scholes model was not material. In August 1999, the warrant to
purchase 162,595 shares of common stock was exercised.

SHAREHOLDER RIGHTS PLAN

      In September 2000, the Company's Board of Directors adopted a shareholder
rights plan. The plan provides for a dividend distribution of one preferred
stock purchase right (a "Right") for each outstanding share of common stock,
distributed to stockholders of record on or after October 19, 2000. The Rights
will be exercisable only if a person or group acquires 15% or more of the
Company's common stock (an "Acquiring Person") or announces a tender offer for
15% or more of the common stock. Each Right will entitle stockholders to buy one
one-hundredth of a share of newly created Series A Junior Participating
Preferred Stock, par value $0.001 per share, of the Company at an initial
exercise price of $75 per Right, subject to adjustment from time to time.
However, if any person becomes an Acquiring Person, each Right will then entitle
its holder (other than the Acquiring Person) to purchase at the exercise price,
common stock of the Company having a market value at that time of twice the
Right's exercise price. If the Company is later acquired in a merger or similar
transaction, all holders of Rights (other than the Acquiring Person) may, for
$75.00, purchase shares of the acquiring corporation with a market value of
$150.00. Rights held by the Acquiring Person will become void. The Rights Plan
excludes from its operation IMS Health Incorporated (Note 12), and as a result,
their holdings will not cause the Rights to become exercisable or nonredeemable
or trigger the other features of the Rights. The Rights will expire on October
2, 2010, unless earlier redeemed by the Board at $0.001 per Right.

      The holders of Series A Junior Participating Preferred Stock in preference
to the holders of common stock, shall be entitled to receive, when, as and if
declared by the Board of Directors, quarterly dividends payable in cash in an
amount per share equal to 100 times the aggregate per share amount of all cash
dividends or non-cash dividends other than a dividend payable in share of common
stock.

      Each share of Series A Junior Participating Preferred Stock shall entitle
its holder to 100 votes.

RESTRICTED STOCK

      In May 2000, the Company issued 13,700 shares of restricted stock pursuant
to restricted stock agreements with non-employees. Pursuant to the agreements,
the Company shall cancel any unvested shares of common stock upon termination of
services. Shares subject to the agreements vest over a four-year period, in
equal annual installments, commencing on the first anniversary of the agreement
date. The fair value of the restricted stock is determined based on a
Black-Scholes pricing model at each reporting period. As of December 31, 2001,
2,125 shares vested and the Company cancelled 5,200 shares of unvested common
stock upon termination of services. The unvested shares of common stock vest
immediately prior to a change in control of the Company unless the Board of
Directors determines otherwise.

      In October 2000, in connection with the acquisition of Erisco Managed Care
Technologies, Inc. ("Erisco"), the Company issued 231,404 shares of restricted
stock to certain employees of Erisco. In addition, the Company recorded a $3.5
million charge to deferred


                                      F-20
<PAGE>
stock compensation. Of the 231,404 shares, 115,702 of the shares subject to the
agreement vest over a three-year period, in equal annual installments,
commencing on the first anniversary of the agreement date, as long as the
individual remains employed by the Company. The remaining 115,702 shares vest
over a three-year period commencing on December 31, 2001 if certain revenue and
operating income goals are achieved for the prior year. As of December 31, 2001,
77,135 shares had vested. The unvested shares of common stock vest immediately
prior to a change in control of the Company unless the Board of Directors
determines otherwise.

      In December 2000, in connection with the acquisition of Resource
Information Management Systems, Inc. ("RIMS"), the Company issued 82,553 shares
of restricted stock to certain employees of RIMS. In addition, the Company
recorded a $1.4 million charge to deferred stock compensation. Shares subject to
the agreement vest over a three-year period, in equal annual installments,
commencing on the first anniversary of the agreement date, as long as the
individual remains employed by the Company. As of December 31, 2001, 26,863
shares vested and the Company cancelled 1,965 shares of unvested common stock
upon termination of services. The unvested shares of common stock vest
immediately prior to a change in control of the Company unless the Board of
Directors determines otherwise.

      In February 2001, in connection with performance bonuses, the Company
issued 53,117 restricted shares of common stock to three employees. In addition,
the Company recorded a $647,000 charge to deferred stock compensation. The
shares subject to the agreement vest over a two-year period, in equal
installments, commencing on December 31, 2001, as long as the individual remains
employed by the Company. The unvested shares of common stock vest immediately
prior to a change in control of the Company unless the Board of Directors
determines otherwise.

10. INCOME TAXES

      The components of the benefit from income taxes are as following:

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                                 ------------------------
                                             2001          2000          1999
                                             ----          ----          ----
                                                      (IN THOUSANDS)
<S>                                        <C>           <C>           <C>
         Current:
           Federal ...................     $    107      $   (242)     $    (48)
           State .....................           89            30            22
                                           --------      --------      --------
                                                196          (212)          (26)
                                           --------      --------      --------
         Deferred:
           Federal ...................      (14,152)       (4,989)         (164)
           State .....................       (2,219)         (647)          (23)
                                           --------      --------      --------
                                            (16,371)       (5,636)         (187)
                                           --------      --------      --------
                   Total tax benefit       $(16,175)     $ (5,848)     $   (213)
                                           ========      ========      ========
</TABLE>

      Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 2001 and
2000, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31, 2001              DECEMBER 31, 2000
                                                             ----------------------           -----------------
                                                             CURRENT      LONG TERM               LONG TERM
                                                             -------      ---------               ---------
<S>                                                         <C>            <C>                <C>
         Deferred tax assets:
           Reserves and accruals ....................       $  6,299       $     --               $   2,096
           Deferred revenue .........................            124             --                     578
           Other ....................................            315             --                      --
           Net operating losses and capital losses ..             --         16,428                  16,246
           Tax credits ..............................             --          2,625                      36
                                                            --------       --------                --------
         Deferred tax assets ........................          6,738         19,053                  18,956
         Valuation allowance ........................             --             --                      --
                                                            --------       --------                --------
         Deferred tax assets ........................          6,738         19,053                  18,956
         Deferred tax liabilities: ..................             --             --                      --
           Leases ...................................             --            (13)                   (554)
           Depreciation .............................             --           (628)                   (461)
           Acquired intangible assets ...............             --        (32,163)                (43,082)
                                                            --------       --------                --------
         Deferred tax liabilities ...................             --        (32,804)                (44,097)
         Valuation allowance ........................             --             --                      --
                                                            --------       --------                --------
         Net deferred tax assets (liabilities) ......       $  6,738       $(13,751)               $(25,141)
                                                            ========       ========                ========
</TABLE>


                                      F-21
<PAGE>
      The Company's effective tax rate differs from the statutory rate as shown
in the following schedule:

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
                                                         2001          2000          1999
                                                         ----          ----          ----
                                                                  (IN THOUSANDS)
<S>                                                    <C>           <C>           <C>
       Tax benefit at federal statutory rate .....     $(26,290)     $(16,356)     $ (2,768)
       State income taxes, net of federal benefit        (1,529)       (2,405)         (385)
       Increase in valuation allowance ...........           --         7,343         1,408
       Intangible asset amortization .............       10,190         3,434           699
       Goodwill impairment .......................        1,824            --            --
       Amortization of deferred stock compensation        1,637           657           412
       Write off of acquired in-process technology           --           485           478
       Tax credits ...............................       (1,740)           --            --
       Nondeductible items and other .............         (267)          994           (57)
                                                       --------      --------      --------
                                                       $(16,175)     $ (5,848)     $   (213)
                                                       ========      ========      ========
</TABLE>


      Tax loss and tax credit carryforwards at December 31, 2001 are
approximately $41.2 million and $2.6 million, respectively, for federal
purposes. The federal loss carryforward will start to expire in the year ending
2019. The federal tax credit carryforward will start to expire in 2015. The
ownership change provisions of the Internal Revenue Code of 1986 limit the
availability of a portion of the net operating loss and tax credit carryforward.
The annual limitation may result in the expiration of net operating losses and
tax credits before utilization.

11. EMPLOYEE BENEFIT PLAN

      In January 1998, the Company adopted a defined contribution plan (the
"401k Plan") which qualifies under Section 401(k) of the Internal Revenue Code
of 1986. Eligible employees may make voluntary contributions to the 401k Plan of
up to 15% of their annual compensation, not to exceed the statutory amount, and
the Company may make matching contributions. The Company has made no
contributions since the 401k Plan's inception.

12. ACQUISITIONS

CREATIVE BUSINESS SOLUTIONS, INC.

      In February 1999, the Company acquired all of the outstanding shares of
Creative Business Solutions, Inc. ("Creative Business Solutions"), an Internet
solutions development company specializing in the integration of healthcare
information technology and contract programming solutions, and its majority
owned subsidiary, HealthWeb Systems, Ltd. ("HealthWeb"), an Internet software
and portal development company specializing in customized healthcare
applications. The Company also acquired the remaining minority interest in
HealthWeb. The acquisitions were accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
estimated fair values on the acquisition date.

      The purchase price of approximately $3.3 million consisted of
approximately $1.4 million in cash, 655,000 shares of common stock, notes
payable of $270,000, assumed liabilities of $527,000 and acquisition costs of
approximately $100,000. Included in the 655,000 shares of common stock issued in
the acquisition were 131,000 shares held in escrow to secure indemnification
obligations of the Creative Business Solutions and HealthWeb shareholders to
indemnify the Company for any breach of warranty, any inaccuracy of any
representation made by the seller or any breach of any covenant in the purchase
agreement. Such shares were released from escrow in February 2001. The fair
value of the 655,000 shares of common stock issued in the acquisition was
determined to be $1.1 million. The excess of the purchase price over the fair
market value of the net tangible assets acquired aggregated approximately $2.5
million, of which $484,000 was allocated to acquired in-process technology and
$2.1 million was allocated to goodwill, acquired workforce and customer list. An
independent valuation was performed to determine the fair value of the
identifiable intangible assets, including the portion of the purchase price
attributed to the acquired in-process technology. At the date of acquisition,
the Company determined the technological feasibility of HealthWeb's product was
not established, and accordingly, wrote off the corresponding amount based on
the percentage of completion at the acquisition date to acquired in-process
technology. Approximately $650,000 in research and development had been spent by
HealthWeb up to the date of the acquisition in an effort to develop the
technology to produce a commercially viable product and to develop future
releases with additional functionality, and the Company expected to introduce
the final product by the end of 1999. The actual expense associated with the
research and development of the HealthWeb product from the date of the
acquisition through the end of 1999, when the product was released, was
approximately $936,000.


                                      F-22
<PAGE>
      In December 2001, the net balance for goodwill and other intangible assets
of $1.0 million was expensed as restructuring and related impairment charges
(Note 13).

MANAGEMENT AND TECHNOLOGY SOLUTIONS, INC.

      In April 1999, the Company acquired certain assets and liabilities from
Management and Technology Solutions, Inc. ("MTS") in exchange for 60,000 shares
of common stock. The acquisition was accounted for as a purchase. The assets
included property and equipment, intellectual property, trademarks and licenses,
and computer software and software licenses. As part of this transaction, the
Company assumed liabilities consisting of lease obligations, a note payable and
certain other accrued liabilities.

NOVALIS CORPORATION

      In November 1999, the Company acquired all the outstanding shares of the
Novalis Corporation ("Novalis"). The purchase price of approximately $18.2
million consisted of cash in the amount of approximately $5.0 million, 549,786
shares of common stock with a value of $16.37 per share, assumed liabilities of
$1.9 million and acquisition costs of approximately $2.3 million. Of the 549,786
shares of common stock which have been issued in connection with this
acquisition, 366,524 shares of the common stock were held in escrow until
November 2000, to indemnify the Company for any breach of warranty, any
inaccuracy of any representation made by the seller or any breach of any
covenant in the purchase agreement. At the expiration of the escrow period,
114,223 of the shares were returned to the Company and cancelled to satisfy a
receivable from a former Novalis customer, and the balance of the escrow shares
were released to the sellers.

      The acquisition of Novalis was accounted for using the purchase method of
accounting. The excess of the purchase price over the estimated fair values of
the assets purchased and liabilities assumed was $13.2 million, of which
$923,000 was allocated to acquired in-process technology, and was written off in
the year ended December 31, 1999, and $12.3 million was allocated to goodwill
and intangible assets consisting of assembled workforce, core technology and
customer lists. As of the acquisition date, Novalis was developing several
enhancements to its proprietary software products which include claims
processing, data warehouse, medical management, credentialing and data
processing softwares. At the date of the acquisition, the Company determined the
technological feasibility of these product enhancements was not established and
there was no alternative use and accordingly, wrote off the corresponding amount
based on the percentage of completion at the acquisition date to acquired
in-process technology. Approximately $535,000 in research and development had
been spent by Novalis up to the date of the acquisition in an effort to develop
the next releases of the in-process and core technology. The future research and
development expense associated with the in-process and core technology was
estimated to be approximately $490,000. The in-process and core technology was
scheduled to be released by June 30, 2000. The actual expense associated with
the research and development of the next releases of these products was
approximately $486,000 and the various product release dates ranged between
March 1, 2000 and May 31, 2000.

FINSERV HEALTH CARE SYSTEMS, INC.

      In December 1999, the Company acquired all of the outstanding shares of
Finserv Health Care Systems, Inc. ("Finserv"). Finserv is a billing and accounts
receivable management company focusing on the outpatient sector of the
healthcare industry. The purchase price of approximately $5.8 million consisted
of cash in the amount of approximately $1.8 million, 48,998 shares of common
stock with a value of $30.61 per share, assumed liabilities of $1.5 million, and
acquisition costs of approximately $1.0 million. The agreement also provides
that an additional amount of shares, up to $750,000 in common shares (the
"earnout consideration"), may be issued to the Finserv selling securityholders
if certain milestones are achieved in the amount of up to $375,000 for each of
the years ending December 31, 2000 and 2001. The milestones were not achieved in
either 2000 or 2001. As a result, no milestone payments will be required by the
Company. Of the 48,998 shares of common stock which have been issued in
connection with this acquisition, 20,000 shares of common stock are held in
escrow to indemnify the Company for any breach of warranty, any inaccuracy of
any representation made by the seller or any breach of any covenant in the
purchase agreement.

      The acquisition was accounted for using the purchase method of accounting
and accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their estimated fair
values on the acquisition date. The excess of the purchase price over the
estimated fair value of the assets purchased and liabilities assumed was $4.7
million and was allocated to goodwill.

      In December 2001, the net balance for goodwill of $2.8 million was
expensed as restructuring and related impairment charges (Note 13).

HEALTHCARE MEDIA ENTERPRISES, INC.


                                      F-23
<PAGE>
      In January 2000, the Company acquired all of the outstanding shares of
Healthcare Media Enterprises, Inc. ("HME"). HME's primary business focus is on
software development, especially relating to the Internet, web design, and
business to business portals. The purchase price of approximately $7.0 million
consisted of cash in the amount of approximately $1.4 million, 87,604 shares of
common stock with a value of $38.66 per share, assumed liabilities of $191,000
and acquisition costs of approximately $266,000. In December 2000, an additional
91,954 contingent shares of common stock with a value of $17.04 were issued upon
the achievement of certain milestones in accordance with the original purchase
agreement which resulted in an increase to goodwill of approximately $1.6
million. An additional 44,047 contingent shares of common stock were issued in
accordance with a market value guarantee which did not effect the purchase price
or goodwill. In January 2001, an additional 11,687 contingent shares of common
stock with a value of $16.06 were issued in accordance with certain revenue
commitment guarantees in the original purchase agreement which resulted in an
increase to goodwill of approximately $188,000. In December 2001, an additional
43,802 contingent shares of common stock were issued in accordance with a market
guarantee which and no effect on the purchase price or goodwill. Of the 87,604
shares of common stock which were issued in connection with this acquisition,
17,472 shares of common stock were held in escrow to indemnify the Company for
any breach of warranty, any inaccuracy of any representation made by the seller
or any breach of any covenant in the purchase agreement, until they were
released to the seller in January 2001.

      The acquisition of HME was accounted for using the purchase method of
accounting. The excess of the purchase price over the fair market value of the
assets purchased and liabilities assumed was $6.6 million, of which $536,000 was
allocated to acquired in-process technology, based upon an independent
appraisal, and was expensed in January 2000, and $6.1 million was allocated to
goodwill and intangible assets consisting of assembled workforce, core
technology and customer lists. As of the acquisition date, HME was developing
several enhancements to its proprietary software products for which
technological feasibility had not been established and for which there were no
alternative uses. Accordingly, the Company expensed the portion of the
consideration allocated to in-process technology. Approximately $1.4 million in
research and development had been spent up to the date of the acquisition in an
effort to develop the next releases of the in-process technology. The future
research and development expense associated with the in-process technology was
estimated to be approximately $350,000, and the in-process technology was
scheduled to be released by September 2000. Since the date of acquisition, the
Company has decided to postpone the release of the in-process technology, and
has incurred no further research and development expense related to the product.

      In valuing HME's developed, in-process and core technologies, the Company
utilized the discounted cash flows method. The discounted cash flows method
includes an analysis of the completion costs, cash flows and risks associated
with achieving such cash flows. This income stream was tax effected and
discounted to its present value to estimate the value of the core and in-process
technologies. For purposes of this analysis, the Company used 20% and 25%
discount rates for the core and in-process technologies, respectively. These
discount rates are consistent with the risks inherent in achieving the projected
cash flows. The amount allocated to in-process technology was determined by
establishing the stage of completion of the in-process research and development
project at the date of acquisition.

      In December 2001, the net balance for goodwill and other intangibles of
$1.9 million were expensed as restructuring and related impairment charges
(Note 13).

ERISCO MANAGED CARE TECHNOLOGIES, INC.

      In May 2000, the Company entered into an Agreement and Plan of
Reorganization with Elbejay Acquisition Corp. ("Elbejay") a wholly owned
subsidiary of the Company, IMS Health Incorporated ("IMS HEALTH"), and Erisco
Managed Care Technologies, Inc. ("Erisco") pursuant to which Elbejay would merge
with and into Erisco resulting in Erisco becoming a wholly owned subsidiary of
the Company. In October 2000, the Company consummated the transaction, and
Erisco became a wholly owned subsidiary of the Company. Erisco is a leading
provider of software to the managed care industry. The purchase price of
approximately $228.4 million consisted of 12,142,857 shares of common stock with
a value of $15.89 per share, assumed liabilities of $30.0 million, which
includes $14.2 million of deferred tax liability resulting from the difference
between the book and tax basis of the intangible assets arising as a result of
the acquisition and acquisition costs of approximately $5.5 million. In
addition, the Company issued 231,404 shares of restricted stock to certain
Erisco employees.

      The acquisition was accounted for using the purchase method of accounting
and accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their estimated fair
market values on the acquisition date. The excess of the purchase price over the
estimated fair market value of the assets purchased and liabilities assumed was
$187.8 million and was allocated to goodwill and intangible assets consisting of
assembled workforce, core technology, trademarks and customer lists.


                                      F-24
<PAGE>
RESOURCE INFORMATION MANAGEMENT SYSTEMS, INC.

      In December 2000, the Company acquired all of the issued and outstanding
capital stock of Resource Information Management Systems, Inc., an Illinois
corporation ("RIMS"), in accordance with the terms and conditions of the
Agreement and Plan of Merger, dated as of November 2, 2000 (the "Merger
Agreement") by and among TriZetto, Cidadaw Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of TriZetto, RIMS, the shareholders of
RIMS, and Terry L. Kirch and Thomas H. Heimsoth, and the First Amendment to
Agreement and Plan of Merger, dated as of December 1, 2000 (the "First
Amendment"), by and among TriZetto, Cidadaw Acquisition Corp., RIMS, the
shareholders of RIMS, and Terry L. Kirch and Thomas H. Heimsoth. The acquisition
was effected by a merger (the "Merger") of Cidadaw Acquisition Corp. with and
into RIMS, with RIMS surviving the merger as a wholly owned subsidiary of
TriZetto.

      The purchase price of approximately $96.8 million consisted of cash in the
amount of $3.0 million, 2,588,427 shares of common stock with a value of $21.20
per share, the fair value of approximately 300,000 fully vested options assumed
of $4.7 million, assumed liabilities of $32.8 million, which includes $13.7
million of deferred tax liability resulting from the difference between the book
and tax basis of the intangible assets arising as a result of the acquisition
and acquisition costs of approximately $1.4 million. In addition, the Company
issued 82,553 shares of restricted stock to certain RIMS employees. Of the
2,588,427 shares of common stock which were issued in connection with this
Merger, 517,685 shares of common stock were held in escrow to indemnify the
Company for any breach of warranty, any inaccuracy of any representation made by
the seller or any breach of any covenant in the purchase agreement, until they
were released to the seller in December 2001.

      According to the terms and conditions of the Merger Agreement, the shares
issued to effect the Merger are subject to lock-up restrictions such that 50% of
the shares are released on the one-year anniversary of the Merger and 12.5% of
the shares are released on the 15-month, 18-month, 21-month and two year
anniversaries of the Merger. If the average closing price of the Company's
common stock for the five trading days proceeding a lock-up release date is less
than $17.50, the Company shall issue an additional number of the Company's
common stock such that the total number of shares eligible for sale on the
lock-up release date (including shares sold prior to such date) has a value
equal to $45,297,466.10 multiplied by the aggregate percentage of shares of the
Company's common stock released as of such date, provided, however, that the
Company in no event, shall be required to issue more than 647,107 additional
shares. In December 2001, an additional 647,107 contingent shares of common
stock were issued in accordance with the market guarantee which had no effect on
the purchase price or goodwill.

      The acquisition was accounted for using the purchase method of accounting
and accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their estimated fair
market values on the acquisition date. The excess of the purchase price over the
estimated fair market value of the assets purchased and liabilities assumed was
$83.7 million, of which $890,000 was allocated to acquired in-process technology
and was expensed in December 2000, and an estimated $82.8 million was allocated
to goodwill and intangible assets consisting of assembled workforce, core
technology and customer lists.

      In valuing RIMS' developed, in-process and core technologies, the Company
utilized the discounted cash flows method. The discounted cash flows method
includes an analysis of the completion costs, cash flows and risks associated
with achieving such cash flows. This income stream was tax effected and
discounted to its present value to estimate the value of the cored and
in-process technologies. For purposes of this analysis, the Company used 20% and
25% discount rates for the core and in-process technologies, respectively. These
discount rates are consistent with the risks inherent in achieving the projected
cash flows. The amount allocated to in-process technology was determined by
establishing the stage of completion of the in-process research and development
project as of the date of acquisition.


INFOTRUST COMPANY

      In April 2001, the Company acquired all of the issued and outstanding
shares of Infotrust Company ("Infotrust") from Trustco Holdings, Inc. Infotrust
serves healthcare payers, providing hosted applications services and outsourcing
of essential administrative processes. The purchase price of approximately $15.4
million consisted of 923,077 shares of common stock with a value of $13.96 per


                                      F-25
<PAGE>
share, assumed liabilities of $1.9 million, which includes $1.6 million of
deferred tax liability resulting from the difference between the book and tax
basis of the intangible assets arising as a result of the acquisition, and
acquisition costs of $647,000. Of the 923,077 shares of common stock which have
been issued in connection with this acquisition, 138,462 shares of the common
stock are held in escrow to indeminify the Company for any breach of warranty,
any inaccuracy of any representation made by the seller or any breach of any
covenant in the purchase agreement, and are scheduled to be released in April
2002.

      The acquisition was accounted for using the purchase method of accounting
and accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their estimated fair
market values on the acquisition date. The excess of the purchase price over the
estimated fair market value of the assets purchased and liabilities assumed was
$8.4 million and was allocated to goodwill and intangible assets consisting of
assembled workforce, core technology, customer lists, consulting contracts and
trademarks.

      The purchase price allocations were based on the estimated fair value of
the assets, on the date of purchases as follows (in thousands):

<TABLE>
<CAPTION>
                                         CREATIVE
                                         BUSINESS
                                         SOLUTIONS     NOVALIS      FINSERV        HME        ERISCO        RIMS       INFOTRUST
                                         ---------     -------      -------        ---        ------        ----       ---------
<S>                                      <C>          <C>          <C>          <C>          <C>          <C>          <C>
Total current assets ...............     $    596     $  2,612     $    827     $    336     $ 36,040     $  7,048     $  3,285
Property, Plant, equipment and other
  noncurrent assets ................          175        2,434          276           88        4,523        6,100        3,725
Goodwill ...........................        1,338        2,807        4,666        5,350      129,240       33,554        4,413
Other intangible assets ............          726        9,427           --          686       58,570       49,210        4,002
Acquired in-process technology .....          484          923           --          536           --          890           --
                                         --------     --------     --------     --------     --------     --------     --------
     Total purchase price ..........     $  3,319     $ 18,203     $  5,769     $  6,996     $228,373     $ 96,802     $ 15,425
                                         ========     ========     ========     ========     ========     ========     ========
</TABLE>

      The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisitions of Erisco, RIMS and
Infotrust occurred on January 1, 2000, including giving effect of amortization
of goodwill and other intangibles and the write-off of acquired technology (in
thousands):

<TABLE>
<CAPTION>
                                                            YEARS ENDED
                                                            DECEMBER 31,
                                                            ------------
                                                       2001              2000
                                                       ----              ----
<S>                                                 <C>               <C>
               Net revenue .................        $ 223,312         $ 175,038
               Net loss ....................        $ (61,202)        $ (86,217)
               Net loss per share ..........        $   (1.49)        $   (2.50)
</TABLE>

      The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisitions of Creative Business
Solutions, Novalis, Finserv, HME, Erisco, and RIMS occurred on January 1, 1999,
including giving effect of amortization of goodwill and other intangibles and
the write-off of acquired in-process technology (in thousands):

<TABLE>
<CAPTION>
                                                           YEARS ENDED
                                                           DECEMBER 31,
                                                           ------------
                                                     2000                1999
                                                     ----                ----
<S>                                               <C>                 <C>
               Net revenue .............          $ 162,233           $ 151,846
               Net loss ................          $ (82,390)          $ (62,054)
</TABLE>


                                      F-26
<PAGE>


13. RESTRUCTURING AND RELATED IMPAIRMENT CHARGES

      In December 2001, the Company initiated a number of restructuring actions
focused on eliminating redundancies, streamlining operations and improving
overall financial results. These initiatives include workforce reductions,
office closures, and business line simplifications and related asset write-offs.

      In December 2001, the Company announced a planned workforce reduction in
Los Angeles, California;  Novato, California; Baltimore, Maryland; Little Rock,
Arkansas; Provo, Utah; Salt Lake City, Utah; Westmont, Illinois; Albany, New
York; Glastonbury, Connecticut; and Trivandrum, India. Severance and other costs
related to this workforce reduction totaled $1.7 million of which $1.0 million
was included in restructuring and related impairment charges in 2001 and
$745,000 will be charged to restructuring and related impairment charges in
2002. The $745,000 of severance and other costs that will be charged to expense
in 2002 is made up of $149,000, $35,000, and $561,000 occurring in the first
quarter, second quarter and third quarter, respectively. Such workforce
reductions are expected to be completed by the end of third quarter 2002. When
these reductions have been completed, the Company will have 168 fewer employees.

      Facility closures include the closure of the Novato, California;
Birmingham, Alabama; Provo, Utah; Salt Lake City, Utah; Westmont, Illinois;
Naperville, Illinois; Louisville, Kentucky; and Trivandrum, India. These
closures are expected to be completed during the first quarter of 2002.

      The following table summarizes the activities in the Company's
restructuring reserves (amounts in thousands):

<TABLE>
<CAPTION>
                                             Costs for
                                            Terminated      Facility
                                             Employees      Closures     Total
                                             ---------      --------     -----
<S>                                         <C>             <C>         <C>
        Restructuring charges                 $   959       $ 2,419     $ 3,378
        Cash payments                             (91)           --         (91)
                                              -------       -------     -------
        Accrued restructuring charges         $   868       $ 2,419     $ 3,287
                                              =======       =======     =======
</TABLE>

      In addition to the workforce reductions and facility closures described
above, the Company has undertaken business line simplifications and related
asset write-offs. Specifically, the Company has discontinued certain website
and software development activities and its hospital billing and accounts
receivable business line and written off the assets associated with these
activities. The Company has also written off assets associated with the closure
of facilities. The following table summarizes the Company's write-off of assets
(amounts in thousands):

<TABLE>
<CAPTION>
                           Accounts     Property and
                          Receivable   Equipment, net    Goodwill   Other Assets    Total
                          ----------   --------------    --------   ------------    -----
<S>                       <C>          <C>               <C>        <C>             <C>
Business line
simplifications             $  302         $  933         $5,716       $1,389       $8,340
Office closures                 --            422             --           --          422
                            ------         ------         ------       ------       ------
Total                       $  302         $1,355         $5,716       $1,389       $8,762
                            ======         ======         ======       ======       ======
</TABLE>

                                      F-27
<PAGE>

14. SUPPLEMENTAL CASH FLOW DISCLOSURES

<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED
                                                                          DECEMBER 31,
                                                                          ------------
                                                              2001            2000           1999
                                                              ----            ----           ----
                                                                         (IN THOUSANDS)
<S>                                                         <C>             <C>            <C>
   SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION
   Cash paid for interest ...........................       $  1,351        $    903       $    120
   Cash paid for income taxes .......................            292              62             42
   NONCASH INVESTING AND FINANCING ACTIVITIES
   Assets acquired through capital lease ............          2,734           3,235          3,550
   Assets acquired through debt financing ...........            778              --             --
   Deferred stock compensation ......................         (1,966)          5,411          6,383
   Issuance of notes payable to acquire software
     and software licenses ..........................             --              --          1,690
   Common stock issued for acquisition of Creative
     Business Solutions, Inc ........................             --              --          1,146
   Notes payable issued for Creative Business
     Solutions, Inc .................................             --              --            270
   Repurchase of shares in exchange for stockholder
     notes receivable ...............................             --              --            700
   Cancellation of Novalis escrowed shares for
     payment of notes receivable ....................             --           2,206             --
   Common stock issued to purchase assets of
     Management and Technology Solutions, Inc .......             --              --            140
   Exercise of common stock warrants ................             --              --            130
   Common stock issued for acquisition of
     Novalis Corporation ............................             --              --          8,999
   Common stock issued for acquisition of Finserv
     Healthcare Systems, Inc ........................             --              --          1,499
   Issuance of common stock warrants ................             --           1,716             --
   Common stock issued for acquisition of
     Healthcare Media Enterprises, Inc ..............            188           5,189             --
   Common stock issued for acquisition of
     Erisco Managed Technologies, Inc ...............             --         192,923             --
   Common stock issued for acquisition of
     Resource Information Management Systems, Inc ...             --          54,864             --
   Options assumed for acquisition of Resource
     Management Information Systems, Inc ............             --           4,718             --
   Common stock issued for acquisition of
     Infotrust Company ..............................         12,890              --             --
</TABLE>

15. SEGMENT INFORMATION

      The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires enterprises to report
information about operating segments in annual financial statements and selected
information about reportable segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.

      The Company operates in two reportable segments: recurring or multi-year
contractually based revenue, and revenue generated via non-recurring agreements.
The Company's chief operating decision makers evaluate performance and allocate
resources based on gross margin for these segments. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies.

      The Company's reportable segments are organized primarily by the nature of
services provided. The reportable segments are managed separately because of the
difference in marketing strategies, customer base and client approach. Financial
information about segments is reported in the consolidated statements of
operations. The Company does not identify assets by business segments.

      The Company's assets are all located in the United States, and all sales
were to customers located in the United States.

      Recurring and non-recurring revenues by type of similar products and
services are as follows (in thousands):

<TABLE>
<CAPTION>
                                               FOR THE YEARS ENDED DECEMBER 31,
                                               --------------------------------
                                                2001         2000         1999
                                                ----         ----         ----
<S>                                           <C>          <C>          <C>
        Hosted revenue ..................     $ 98,295     $ 54,596     $ 19,448
        Software maintenance and annual
         license agreement revenue ......       44,411        7,215           --
                                              --------     --------     --------
          Recurring revenue .............      142,706       61,811       19,448
                                              --------     --------     --------
        Consulting revenue ..............       41,726       26,051       13,478
        Software license revenue ........       33,740        1,194           --
                                              --------     --------     --------
          Non-recurring revenue .........       75,466       27,245       13,478
                                              --------     --------     --------
        Total revenue ...................     $218,172     $ 89,056     $ 32,926
                                              ========     ========     ========
</TABLE>


16. QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>
                                                                        BASIC AND
                                                                         DILUTED
                                         NET        GROSS       NET       LOSS
                                       REVENUE      PROFIT      LOSS    PER SHARE
                                       -------      ------     -----   -----------
<S>                                    <C>         <C>       <C>        <C>
      FISCAL YEAR 2001
      First Quarter ..............     $46,039     $12,112   $(17,934)  $(0.50)
      Second Quarter .............      53,319      17,112    (14,981)   (0.40)
      Third Quarter ..............      57,216      19,424    (11,604)   (0.27)
      Fourth Quarter .............      61,598      22,864    (16,635)   (0.38)
      FISCAL YEAR 2000
      First Quarter ..............      17,717       2,280     (7,881)   (0.42)
      Second Quarter .............      17,759       2,427     (8,649)   (0.43)
      Third Quarter (Restated) ...      19,026       2,391     (8,054)   (0.39)
      Fourth Quarter (Restated) ..      34,554       6,939    (17,674)   (0.52)
</TABLE>

     The consolidated statements of operations for the three months ended
September 30, 2000, have been restated. As a result of the revision, revenue was
reduced by $381,000 for the period to defer additional revenue erroneously
recognized on a software sales contract and selling, general and administrative
expense was reduced $26,000 for the period to correct the recognition of the
amortization of additional cost associated with an acquisition. The net result
was an increase to net loss and net loss per share of $355,000 and $0.02,
respectively, for the period. For the three months ended December 31, 2000,
revenue was increased by $381,000 and selling, general and administrative
expense was decreased by $26,000 resulting in a net decrease to net loss and net
loss per share of $355,000 and $0.01, respectively. There was no effect on the
year ended December 31, 2000, as a result of the revision.


                                      F-28

<PAGE>
                                                                     SCHEDULE II

                    THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                 BALANCE AT      ADDITIONS
                                                 BEGINNING    CHARGED TO COSTS                      BALANCE AT
                                                 OF PERIOD      AND EXPENSES      DEDUCTIONS       ENDING PERIOD
                                                 ---------      ------------      ----------       -------------
<S>                                              <C>          <C>                 <C>              <C>
      ALLOWANCE FOR DOUBTFUL ACCOUNTS
        Year Ended December 31, 1999 ....          $  204          $  505          $  112(1)          $  597
        Year Ended December 31, 2000 ....          $  597          $1,357          $  734(1)          $1,220
        Year Ended December 31, 2001 ....          $1,220          $5,090          $  867(1)          $5,443
      ALLOWANCE FOR SALES RETURNS
        Year Ended December 31, 1999 ....              --              --              --                 --
        Year Ended December 31, 2000 ....              --              --              --                 --
        Year Ended December 31, 2001 ....              --          $  828          $   35             $  793
      DEFERRED TAX VALUATION ALLOWANCE
        Year Ended December 31, 1999 ....              --          $1,408              --             $1,408
        Year Ended December 31, 2000 ....          $1,408          $7,393          $8,751(2)              --
</TABLE>

----------

(1)   Deductions include the write-off of uncollectible amounts with respect to
      accounts receivable.

(2)   Utilization of the deferred tax valuation allowance to offset deferred tax
      liabilities generated in the acquisition of ERISCO Managed Care
      Technologies, Inc. in 2000.


                                      F-29





<PAGE>
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER            DESCRIPTION OF EXHIBIT
------            ----------------------
<S>               <C>
2.1*              Agreement and Plan of Reorganization, dated as of May 16,
                  2000, by and among TriZetto, Elbejay Acquisition Corp., IMS
                  Health Incorporated and Erisco Managed Care Technologies, Inc.
                  (Incorporated by reference to Exhibit 2.1 of TriZetto's Form
                  8-K as filed with the SEC on May 19, 2000, File No. 000-27501)

2.2*              Agreement and Plan of Merger, dated as of November 2, 2000, by
                  and among TriZetto, Cidadaw Acquisition Corp., Resource
                  Information Management Systems, Inc. ("RIMS"), the
                  shareholders of RIMS, Terry L. Kirch and Thomas H. Heimsoth
                  (Incorporated by reference to Exhibit 2.1 of TriZetto's Form
                  8-K as filed with the SEC on December 18, 2000, File No.
                  000-27501)

2.3*              First Amendment to Agreement and Plan of Merger, dated as of
                  December 1, 2000, by and among TriZetto, Cidadaw Acquisition
                  Corp., RIMS, the shareholders of RIMS, Terry L. Kirch and
                  Thomas H. Heimsoth (Incorporated by reference to Exhibit 2.2
                  of TriZetto's Form 8-K as filed with the SEC on December 18,
                  2000, File No. 000-27501)

3.1*              Form of Amended and Restated Certificate of Incorporation of
                  TriZetto, as filed with the Delaware Secretary of State
                  effective as of October 14, 1999 (Incorporated by reference to
                  Exhibit 3.2 of TriZetto's Registration Statement on Form
                  S-1/A, as filed with the SEC on September 14, 1999, File No.
                  333-84533)

3.2*              Certificate of Amendment of Amended and Restated Certificate
                  of Incorporation of TriZetto, dated October 3, 2000
                  (Incorporated by reference to Exhibit 3.1 of TriZetto's Form
                  10-Q as filed with the SEC on November 14, 2000, File No.
                  000-27501)

3.3*              Certificate of Designation of Rights, Preferences and
                  Privileges of Series A Junior Participating Preferred Stock of
                  TriZetto, dated October 17, 2000 (Incorporated by reference to
                  Exhibit 3.2 of TriZetto's Form 10-Q as filed with the SEC on
                  November 14, 2000, File No. 000-27501)

3.4*              Amended and Restated Bylaws of TriZetto effective as of
                  October 7, 1999 (Incorporated by reference to Exhibit 3.4 of
                  TriZetto's Registration Statement on Form S-1/A, as filed with
                  the SEC on August 18, 1999, File No. 333-84533)

4.1*              Specimen common stock certificate (Incorporated by reference
                  to Exhibit 4.1 of TriZetto's Registration Statement on Form
                  S-1/A as filed with the SEC on September 14, 1999, File No.
                  333-84533)

4.2*              Rights Agreement, dated October 2, 2000, by and between
                  TriZetto and U.S. Stock Transfer Corporation (Incorporated by
                  reference to Exhibit 2.1 of TriZetto's Form 8-A12G as filed
                  with the SEC on October 19, 2000, File No. 000-27501)

10.1*             First Amended and Restated 1998 Stock Option Plan
                  (Incorporated by reference to Exhibit 4.1 of TriZetto's Form
                  S-8 as filed with the SEC on August 7, 2000, File No.
                  333-43220)

10.2*             Form of 1998 Incentive Stock Option Agreement (Incorporated by
                  reference to Exhibit 10.2 of TriZetto's Registration Statement
                  on Form S-1 as filed with the SEC on August 5, 1999, File No.
                  333-84533)

10.3*             Form of 1998 Non-Qualified Stock Option Agreement
                  (Incorporated by reference to Exhibit 10.3 of TriZetto's
                  Registration Statement on Form S-1 as filed with the SEC on
                  August 5, 1999, File No. 333-84533)

10.4*             1999 Employee Stock Purchase Plan (Incorporated by reference
                  to Exhibit 10.4 of TriZetto's Registration Statement on Form
                  S-1/A as filed with the SEC on August 18, 1999, File No.
                  333-84533)

10.5*             RIMS Stock Option Plan (Incorporated by reference to Exhibit
                  4.1 of TriZetto's Form S-8 as filed with the SEC on December
                  21, 2000, File No. 000-27501)

10.6*             Employment Agreement, dated April 30, 1998, by and between
                  TriZetto and Jeffrey H. Margolis (Incorporated by reference to
                  Exhibit 10.5 of TriZetto's Registration Statement on Form S-1
                  as filed with the SEC on August 5, 1999, File No. 333-84533)

10.7*             Promissory Note, dated April 30, 1998, by and between TriZetto
                  and Jeffrey H. Margolis (Incorporated by reference to Exhibit
                  10.6 of TriZetto's Registration Statement on Form S-1 as filed
                  with the SEC on August 5, 1999, File No. 333-84533)

10.8*             Form of Indemnification Agreement (Incorporated by reference
                  to Exhibit 10.7 of TriZetto's Registration Statement on Form
                  S-1 as filed with the SEC on August 5, 1999, File No.
                  333-84533)

10.9*             Form of Restricted Stock Agreement between TriZetto and
                  certain consultants and employees (Incorporated by reference
                  to Exhibit 10.3 of TriZetto's Form 10-Q as filed with the SEC
                  on August 14, 2000, File No. 000-27501)

10.10*            Form of Change of Control Agreement entered into by and
                  between TriZetto and certain executive officers of TriZetto
                  effective as of February 18, 2000 (Incorporated by reference
                  to Exhibit 10.1 of TriZetto's Form 10-Q as filed with the SEC
                  on May 15, 2000, File No. 000-27501)

10.11*            First Amended and Restated Investor Rights Agreement, dated
                  April 9, 1999 by and among Raymond Croghan, Jeffrey Margolis,
                  TriZetto, and Series A and Series B Preferred Stockholders
                  (Incorporated by reference to Exhibit 10.8 of TriZetto's
                  Registration Statement on Form S-1/A, as filed with the SEC on
                  August 18, 1999, File No. 333-84533)

10.12*            Office Lease Agreement, dated April 26, 1999, between St. Paul
                  Properties, Inc. and TriZetto (including addendum)
                  (Incorporated by reference to Exhibit 10.10 of TriZetto's
                  Registration Statement on Form S-1 as filed with the SEC on
                  August 5, 1999, File No. 333-84533)

10.13*            Sublease Agreement, dated December 18, 1998, between TPI
                  Petroleum, Inc. and TriZetto (including underlying Office
                  Lease Agreement by and between St. Paul Properties, Inc. and
                  Total, Inc.) (Incorporated by reference to Exhibit 10.11 of
                  TriZetto's Registration Statement on Form S-1 as filed with
                  the SEC on August 5, 1999, File No. 333-84533)

10.14*            First Modification and Ratification of Lease, dated November
                  1, 1999, by and between TriZetto and St. Paul Properties, Inc.
                  (Incorporated by reference to Exhibit 10.22 of TriZetto's Form
                  10-K as filed with the SEC on March 30, 2000, File No.
                  000-27501)

10.15*            Second Modification and Ratification of Lease, dated December
                  1999, by and between TriZetto and St. Paul Properties, Inc.
                  (Incorporated by reference to Exhibit 10.23 of TriZetto's Form
                  10-K as filed with the SEC on March 30, 2000, File No.
                  000-27501)

10.16*            Third Modification and Ratification of Lease, dated January
                  15, 2000, by and between TriZetto and St. Paul Properties,
                  Inc. (Incorporated by reference to Exhibit 10.16 of TriZetto's
                  Form 10-K as filed with the SEC on April 2, 2001, File No.
                  000-27501)

10.17*            Fourth Modification and Ratification of Lease, dated October
                  15, 2000, by and between TriZetto and St. Paul Properties,
                  Inc. (Incorporated by reference to Exhibit 10.17 TriZetto's
                  Form 10-K as filed with the SEC on April 2, 2001, File No.
                  000-27501)

10.18*            Form of Voting Agreement (Incorporated by reference to Exhibit
                  2.1 of TriZetto's Form 8-K as filed with the SEC on May 19,
                  2000, File No. 000-27501)

10.19*            Secured Term Note, dated September 11, 2000, payable by
                  TriZetto and each of TriZetto's subsidiaries to Heller
                  Healthcare Finance, Inc. (Incorporated by reference to Exhibit
                  10.1 of TriZetto's Form 10-Q as filed with the SEC on November
                  14, 2000, File No. 000-27501)

10.20*            Loan and Security Agreement, dated September 11, 2000, by and
                  among TriZetto, each of TriZetto's subsidiaries, and Heller
                  Healthcare Finance, Inc. (Incorporated by reference to Exhibit
                  10.2 of TriZetto's Form 10-Q as filed with the SEC on November
                  14, 2000, File No. 000-27501)

10.21*            Revolving Credit Note, dated September 11, 2000, payable by
                  TriZetto and each of TriZetto's subsidiaries to Heller
                  Healthcare Finance, Inc. (Incorporated by reference to Exhibit
                  10.3 of TriZetto's Form 10-Q as filed with the SEC on November
                  14, 2000, File No. 000-27501)

10.22*            Amendment No. 1 to Loan and Security Agreement, dated October
                  17, 2000, by and among TriZetto, each of TriZetto's
                  subsidiaries, and Heller Healthcare Finance, Inc.
                  (Incorporated by reference to Exhibit 10.4 of TriZetto's Form
                  10-Q as filed with the SEC on November 14, 2000, File No.
                  000-27501)

10.23*            Amended and Restated Revolving Credit Note, dated October 17,
                  2000, payable by TriZetto and each of TriZetto's subsidiaries
                  to Heller Healthcare Finance, Inc. (Incorporated by reference
                  to Exhibit 10.5 of TriZetto's Form 10-Q as filed with the SEC
                  on November 14, 2000, File No. 000-27501)

10.24*            Amendment No. 2 to Loan and Security Agreement, dated December
                  28, 2000, by and among TriZetto, each of TriZetto's
                  subsidiaries, and Heller Healthcare Finance, Inc. (Incorporated
                  by reference to Exhibit 10.24 of TriZetto's Form 10-K as filed
                  with the SEC on April 2, 2001, File No.000-27501)


10.25*            Second Amended and Restated Revolving Credit Note, dated
                  December 28, 2000, payable by TriZetto and each of TriZetto's
                  subsidiaries to Heller Healthcare Finance, Inc. (Incorporated
                  by reference to Exhibit 10.25 of TriZetto's Form 10-K as filed
                  with the SEC on April 2, 2001, File No.000-27501)


10.26*            Bank One Credit Facility (including Promissory Note, Business
                  Loan Agreement and Commercial Pledge and Security Agreement),
                  dated October 27, 1999 (Incorporated by reference to Exhibit
                  10.21 of TriZetto's Form 10-K as filed with the SEC on March
                  30, 2000 File No. 000-27501)

10.27*            Amendment to Bank One Credit Facility, dated June 22, 2000
                  (including Promissory Note Modification Agreement, Business
                  Loan Agreement and Commercial Pledge and Security Agreement)
                  (Incorporated by reference to Exhibit 10.27 of TriZetto's Form
                  10-K as filed with the SEC on April 2, 2001, File No.000-27501)


10.28*            Amendment to Bank One Credit Facility, dated November 4, 2000
                  (including Change in Terms Agreement) (Incorporated by reference
                  to Exhibit 10.28 of TriZetto's Form 10-K as filed with the SEC
                  on April 2, 2001, File No.000-27501)


10.29*            Stockholder Agreement, dated as of October 2, 2000, by and
                  between TriZetto and IMS Health Incorporated (Incorporated by
                  reference to Exhibit 10.29 of TriZetto's Form 10-K as filed with
                  the SEC on April 2, 2001, File No.000-27501)


10.30*            Registration Rights Agreement, dated as of October 2, 2000, by
                  and between TriZetto and IMS Health Incorporated (Incorporated
                  by reference to Exhibit 10.30 of TriZetto's Form 10-K as filed
                  with the SEC on April 2, 2001, File No.000-27501)

10.31*            Amendment to Bank One Credit Facility, dated March 29, 2001
                  (including Business Loan Agreement) (Incorporated by reference
                  to Exhibit 10.1 of TriZetto's Form 10-Q as filed with the SEC
                  on May 15, 2001, File No.000-27501)

10.32*            Second Amended and Restated Stock Option Plan (Incorporated by
                  reference to Exhibit 4.1 of TriZetto's Form S-8 as filed with
                  the SEC on June 26, 2001, File No. 333-63902) (Incorporated by
                  reference to Exhibit 10.1 of TriZetto's Form 10-Q as filed with
                  the SEC on August 14, 2001, File No.000-27501)

10.33*            Secured Term Note (Incorporated by reference to Exhibit 10.1 of
                  TriZetto's Form 10-Q as filed with the SEC on November 14, 2001,
                  File No.000-27501)

10.34*            Third Amended and Restated Revolving Credit Note (Incorporated
                  by reference to Exhibit 10.2 of TriZetto's Form 10-Q as filed
                  with the SEC on November 14, 2001, File No.000-27501)

10.35*            Amendment No. 3 to Loan and Security Agreement (Incorporated by
                  reference to Exhibit 10.3 of TriZetto's Form 10-Q as filed with
                  the SEC on November 14, 2001, File No.000-27501)

16.1*             Letter regarding Change in Certifying Accountants (Incorporated
                  by reference to Exhibit 16.1 of TriZetto's Form 10-Q as filed
                  with the SEC on August 14, 2001, File No.000-27501)

21.1*             Current Subsidiaries of TriZetto

23.1              Consent of PricewaterhouseCoopers LLP
</TABLE>
* Previously filed.