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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED: MARCH 31, 2001

                        COMMISSION FILE NUMBER: 0-26567

                                 e-MEDSOFT.com

                NEVADA                                 84-1037630
    (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

       1300 MARSH LANDING PARKWAY, SUITE 106, JACKSONVILLE, FLORIDA 32250
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (904) 543-1000
                           (ISSUER'S TELEPHONE NUMBER)

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

                          COMMON STOCK, $.001 PAR VALUE

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

    Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

    Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained in this form, and no disclosure will 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. [ ]

As of July 12, 2001, 80,869,590 shares of the Registrant's common stock were
outstanding, and the aggregate market value of the shares held by non-affiliates
was approximately $33,179,211.

                   DOCUMENTS INCORPORATED BY REFERENCE: NONE.

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In addition to the historical information contained herein, certain matters
discussed in this Annual Report may constitute forward looking statements under
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements may involve risks
and uncertainties. These forward looking statements relate to among other
things, our development efforts and business prospects, perceived opportunities
in the marketplace, delivery of our products and services, our business
strategy, our proposed merger with Chartwell Diversified Services, and our
business plan generally. The actual outcomes of these matters may differ
significantly from the outcomes expressed or implied in these forward looking
statements. For a discussion of the factors that might cause such a difference,
see "Summary of Business Considerations and Certain Factors that May Affect
Future Results of Operations and/or Stock Price."

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

DEVELOPMENT OF OUR COMPANY

     We are a diversified, healthcare solutions company that uses the Internet
and Internet technologies in combination with a range of traditional management
services to automate or outsource the daily workflow processes of and the
exchange of information among physicians, payors, suppliers, providers, and
patients. We focus on two core business segments involving three main product
lines. Our Internet segment is comprised of Distance Medicine and Medical
e-Business products, and our Pharmacy segment is comprised of Pharmacy
management and distribution services.

    We incorporated in Nevada on August 25, 1986, in order to evaluate,
structure, and complete a merger with, or acquisition of, prospects consisting
of private companies, partnerships, or sole proprietorships.

    Software Acquisitions and Licenses

     On January 7, 1999, we acquired from TSI Technologies and Holdings, LLC
("TSI") the rights to a JAVA-based, on-line health care management system in
exchange for 41,417,176 restricted shares (post-split) of our common stock. As a
result of these transactions, TSI owned approximately 80 percent of our
outstanding shares. The merger was considered a reverse acquisition that
resulted in a capital reorganization.

     On September 1, 1999, we acquired from University Affiliates IPA ("UA") a
managed care computer software technology for approximately $6.5 million. The
consideration included a cash payment of $2.0 million with the remaining $4.5
million purchase price paid through the issuance of approximately 1.7 million
shares of our common stock. The number of shares issued was based on the terms
of the agreement by dividing $4.5 million by the average closing price of our
common stock for the 30 day period prior to August 24, 1999, which was $2.597.
In addition, we entered into a ten-year contract with UA for exclusive access to
UA's network of more than 2,000 physicians. The agreement includes revenue
sharing of UA's network and exclusive use of the technology in connection with
UA's expansion of its physician network. In addition, we agreed to finance
certain costs to further develop the software. We reverse engineered this
technology that led to our MedPractice product.

     On March 18, 2000, we acquired an exclusive 10-year license, with an option
to extend another 20 years, from Quantum Digital Solutions Corporation, for
application of their security encryption and data scrambling technology. We
intend to embed this security technology, once fully developed, into our
application services and will seek to develop a separate subsidiary called
Securus that will focus on selling security solutions to the health care
industry. In accordance with the original agreement as amended on February 19,
2001, in return for the license, Quantum Digital will receive 25 percent of
Securus profits, plus warrants to purchase up to 25 percent of Securus equity at
$0.01 per share in the event of a sale of any Securus equity securities.

     We issued to Quantum Digital approximately 1.4 million shares of our common
stock for the right to purchase up to 15 percent of the outstanding common stock
of Quantum Digital for an aggregate cash purchase price of $15 million, either
in a single transaction or in tranches over a period of up to five years. The
issuance of these shares was valued at $25 million based on the market price of
our common stock on the closing date of the transaction, March 18, 2000. As of
March 31, 2001, we had purchased 1.5 percent of Quantum Digital's common stock
for $1.5 million. We will also issue Quantum Digital a 10-year warrant to
purchase an additional 1 million shares of our common stock following the
introduction of a commercially distributable product using Quantum Digital's
technology and receipt of a seat on Quantum Digital's board of directors. In
addition Quantum Digital and the Company  established a jointly owned technical
lab for further development of the encryption technology to fit various markets.
As payment for our share of all costs related to the lab joint venture from
inception through March 1, 2002, we issued to Quantum 1 million restricted
shares of our common stock in March 2001. We recorded the value of these shares
based on the market price of e-MedSoft.com stock on the issuance date. At March
31, 2000, we reflected approximately $29.1 million on our balance sheet, which
represented $25 million for the value of the shares issued to obtain the option
to acquire equity in Quantum, $750 thousand paid upon partial exercise of the
option to acquire equity interest and approximately $3.3 million in present
value of the lease commitment made by the Company for the acquisition of the
option. The Company made a preliminary analysis of the relative values of the
acquired assets and allocated $2.8 million to the value of the technology
license and software and $26.3 million to the value of the equity option
reflected as investment.

     At the end of our fiscal year March 31, 2001, the expected product had not
been completed and was still in the testing stage. As a result of this delay and
the sudden decrease in market valuations of technology companies, management
revised its analysis of its' investment in Quantum. During this analysis we
determined that the value of Quantum's common stock was permanently impaired. As
a result, we have recorded an asset impairment charge for $27 million in the
Consolidated Statement of Operations for the year ended March 31, 2001.

     Acquisitions

    Following the acquisition of our basic management system and software, we
expanded our business and operations primarily through acquisition. Our
acquisitions have focused on 2 types of companies;

    - early or development stage companies with products that are, or with
additional development are anticipated to be, complementary to our business
strategy; and

    - more mature companies with current revenues and a base of clients to whom
we can sell our Internet based solutions.

    The strategic objective underlying these acquisitions is to have internally
generated cash flow from the clients of our revenue producing companies, which
is to be used to develop, market and support our software applications until
sales of our products become self-sustaining. To date, however, our revenue
producing companies have not generated positive cash flow to achieve this goal.
While we continue to develop, upgrade, test, and sell our health care management
and technology systems, to date we have not been able to market our products at
a level sufficient to generate positive cash flow.

     On March 19, 1999, we expanded our business internationally through the
acquisition of all of the issued and outstanding stock of e-Net Technology Ltd.,
a U.K.-based computer sales and services company. e-Net sold computer software
and hardware through reseller agreements, and provided consulting services,
training, and technical support to a broad range of customers. In June 2001, we
announced that e-Net was placed in voluntary receivership. e-Net has comprised
approximately 100 percent of our product segment revenue.

     On August 10, 1999 we acquired a 60 percent interest in an Australian
company to distribute our products in various territories including Australia
and Asia. We paid one Australian dollar for the shares and also entered into a
software marketing and license agreement whereby we received $250 thousand and
will receive royalty payments in return for an exclusive non-transferable right
to use, reproduce and exploit certain of the our software, including the right
to grant sublicenses, in the defined territories. In March 2000, this company's
outstanding shares were exchanged for the outstanding shares of Capricorn, an
inactive Australian company listed on the Australian stock exchange. Capricorn
was the surviving company and changed its name to B2B Net Technologies, Ltd.
Concurrent with the exchange of shares, B2B completed an Australian public
offering of approximately $3.4 million for the funding of working capital. As a
result of these transactions, our equity ownership was reduced from 60 percent
to 45 percent. A 15 percent shareholder of B2B has issued to us an irrevocable
proxy to vote its shares in B2B through March 31, 2002. We have accounted for
our investment in B2B under the equity method of accounting.



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     On February 29, 2000, we acquired privately held VirTx, Inc., a provider of
secure collaborative medical networks that are able to support the
implementation of multimedia telemedicine, telehealth, and telescience
collaboration. In connection with the transaction, we issued approximately 1.9
million shares of our common stock to the VirTx shareholders and may issue up to
an additional $23.0 million in shares pursuant to an earn-out arrangement.

    In May 2000, we acquired Illumea Corporation in exchange for approximately
1.3 million shares of our common stock. Illumea develops and markets
Internet-based remote inspection and image sharing solutions in the medical and
life sciences industries. The core application, known as MedMicroscopy and
formerly FiberPix, enables users to view and interact with a microscope's high
fidelity images in real time over the Internet. For example, pathologists from
different locations in the world can view and collaborate on the same tissue
samples without ever having to travel to the location of the sample.

    In June 2000, we acquired VidiMedix, which provides distance medicine
solutions that enable physicians to deliver remote examination, diagnosis, and
treatment to patients via secure, private and collaborative interactions using
advanced Internet and Web technologies. We acquired VidiMedix in exchange for
assuming approximately $6.2 million in debt, payable in approximately 380
thousand shares of common stock, warrants to acquire approximately 336 thousand
shares of our common stock at an exercise price of $8.63 per share and
approximately $2.9 million in cash. In addition, we committed to issue up to
$6.0 million in shares of additional common stock as an earn out payment based
on VidiMedix achieving certain sales targets over the next fiscal year. Disputes
arose concerning the achievement of the threshold amounts required for issuance
of the additional shares under the earn out provision. During the year we
entered into settlement agreements with the former VidiMedix shareholders
concerning the earn out shares. An additional dispute, resulting in litigation,
has arisen between certain of these VidiMedix shareholders and us (see Note 20
to the consolidated financial statements).

     Also in June 2000, we acquired certain assets and liabilities of Resource
Healthcare ("Resource"), which provides pharmaceutical and infusion services to
long-term care, assisted living, and residential care facilities throughout
Nevada. Services offered by Resource include consulting, training, billing,
supplies management, and facility systems development. We purchased Resource for
approximately $1.5 million in cash and approximately 113 thousand shares of our
common stock with a value of $1.00 per share. In addition we committed to issue
additional common stock with a value of $500 thousand as an earn out payment
based on Resource achieving certain earnings targets over the next fiscal year.
The targeted earnings were partially met and we estimate issuance of 12 thousand
to 20 thousand additional shares of our common stock per the earn out
arrangement.

     Strategic Agreements

     In addition to acquisitions of companies, we also expanded our business
through the establishment of strategic relationships. On February 2, 2000, we
entered into a seven year Preferred Provider Agreement with National Century
Financial Enterprises ("NCFE") to provide its services and software solutions,
and to have exclusive marketing access to all of NCFE's clients for the
provision of our products. In addition, the agreement provides for a proprietary
Master Portal wherein all of NCFE's and our products and services will be
marketed and sold to NCFE's and our customers. We will receive fees for its
services based on agreed upon fee schedules and negotiated projects fees. We
issued 9.5 million shares to NCFE in consideration for NCFE:

     o entering into the agreement,

     o canceling approximately $4.8 million of our debt,

     o providing $1 million of equity financing, and

     o providing an additional $4 million in financing that will convert into
       equity upon the ability of NCFE to sell $4 million worth of our common
       stock at a share price in excess of $9.50 per share.

     There is no specific performance required by NCFE to retain the 9.5 million
     shares other than not breaching the contract. We are also required to file
     a registration statement covering these shares. The value of the shares
     issued was approximately $113 million based on the current market price of
     our common stock on February 2, 2000, the transaction date. This value was
     allocated as a:

     o reduction of debt,

     o financing receivable reflected in equity,

     o value of NCFE's distribution channel, and

     o an inducement for NCFE to enter into the agreement representing deferred
       contract cost.

On July 28, 2000, we completed the joint portal to market our products to NCFE
clients and other potential clients visiting the web site. To date, we have not
generated any sales from the distribution channel. The portion of the portal for
NCFE to manage its clients on line was not completed at March 31, 2001. We have
not generated any sales as originally anticipated from this deferred contract
asset. As a result of these events, coupled with the fact that we do not now
believe that original interactive connectivity between NCFE and its clients can
be achieved, we have reevaluated these assets to determine the current fair
value of such and have reflected an impairment loss to write off the deferred
contract asset and reduce the distribution channel asset (see Note 4 to our
consolidated financial statements). The remaining value of the distribution
channel asset will be amortized on a straight line basis over a seven year
period.

     In April 2000, we entered into a 30-year management agreement and a
preferred provider agreement with PrimeRx.com, Inc. (previously known as
PrimeMed Pharmacy Services Group, Inc.), a pharmacy management services company,
further expanding our outreach to the healthcare community. PrimeRx offers a
variety of managed care pharmacy services that enable its clients to more
effectively manage their pharmacy benefits, and rounds out our strategy of
offering a broad product and service offering that can be cross-sold. PrimeRx's
customers include physician offices and clinics, independent physician
associations, physician practice management organizations, managed care health
plans, nursing homes, correctional facilities, and community health centers.
PrimeRx also operates more than 25 pharmacies across 6 states. The agreement
provided for an option to exchange up to 33 percent of PrimeRx stock for 3.0
million e-MedSoft shares. Effective April 12, 2000 the majority shareholders of
PrimeRx exercised their option to purchase approximately 2.6 million shares of
our stock in exchange for approximately 29 percent of PrimeRx's outstanding
shares prior to dilution from outstanding PrimeRx employee options. Based on the
management contract and the equity ownership in PrimeRx, we consolidated their
operations beginning in fiscal 2001. Our relationship with PrimeRx has been
troubled, and we entered into a settlement agreement with the relevant parties
in March 2001 to provide for a restructuring of the ownership of PrimeRx and its
wholly owned operations in California. This restructuring is conditional upon
completion of all the required performances and conditions by both parties
detailed in the agreement. The Settlement Agreement includes provision for a new
management agreement whereby we will continue to manage the PrimeRx pharmacies
located in California and provides for mutual releases between the parties.
Completion of the transactions contemplated in this Settlement Agreement is
subject to fulfillment of certain conditions. Litigation has arisen between
PrimeRx and us.

    Capital Raising Developments

    Private Placements


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We raised approximately $63.6 million in net proceeds through the sale of
approximately 8.2 million restricted shares of our common stock. Private
placements in December 1999 and March 2000 raised $67.1 million of gross
proceeds through the sale of approximately 7.6 million restricted shares and
warrants to purchase an additional 3.6 million restricted shares of common
stock. The warrants carry an exercise price of $4.00 per share. The gross
proceeds from these sales were reduced by approximately $5.0 million in private
placement commissions and expenses. In addition to the fees received, the
private placement agent received warrants to purchase 350 thousand restricted
shares of e-MedSoft's stock at $5.00 per share and warrants to purchase 1.3
million restricted shares of e-MedSoft stock at $.01 per share. TSI has agreed
to contribute 1.3 million restricted shares of the Company's stock for the
exercise of the 1.3 million warrants. In return for TSI contributing the 1.3
million restricted shares the Company agreed to issue TSI 500 thousand warrants
at the market price on grant date. The warrant was valued using the Black
Scholes model and reflected as a cost of the private placement in the equity
section. We had previously issued warrants to the private placement agent in
May, 1999 to purchase 5.2 million shares of our common stock at various exercise
prices. These warrants were subsequently canceled. We are currently in
litigation with the placement agent regarding these warrants and other matters
related to the private placements.

     Equity Line

     On February 20, 2001, we entered into a Common Stock Purchase Agreement and
Registration Rights Agreement with Hoskin International Ltd., a British Virgin
Islands corporation, for the future issuance and purchase of shares of our
common stock. This common stock purchase establishes what is sometimes termed an
equity line of credit or an equity drawdown facility.

     In general, the equity drawdown facility operates as follows: the investor,
Hoskin International, has committed to provide us up to $50.0 million as we
request it over a 36-month period, in return for common stock we issue to Hoskin
International. Once every 25 trading days, we may request a draw. The amount
that we can drawdown upon each request must be at least $250 thousand. The
maximum amount we can actually drawdown for each request is also limited to 8
percent of the weighted average price of our common stock for the sixty days
prior to the date of our request multiplied by the total trading volume of our
common stock for the sixty days prior to our request. We are under no obligation
to request a draw for any period.

     The per share dollar amount that Hoskin International pays for our common
stock for each drawdown includes a 7.5 percent discount to the average daily
market price of our common stock. Such discount can be reduced to a minimum of
5.5 percent based on predetermined increases to our average market
capitalization. We will receive the amount of the drawdown less an escrow agent
fee of $1 thousand and a placement fee equal to 7.5 percent of the first $25.0
million and 7.25 percent of the next $25.0 million of gross proceeds payable to
the placement agent, Cappello Capital Corp., which introduced Hoskin to us. The
actual amount to be paid to Cappello Capital in connection with its cash fee at
each drawdown will be reduced by retainer fees paid to Cappello Capital and,
pro-rata over the $50.0 million in drawdowns, by a fee of 1 percent of the
equity line amount of $50.0 million or $500 thousand, payable to Cappello
Capital during the sixty days following February 20, 2001.

     The common stock purchase agreement does not permit us to drawdown funds if
the issuance of shares of common stock to Hoskin pursuant to the drawdown would
result in Hoskin owning more than 9.9 percent of our outstanding common stock on
the drawdown exercise date.

     Cappello Capital is not obligated to purchase any of our shares, but as an
additional placement fee, we have issued to Cappello Capital a stock purchase
warrant to purchase 3.0 million shares of our common stock at an exercise price
per share equal to 150 percent of the lesser of either $1.5967 or such lower
purchase price as Hoskin subsequently purchases the shares of our common stock
pursuant to any drawdown under the equity line. The warrant issued to Cappello
Capital expires on February 20, 2011.

     The ability for the Company to draw down on this facility is dependent on
e-MedSoft.com filing a registration statement to register the shares
contemplated in the agreement. The Company filed a registration statement on
March 13, 2001, however, it is not yet effective. Therefore, we have not
utilized or will be able to utilize this facility until such registration
becomes effective.

RECENT DEVELOPMENTS

     On May 14, 2001, we announced execution of an Agreement and Plan of Merger
and Reorganization with Chartwell Diversified Services, Inc. ("Chartwell"),
which agreement was amended and restated in its entirety on June 4, 2001.
Pursuant to this Merger, all of the outstanding shares of Chartwell shall be
converted solely at our option (i) either into 50.0 million shares of the
Company's common stock or $90.0 million in cash and (ii) warrants to purchase
20.0 million shares of the Company's common stock at the exchange ratio
specified in the Merger Agreement. The warrants will have a term of five years
at an initial exercise price of $4.00 per share. The warrants may be exercised
up to 4.0 million shares per year If the merger is completed, we anticipate that
NCFE and Chartwell, which have owners in common (See Item 13, Certain
Relationships and Related Transactions), will hold up to 40 percent of our
common stock.

     Chartwell Diversified Services, Inc., which has been in operation since
September 2000, is a privately held company that provides home infusion
services, clinical respiratory services, home medical equipment, home health
services and specialty pharmacy services throughout the United States. Donald
Ayers, a member of e-MedSoft.com's board of directors, is a shareholder in
Chartwell Diversified Services, Inc.

     On June 14, 2001, we voluntarily placed e-Net into receivership and
appointed a receiver to sell off the re-seller business and eliminate the
non-service and non-healthcare portions of e-Net's business. In connection with
this event, we eliminated e-Net's results of operations from continuing
operations for the periods reported in this report, and have included the
results under discontinued operations. In addition we have reclassified the net
assets and liabilities of e-Net separately in the consolidated balance sheets as
discontinued operations. We have written down the net assets to their estimated
net realizable value.

     The Company entered into a Management Services (Loan Out) Agreement (the
"Management Agreement") with TegRx Pharmacy Management Co., Inc. ("TegRx"), an
affiliate of Chartwell Diversified Services, on March 6, 2001. The Agreement was
for a period of ten years and gave TegRx all power and authority necessary to
carry out the management of the pharmacy segment of the Company's business.
TegRx is to be paid a management fee of the greater of up to $200,000 per month
or 40 percent of EBITDA of the pharmacy segment of the previous month.


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     On July 16, 2001 we executed a definitive purchase agreement with a non
affiliated institutional investor with more than $700.0 million of assets under
management, for the sale of $83.0 million of newly issued shares of common
stock. Completion of the agreement is subject to several conditions, including
the completion of the previously announced merger with Chartwell Diversified
Services, Inc., and the post-merger retention of Frank Magliochetti, President
of Chartwell, and John Andrews, President of e-MedSoft. Additional material
conditions include (a) the Company must be in full compliance with all listing
requirements of the American Stock Exchange and the post-merger company -- Med
Diversified -- must reach gross revenues of $30.0 million during a 45-day
operational span with EBIDTA for that period of at least $100 thousand, (b) the
Company must have cash on hand at time of closing of at least $5.0 million, (c)
the Company's common stock must reach $4.20 per share after completion of the
merger; and (d) the existing equity line with Hoskins International will not
have been drawn down by the Company unless the Company has achieved a full year
of positive EBIDTA in excess of $35.0 million. The issuance of shares will be
priced at 90 percent of the market price on closing date of the sale. If we sold
shares at a market price of $4.20 per share we would issue approximately 22.0
million shares of our common stock. Based on the shares outstanding at July 12,
2001 and the shares we would issue on the Chartwell merger, we could have 156.0
million shares of common stock outstanding.

     On July 16, 2001 the Company filed a current report on Form 8-K reporting
that it failed to timely file its Form 10-K for the year ended March 31, 2001.

INDUSTRY OVERVIEW

    Increases in health care expenditures have been driven principally by
technological advances in the health care industry and by the aging of the
population, as older Americans utilize more health care resources on a per
capita basis. With the increase in costs, health care systems have migrated
toward more managed care reimbursement, including discounted fee-for-service and
member capitation fees. Aggregate health care costs are expected to continue to
rise.

    The Internet's open architecture, universal accessibility, and growing
acceptance make it an increasingly important environment for
business-to-business and business-to-consumer interaction. Use of the Internet
is rapidly expanding from simple information publishing, messaging, and data
gathering to critical business transactions and confidential communications.

    We believe the health care industry's core constituents -- physicians,
payors, suppliers, and patients -- will benefit from timely access to
patient-specific information and payor content, such as benefit rules and care
guidelines, in order to reduce the complexity of administration, increase
compliance with benefit plan guidelines, secure appropriate use of health care
resources, and improve the quality of patient care.

Physicians

    Physicians are confronted with a proliferation of health plans, each of
which has complex clinical, administrative, and financial rules and guidelines
relating to matters such as eligibility for prescriptions, lab tests, referrals
and follow-up visits, scope of coverage, and co-payments. These complex rules
and guidelines require administrative personnel to spend significant time
navigating the cumbersome administrative procedures of a large number of health
plans often after the medical care has been given or prescriptions or referrals
have been written. This complexity has created demand for real-time information
exchange across all patients and all payors to streamline cumbersome and
time-consuming clinical and administrative processes.

Payors

    Payors, such as health maintenance organizations (commonly referred to as
HMOs) and pharmacy benefit managers, are finding less incremental value in the
historical levels of managed care. In order to stem the unabated growth in
health care costs, managed care plans must do more than automate the
administrative and financial processes that govern the provision of services and
the payment of claims. While administrative costs account for approximately 15
percent of annual health care expenditures, it is the cost of care itself,
approximately 85 percent of annual health care expenditures that primarily
drives the growth in health care expenditures. We believe that compliance with
benefit plan guidelines that promote more efficient use of health care resources
and adherence to best practices will result in cost reductions and improvements
in the quality of care. Payors are seeking an efficient channel to communicate
their benefit plan rules and care guidelines to physicians at the point-of-care
in order to realize savings.

Suppliers

    Pharmacies, clinical laboratories, and other suppliers are being forced to
become increasingly efficient in managing their business as managed care
organizations have negotiated significant reductions in price and demanded
measurable improvements in quality. Pharmacies continue to incur substantial
inefficiencies in the process of managing orders with physicians and patients.
Physicians have been slow to adopt these systems because they are proprietary in
nature and are usually limited to reporting of results. Consequently, clinical
laboratories incur unnecessary administrative costs associated with processing
and reporting orders and also incur significant losses related to tests for
which reimbursement is not authorized.


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Patients

    As the payor exerts increasing influence over plan design, service coverage,
and provider access, patients are demanding ever more objective measures of
quality and cost. This is evidenced by the unprecedented demand for health care
information on the Internet, confirming both the absence of information from
traditional sources and the desire for additional sources of objective,
credible, and trustworthy information.

    The Internet is accelerating the empowerment of provider and patient.
Physicians are utilizing the Internet to gather more and better information,
enhance communication with other health care participants, streamline processes,
and improve cash flows. Patients are turning to the Web to educate themselves on
clinical conditions and treatment, learn about and change health plan benefits,
seek the support of physicians and other patients, and conduct e-commerce
transactions. Web technology is making it easier for consolidated or affiliated
entities to operate within increasingly large and complex organizations. Along
this line, Web technology can be used to further integrate disparate systems and
improve information access and communications for remote parties.

OUR BUSINESS STRATEGY

    Our business strategy is to provide client-driven solutions that, where
possible, leverage the Internet and Internet technologies and utilize an ASP or
outsourced service model. We have developed, acquired or partnered in order to
offer a broad range of products and services to our clients. Our strategy
includes the following key elements:

    Capitalize On The Expanding Market For E-Health Services.

    Health care, the largest sector of the U.S. economy, is inefficient,
fragmented, and suffers from poor information flow. We believe the Internet is
dramatically changing how information flows and is exchanged and how people and
organizations interact in the health care sector. The "e-Health" industry
generally refers to the application of Internet technologies in the health care
sector.

    Leverage Our Expertise In Internet Technology.

    We combine our Internet technology expertise with healthcare domain
expertise to create solutions that provide secure transactions and
communications among a broad range of health care participants, regardless of
their legacy computing platforms. The result is reduced paper-based
transactions, reduction of redundant data entry, shortened cycle times, better
informed decisions, and a significant decrease in the overall communication
inefficiencies created by traditional proprietary systems.

    Continue To Expand Product Functionality And Service Capability.

    On an ongoing basis, we are attempting to identify key functions and
supporting data that are critical to particular industry participants or can add
significant value to our solutions. We plan to continually offer a competitive
suite of products and services by building Internet-based applications and data
encompassing the identified functionality, by acquiring or partnering with
businesses/technologies, and by enabling third-party applications to operate,
integrate, and exchange data on our platform. In addition, our solutions are
designed to support our customers as their businesses grow and evolve.

    Form Strategic Relationships.

    We are pursuing and forming strategic relationships with leaders in key
health care industry segments to enhance our portfolio of applications and
services, increase the number of connected users, and provide specialized
industry expertise for new applications. In addition, we plan to acquire
companies with strategic relationships with leading health care industry
participants. We believe this strategy also provides accelerated market
awareness and demand for our services through the influence of these partners
both directly, through their use and sales efforts, and indirectly, through
their relationships with other potential customers.

    Pursue Usage-Based Business Model.

    One of the pricing options we offer for our network-based transaction and
information services is fee for service. This pricing model reduces the initial
investment required to obtain the benefits of high-end information technology
systems, enabling physicians, small organizations, and individuals to gain
access to these systems for the first time. By enabling the shift from fixed
information technology costs to variable costs and outsourcing much of the
information technology requirements, we believe that we will be able to achieve
a critical mass of users and also significantly differentiate ourselves from
competitors.


                                       6
<PAGE>   7
    Provide A Diversified "Full Service" Solution.

    We are pursuing a strategy to provide our clients ASP and outsourced
solutions by combining traditional Healthcare services with Internet enabled
technologies. An example of this strategy is our Pharmacy distribution
capability coupled with wireless handheld prescription writing to improve
efficiency in the prescription writing and drug fulfillment process. In addition
to our products, we offer consulting, application development, systems
integration, and network management services to provide complete
customer-specific solutions.

    Continue Product Development.

    We believe that a key to our growth is an ongoing focus on research and
development to ensure our product offerings and technical capabilities will
continue to strive to meet the evolving needs of our existing and potential
customer base. Our research efforts focus on enhancements to existing product
offerings, new product development and the integration of third party products.
In developing products, our goal is to ensure our information systems are highly
flexible and quickly adaptable and can serve the information access needs of an
increasingly broad range of users.

OUR PRODUCTS AND SERVICES

We provide a range of products and services specifically for the healthcare
marketplace. In line with our business strategy, we are attempting to build upon
and develop the products and services which make up our solutions in order to
provide the most comprehensive and relevant services possible for our clients.
The three core product lines of our business are described below:

Pharmacy Services

     We offer full-service, pharmacy services to physician offices, clinics,
independent practice associations ("IPA"), physician practice management
organizations, managed care health plans, nursing homes, correctional facilities
and community health centers. Our solutions encompass management of ambulatory
pharmacies, claims verification auditing services, drug utilization evaluation
services, physician office dispensing.

     We recognize revenue in this line of business through management fees paid
to us for outsourcing pharmacy services, through the sale of pharmaceuticals in
our ambulatory pharmacies.

Medical e-Business Services

     Our MedPractice product is designed to increase the efficiency,
productivity, and management of physician-based clinics and offices and provide
access to practice information. It also extends itself to incorporate managed
care services for the IPA, management service organization ("MSO") and the
health maintenance organization ("HMO") marketplace. We reduce the need for
physicians and their staff to maintain computer servers and upgrade
applications, which allows them to concentrate on providing high quality care to
their patients. MedPractice is designed to bring automation to the entire cycle
of the patient visit from scheduling and registration, through examination and
treatment, and ending with the management of claims processing and accounting.
This product is normally priced on a monthly subscription basis with additional
fees for transactions including claims submission, eligibility checks and
electronic patient statements.

     Our MedCredentialing product centralizes the credentialing process for
providers and managed care organizations, and is designed to achieve regulatory
compliance while minimizing risk. MedCredentialing is designed to provide
practitioner's access to files anytime, anywhere and a broad range of
functionality such as tracking and reporting. This product is normally priced on
a monthly subscription basis with discounts depending on the size of the
organization.

     Our MedPocket product is a handheld application that is intended to
integrate with the MedPractice product and allow practitioners to electronically
access and record patient information through the latest handheld devices. The
product is designed to enhance the efficiency of record keeping and patient
encounters when the physician is remote from their office. This product is
priced on a monthly subscription basis.

     Our MedTranscription product is a secure medical software solution that
enhances the efficiency and accuracy of the transcription process.
MedTranscription includes a transcription workflow system that is designed to
enhance the maintenance and management of medical data, user-defined shortcuts
that decrease unnecessary and mistake prone repetition, and a medical spell
check program that reduces transcription mistakes.


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<PAGE>   8
     Revenues from the NCFE relationship are derived from two separate areas.
First, we receive the greater of a per click fee for every unique visitor to the
NCFE.com portal, or a minimum flat fee per month as established in the Preferred
Provider Agreement. Second, we receive software development and consulting fees
from NCFE for custom projects we agree to conduct for NCFE on a monthly basis.
Under our original agreement with NCFE, we expected to generate significant
revenues from the portal from both a flat fee for every doctor that signed up to
the portal and through receiving a percentage of the accounts receivable under
management from clients transacting business over the portal. In the process of
developing the requirements to enable these revenue streams we learned the
business processes that NCFE was planning to automate posed a much more
difficult task than originally contemplated. Further, we discovered that without
full automation of its back-end and paper-based processes (now considered an
almost impossible task), NCFE would not be able to effectively serve the smaller
group medical practices for which the NCFE.com portal was originally intended.
Based upon our market research with NCFE, we found that the adoption rate for
these types of services in the smaller group medical practice market was going
to be significantly lower than planned. As a result, we abandoned these
development initiatives and are focusing our efforts in other areas, including
projects that will support our intended merger with Chartwell.

      The last suite of products within our Medical e-Business Services line are
the MedCommerce products. These products are designed to enable buyers and
sellers in the health care industry to eliminate the inefficiencies of the
traditional supply chain and provide substantial benefits by reducing order
processing and tracking costs and improving the utilization of data relating to
products, services, transactions and market trends.

     We believe our MedConnect solution is a unique e-Commerce architecture
developed by e-MedSoft for business-to-business applications in the healthcare
market. MedConnect enables application services that can be tailored according
to each individual user, breaking down traditional technical barriers inherent
in transacting over the Internet. This service offers numerous advantages,
including multilingual presentation, easy back office integration and
comprehensive personalization.

     Our MedContract software is scheduled for completion in December 2001. It
is designed to organize and eliminate the tedious task of managing,
distributing, and updating numerous pharmaceutical and supply contracts. The
MedContract application is a storage, presentation and pricing tool for any
organization managing all facets of Group Purchasing Organization ("GPO")
contracts for both Pharmaceuticals and Supplies.

     Our MedProcure product is an application that is designed to provide
organization-wide electronic procurement to increase operational efficiency,
while decreasing costs. Benefits of the MedProcure product include
simplification of procurement process, lower transaction costs, reduction of
duplicate and maverick buying, and reduction in stock levels.

     e-MedSoft sells these software products on a traditional software license
fee model, where the cost of the software license is paid up front with an
ongoing support and annual maintenance fee, and also on a monthly
subscription-based pricing model where its more appropriate for our clients.

Distance Medicine Services

    We are a provider of secure, Internet-based distance medicine network
solutions. We design and deploy networks that are built on advanced technologies
using computing, video-conferencing, and medical peripheral instruments to
support a wide array of distance medicine applications. We leverage a
combination of in-house developed and best-of-breed communications,
collaborative software, robust image capture and manipulation capabilities, and
the video technology to create a scalable, supportable, and upgradeable distance
medicine network infrastructure. We evaluate and assess new technology, in an
effort to maintain a suite of solution components that can be configured to meet
the specific, unique requirements of our clients.

     Within our Distance Medicine Services, our MedMicroscopy solution provides
Internet-based remote inspection and image sharing solutions based upon
proprietary compression and streaming technology. Our core, patent-pending
protocol utilizes our technology to deliver diagnostic-grade, high-fidelity
video images in real-time over the Internet. The solution enables remote
collaboration and sharing of data images in the life sciences, material
sciences, and clinical/medical markets.

     Similarly, our MedReach solution allows physicians to create virtual
examination rooms and multimedia patient information centers from their
workstations through simple, intuitive user interfaces. The recently released
Series 2000 version allows integration of real-time information from health
information systems providing patients' medical and billing records, physicians'
schedules, decision support systems, and outcomes measurements.

     We recognize revenue within the Distance Medicine Services from a
combination of selling our proprietary software, third party hardware and other
technical instrumentation, and through services revenue, typically flat fee or
on an hourly rate, relating to system installation and integrate with our
clients existing environment.


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<PAGE>   9
     Since the acquisition of our Distance Medicine suite of products, we have
been successful in selling our products to clients such as: Pfizer Inc.,
Aventist Pharmaceuticals, Inc., Scott and White Memorial Hospital, Hawaii Health
Systems Corporation, Shriners Hospitals for Children and the US Government Dept.
of the Interior.

Professional Services

In addition to the core areas of focus, we also provide the following
complementary services:

     Project Management: Our project managers are available to help plan
specific e-health projects and assist every step of the way to a successful
solution. Our project management team has considerable experience in
implementing phased projects to minimize the impact on day-to-day operations.

     Integration: Increasingly customers are looking to integrate their
e-healthcare applications with legacy systems. Our integration team can provide
system integration solutions, which include hardware, software and consulting
services.

     Implementation: Where needed, we can provide experienced implementation
personnel for analysis, design, development and testing assistance.

     Training: Our training services provide clients with the necessary skills
needed to run e-MedSoft.com systems. Our training programs encompass business
process personalization and usage, application usage and interface deployment
with existing systems.

     Our professional services are used to install, integrate and enhance the
sale of our solutions. We charge clients either a flat fee or an hourly billable
rate for our services.

SALES AND MARKETING

   Target Markets

     Providers. Our target provider customers include aggregators of individual
physicians such as large medical groups, independent practice associations,
physician practice management companies, and other large, organized physician
entities such as integrated delivery networks. In particular, we seek out
provider organizations with a high degree of involvement in managed care,
especially providers that are involved in activities such as capitation, which
requires them to bear some level of insurance risk for each enrolled patient.

     Payors. Our target payor customers include managed care organizations,
indemnity insurers, third-party administrators, and federal and state
governmental agencies. As managed care penetration increases and risk-based
medicine becomes more prevalent, payors are finding less incremental value in
the historical levels of managed care. In order to stem the unabated growth in
health care costs, payors must do more than automate the administrative and
financial processes that govern the provision of services and the payment of
claims.

     Suppliers. Our target supplier customers include large national laboratory
companies, pharmaceutical companies, and pharmacy benefit managers. These
customers are being forced to become more efficient in managing their business
as managed care organizations have negotiated significant reductions in price
and demanded measurable improvements in quality.

SALES AND MARKETING APPROACH

    We have a direct sales staff across our business units that are
geographically positioned and a general corporate business development group
targeting potential customers in each market segment. In addition, senior
management plays an active role in the sales process by cultivating industry
contacts. We also market our solutions through the sales and marketing
organizations of our strategic partners, participation in industry tradeshows,
articles in industry publications, and by leveraging our existing client base
and strong network of relationships. We support our sales force with technical
personnel who perform demonstrations of our applications and assist clients in
determining the proper solution configurations.

     To support our sales forces and our distribution channels, we have an
experienced marketing staff that is focused on designing, creating, and
executing sophisticated marketing plans to attain our objectives. We continue to
focus on building awareness and acceptance of our products through our own
resources and distribution channels, and the Internet.

KEY RELATIONSHIPS


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<PAGE>   10
     We have entered into key relationships that we believe will enhance our
application portfolio, provide important specialized industry expertise,
increase our market penetration, and generate revenue. The most significant of
these relationships are described below:

     Allscripts is a provider of point-of-care medication management and
productivity solutions. We have entered into a five-year Strategic Marketing
Agreement and Preferred Vendor relationship with Allscripts, Inc. The
partnership designates e-MedSoft as the preferred pharmacy services vendor of
Allscripts and also allows for the exploration of integrating Allscripts
technology into e-MedSoft's core medical business solutions. In return, we have
designated Allscripts as the preferred point of service for prescribing
in-office dispensing and routing solution.

     On March 6, 2001 we entered into a Preferred Solution Partner and Master
Service Agreement with Superior Consultant Company. Superior provides
consulting, outsourcing and e-solutions services to all segments of the
healthcare industry. The agreement will see both companies using each other's
services. Superior will promote e-MedSoft's products, in particular the Distance
Medicine products, and e-MedSoft will use Superior's services in some
development and deployment of projects.

     Chartwell Diversified Services Inc., which has been in existence since
September 2000, is a related party to NCFE through common ownership, is a
privately held company that provides home infusion services, clinical
respiratory services, home medical equipment, home health services and specialty
pharmacy services throughout the United States. We have been working with
Chartwell since December 2000 on various internet-enabling projects and in May
2001 announced our agreement to merge with Chartwell. Chartwell has a number of
joint venture and strategic relationships with National Centers of Excellence
which we intend to leverage into business for e-MedSoft.

     On January 12, 2001 we signed a two-year agreement with Soft Computer
Consultants Systems ("SCC"), a domestic and international developer of Clinical
Information including pharmacy, radiology and laboratory information. SCC will
sell e-MedSoft's MedMicroscopy system to their existing customer base, which
currently has over 250 clients, and includes such distinguished organizations as
Mt. Sinai Medical Center, Evanston Northwestern Healthcare, MedStar Health
System, Atlantic Health System, Catholic Health Systems, and Liberty Health
Systems.

OUR TECHNICAL PLATFORM

     The underlying technologies of our portal and application services include
a Web architecture and systems foundation together with an online
transaction-processing environment focused on of health care management. Our
infrastructure systems are designed to support multiple applications that
request, receive, rationalize, and present relevant information to the
clinician. Underlying these processes are the capabilities to acquire, validate,
and maintain patient and plan-specific directories, house and execute payor and
provider-specific rules, as well as analyze and report results. Our ASP delivery
system is designed to include the following features:

-    Compatibility: Our technologies include third party, proprietary interfaces
     and tools that simplify interface creation and data integration.

-    Security: A security model exists defining the relationship among elements
     in the system and maintains the required information to support all
     functions, including login, availability of data, user-privileges, user
     activity and inactivity monitoring, access control, transaction routing,
     billing, and error messages. Third-party encryption and VPN availability,
     as well as firewall technology is available among all sub-networks
     throughout the system.

-    Scalability: The system architecture is designed to support redundant
     network infrastructure and to be distributed across multiple physical
     servers to enhance scalability. Each ASP point-of-presence has the
     capability of redundant servers per node, at least two application servers,
     and two data servers, all linked on high-speed network channels.

-    High Availability: Our Data center contains a redundant systems
     architecture and are designed to be in operation seven days a week, 24
     hours a day, 365 days a year. High availability for these operations will
     be assured through the use of:

     -    uninterrupted power supply equipment;

     -    building-independent cooling and environmental systems;

     -    duplicated network, application, and database servers;

     -    redundant array of independent disks systems;

     -    separate high speed telecommunications connections to enable access to
          the Internet;

     -    fail-over of critical network services; and


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<PAGE>   11
     -    24 hour-a-day monitoring of network connectivity, traffic, hardware,
          and software status.

-    Disaster Recovery: Our facilities and operations will include redundant
     backup and security to ensure minimal exposure to systems failure or
     unauthorized access. Incremental backups of both software and databases are
     performed on a daily basis and a full system backup is scheduled weekly.
     Power backup is also maintained throughout the data center should a power
     outage occur.

CUSTOMER SUPPORT

     We believe that a high level of customer support is necessary to achieve
wide acceptance of our solutions. We provide a range of customer support
services through a staff of customer service personnel, an e-mail help desk and
video conferencing. We also intend to offer web-based support services that are
available 24 hours a day, seven days a week, which will be frequently updated to
improve existing information and to support new services. We will also employ
technical support personnel who will work directly with our direct sales force,
distributors, and customers of our applications and services. In some cases, we
provide our customers with the ability to purchase maintenance for our
applications and services, which includes technical support and upgrades.

PATENTS, TRADEMARKS, AND INTELLECTUAL PROPERTY

     We rely upon a combination of trade secrets, copyright and trademark laws,
license agreements, confidentiality procedures, employee nondisclosure
agreements, and technical measures to maintain the secrecy of our intellectual
property. We believe that patent, trade secret, and copyright protection are
less significant to our success than our ability to further develop
applications. We have several trademarks in the United States and
internationally.

COMPETITION

     The market for health care information systems and services is highly
competitive, rapidly evolving, and subject to rapid technological change. Many
of our actual and potential competitors have announced or plan to introduce
Internet strategies. Our competitors can be divided into the three key segments:
connectivity, content, and commerce.

     Connectivity Segment

     Physicians and other providers have begun to organize themselves into large
networks in response to managed care contracting by employers. These large
enterprises include multi-specialty medical groups (such as Cleveland Clinic and
Scripps Clinic), integrated delivery systems of doctors, hospitals, and home
care (such as Henry Ford Health Care, and Healthsystem Minnesota), Independent
Physicians/Practice Associations (IPAs such as University Affiliates and
Vitacare), and a variety of similar entities. Traditional suppliers of
information systems to this market include IDX, Medic, HBO-CyCare, SMS, EPIC,
and Medical Manager. Each has begun an effort to Web-enable parts of their
applications or to build new web-based products. Newer entrants into the market
include companies such as Trizetto, Web MD and ProxyMed.

     Content Segment

     The Internet is an ideal platform on which to build content-based service
offerings. While thousands of health care-related Web sites have been created
during the last few years, a limited number of for-profit companies are emerging
as the leading candidates to become health care portals. These companies
typically target either consumers or physicians and, in some cases, both groups.
While individual strategies vary, content companies generally focus on creating
and aggregating content, building communities, offering value-added services,
and facilitating commerce. Accordingly, successful business models in this
segment will likely rely on multiple revenue streams, including advertising,
sponsorship, service, commerce, and other service-related fees.

     Like most Internet companies, content providers strive to get big fast. The
leading content companies are typically one of the first movers in their space.
Through internal development, partnerships, and acquisitions these companies
focus on rapidly creating high quality content and service offerings, acquiring
customers, and building powerful brand names. Competitors in this segment
include such companies as Medscape, Intelihealth, Dr. Koop.com, and WebMD. Our
focus in this area is not to compete with these solutions but rather to partner
with them to include them in our solutions.

     Commerce Segment

     E-commerce is dramatically changing the way businesses interact with
customers and is contributing to a re-design of fundamental business processes,
such as sales, customer service, and inventory management. In the health care
market the range of products that can be offered online is broad and not
encumbered by space constraints. While many of the consumer-oriented health care
e-commerce sites serve as shopping destinations for the direct purchase of goods
and services many of the business-to-business e-commerce companies are focused
on creating online business communities that facilitate the purchase of health
care products. These companies are creating Web-based markets that aggregate
vendors' products at one site, streamline workflow for purchases, and enhance
communications between buyers and sellers.




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     The business-to-business e-commerce companies allow purchasers to benefit
from time and cost savings, while sellers are provided with an online
distribution channel that typically expands well beyond their traditional reach.
In addition to aggregating products and providing value-added content, many of
the business-to-business e-commerce companies provide customized applications
designed to be integrated into a customer's daily business process, further
tightening the vendor-customer relationship. These companies are paid fees based
on a percentage of the transaction, usually by the seller. While companies plan
to process and fulfill orders, they generally do not warehouse products and,
therefore, do not face inventory risks. Successful commerce companies will need
to provide high quality and secure service to overcome any psychological
barriers to purchasing health care products online. Additionally, the Internet
allows consumers to make price comparisons instantly, resulting in a highly
competitive environment and in potential margin pressure. Providing products and
services in all three segments and forming a strong brand around all of them
will be the best defense against pricing pressure and provide for profitable
growth. Notable competitors in the e-commerce segment include ChannelPoint,
Chemdex and Neoforma.

TRADITIONAL HEALTH CARE INFORMATION TECHNOLOGY (HIT) COMPANIES

     In addition to the Internet health care companies, the leading companies
from the traditional HIT industry compete against us. These companies are
pursuing Web strategies that generally focus on two goals: Web-enabling existing
product lines and creating Web-based offerings with entirely new functionality,
such as disease management applications and connectivity solutions.

     These companies have several advantages over the Internet health care
companies, including a large customer base and strong customer relationships,
deep domain expertise, and a thorough knowledge of the legacy IT infrastructure.
They, however, are disadvantaged in other ways. HIT companies typically possess
different core competencies and managerial strengths, focusing more on mainframe
and client/server technologies. This presents a difficult situation for them in
extending those solutions to leverage the Internet and also can have a
detrimental effect on the sales of existing legacy product lines.

     We face intense competition within all three Internet market segments.
Furthermore, major software vendors and others, including those specializing in
the health care industry that are not presently offering applications that
compete with those offered by us, may enter our market. In some cases, large
customers may have the ability to compete directly with us as well. Many of our
competitors and potential competitors have significantly greater financial,
technical, development, marketing, and other resource capacity as well as
greater market recognition than we have. Many of our competitors also have or
may develop or acquire a substantial established and installed customer base in
the health care industry. As a result of these factors, our competitors may be
able to respond much faster to new or emerging technologies and to devote
greater resources to the development, promotion, sales, and delivery of their
applications or services than we can.

EMPLOYEES

     As of July 12, 2001, following an internal restructuring and terminations
we implemented in June and July 2001, we employed 162 employees and 16
contractors providing services in development and engineering, delivery and
support, sales and marketing, and corporate finance and administration.

     None of our employees are represented by a labor union, and we have never
experienced a work stoppage. We believe we have a good relationship with our
employees. Our ability to achieve our financial and operational objectives
depends, in large part, upon our continuing ability to attract, integrate,
retain, and motivate highly qualified sales, technical, and managerial
personnel, and upon the continued service of our senior management and key sales
and technical personnel, most of whom are not bound by employment agreements.

RISK FACTORS

    Shareholders and investors in shares of the Company's Common Stock should
consider the following Risk Factors, in addition to other information in this
Report.

WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO INCUR OPERATING LOSSES AND TO
OPERATE ON A NEGATIVE CASH FLOW BASIS FOR THE FORESEEABLE FUTURE.

     We began operations in January 1999 and have incurred net losses from
operations in each subsequent fiscal period. Since inception we also have
utilized our available cash more quickly than we have generated cash from
operations, and have made significant cash investments for acquisitions,
infrastructure developments and product introductions and development. As of
March 31, 2001, we had accumulated losses of approximately $285.8 million. Since
March 31, 2000, our available cash decreased from $55.6 million to approximately
$2.1 million as of March 31, 2001.




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<PAGE>   13


     Contributing to our negative cash flow has been the aging of our accounts
receivable and the increase in inventory. As of March 31, 2001, we have provided
an allowance for $6.3 million in accounts receivable due to non collection of
pharmacy accounts receivables of $5.3 million and $1.0 million of affiliated
receivables. In addition, we advanced $2.0 million to University Affiliates for
the development of a joint venture. The joint venture was not consummated. Such
advance was to be repaid by University Affiliates if the joint venture agreement
was not reached. However, this balance has not been collected.

     For the foreseeable future, we expect to incur significant expenses and to
utilize cash for funding operating losses, developing additional infrastructure,
bringing products and services to market, settlement of past due payables and
repayment and servicing debt.

     We cannot be certain that we can achieve sufficient revenues and cash in
relation to our use of cash for expenses and capital to meet our obligations as
they become due, become profitable or generate positive cash flow. Our ability
to become profitable is dependent upon the general acceptance of electronic data
exchange by the healthcare industry, and to a greater extent our specific
Internet based solutions than there has been to date. In addition, we will be
affected by economic, political, and regulatory developments in the healthcare
industry that are favorable to the acceptance of our Internet-based solutions,
and continued growth in our non-Internet-based solutions businesses.

     In order for us to continue our operations, we must be successful in
obtaining additional funding through implementing the following steps:

     (1)  Obtain additional funding either in the form of equity or debt
          financing to support our cash requirements through March 31, 2002.

     (2)  Completion of our merger with Chartwell Diversified Services Inc.

     (3)  Meet our business plan to successfully sell and implement our products
          resulting in the collection of billed accounts receivable.

     (4)  Obtain payment on unaffiliated accounts receivable to bring them into
          a more current status and reduce our investment in pharmacy
          inventories.

     (5)  Receipt of $590 thousand of delinquent equity financing and $4.0
          million of convertible debt financing from NCFE in accordance with the
          terms of our preferred provider agreement.

     (6)  Obtain capital required from NCFE per their commitment for required
          cash payments, if any, under our VidiMedix settlement agreement.


     We are actively pursuing alternatives to obtain additional funding. As of,
July 13, 2001 we have secured approximately $6.6 million in net funds from two
Sales and Subservicing Agreements between e-MedSoft.com and NCFE for the funding
of pharmacy accounts receivable. On February 20, 2001, we entered into an equity
line facility for up to $50.0 million of our common stock. On July 16, 2001 we
entered into a Securities Purchase Agreement contemplating the sale of $83.0
million in common stock. However, our ability to close these equity transactions
and receive funding is subject to prior registration of the shares and various
other conditions, which may not be met. In any event, we will not be able to
fulfill these conditions for several months during which period we will have to
secure financing from other sources.

We may be unable to raise any additional amounts of financing on reasonable
terms, or at all, when needed. If we are not successful in obtaining funding
from our affiliates or resolve the matters referred to above, and we do not
obtain other sources of funding to replace these commitments, we will not be
able to fund our operations through the fiscal year ending March 31, 2002.


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OUR MAIN SOURCE OF REVENUE IS CONCENTRATED IN OUR PHARMACY MANAGEMENT DIVISION
AND OUR RELATIONSHIP WITH IT IS TROUBLED.

         Since April 2000, the results of operations of PrimeRx.com have been
consolidated with ours. Among other factors, this consolidation is based upon a
30 year exclusive management contract with PrimeRx and our ownership of
approximately 29 percent of PrimeRx. Our ownership interest was obtained on
April 12, 2000, pursuant to the exercise of an option to exchange shares of our
common stock for shares of PrimeRx common stock held by the principal
stockholders of PrimeRx, consisting of Dr. Prem Reddy and a related company.
Notwithstanding the principal stockholders' exercise and delivery of their
option to acquire our stock in exchange for PrimeRx stock, their participation
in a prior registration of a portion of those shares, and other actions
consistent with the arrangement, following a significant decline in the price of
our common stock they claimed, among other allegations, that they were misled as
to the tax consequences of their exercise of the options. They made this claim
although they admit at the time they were represented by separate and qualified
tax counsel.

         On December 13, 2000, the principal stockholders filed a complaint
against us and other parties in connection with the stock option agreement and
exchange of shares for fraud, negligent representation, breach of oral contract,
promissory estoppel, declaratory relief and breach of fiduciary duty in the
Superior Court of the State of California for the County of Los Angeles (Central
District), entitled Prime A Investments, LLC and Dr. Prem Reddy vs.
e-MedSoft.com, et. al (Case No. BC241745). This complaint was dismissed without
prejudice on December 15, 2000.

         On March 26, 2001, we entered into a settlement agreement and mutual
releases with PrimeRx.com, Network Pharmaceuticals (a subsidiary of PrimeRx)
("Network"), PrimeMed Pharmacy Services, Inc., and the other shareholders of
PrimeRx. The purpose of this settlement agreement was to resolve all outstanding
disputes among the parties in connection with e-MedSoft.com's acquisition of 29
percent of the outstanding shares of PrimeRx on April 12, 2000. In connection
with this settlement, once closed, we would own 89 percent of PrimeRx stock and
the former principal shareholders of PrimeRx would acquire 100 percent of the
outstanding stock of Network Pharmaceuticals. Consummation of all transactions
contemplated in this Settlement Agreement is subject to the fulfillment of
several conditions that we may not be able to fulfill.

         As part of this settlement, we agreed that all inter-company
obligations owing to us from Network were to be discharged. At March 31, 2001,
the amount of inter-company obligations to be discharged is approximately $2.8
million. In addition, we agreed to assume or pay a $6 million loan Network owes
to a commercial bank and obtain a release of the security interest in the assets
and common stock held by the bank prior to September 22, 2001, unless extended.
If we have not provided for this bank release by October 22, 2001, we are
obligated to pay Network an additional sum of 10 percent of the then unpaid
balance of the bank loan. In addition, until the release is obtained, we are
required to provide working capital funding to Network in the amount of $300
thousand per month which Network is required to pay no later than one (1) year
following delivery of the bank release. If we are unable to obtain the bank
release by October 22, 2001, these advances will be contributed to Network. We
have not yet fulfilled these obligations, and our ability to do so is likely to
be affected by our ability to secure additional financing.

         On July 16, 2001 Network filed a complaint in Los Angeles California
Superior Court for the County of Los Angeles alleging that we are in breach of
the April 2000 Management Agreement and the March 2001 Settlement Agreement. We
have not yet been served with this complaint, however, Network has delivered us
a letter making similar allegations. We are currently evaluating whether there
is any merit to the allegations made by Network, and intend to discuss these
issues with Network.

WE HAVE EXPERIENCED AN INCREASE IN RECEIVABLES AND INVENTORIES IN OUR PHARMACY
MANAGEMENT DIVISION.

     As of March 31, 2001, we derived approximately 89 percent of our net sales
from our pharmacy management services division. Our net sales from computer
hardware and software sales and services from our UK division has been excluded
from our net sales following our voluntary placement of e-Net into receivership.
If we are unable to diversify our sources of revenue, we will be unable to
achieve our business objectives.

         We have experienced an increase in our pharmacy accounts receivable.
The increase is due to new billing systems that were implemented just prior to
signing our management agreement with PrimeMed in April 2000 and the failure to
recognize and implement procedures to correct problems associated with
integrating the system. As of March 31, 2001 we had approximately 67 days of
pharmacy receivables outstanding compared to an expected 51 days outstanding. In
addition, our inventory has increased as the result of internal growth and lack
of proper inventory control systems. If we are unable to collect on our
receivables and reduce our inventories, we may not have sufficient cash to
continue our operations.



                                       14
<PAGE>   15

WE MAY NOT BE ABLE TO CONSUMMATE OUR MERGER AGREEMENT WITH CHARTWELL
DIVERSIFIED SERVICES, INC.

     Consummation of the pending merger with Chartwell could be of critical
importance to the Company's ability to continue as a going concern. As a result
of the significant write-downs of impaired assets we have implemented following
our review of our business and operations, our operating losses to date, the
effects of the delay in filing this Annual Report, and the delays in Chartwell's
and our delivery of our respective audited financial statements to each other,
and delays in our respective responses to requests for information from each
other, could result in a basis for a claim of breaches of the Merger Agreement
between us and Chartwell that could form a basis for each of us terminating the
Merger Agreement. To date, neither we nor Chartwell has claimed such a breach
and we are not aware of any intention to do so. If such a breach is claimed we
would review the merits of such claim and proceed accordingly; however, such a
claim could cause a significant delay in closing the Merger or a complete
termination of the Merger Agreement. Such a delay or termination could prevent
our completion of other needed financing transactions. For example, in such a
circumstance, we would not be able to consummate the sale of $83 million of our
common stock to our new institutional investor, which sale is also subject to
fulfillment of other conditions.

WE MAY NOT FULLY REALIZE THE VALUE OF OUR INTANGIBLE ASSETS, WHICH WOULD
ADVERSELY IMPACT OUR EARNINGS.

     Intangible assets and software/technology assets represent approximately 21
percent and 21 percent, respectively, of our balance sheet at March 31, 2001.
These assets include approximately $11.4 million in goodwill, $2.5 million in
distribution channel, and $13.7 in deferred software and technology. If the
underlying business assumptions or marketability of the assets acquired or
developed do not occur, we may not be able to fully realize the remaining value
of these intangible assets and our earnings will be reduced by the amount of the
intangible assets we will have to write off, and future earnings will not be as
strong as we initially anticipated in our forecasts used to support such
intangible asset values recorded on our consolidated balance sheet.

WE ARE DEPENDENT ON OUR RELATIONSHIP WITH NCFE.

     We have relied upon NCFE for business opportunities and financing. In
February 2000, we entered into a seven-year contract to provide Internet portal
solutions for NCFE, including health care information services that connect NCFE
to its clients. We have not recognized revenues from this technology and have
concluded that the original plan cannot be carried out due to NCFE's change in
its business strategy of obtaining new clients and accessing existing clients
through the joint portal and the difficulty we have jointly discovered in
automating NCFE's manual back office system. As a result, we have abandoned this
project and recorded a $98.6 million asset impairment charge to write down the
intangible assets recorded in connection with our NCFE contract. This charge is
reflected in our consolidated statement of operations for March 31, 2001.

     We are also dependent upon NCFE to provide us financing for current
operations. We are relying on NCFE to finance our accounts receivable business
under our Sales and Subservicing Agreements signed in January and March 2001 and
to honor its equity and convertible debt commitments of approximately $4.6
million made in the preferred provider agreement signed in February 2000. In
addition to these commitments, we are relying on NCFE to pay all of their
outstanding invoices of approximately $4.9 million for services previously
provided to them by us. NCFE has not performed its obligations under these
commitments in accordance with the terms of the agreements providing for such
obligations.

     On June 8, 2001 we received additional funding from NCFE of approximately
$2.3 million. This funding represented a one year promissory note bearing
interest at 10 percent.

     If NCFE fails to meet these commitments in the immediate future, it will
materially adversely affect our operations and we may be required to cease
further operating activities.

WE MUST ENHANCE OUR MANAGEMENT AND OTHER RESOURCES.

We have expanded our operations through acquisitions and other ventures. We
acquired e-Net in March 1999 and recently acquired three multimedia companies,
entered into major agreements to be the exclusive provider of electronic data
exchange, entered into a major management agreement with PrimeRx, and entered
into a joint licensing arrangement with Quantum Digital. On July 12, 2001, we
had over 162 full-time employees (including approximately 97 PrimeRx employees)
compared to 75 on March 31, 1999. Many of these acquisitions and contractual
relationships have resulted in disputes, including litigation, which has
required significant management time and resources. We have also attempted to
continue to develop and market on an international basis our products and
services. We currently have an interim Chief Financial Officer and we have
recently reassigned other management functions previously performed by our Chief
Operating Officer and Chief Technology Officer.

These factors have placed, and are expected to continue to place, a significant
strain on our managerial, operational, financial, and other resources. We must
enhance our management, financial and accounting systems, controls, reporting
systems and procedures, integrate new personnel, and more effectively manage our
expanded operations. In connection with these enhancements, we will be required
to attract and retain qualified personnel in managerial positions. Any failure
to do so could negatively affect the quality of our products and services, our
ability to respond to our clients, retain key personnel, and our business in
general. Unless we are able to resolve our financial issues, it is unlikely
that we will be able to enhance our management and systems.

THE ACQUISITIONS WE HAVE COMPLETED HAVE DEPLETED OUR CASH AND MAY BE DIFFICULT
TO MANAGE.

     Since our inception we have acquired 5 companies and entered into a
management contract with PrimeRx, all of which have incurred operating losses
and depleted our cash. We have expanded and plan to expand our business by
making acquisitions of other companies in the health care information services
industry. There are a number of risks associated with financing these
acquisitions and integrating them into our business, including the following:

     -  our profitability could be adversely affected by depletion of cash,
        servicing any additional debt and amortizing the expenses related to
        goodwill and intangible assets;


                                       15
<PAGE>   16
     -  the issuance of additional equity would dilute the interests of our
        current stockholders;

     -  it could be difficult to assimilate the acquired companies' employees,
        equipment, and operations;

     -  the acquisition could divert management's attention from other business
        concerns;

     -  the acquired companies could operate in markets with which we have
        little or no familiarity;

     -  there could be undisclosed or unforeseen liabilities associated with the
        acquired companies; and

     -  we could lose key employees or customers of the acquired companies.

WE RELY ON THE PERFORMANCE AND SECURITY OF OUR SYSTEMS TO ENSURE UNINTERRUPTED
DATA ACCESS TO OUR CUSTOMERS AND PATIENT AND CUSTOMER CONFIDENTIALITY.

     Our customer satisfaction and our business could be harmed if our customers
experience any system delays, failures, or loss of data. The occurrence of a
major catastrophic event or other system failure at our facilities could
interrupt data processing or result in the loss of stored data. In addition, we
depend on the efficient operation of Internet connections from customers to our
systems. These connections, in turn, depend on the efficient operation of Web
browsers, Internet service providers, and Internet backbone service providers,
all of which could have periodic operational problems or outages. Any disruption
to Internet access provided by third parties could have a material adverse
effect on our business, financial condition, and results of operations.
Furthermore, we are dependent on hardware suppliers for prompt delivery,
installation, and services equipment used to deliver our services.

     A material security breach could damage our reputation or result in
liability to our company. We retain confidential customer and patient
information in our processing centers. Therefore, it is critical that our
facilities and infrastructure remain secure and that they 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 disruptions.

WE FACE INTENSE COMPETITION IN THE MARKET FOR HEALTH CARE INFORMATION, WHICH
COULD HARM OUR BUSINESS.

     The market for health care information services is intensely competitive,
rapidly evolving, and subject to rapid technological change. Many of our
competitors have greater financial, technical, product development, marketing,
and other resources than we do. These organizations may be better known and have
more customers than we do. Some of our competitors have announced or introduced
Internet strategies that will compete with our applications and services,
including

     -  application services providers, such as US Internetworking, Inc., Exodus
        Communications, Inc., and Trizetto;

     -  healthcare e-commerce and portal companies, such as Healtheon/WebMD and
        Medscape.;

     -  healthcare electronic data interchange companies, including ENVOY
        Corporation and National Data Corporation;

     -  large information technology consulting service providers, including
        Accenture, International Business Machines Corporation, and Electronic
        Data Systems Corporation; and

     -  smaller regional organizations.

     In addition, we expect that major software information systems companies
and others specializing in the health care industry will offer competitive
applications or services. Some of our large customers may also compete with us.
We may be unable to compete successfully against current and future competitors,
and competitive pressures may seriously harm our business.


                                       16
<PAGE>   17
WE RELY ON OUR KEY RELATIONSHIPS BUT MUST BE PERCEIVED AS INDEPENDENT FROM ANY
PARTICULAR PARTNER OR CUSTOMER.

     To be successful, we believe that we must establish and maintain key
relationships with leaders in a number of health care industry segments. This is
critical because we are relying on these relationships to:

     -    extend the reach of our applications and services to the various
          participants in the health care industry;

     -    obtain specialized health care expertise;

     -    bring to market new products and services;

     -    further enhance our brand; and

     -    generate revenue.

     Entering into strategic relationships is complex because some of our
current and future partners may compete with us. In addition, we may not be able
to establish relationships with key participants in the health care industry if
we have established relationships with their competitors. If we are not
perceived as independent of any particular customer or partner we may not be
able to become profitable.

WE MAY BE ADVERSELY AFFECTED BY PRODUCT-RELATED LIABILITIES RELATED TO THE
PROVISION OF HEALTH CARE ADMINISTRATIVE AND DIAGNOSTIC INFORMATION FOR PATIENT
CARE.

     Although we and our customers test our applications, they may contain
defects or result in system failures that could effect the administration of
patient care by our customers. In addition, our platform may experience problems
in security, availability, scalability, or other critical features which could
adversely affect our customers' ability to properly administer health care
services. These defects or problems could result in:

     -    loss of or delay in generating revenue;

     -    loss of market share;

     -    failure to achieve market acceptance;

     -    diversion of development resources;

     -    injury to our reputation;

     -    increased insurance costs; and

     -    loss of clients.

     Our services agreements involve providing critical information technology
services to clients' businesses. If we fail to meet our clients' expectations,
our reputation could suffer and we could be liable for damages. We could be
liable if systems fail to deliver correct patient and health care related
information in a timely manner. Finally, we could become liable if confidential
information is disclosed inappropriately. Our insurance may not protect us from
these risks.

     In addition, our insurance may not be sufficient to cover large claims, or
the insurer could disclaim coverage on claims.

WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS FROM THIRD PARTIES.

     We could be subject to intellectual property infringement claims as the
number of competitors grows and the functionality of our applications overlaps
with competitive offerings. These claims, even if not meritorious, could be
expensive to resolve and divert management's attention from operating the
business. If we become liable to a third party for infringing its intellectual
property rights, we could be required to pay a substantial damage award. Such a
judgment would have a material adverse effect on our business, financial
condition, and results of operations. In addition, we may be unable to develop
non-infringing technology or obtain a license on commercially reasonable terms.

WE ARE DEPENDENT ON OUR PROPRIETARY RIGHTS SO THAT HEALTH CARE PARTICIPANTS WILL
UTILIZE OUR SYSTEMS.


                                       17
<PAGE>   18
     Our future success and ability to compete in the health care information
services business may be dependent in part upon our proprietary rights to
products and services that we develop. We expect to rely on a combination of
patent, copyrights, trademark, and trade secret laws and contractual
restrictions to protect our proprietary technology and to rely on similar
proprietary rights of any of our content and technology providers. We intend to
file patent applications to protect our proprietary technology. We cannot assure
that such applications will be approved or, if approved, will be effective in
protecting our proprietary technology and will give contact to health care
participants to utilize our technical solutions. We enter into confidentiality
agreements with our employees, as well as with our clients and potential clients
seeking proprietary information, and limit access to and distribution of our
software, documentation, and other proprietary information. We cannot assure
that the steps we take or the steps such providers take would be adequate to
prevent misappropriation of our proprietary rights.

THE LOSS OF KEY PERSONNEL OR THE INABILITY TO HIRE OR RETAIN QUALIFIED PERSONNEL
COULD ADVERSELY AFFECT OUR BUSINESS.

     Our operations are dependent on the continued efforts of the executive
officers and management, and in particular, John F. Andrews, our Chief Executive
Officer. During the past year we have experienced a turnover in our Senior
Management. If we are unable to attract and retain other qualified employees,
our business and prospects could be adversely affected. Our success is also
dependent to a significant degree on our ability to attract, motivate, and
retain highly skilled sales, marketing, and technical personnel, including
software programmers and systems architects skilled in the computer language
with which our products operate. Competition for such personnel in the software
and information services industries is intense. The loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on our business.

INVESTMENT RISKS

WE FACE POSSIBLE DELISTING OF OUR STOCK ON THE AMERICAN STOCK EXCHANGE.

     As a result of our significant losses, without any additional equity
financing, we may not be able to maintain the requirements for continued listing
on the American Stock Exchange. As a result we could be delisted and our common
stock could become illiquid.

FUTURE ISSUANCES OF A LARGE NUMBER OF SHARES OF OUR COMMON STOCK, INCLUDING
THOSE UNDER EXISTING AGREEMENTS, COULD CAUSE SIGNIFICANT DILUTION TO OUR
STOCKHOLDERS AND DEPRESS OUR STOCK PRICE.

     Subject to market conditions, availability, and terms, we plan to sell
additional equity or debt securities with equity features in order to provide us
with additional funds to finance our continued operations, develop our
infrastructure, introduce new products and services and acquire additional
companies or businesses. We cannot assure that we will be able to sell such
securities or that the price and other terms will meet those required by
potential investors in such securities. Based upon current market prices, it is
likely that the price at which any securities can be sold under the equity line,
will result in financial and ownership dilution of existing stockholders.

     The market price of our common stock could decline as a result of sales of
a large number of shares of common stock in the market, or the perception that
such sales could occur.

     On February 20, 2001 we entered into an equity draw down line facility with
Hoskin International to sell up to $50.0 million of our common stock. If Hoskin
International sells all of the shares we could offer through this equity line,
the market price of our common stock may decline. Such sales also might make it
more difficult for us to sell equity or equity related securities in the future
at a time and price that we deem appropriate. Hoskin International could
purchase and resell up to approximately 16.8 percent of our common stock
outstanding at July 12, 2001 during the 36 months following effectiveness of the
registration statement required to be filed to draw on the equity line.
Furthermore, to the extent the price of our common stock decreases, we will be
required to issue more shares of common stock to Hoskin International for any
given dollar amount that we draw from the equity draw down facility. Sales of a
substantial number of shares of our common stock could cause our stock price to
decline. Based on shares outstanding as of July 12, 2001, upon issuance of all
of the shares that would be included in the offering, we will have 94,396,284
shares of common stock outstanding.

     On May 14, 2001, we announced execution of an Agreement and Plan of Merger
and Reorganization with Chartwell Diversified Services, Inc., which agreement
was amended and restated in its entirety on June 4, 2001. Pursuant to this
Merger, the outstanding shares of Chartwell shall be converted solely at our
option (i) either into 50.0 million shares of the Company's common stock or
$90.0 million in cash and (ii) warrants to purchase 20.0 million shares of the
Company's common stock at the exchange ratio specified in the Merger Agreement.
The warrants will have a term of five years at an initial exercise price of
$4.00 per share. The warrants may be exercised up to 4.0 million shares per
year. We plan to ask our shareholders to approve this transaction at a meeting
to be held in our second or third fiscal quarter. If the merger is completed
based on our shares outstanding at July 12, 2001, we could have approximately
131.0 million shares of common stock outstanding.


                                       18
<PAGE>   19
     On July 16, 2001 we executed a definitive purchase agreement with an
institutional investor for the sale of $83.0 million of newly issued shares of
common stock. Completion of the agreement is subject to several conditions,
including the completion of the previously announced merger with Chartwell and
the post-merger retention of Frank Magliochetti, President of Chartwell and John
Andrews, President of e-MedSoft. Additional material conditions include
achievement of the following on a post-merger basis:

     (1)  full compliance with all requirements for continued listing on the
          American Stock Exchange,

     (2)  gross revenues of $30.0 million during a 45-day operational span with
          EBIDTA for that period of at least $100 thousand,

     (3)  cash on hand at time of closing of at least $5.0 million,

     (4)  the Company's common stock must reach $4.20 per share after completion
          of the merger; and

     (5)  the existing equity line with Hoskins International will not have been
          drawn down by the Company unless the Company has achieved a full year
          of positive EBIDTA in excess of $35.0 million.

     The issuance of shares will be priced at 90 percent of the market price on
     closing date of the sale. If we sold shares at a market price of $4.20 per
     share we would issue approximately 22.0 million shares. Based on the shares
     outstanding at July 12, 2001 including shares that would be issued in the
     Chartwell merger, we could have 153.0 million shares of common stock
     outstanding.

     In addition, we have a large number of shares of common stock outstanding
and available for resale beginning at various points in time in the future.
These sales also might make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate. As of March 31,
2001, we have outstanding 78.1 million shares of common stock. Of these shares,
65.0 million shares are restricted securities and will become eligible for sale
without registration pursuant to Rule 144 under the Securities Act, subject to
certain conditions of Rule 144. Certain holders of our common stock have demand
and piggyback registration rights enabling them to register up to 9.1 million of
their shares for sale under the Securities Act. If holders sell a large number
of shares in the public market, our stock price could fall materially.

     The perceived risk of dilution may cause the selling stockholders as well
as other stockholders of ours to sell their shares, which would contribute to a
downward movement in the stock price of our common stock. Moreover, the
perceived risk of dilution and the resulting downward pressure on our stock
price could encourage investors to engage in short sales of our common stock. By
increasing the number of shares offered for sale, material amounts of short
selling could further contribute to progressive price declines in our common
stock.

IT IS LIKELY THAT WE WILL SEEK APPROVAL FROM OUR SHAREHOLDERS TO INCREASE OUR
AUTHORIZED SHARES.

          In order to finance our operations it is likely that we will be
required to sell additional equity securities. Further, given the current price
of our common stock, we will not be able to fully utilize the equity draw down
facility and the agreement with our new institutional investor. In addition if
our plan to merge with Chartwell is consummated, we will need to issue 50.0
million shares of our common stock. Therefore, we plan to seek shareholder
approval for an increase in the number of authorized shares of our capital
stock.

     We anticipate to register up to approximately 38.0 million shares of our
common stock for sale by the selling stockholders under either the Hoskin Equity
Line or the  stock sale. Under the terms of our common stock purchase agreement
with Hoskin International, we may not issue shares of our common stock to Hoskin
International which would result in ownership by Hoskin International of more
than 9.9% of our issued and outstanding common stock. However, if all of the
shares being registered are issued under the terms of the common stock purchase
agreement and resold by Hoskin International and the other selling stockholders,
third party investors could acquire 20.8 percent of our common stock outstanding
as of March 7, 2001. Under the terms of the agreement, the issuance of shares
will be priced at 90 percent of the market price on the closing date of the
sale. If we sold shares at a market price of $4.20 per share we would issue
approximately 22.0 million shares.

THE SALE OF SHARES OF NEWLY AUTHORIZED COMMON STOCK AS WELL AS THOSE COVERED
UNDER EXISTING AGREEMENTS COULD INFLUENCE THE CONTROL OF e-MEDSOFT.

         The acquisition by third party investors of a significant percentage of
our common stock could enable such investors to influence or direct the
policies, decisions and composition of our Board of Directors and management. A
potential change of control could involve a number of risks, including the
diversion of management attention and resources, the loss of key employees, and
changes in our business plan and operations. Any such events could have a
material adverse effect on our business and results of operations.


                                       19
<PAGE>   20
WE MAY BE UNABLE TO ACCESS ALL OR PART OF OUR EQUITY LINE FACILITY.

     Under our agreement with our new institutional investors dated July 16th,
2001. We have agreed not to draw down the equity line unless we achieve EBITDA
for a full year following the Chartwell merger of at least $35.0 million. We may
not be able to achieve this performance level, or it may take us considerable
time before we are able to do so. Therefore, the equity line may not provide the
readily available source of funding it was originally intended to achieve.

HOLDERS OF OPTIONS AND WARRANTS AND OTHER PARTIES HAVE THE RIGHT TO ACQUIRE A
LARGE NUMBER OF SHARES OF OUR COMMON STOCK.

     We have reserved a total of 8.5 million shares of our common stock for
issuance upon exercise of options granted or which may be granted under our
existing stock option plans. As of March 31, 2001, stock options to acquire 3.6
million shares at a weighted average exercise price of $4.80 were outstanding.
In addition, as of March 31, 2001, warrants to acquire 9.8 million shares of our
common stock at a weighted average exercise price of $3.64 were outstanding. In
June 2001 we issued additional warrants to purchase 4.8 million shares of our
common stock at an exercise price of $2.30. It is likely that we will be
required to issue warrants and options to lenders, and other providers as an
additional inducement to continue to do business with us. The holders of these
options and warrants will have the opportunity to profit from an increase in the
market price of our common stock. These options and warrants may make it more
difficult for us to obtain additional equity financing in the future. The
holders of these options and warrants can be expected to exercise the options
and warrants at a time when we, in all likelihood, would be able to sell equity
securities on terms more favorable to us than those provided in the options and
warrants.

THE PRICE OF OUR COMMON STOCK MAY CONTINUE TO BE VOLATILE.

     The market price of our common stock has been, and in the future could be,
significantly affected by factors such as:

     -    actual or anticipated fluctuations in operating results;

     -    new products or new contracts;

     -    competitors or their customers;

     -    governmental regulatory action;

     -    developments with respect to patents or proprietary rights;

     -    changes in financial estimates by securities analysts; and

     -    general market conditions.

WE DO NOT INTEND TO PAY DIVIDENDS BECAUSE WE INTEND TO USE THE FUNDS FOR OUR
BUSINESS OPERATION AND EXPANSION.

     We currently intend to retain cash generated from operations to provide
funds for the operation and expansion of our business. We have not paid cash
dividends on our common stock and do not anticipate that we will do so in the
foreseeable future. Any declaration and payment of dividends would be subject to
the discretion of our board of directors. Any future determination to pay
dividends will depend upon our results of operations, financial condition,
capital requirements, contractual restrictions, and other factors deemed
relevant at the time by the board of directors.

INDUSTRY RISKS

THE HEALTH CARE INDUSTRY MAY NOT ACCEPT ELECTRONIC INFORMATION EXCHANGE.

     Our business could suffer dramatically if Internet solutions are not widely
accepted or not perceived to be effective. Growth in demand for our applications
and services depends on the adoption of Internet solutions by health care
participants, which requires the acceptance of a new way of conducting business
and exchanging information. To maximize the benefits of our platform, health
care participants must be willing to allow sensitive information to be stored in
our proprietary databases in order to process transactions for them. The
benefits of our connectivity and information management solutions are, however,
limited under these circumstances.

     Customers using legacy and client-server systems may nonetheless refuse to
adopt new systems when they have made extensive investments in hardware,
software, and training for older systems.


                                       20
<PAGE>   21
THE HEALTH CARE INDUSTRY MAY NOT ACCEPT OUR SOLUTION.

     To be successful, we must attract a significant number of United States
customers throughout the health care industry. We believe that complexities in
the nature of the transactions that must be processed have hindered the
development and acceptance of information technology solutions by the health
care industry. Conversion from traditional methods to electronic information
exchange may not occur as rapidly as we expect. Even then, health care industry
participants may use applications and services offered by others.

     We believe that we must gain significant market share before our
competitors introduce alternative products, applications, or services with
features similar to our current or proposed offerings. Our business model is
based on our belief that the value and market appeal of our solution will grow
as the number of participants and the scope of the services available on our
platform increase. We may not achieve the critical mass of users we believe is
necessary to become successful. In addition, we expect to generate a significant
portion of our revenue from service offerings. Consequently, any significant
shortfall in the number of users would adversely affect our financial results.

CHANGES IN THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS.

     The health care industry is subject to changing political, economic, and
regulatory influences. These factors affect the purchasing practices and
operations of health care organizations. Changes in current health care
financing and reimbursement systems could cause us to make unplanned
enhancements of applications or services, or result in delays or cancellations
of orders, or in the revocation of endorsement of our applications and services
by health care participants. Federal and state legislatures have periodically
considered programs to reform or amend the U.S. health care system at both the
federal and state level. Such programs may increase governmental involvement in
health care, lower reimbursement rates, or otherwise change the environment in
which health care industry participants operate. Health care industry
participants may respond by reducing their investments or postponing investment
decisions, including investments in our applications and services.

     Many health care industry participants are consolidating to create
integrated health care delivery systems with greater market power. As the health
care industry consolidates, competition to provide products and services to
industry participants will become even more intense, as will the importance of
establishing a relationship with each industry participant. These industry
participants may try to use their market power to negotiate price reductions for
our products and services. If we were forced to reduce our prices, our operating
results could suffer as a result if we cannot achieve corresponding reductions
in our expenses.

GOVERNMENT REGULATION OF THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS.

     Our business is subject to U.S. and international government regulation.
Existing as well as new laws and regulations could adversely affect our
business. Laws and regulations may be adopted with respect to the Internet or
other online services covering issues such as user privacy, pricing, content,
copyrights, distribution, and characteristics and quality of products and
services. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Demand for our applications and services may be affected by additional
regulation of the Internet.

     We are subject to extensive regulation relating to the confidentiality and
release of patient records. Additional legislation governing the distribution of
medical records has been proposed at both the state and federal level. It may be
expensive to implement security or other measures designed to comply with new
legislation. Moreover, we may be restricted or prevented from delivering patient
records electronically. For example, until recently, the Health Care Financing
Administration guidelines prohibited transmission of Medicare eligibility
information over the Internet.

     Legislation currently being considered at the federal level could affect
our business. For example, the Health Insurance Portability and Accountability
Act of 1996 mandates the use of standard transactions, standard identifiers,
security, and other provisions. Regulations setting these standards are now
being released. We are designing our platform and applications to comply with
these proposed regulations; however, until these regulations are fully
understood and become final, they could cause us to use additional resources and
lead to delays as we revise our platform and applications. In addition, our
success depends on other health care participants complying with these
regulations.

REGULATORY AND LEGAL UNCERTAINTIES SURROUND THE DEVELOPMENT OF THE INTERNET

     We are not currently subject to direct regulation by any government agency
other than laws or regulations applicable to business and generally to
e-commerce directly. However, due to the increasing popularity and use of the
Internet and other online services, federal, state, and local governments, as
well as foreign governments, may adopt laws and regulations, or amend existing
laws and regulations, with respect to the Internet or other online services
covering issues such as user privacy, pricing, sales tax, content, copyrights,
distribution, and characteristics and quality of products and services. The
adoption of any additional laws or regulations may decrease the growth of the
Internet or other online services, which could, in turn, decrease the demand
for our services and increase our cost of doing business, or otherwise have a
negative effect on our business. Furthermore, the growth and development of the
market for e-commerce may prompt calls for more stringent consumer protection
laws to impose additional burdens on companies conducting business over the
Internet.

     The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
some foreign governments that could impose taxes on the sale of goods and
services and other Internet activities. In October 1998, the Internet Tax
Freedom Act was signed into law, placing a three-year moratorium on new state
and local taxes on e-commerce. However, it is possible that future laws
imposing taxes or other regulations on e-commerce could substantially impair
the growth of e-commerce and as a result have a negative effect on our business.

OUR FUTURE SUCCESS WILL DEPEND ON THE INTERNET'S ABILITY TO ACCOMMODATE GROWTH

     The recent growth in the use of the Internet has caused frequent periods
of performance degradation. Any failure in performance or reliability of the
Internet could adversely affect our ability to provide our products and,
consequently, hurt our operating results. To the extent that the Internet
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements of users, the Internet infrastructure may not
continue to support the demands placed on it and, as a result, the performance
or reliability of the Internet may be adversely affected. Furthermore, the
Internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure. While no previous outages or delays
have materially affected our operations, the relatively complex and unproven
technology that makes up the Internet infrastructure poses a risk of material
outages or delays that could adversely affect the ability of our customers to
use our trading systems. In addition, the Internet could lose its viability as
a form of media due to delays in the development or adoption of new standards
and protocol that can handle increased levels of activity. The infrastructure
and complementary products and services necessary to maintain the Internet as a
viable commercial medium may not be developed or maintained.




                                       21
<PAGE>   22

ITEM 2.  DESCRIPTION OF PROPERTY.

GENERAL

    Our principal offices are in Jacksonville, Florida. We also have additional
offices in California (4), including two that are in process of closing in
accordance with our restructuring plan, Florida (2), Maryland (1) and Nevada
(1). These offices are leased. In addition, we own or lease computer and
communication equipment necessary to operate our businesses.

OFFICE LEASES

<TABLE>
<S>                                          <C>
1300 Marsh Landing Parkway, Suite 106        511 Amigos Avenue
Jacksonville, Florida                        Redlands, California

20750 Ventura Boulevard, Suite 320           4350 Sheridan Street, Suite 201
Woodland Hills, California                   Hollywood, Florida
(in process of closing)

130 Camino Ruiz                              2002 N. Lois Avenue,  Suite 175
Camarillo, California                        Tampa, Florida
(in process of closing)

151 Shipyard Way                             2605 Cabover Drive
Newport Beach, California                    Hanover, Maryland

5 Cactus Garden Drive, Blvd. B
Hendersen, Nevada
</TABLE>

PHARMACY LOCATIONS

  In addition, our pharmacy services division owns or operates pharmacies in
Alabama (1), California (21), Connecticut (1), Maryland (1), Nevada (2), and
Tennessee (1). These pharmacy locations are leased. In addition, we own or lease
equipment in these locations necessary for us to operate our business.

ITEM 3. LEGAL PROCEEDINGS.

    From time to time, we are party to routine litigation involving various
aspects of our business. Except as described below, none of such pending
litigation, in our opinion ,will have a material adverse impact on our
consolidated financial condition.

Sutro NASD Arbitration No. 1

A dispute between Sutro & Co., and us is currently being arbitrated before the
National Association of Securities Dealers. We made the claim in our
counter-claim that Sutro committed fraud, breach of fiduciary duty, negligent
misrepresentation, professional negligence, and breach of contract arising from
Sutro's activities as an investment banker for us. We seek compensatory damages
of $200 million and injunctive relief. Sutro & Co. initiated the dispute with a
claim for compensatory and punitive damages and declaratory and injunctive
relief arising from our alleged unjustified refusal to (1) honor warrants we
issued to Sutro to purchase shares of our common stock; (2) register all of
Sutro's e-MedSoft.com's common stock and warrants as allegedly required by the
parties' Registration Rights Agreement; (3) provide Sutro with its shareholder
voting rights consistent with the shares it acquired by exercise of the
warrants, and (4) pay $150 thousand plus expenses for valuation investment
banking services allegedly rendered by Sutro to us. The hearing on this matter
commenced on July 23, 2001. We do not yet know when the hearing will be
concluded or when an outcome will be determined.


                                       22
<PAGE>   23
Sutro NASD Arbitration No. 2

An investor in our Company has sued Sutro for failing to honor commitments and
failures to act in accordance with its fiduciary duties. This matter is also
being arbitrated before the National Association of Securities Dealers. Sutro
has filed a cross-claim against us for indemnification claiming that if Sutro is
liable to the investor, we are responsible for the payment of any awarded
damages. This matter is in the discovery stage and there have been no hearings
or determination on the merits. No date has been set for the formal
adjudication.

PrimeRx.Com

     Our ownership interest in PrimeRx was obtained effective as of April 12,
2000, pursuant to the exercise of an option to exchange shares of our common
stock for shares of PrimeRx common stock held by the principal stockholders of
PrimeRx, consisting of Dr. Prem Reddy and a related trust. Notwithstanding the
principal stockholders' exercise and delivery of their option to acquire our
stock in exchange for PrimeRx stock, their participation in a prior registration
of a portion of those shares, and other actions consistent with the arrangement,
following a significant decline in the price of our common stock they claimed,
among other allegations, that they were misled as to the tax consequences of
their exercise of the options. They made this claim although they admit at the
time they were represented by separate and qualified tax counsel.

     On December 13, 2000, the principal stockholders filed a complaint against
us and other parties in connection with the stock option agreement and exchange
of shares for fraud, negligent representation, breach of oral contract,
promissory estoppel, declaratory relief and breach of fiduciary duty in the
Superior Court of the State of California for the County of Los Angeles (Central
District), entitled Prime A Investments, LLC and Dr. Prem Reddy vs.
e-MedSoft.com, et. al (Case No. BC241745). This complaint was dismissed without
prejudice on December 15, 2000.

    On March 26, 2001, we entered into a Settlement Agreement and Mutual
Releases with PrimeRx.com, Inc., Network Pharmaceuticals, Inc., PrimeMed
Pharmacy Services, Inc. and the other shareholders of PrimeRx. The purpose of
the Settlement Agreement is to resolve all of the outstanding disputes among the
parties by specifying the responsibility for certain obligations among the
parties; allocating the ownership of Network with the principal shareholders of
PrimeRx, and the ownership of PrimeRx with e-MedSoft.com; and providing for the
continued management of Network by us on revised terms and conditions in a
manner that would permit the continued consolidation of the financial statements
and results of operations of Network with ours. The mutual releases were deemed
effective March 19, 2001. The Settlement Agreement will not be consummated or
closed until performance required in the Agreement is completed by all parties.

    Until this settlement is effective and any transfer of shares are made, we
own 29 percent of PrimeRx outstanding common stock and thereby owned 29 percent
of Network's outstanding common stock. The proposed exchange of stock in the
Settlement Agreement will result in us owning approximately 89 percent of
PrimeRx stock as they are a wholly owned subsidiary of PrimeRx. PrimeRx will no
longer own any outstanding shares of Network which will be held 100 percent by
the prior PrimeRx shareholders, other than us.

    The ultimate consummation of certain aspects of the Settlement Agreement is
subject to our fulfillment of certain obligations, which we have not performed
to date, and may not be able to do so in the future. Further, the future
Settlement Agreement requires that a new management agreement be agreed to by
both parties.

    We have been informed by PrimeRx that it believes we are in breach of the
Management Agreement and the Settlement Agreement, and its subsidiary, Network
Pharmaceuticals has filed an action against us, although we have not been
formally served with this complaint.

Network Pharmaceuticals vs. e-MedSoft.com and National Century Financial
Enterprises, Inc.

     On or about July 16, 2001, the Company was informed that Network
Pharmaceuticals, Inc. filed a complaint against us and our strategic partner
National Century Financial Enterprises, Inc. (Network Pharmaceuticals, Inc. a
Nevada corporation; National Century Financial Enterprises, Inc., an Ohio
corporation; and DOES 1 through 25, inclusive, Superior Court of the State of
California for the County of Los Angeles (Central District), Case No. BC254258)
alleging breach of the March 2001 Settlement Agreement. The complaint purports
to state causes of action for breach of contract, breach of representations and
warranties; breach of fiduciary duty, and for accounting and the imposition of a
constructive trust. To the Company's best knowledge, neither it nor NCFE has
been served with the lawsuit.

     This lawsuit arises out of the continued problems the Company has had in
its relationship with PrimeRx.com, and the continued belief by the Company that
principals or former principals of PrimeRx.com have an active intention to
violate their contractual


                                       23
<PAGE>   24
understandings. The Company's initial review of the lawsuit and the review of
its counsel lead the Company to believe that it has significant defenses to the
lawsuit and that it has substantial cross-claims as well. The Company continues,
however, to investigate and examine the claims with its counsel.

VidiMedix Contingencies

     On or about September 15, 2000, certain former securities holders of
VidiMedix filed a Petition against us arising out of our acquisition of
VidiMedix. (Moncrief, et al vs. e-MedSoft.com and VidiMedix Acquisition
Corporation, Harris County (Texas) Court, No. 2000-47334). The Petition was
amended on or about May 24, 2001. Plaintiffs allege that they were the majority
shareholders in VidiMedix, and that they consented to our acquisition of
VidiMedix based on allegedly false representations regarding the earn-out
provision in the merger agreement. In addition, they allege that we entered into
an agreement or agreements to deliver certain shares to them and failed to do
so. Plaintiffs also assert claims for breach of contact, breach of the merger
agreement, fraudulent inducement and negligent inducement, fraudulent
misrepresentation and fraud, negligent misrepresentation, statutory fraud and
breach of fiduciary duty.

    In November 2000 we entered into a settlement agreement with these parties.
This agreement was amended in February 2001. Under this amended settlement
agreement, we agreed to issue $3.4 million in shares of our common stock to
satisfy the earn-out provisions in the merger agreement. The number of shares
required to be issued is the higher of 1.3 million or the product of $3.4
million divided by weighted average closing price calculated using the first six
days of the nine days prior to whichever of several reference dates would result
in the greatest number of shares to be issued. Plaintiffs have claimed that we
owe them either 6.0 million shares of common stock or liquidated damages of
$5.1 million. We dispute these claims.

    On May 3, 2001, we filed a lawsuit against the plaintiffs and others in
California Superior Court for the County of Los Angeles (e-MedSoft.com vs.
Moncrief, et. al, Case No. BC249782). In this suit we have alleged that the
Defendants fraudulently induced us to acquire the assets and liabilities of
VidiMedix by concealing accurate financial documents, misrepresenting its
technology, its clientele, and the level of client satisfaction. We have also
alleged claims for conspiracy to commit fraud, negligence, misrepresentation and
breach of the implied covenant of good faith and fair dealing. We are seeking
compensatory and punitive damages according to proof.

    These disputes are in the discovery stage. There have been no hearings or
determinations on the merits. No dates have been set for formal adjudication.

    In February 2001 we settled a separate dispute with the six former VidiMedix
shareholders who were not parties to the November settlement agreement. These
parties are not involved in either of the 2 lawsuits described above. Pursuant
to this settlement, we issued 136 thousand shares of common stock.

ILLUMEA (ASIA)

    On December 13, 2000, Illumea (Asia), Ltd., Nathalie j.v.d. Doommalen, David
Chung Shing Wu, George K.K. Tong, Edna Liu, Yee Mau Chen, Norman Yuen Tsing Tao,
Jeffrey Sun, Boris Luchterhand, Carol Andretta, Kin Yu, Kathryn Ma, Alan Munro,
Yonanda j.v.d. Doommalen, Hunter Vest, Ltd., Eltrinic Enterprises, Ltd., and
True Will Investments ("Plaintiffs") filed a First Amended Complaint against the
Company, Illumea Corporation ("Illumea") and Andrew Borsanyi arising out of the
Company's acquisition of Illumea.

    Plaintiffs allege that they were shareholders in Illumea, and that they
consented to the Company's acquisition of Illumea based on the allegedly false
representation that the Company would hire plaintiff Nathalie Doommalen, the
chief executive of plaintiff Illumea (Asia), Ltd ("IAL"). In addition, plaintiff
IAL alleges that Illumea breached an agency agreement between those companies
and engaged in fraud in connection with the agency relationship. Plaintiffs
assert claims for securities fraud under 15 U.S.C. Section 78j(b) and Rule
10b-5, "conspiracy," breach of contract, fraud, false promise, defamation, and
violation of California Business & Professions Code Section 17200. Plaintiffs
seek compensatory damages, disgorgement under Section 17200, and attorneys'
fees.

    On March 26, 2001, the Company and Illumea filed a Counterclaim against IAL
and Nathalie Doommalen for breach of contract, breach of fiduciary duty and
fraud. The Counterclaim alleges that IAL and Doommalen have refused to repay
Illumea for providing funding and equipment to IAL, and that Doommalen failed to
make certain disclosures in connection with the merger between Illumea and the
Company.

    Defendants and counterdefendants each filed a motion under Federal Rule of
Civil Procedure 12(b)(6) to dismiss certain claims in the First Amended
Complaint and the Counterclaim, respectively. The Court denied both motions.

    The parties have made their initial disclosures under Rule 26, and discovery
is now under way. The court recently issued a Pretrial Scheduling Order setting
the following dates: discovery cutoff of December 3, 2001, Final Pretrial
Conference on March 1, 2002, and trial in April 2002 (the exact date to be
announced during the Final Pretrial Conference).

    There are no other legal proceedings to which we are a party or to which any
of our properties are subject, other than routine litigation incident to our
business that is covered by insurance or an indemnity or that we do not expect
to have a material adverse effect on our company. It is possible, however, that
we could incur claims for which we are not insured or that exceed the amount of
our insurance coverage.

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

    None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

    (a) Market information. Our common stock has been listed on the American
Stock Exchange under the symbol "MED" since January 11, 2000. Prior to January
11, 2000, our common stock traded in the over-the-counter market, under the
symbol "MDTK". The following table sets forth the high and low closing prices of
our common stock as reported on the American Stock Exchange for the period
beginning on January 11, 2000. The following table also sets forth the high and
low bid prices for our common stock for the periods (prior to January 11, 2000)
indicated, as reported by the OTC Bulletin Board. These prices are believed to
be inter-dealer quotations and do not include retail mark-ups, mark-downs, or
other fees or commissions, and may not necessarily represent actual
transactions. On January 4, 1999, the Company completed a 5-for-1 stock split.
Accordingly, all bid prices listed below are restated to reflect this split. On
May 28, 1999, the Company changed its year end from May 31 to March 31. As a
result, the quarter ending March 31, 1999 represents only one month of trading.


                                       24
<PAGE>   25

<TABLE>
<CAPTION>
QUARTER ENDED                                                   HIGH         LOW
-------------                                                 -------     ------
<S>                                                           <C>         <C>
August 31, 1998 ..........................................    $ 0.600     $0.206
November 30, 1998  .......................................      0.650      0.200
February 28, 1999  .......................................      7.000      0.206
March 31, 1999 ...........................................      4.437      2.312
June 30, 1999 ............................................      4.875      2.625
September 30, 1999 .......................................      3.875      1.656
December 31, 1999  .......................................      8.125      1.875
March 31, 2000 ...........................................     24.250      6.625
June 30, 2000 ............................................     15.187      7.000
September 30, 2000 .......................................      8.812      2.625
December 31, 2000  .......................................      2.750      0.375
March 31, 2001 ...........................................      3.500      0.510
June 30, 2001 ............................................      2.000      0.550
</TABLE>

    (b) Holders. As of July 12, 2001 there were a total of 768 shareholders of
record. This does not include shareholders who hold stock in their accounts at
broker/dealers.

    (c) Dividends. We have never paid a cash dividend on our common stock and do
not expect to pay a cash dividend in the foreseeable future.

    (d) Recent sales of unregistered securities. None.

ITEM 6. SELECTED FINANCIAL INFORMATION.

                         E-MEDSOFT.COM AND SUBSIDIARIES
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                    FOR THE FISCAL YEARS ENDED
                                                            MARCH 31,                   FOR THE
                                                    --------------------------        FOUR MONTHS
                                                      2001(a)          2000(b)    ENDED MARCH 31, 1999
                                                    ---------         ---------    --------------------
<S>                                                 <C>               <C>         <C>
Net sales                                           $  87,997         $     941         $      --
Costs and expenses excluding write-downs
   for impaired assets                              $ 146,245         $   9,370         $     772
Write down of impaired assets                       $ 201,034         $      --         $      --
Total costs and expenses                            $ 347,279         $   9,370         $     772
Net loss from continuing operations                 $(258,817)        $  (9,321)        $  (1,142)
Net loss per share--continuing operations           $   (3.25)        $   (0.17)        $   (0.03)
Net income (loss) from discontinued
  operations                                        $ (16,435)        $    (344)        $     237
Net income (loss) per share--discontinued
  operations                                        $   (0.21)        $   (0.01)        $    0.01
Total assets from continuing operations             $  55,716         $ 229,241         $   1,599
Total assets of discontinued operations             $   9,340         $  31,464         $  15,864
Long-term debt                                      $   9,536         $   3,871         $   1,778
Equity                                              $   7,579         $ 229,003         $   6,113
</TABLE>

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

(a) The income from operations include restructuring charges of $1.6 million and
    asset impairment charges of $201.0 million, (see Notes 11 and 3 to the
    consolidated financial statements). The asset impairment charges reduced our
    assets from continuing operations and equity. The increase in net sales
    represents the consolidation of our acquisitions and our pharmacy
    operations.

(b) As a result of our acquisitions and investments during fiscal 2000 our
    assets increased dramatically in 2000 as compared to 1999.


                                       25
<PAGE>   26

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


     The following commentary should be read in conjunction with the
consolidated financial statements and related notes contained herein. The
discussion contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In many cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "intend" or "continue," or the
negative of such terms and other comparable terminology. These statements are
only predictions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including but not limited to those set forth under "Risk Factors" and
elsewhere in this Form 10-K.

OVERVIEW

     As a result of our acquisitions of various technologies, companies, joint
ventures, management, and strategic partnership agreements and investments,
described under Item 1--Development of Our Company, our intangible assets
reached approximately $196.7 million, or 63 percent of our total consolidated
assets at December 31, 2000. The intangibles included approximately $34.9
million in distribution channel and $67.5 million in deferred contract each
resulting from the NCFE preferred provider contract and $94.3 million in
goodwill resulting from our acquisitions. In addition we had approximately $29.8
million in investments and technology license resulting from our contract with
Quantum Digital Solutions and $14.9 million in deferred software costs.

     The contracts and acquisitions giving rise to these intangible assets have
occurred over the past 18 months. The technologies of the companies we acquired
were either newly developed or in the final development stages. The related
products developed had either been just released or were anticipated to be
released by the end of our fiscal 2001 or the beginning of our first quarter
2002. Our investment in Quantum Digital was based on a product that was in its
first stages of testing and our contract with NCFE was intended to provide
revenues from new technology being developed by us.

     During the period subsequent to December 2000, capital available for
Internet technology became scarce. Our ability to fund the planned continued
development of our acquired and internally developed products was drastically
reduced as well as funding for the existing operations of the acquired entities.
During the last fiscal quarter these turn of events created the need to review
and analyze our acquired operations as well as our contracts, investments and
existing deferred software costs as to the recoverability of these intangible
assets under the existing set of circumstances. As a result, the underlying
business assumptions that were previously used to determine the marketability of
the intangible assets acquired or developed have been revised and the expected
results of operations originally anticipated have not occurred and are not
anticipated to occur. Therefore, we have written off approximately $201.0
million of our intangible assets during the fourth quarter ended March 31, 2001.
These write-offs have been based on our expected return on our investments in
accordance with FASB 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". These impairment losses are reflected
in the consolidated statements of operations, and include the write-off of the
following assets:

     1) goodwill of $26.0 million, $3.8 million, $5.0 million and $40.6 million
        relating to VirTx, VidiMedix, Illumea and PrimeRx, respectively,

     2) distribution channel of $31.1 million and deferred contract of $67.5
        million relating to our contract with NCFE, and

     3) investment in Quantum of $27.0 million.

     We may not be able to generate sufficient revenues to fully recover the
value of the remaining intangible assets and technology license costs of
approximately $24.8 million and $2.8 million, respectively. For example, we
recorded the value of remaining goodwill based on the discounted projected net
cash flows from our acquired businesses. If the level of activity we experience
does not support our revised projections, we may have future asset impairment of
the remaining intangibles.

     Beginning in July 2000 we refocused on our infrastructure and business
strategy. This resulted in a restructuring plan that is in the process of full
implementation. In addition, we have decided to redirect our efforts in the U.K.
and are in the process of disposing of our product segment in the U.K. As part
of that process, we have voluntarily placed our wholly owned subsidiary, e-Net
Technology, into receivership. The U.K. operations have been reflected as
discontinued operations and are further disclosed in Note 12 to the consolidated
financial statements. We have implemented additional reductions in work force
over the last fiscal quarter of 2001 and the first quarter of 2002 to continue
our planned reduction in costs. We have entered into a merger agreement with
Chartwell Diversified Inc., (see note 23 to the consolidated financial
statements). We believe that the combination of our technology services and
pharmacy services with their healthcare operations will result in new business
opportunities for growth of the combined operations, as well as provide
financing resources.



                                       26
<PAGE>   27
RESULTS OF CONTINUING OPERATIONS


     Two Years Ended March 31, 2001 and 2000, and the Four Months Ended March
31, 1999

     The results of operations presented herein reflect our consolidated net
sales and expenses from continuing operations. These results include all of our
operations located in the United States. The financial information included
herein are derived from the audited financial statements for the two years ended
March 31, 2001 and 2000 and the four months ended March 31, 1999. In addition,
we have included in the comparisons below the unaudited pro forma financial
information for the year ended March 31, 2000 to include the acquisitions of
VirTx and VidiMedix and the consolidation of PrimeRx, as if these transactions
occurred on April 1, 1999.

          The table presented below reflects the results of operations from our
continuing operations (in thousands). The results of our UK operations have been
excluded:

<TABLE>
<CAPTION>
                                                                                                                     Unaudited Pro
                                                      Information derived from audited financial statements          Forma Results
                                                     -------------------------------------------------------         -------------
                                                                                                For the Four             For the
                                                                                                Months Ended           Year Ended
                                                      For the Years Ended March 31,              March 31,              March 31,
                                                     -------------------------------            ------------         -------------
                                                        2001                  2000                  1999                 2000
                                                     ---------             ---------             -----------         -------------
<S>                                                  <C>                   <C>                  <C>                  <C>
Net sales                                            $  87,997             $     941             $      --             $  54,801
Costs and expenses:
  Cost of sales                                         63,200                   476                    --                40,147
  Research and development                               7,267                   710                    21                 4,207
  Sales and marketing                                    8,255                   772                    49                 6,200
  General and administrative                            55,909                 6,970                   701                17,253
  Write down of impaired assets                        201,034                    --                    --                    --
  Restructuring costs                                    1,626                    --                    --                    --
  Depreciation and
  amortization                                           9,988                   442                     1                 2,953
Total costs and expenses                               347,279                 9,370                   772                70,760
Operating loss from continuing operations             (259,282)               (8,429)                 (772)              (15,959)
Net loss from continuing operations                   (258,817)               (9,321)               (1,142)              (17,649)
</TABLE>


YEARS ENDING MARCH 31, 2001 AND 2000

NET SALES

     Net sales for the year ended March 31, 2001 included operations from our
pharmacy division and distance medicine division that were acquired and
consolidated in the first quarter of the year, and exclude sales from our U.K.
division that are reflected in discontinued operations (see discussions below
and Note 12 to the consolidated financial statements). Net sales for the year
ended 2001 increased 60.6 percent as compared to March 31, 2000 pro forma sales.

     The increase in sales for fiscal 2001 compared to fiscal 2000 resulted from
the inclusion of $78.4 million in sales from our pharmacy services and an
increase of $8.6 million from U.S. Internet services and related consulting.
Sales from our internet services and consulting included $2.8 million from our
distance medicine division and $6.7 million from our medical e-business
services. The sales from our medical e-business services and consulting included
$5.3 million from services provided to affiliates with which we have entered
into contracts or agreements. Net sales for fiscal 2001 compared to proforma
results for 2000 increased mainly due to $25.7 million increase in pharmacy
operations which included newly acquired or opened pharmacies. The remaining
increase resulted from the recognition of $7.5 million sales from our internet
services.


                                       27
<PAGE>   28
COSTS AND EXPENSES

     Cost Of Sales

     Cost of sales for the year ended March 31, 2001 consist of the cost of
pharmaceuticals sold through our pharmacy services and the cost of providing our
Internet healthcare management systems that include hardware, software and
services. There were no depreciation and amortization charges relating to cost
of sales during the periods as our major software products were still under
development. However, cost of sales will reflect such depreciation and
amortization when incurred in the future in accordance with SAB topic 11. During
the reported period ended March 31, 2000, cost of sales primarily consisted of
professional services. Cost of sales as a percentage of net sales for the years
ended March 31, 2001 and 2000 were 71.8 percent and 50.6 percent, respectively,
compared to the pro forma results for the year ended March 31, 2000 of 73.3
percent. The decrease in cost of sales for fiscal 2001 compared to proforma
results for 2000 is due to the change in revenue mix from approximately 95.0
percent pharmacy revenues in the 2000 proforma to 89.1 percent pharmacy revenues
in 2001. Pharmacy cost of sales consisting of pharmaceuticals at a higher
percent to revenues than the costs of providing internet services. In addition,
a portion of the U.S. sales relating to internet and business consulting
services in the first quarter of 2001 were provided by executive management
whose compensation is not reflected in the cost of sales.

     Research And Development

     Research and development costs mainly consist of salaries, consultant fees,
and equipment costs of the internal development of new software and Internet
products in the United States. During the year ended March 31, 2001 the costs
expensed increased by $6.6 million and $3.1 million, respectively, as compared
to the reported and proforma fiscal year ended March 31, 2000, respectively. In
addition, we have capitalized approximately $2.0 million and $2.2 million of
development costs for the years ended March 31, 2001 and 2000, respectively.
These development costs were incurred for new Internet products and additional
solutions to be integrated with our existing Internet-based health care
management system. Pro forma research and development costs for the prior year
include costs incurred for the development of multimedia technology. The costs
incurred and capitalized to deferred software will be amortized over the useful
life of the resulting software products once such software products are in
service or available for sale. For the years ended March 31, 2001 and 2000, $379
thousand and $0 of these deferred software costs have been amortized.

     Sales And Marketing

     Sales and marketing costs consist primarily of costs for salaries, travel,
advertising, marketing literature, and seminars. These costs reflect our
business plan to increase markets and customers throughout the United States.
Sales and marketing costs for the year ended March 31, 2001 increased as
compared to the pro forma results for March 31, 2000 by approximately $2.1
million. The net increase relates to the amortization of our preferred provider
agreement with NCFE. Under the preferred provider agreement with NCFE, the
Company obtained access to NCFE customers on July 27, 2000. Accordingly, during
the year ended March 31, 2001 the Company recorded $2.4 million of amortization
on the distribution channel and has reflected this cost in sales and marketing.
The increase is partially offset by a decrease in the marketing and sales force
as a result of our restructuring plan.

     General And Administrative, Including Non-Cash Compensation

     General and administrative costs mainly consist of salaries, facility
costs, and professional fees. Non-cash compensation costs included in general
and administrative costs were $1.4 million and $832 thousand for the years ended
March 31, 2001 and 2000 respectively. These costs represent compensation paid to
employees and consultants through the issuance of shares, warrants, and options.
General and administrative costs increased for the year ended March 31, 2001 by
$48.9 million and $38.7 million over the reported and proforma amounts for March
31, 2000, respectively. The increase for 2001 over the proforma results included
$23.2 million related to pharmacy services and $3.8 million relating to
increased operations of our acquired business. The remaining increase of
approximately $11.7 million related to costs incurred to 1) expand our U.S.
internet operations in accordance with our business plans and infrastructure
development 2) broaden our financial and investment market visibility for future
financing opportunities for our operations and planned expansion and 3)
establish communication channels with our shareholders. These costs include
legal fees, accounting fees, and other professional and consulting fees.

     Asset Impairment Write-offs

     During the fiscal year ended March 31, 2001 we recorded approximately
$201.0 million of asset impairment charges. These charges were the result of our
review of the existing intangible assets and investments reflected on our
consolidated balance sheet. We reviewed the current relative value of each asset
based on existing business and economic conditions as well as projected
operating cash flows and current events.  These impairment losses are reflected
in the consolidated statement of operations in operating expenses, and include
the write-down of the following assets: 1) goodwill of $26.1 million, $3.8
million, $5.0 million and $40.6 million relating to VirTx, VidiMedix, Illumea
and PrimeRx, 2) distribution channel of $31.1 million and deferred contract of
$67.5 million relating to our contract with NCFF and 3) investment in Quantum of
$27 million. These impairment charges are further disclosed in the liquidity
section herein.

                                       28

<PAGE>   29
     RESTRUCTURING COSTS

     During the quarter ended September 30, 2000 the Company's Senior Management
completed its restructuring plan and began its implementation to integrate new
acquisitions and eliminate redundancies within the Company. In accordance with
this restructuring plan various activities were identified for elimination and
employees were identified to be involuntarily terminated or relocated. In
accordance with generally accepted accounting principles, the amount of the
restructuring costs related to our acquisitions were accounted as an adjustment
to the purchase price and reflected as an increase in goodwill. Other
restructuring costs not related to exiting activities of acquisitions that did
not exist prior to consummation date have been reflected in expense as
restructuring costs. These costs of approximately $1.6 million include $750
thousand for corporate restructuring to consolidate functions and eliminate
operational redundancies and $861 thousand to exit various activities that do
not fit within the Company's business plan.


DEPRECIATION AND AMORTIZATION

     Depreciation and amortization for the year ended March 31, 2001 includes
depreciation of property and equipment of approximately $1.6 million,
amortization of deferred software of $379 thousand and amortization of goodwill
of $8.0 million. Compared to the reported results in 2000, the increase for the
year was approximately $1.5 million for depreciation of equipment, $379 thousand
for deferred software and $7.6 million for the amortization of goodwill,
respectively. During the last quarter of fiscal 2000 and the first quarter of
fiscal 2001 we acquired three multimedia companies that resulted in
approximately $49.0 million of goodwill, which was being amortized over a
seven-year period. We also entered into a 30-year management contract with
PrimeRx.com and acquired approximately 29 percent of its stock. We are
consolidating this company and have, therefore, recorded the assets acquired and
liabilities assumed, and minority interest at the acquisition date of
approximately $40.6 million as goodwill. During the first three quarters of
fiscal 2001, this goodwill was being amortized over a 30-year period consistent
with our management contract term. In addition, we acquired a pharmacy services
company in the first quarter of this year that resulted in approximately $2.7
million of goodwill being amortized over a 15-year period. The goodwill recorded
in March 1999 for the acquisition of e-Net has been amortized over a ten-year
period. As a result of our asset impairment charges discussed above, our
goodwill has been written down in the fourth quarter based on management's
revised projections of discounted cash flows. In addition, the unamortized
goodwill relating to e-Net of $6.4 million has been written off and included in
discontinued operations. The amortization periods and the write off of goodwill
are based on managements' best estimate of the useful lives and estimated net
cash flows of the businesses acquired based on the facts currently available.

OTHER INCOME (EXPENSE)

     Other income (expense) includes interest expense, interest income, and
other income. The net other expense was $1.1 million and $1.2 million for the
fiscal years ended March 31, 2001 and 2000. These costs have decreased in the
current period compared to prior year. Interest expense of $2.0 million for the
year ended March 31,2001 includes $400 thousand as a result of a settlement
agreement with a private lender. Interest expense for the year ended March 31,
2000, included approximately $1.3 million of amortization of deferred financing
costs incurred as a result of the bridge financing obtained for the acquisition
of e-Net. Interest costs include interest expense on our line of credit and
bridge debt outstanding during the year. During our third and fourth quarter of
2000, we raised approximately $63.6 million of net proceeds through the sale of
our common stock. As a result of the cash flow, we have recognized interest
income for the year ended March 31, 2001 of approximately $880 thousand.

EXTRAORDINARY GAIN

     The extraordinary gain of approximately $357 thousand in fiscal 2000
relates to the exchange of bridge debt and its related origination fees and
interest payable for the issuance of warrants.

FISCAL YEAR ENDED MARCH 31, 2000 AND FOUR MONTHS ENDED MARCH 31, 1999

     The results of operations presented herein reflect the Company and its
subsidiaries' consolidated net sales and expenses. Prior to the acquisition of
the online health care management system on January 7, 1999 the Company's net
sales and operating expenses, interest income, and expense were minimal. The
financial statements included herein present the audited financial statements
for the year ended March 31, 2000 and for the four months ended March 31, 1999.
The audited four-month period ended March 31, 1999 is not comparative to the
twelve month period ended March 31, 2000.

NET SALES

     The sales for the year ended March 31, 2000 represented services and
software products provided under our U.S. contracts, primarily from NCFE for
projects delivered and accepted in line with our preferred provider agreement
signed in February 2000. There were no sales from continuing operations for the
four month period ended March 31, 1999.

COSTS AND EXPENSES


                                       29
<PAGE>   30

     Cost Of Sales

     Cost of sales primarily consist of salaries and consulting fees for the
provision consulting services and software products under our U.S. contracts.

     Research And Development

     Research and development costs mainly consist of salaries, consultant fees,
and equipment costs of the internal development of new software and Internet
products in the United States. During the year ended March 31, 2000 we expensed
approximately $710 thousand in development costs and capitalized approximately
$2.2 million. These development costs were incurred in the United States for new
Internet products and additional solutions to be integrated with our existing
Internet-based health care management system. The costs incurred and capitalized
to deferred software costs will be amortized into expense over the useful life
of the resulting software products once such software products are in service.

     Sales And Marketing

     Sales and marketing costs for the year ended March 31, 2000 increased over
the four month period ended March 31, 1999 by approximately $723 thousand. Sales
and marketing costs consist primarily of costs for salaries, travel,
advertising, marketing literature, and seminars. These costs reflect our
business plan to increase markets and customers throughout the United States and
market our Internet-based health care management system.

     General And Administrative, Including Non-Cash Compensation

     General and administrative costs mainly consist of salaries, facility
costs, and professional fees. Non-cash compensation costs of $832 thousand in
2000 and $380 thousand in 1999 represents compensation paid to employees and
consultants through the issuance of shares, warrants, and options. These
combined costs for the year ended March 31, 2000 were related to our
reorganization and infrastructure development, as well as the expansion of our
U.S. operations in accordance with our business plans. These costs, which
include legal fees, accounting fees, and other consulting fees, also represent
our efforts to broaden our financial and investment market visibility and obtain
funding for our operations and planned expansion.


     Depreciation And Amortization

     Depreciation and amortization for the year ended March 31, 2000 of $442
thousand includes the amortization of goodwill of $442 thousand. The primary
increase over the four month period ended March 31, 1999 reflects the
amortization of goodwill for the acquisition of e-Net. On February 29, 2000 the
Company acquired VirTx, which resulted in approximately $31.0 million in
goodwill. This goodwill was being amortized over a seven-year period. The
goodwill recorded in March, 1999 for the acquisition of e-Net was being
amortized over a ten-year period. The amortization periods are based on
managements' best estimate of the useful lives of the businesses acquired.

OTHER INCOME (EXPENSE)

     Other income (expense) includes interest expense, interest income, and
other income. Interest expense, of approximately $1.5 million for the year
ended March 31, 2000 and $370 thousand for the four months ended March 31, 1999,
includes approximately $1.2 million and $362 thousand of amortization of
deferred financing costs, respectively, incurred as a result of the bridge
financing obtained for the acquisition of e-Net. As of March 31, 2000, all
deferred financing costs have been amortized. In addition, interest costs for
fiscal 2000 include approximately $249 thousand interest expense on our bridge
debt. During the third and fourth quarter of 2000, we raised approximately $63.6
million of net proceeds through the sale of our common stock. As a result of the
cash flow, we have recorded interest income of approximately $280 thousand,
which offsets the interest costs.

EXTRAORDINARY GAIN

     Extraordinary gain of $357 thousand in fiscal 2000 represents the gain we
recognized resulting from the issuance of warrants in satisfaction of debt.



RESULTS OF DISCONTINUED OPERATIONS


     For the two years ended March 31, 2001 and 2000, and the four months ended
March 31, 1999


                                       30
<PAGE>   31
The results of discontinued operations presented herein reflect the operations
of our wholly owned subsidiary, e-Net Technology Ltd, located in the U.K. On
June 14, 2001, e-Net voluntarily filed for receivership. At the end of our
fiscal year March 31, 2001, e-Net had in place a bank credit facility with the
Bank of Wales for 2 million pounds sterling, which is approximately $2.8
million. During the month of May 2001, e-Net had approximately 700 thousand
pounds sterling, which is approximately $1.1 million available under its credit
facility. However, during this period the bank notified e-Net of its failure to
meet all of the required covenants under the line and implemented the demand
feature under the terms of the line. Efforts were taken to obtain a waiver on
the defaults and to negotiate a new line of credit. Such efforts failed and as a
result the Company voluntarily placed e-Net into receivership. Since we had
previously decided that the resale of computer hardware and software was no
longer in line with our business strategy, we concluded that our capital
resources should be allocated to our domestic products. We hired
PricewaterhouseCoopers to act as receiver for e-Net and to prepare and
administer a plan of disposition that will concentrate on the selling or closing
the resale business in the U.K.

     Although the measurement date of this event is in our first quarter of FY
2002, ending June 30, 2001, in accordance with EITF 95-18, "Accounting and
Reporting for a Discontinued Business Segment when the Measurement Date Occurs
After the Balance Sheet Dated but Before the Issuance of Financial Statements",
we have reflected the discontinued operations in our fiscal year ended March 31,
2001 and have reclassified the prior periods presentation to conform with the
reporting requirements. We have estimated the net realizable value of the assets
of the discontinued operations and have recorded a write down of $6.4 million.

The net sales, expenses, net assets and net liabilities of e-Net have been
combined in our consolidated financial statements under discontinued operations,
since these operations represented 100 percent of our product business segment
and contributed less than one percent to any other business segment. The
financial information included herein are derived from the audited consolidated
financial statements for the two years ended March 31, 2001 and 2000 and the
four months ended March 31, 1999, provides the components comprising the results
from discontinued operations (in thousands):

<TABLE>
<CAPTION>
                                                                    For the Years Ended March 31,          For the Four
                                                                    -----------------------------          Months Ended
                                                                      2001                2000            March 31, 1999
                                                                    --------             --------         --------------
<S>                                                                 <C>                  <C>              <C>
Net sales                                                           $ 37,857             $ 45,043            $  2,650
Costs and expenses:
Cost of sales                                                         33,184               35,415               1,999
Research and development                                                 862                  805                  17
Sales and marketing                                                    6,879                4,484                 139
Write down of impaired assets                                          6,438                  --                  --
General and administrative                                             5,066                2,606                  66
Depreciation and amortization                                          1,693                1,474                  46
Total costs and expenses                                              54,122               44,784               2,267
Operating income (loss) from discontinued operations                 (16,265)                 259                 383
Interest and taxes                                                       170                  603                 146
Net income (loss) from discontinued operations                      $(16,435)            $   (344)           $    237
</TABLE>

NET SALES

Essentially all sales generated by the U.K. subsidiary were from the sale,
service, and installation of computer hardware and software. The sales at e-Net
grew over 100 percent during the fiscal year ended March 31, 2000 as compared to
e-Net's full fiscal year ended March 31, 1999 as a direct result of our
penetration into the market through strategic alliances with Sun Microsystems,
Cisco, and Oracle and the focus on business-to-business e-business solutions and
the ability to leverage infrastructure alongside the e-commerce software and
services.

     Net sales in the U.K. decreased from $45.0 million in 2000 to $37.9 million
in 2001, or 16.0 percent, compared to the previous year. The decrease was
attributable in part to the division not being able to meet equipment and
delivery schedules as well as the division's failure to close several large
contracts on a timely basis. The downturn in the economic conditions for the
high


                                       31
<PAGE>   32

technology industry in the United States during the year, particularly in
the last quarter of our fiscal year, impacted the technology market in the U.K.
causing a slow down in the growth of .com business due to lack of available
investment and capital into the industry. These factors contributed to e-Net's
inability to increase its sales of its esparto software product and increase its
sales of computer hardware and software. The net sales of $2.7 million for the
period ended March 31, 1999 reflect approximately thirteen days of operations
consolidated from the U.K. subsidiary that was acquired on March 19, 1999.


COSTS AND EXPENSES

     Cost Of Sales

     The cost of sales represents the U.K. subsidiary's cost of hardware and
software products plus the cost of installation and delivery. Cost of sales for
e-Net increased as a percentage of revenues from 79 percent in fiscal 2000 to 88
percent in 2001. The increase in the percentage of cost of for fiscal 2001 is a
direct result of the UK lowering its margins in order to compete to secure
larger corporate sales.

     Research And Development

     Development costs represented development of the esparto software.

     Sales and marketing

     Sales and marketing costs for the U.K. operations consists primarily of
salaries and travel costs of the U.K.'s sales force, marketing literature and
advertising. These costs increased approximately $2.4 million in 2001 over 2000
as the result of increasing our sales force to implement e-Net's planned market
penetration into the Internet market as well as for the sale of hardware and
software.

     General And Administrative

     General and administrative costs of approximately $5.1 million include
general office costs, executive and administrative salaries and professional
fees. The increase in these costs of $2.5 million from the fiscal year ended
March 31, 2000 reflects e-Net's build up in infrastructure for their planned
growth into the ASP sector and obtaining major corporate contracts. These costs
include relocation of the U.K.'s offices and the increase in personnel.

     Depreciation And Amortization

     Depreciation of approximately $1.7 million and $1.5 million for the years
ended March 31, 2001 and 2000, respectively, represented the depreciation of
equipment and vehicles in the United Kingdom. The increase in this cost in 2001
versus 2000 represents the increase in leased vehicles as a result of the
increase in sales force in the U.K. over the past 18 months.


LIQUIDITY AND CAPITAL RESOURCES

     Since inception, operating costs have been funded through loans from
private investors, sale of equity, and a credit facility. As of March 31, 2001,
we had negative working capital of approximately $10.5 million (excluding
working capital of discontinued operations), including cash and cash equivalents
of $2.1 million. During the year ended March 31, 2001, cash used in operating
activities approximated $32.6 million, primarily due to the net loss from the
period of $74.2 million before asset impairment write downs of $201.0 million,
and by the net change in operating assets and liabilities of $(900) thousand
partially offset by depreciation and amortization expense of $12.3 million,
including amortization of our distribution channel reflected in sales and
marketing expense. Cash used for investing activities was approximately $15.2
million, primarily for $1.6 million investment in software development, $4.9
million in capital expenditures, $4.7 million in investments, $1.8 million
business acquisitions and $2.2 million in cash advances to our U.K. operations.
The $15.2 million use in cash was somewhat higher than expected for the
Company's business strategy and plans for acquisitions and their required
integration into the Company. This included approximately $12.5 million to fund
the pharmacy division's cash flow requirements resulting from the build up in
accounts receivable and inventory. Additional investments and capital
expenditures were also required to implement the Company's contracts and rollout
the healthcare management system. The Company used cash of $5.8 million in
financing activities which consists primarily of treasury stock purchase of $937
thousand and net payments on long-term debt of $3.7 million.

     On August 12, 2000 the Board of Directors approved the repurchase in the
open market of up to 2.0 million shares of the Company's common stock over an
eighteen month period. During the quarter ended September 30, 2000, 187 thousand
shares were acquired for approximately $937 thousand. No subsequent repurchases
have been made and none are currently contemplated.


                                       32
<PAGE>   33
     In November, 2000 we settled a legal dispute with Startnest, LLC regarding
a financing transaction that occurred during the third quarter in fiscal 2000.
As a result, we were required to pay Startnest $1.0 million in cash in return
for a Promissory Note from them, and deliver 1 million shares of the Company's
common stock, resulting in a charge in the accompanying statements of operation
for the year ended March 31, 2001 of $1.5 million. This note is due in full on
September 30, 2003 only if the Company's stock market price is at least $10.00.
Due to the contingent nature of this note the $1.0 million was not recorded as
an asset and, therefore, the cash payment was reflected on the books as a
reduction to the previous equity funding of $600 thousand and as interest
expense of $400 thousand.

     Additionally, in November 2000 the Company signed a settlement agreement
with certain of the prior shareholders of VidiMedix. This agreement was amended
in February 2001. Under this amended settlement Agreement, the Company will
issue $3.4 million in shares of its common stock to satisfy the earn out
provisions in the VidiMedix purchase agreement. In accordance with the VidiMedix
settlement agreement, the number of shares to be issued will be based on the
calculated exchange ratio that will provide the highest number of shares to be
issued equal to $3.4 million. The exchange ratios are to be determined based on
several trigger dates. No shares have yet been issued. The VidiMedix
Shareholders claim that the shares required to be issued under the average
closing price calculation would be 6.0 million shares. This issuance of
additional shares has been accounted for in the third quarter of 2001 as an
addition to goodwill. According to the settlement agreement, the VidiMedix
shareholders have the right to be paid either $4.0 million in cash or the
calculated number of shares since the registration statement filed on March 7,
2001 was not effective by April 30, 2001. If these shareholders choose to be
paid the $4.0 million in cash, NCFE has guaranteed the payment in exchange for
the number of shares that would have been issued to the VidiMedix shareholders.
These shares will be held by NCFE as collateral for the cash payment. Subsequent
to April 30, 2001, we filed a lawsuit against the prior VidiMedix shareholders
claiming among other things, misrepresentation, fraud and negligence and they
filed a separate lawsuit against us for breach of contract of the Settlement
Agreement, fraudulent and negligent inducement and misrepresentation and fraud.
As a result to date there has been no settlement paid of either shares or cash
to the prior VidiMedix shareholders.


In February 2001 the Company settled a dispute with those VidiMedix shareholders
who were not parties to the November settlement agreement. Under this agreement
the Company issued 136 thousand shares of common stock. This transaction was
reflected as a legal expense.


     On February 20, 2001, we entered into an equity line facility for up to $50
million of our common stock. However, our ability to draw on this facility will
be subject to prior registration of the shares and various other conditions,
which may not be met. We may be unable to raise any additional amounts on
reasonable terms, or at all, when needed.

     As of July 12, 2001, the Company had approximately $300 thousand in cash
and has projected that continuing operations cannot support the Company's cash
requirements to operate through our FY ended March 31, 2002 without other
sources of funds.

     On July 16, 2001 we executed a definitive purchase agreement with         ,
an institutional investor with more than $700.0 million of assets under
management, for the sale of $83.0 million of newly issued shares of common
stock. Completion of the agreement is subject to several conditions, including
the completion of the previously announced merger with Chartwell Diversified
Services, Inc. and meeting various revenue and cash targets.

     Although the Company has entered into these agreements to provide equity
funding, the sale of common stock to generate the fundings is contingent upon
many targets that we cannot presently meet. Therefore, we cannot depend on these
financing instruments to provide us the required funding to meet our operational
needs. In order for us to continue our operations, we must be successful in
obtaining additional funding through implementing the following steps:

          1.   Meet our business plan to successfully sell and implement our
               products resulting in the collection of billed accounts
               receivable.

          2.   Obtain payment on our delinquent receivables from affiliates to
               bring them into a more current status and reduce our investment
               in pharmacy inventories.

                    (a) The increase in our pharmacy accounts receivable is due
                    to (i) new systems that were implemented just prior to
                    signing our management agreement with PrimeMed in April 2000
                    and (ii) the failure to recognize and implement procedures
                    to correct associated problems in integrating the system.
                    The pharmacy products are sold on a retail and wholesale
                    basis. The payors on these accounts are a mix between
                    medical institutions and third party federal and private
                    insurance plans. Our pharmacy gross accounts receivable
                    average approximately 67 days outstanding whereas the
                    planned aging is approximately 51 days old. There are no
                    pharmacy receivables from related parties. During the last
                    quarter of fiscal 2001 ending March 31, 2001, the Company
                    identified and has written off old accounts receivable of
                    approximately $4.4 million and has taken steps to put in
                    place new management to oversee and implement new procedures
                    for credit processing as well as collection follow up and
                    procedures. As a result, we believe that many of the
                    collection problems have been identified and are being
                    corrected to reduce the average days outstanding.

                                       33
<PAGE>   34
                    (b) Our inventory primarily consists of pharmaceuticals
                    owned by our pharmacy division, including PrimeRx. The
                    consolidated balance sheet at March 31, 2001 includes
                    inventory from the pharmacy operations that were
                    consolidated beginning in April 2000. These operations were
                    not consolidated in the March 31, 2000 consolidated balance
                    sheet. Therefore, the entire $4.4 million increase is
                    attributed to the consolidation the acquired operations.

                    (c) We expect that these corrections will bring down the
                    previous required levels of funding from other operations.
                    In addition, we have entered into Sale and Subservicing
                    Agreements with NCFE, a related party, to fund our pharmacy
                    accounts receivable on a weekly basis to provide a
                    predictable level of working capital required to fund
                    pharmacy operations

          3.   Receipt of $590 thousand of equity financing and $4.0 million of
               debt financing from NCFE in accordance with the terms of our
               preferred provider agreement.

          4.   Obtain capital required from NCFE per their commitments for
               required cash payments, if any, under our VidiMedix settlement
               agreement.

          5.   Obtain additional funding either in the form of equity or debt
               financing to support our cash requirements through March 31,
               2002.


If we are not successful in obtaining the funding or resolving the matters
referred to above, and we do not obtain other sources of funding to replace
these commitments, we will not be able to fund our operations or support capital
needs and business plan beyond, September, 2001. Accordingly, our auditors have
included an explanatory paragraph relating to the Company's ability to continue
as a going concern in the auditor's report on the March 31, 2001 consolidated
financial statements.

If we decide to enter into any other business ventures presently outside of our
current business plan which would require additional cash, we will need to raise
additional funds by selling debt or equity securities, by entering into
strategic relationships, or through other arrangements.

We may be unable to raise any additional amounts on reasonable terms, or at all,
when needed. If we are unable to raise such additional funding, we would have to
curtail operations, which in turn would have an adverse effect on our financial
position and results of operations and our ability to continue to operate.

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

MARKET/PRICE RISK

The Company is exposed to market risk in the normal course of its business
operations. The company faces competition from, among others, Trizetto,
Healtheon/WedMD, MedicaLogic/Medscape and must offer its products and services
at prices the market will bear. Management believes that the Company is well
positioned with its mix of products and services to take advantage of future
price increases for these products and services. However, should the prices for
our products decline, this could adversely affect the company's future
profitability and competitiveness.

INTEREST RATE RISK

The Company's debt portfolio as of March 31, 2001 is composed entirely of debt
denominated in US dollars. The Company has both fixed and variable rate debt.
Changes in interest rates have different impacts on the fixed and variable rate
portions of the Company's debt portfolio. A change in interest rate on the
variable portion of the debt portfolio impacts the interest incurred and cash
flows but does not impact the net financial instrument position. If interest
rates significantly increase, the Company could incur additional interest
expenses which would negatively affect its cash flow and future profitability.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements and supplementary data are set forth on
pages F-1 through F-33 hereto.

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

     The audit of our consolidated financial statements as of and for the year
ended March 31, 2000 was completed by Arthur Andersen LLP ("Andersen") as the
Company's independent accountant. On March 8, 2001 we selected KPMG LLP ("KPMG")
to act as the Company's new independent accountant and to audit the Company's
financial statements for the fiscal year ending March 31, 2001.

     The reports of Andersen on the Company's financial statements for the
fiscal years ended March 31, 1999 and March 31, 2000 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.


                                       34
<PAGE>   35
     In connection with the audits of the two fiscal years ended March 31, 1999
and March 31, 2000, and the subsequent interim period through March 8, 2001,
there were no disagreements between the Company and Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures. The term "disagreement" means any disagreement between the
personnel of the Company responsible for presentation of the Company's financial
statements and any personnel of Andersen responsible for rendering Andersen's
report on the Company's financial statements on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which disagreements, if not resolved to the satisfaction of Andersen,
would have caused Andersen to make reference to the subject matter of the
disagreement in connection with its report.

     On March 9, 2001 we informed KPMG of our decision to select it as the
Company's independent auditor for the fiscal year ending March 31, 2001 subject
to the preparation and approval of a letter of engagement pursuant to which KPMG
will perform an audit of the Company's financial statements for the fiscal year
ending March 31, 2001. Prior to the date of engagement of KPMG, we had not
consulted with KPMG regarding the application of accounting principles to a
specified transaction or the type of audit opinion that might be rendered on the
Company's financial statements.

     The decision to accept the engagement of KPMG as the Company's independent
accountant was recommended by the Audit Committee and approved on March 8, 2001
by our Board of Directors.

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     The directors and executive officers of the Company and its wholly-owned
subsidiary, their ages and positions held in the Company as of July 12, 2001 are
as follows:

<TABLE>
<CAPTION>
NAME                               AGE                  POSITIONS HELD AND TENURE
----                               ---                  -------------------------
<S>                                <C>       <C>
John F. Andrews.............        47       Chairman, President and Chief Executive Officer
Suzanne Hosch...............        42       Interim Chief Financial Officer
Ian McPherson...............        53       Managing Director of e-Net
W. Cedric Johnson...........        49       Director
Sam J. W. Romeo.............        60       Director
Albert Marston..............        65       Director
Donald H. Ayers.............        65       Director
</TABLE>

     There is no family relationship between any director or executive officer
of the Company.

     Set forth below are the names of all Directors and Executive Officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he or she has served as such, and the principal
occupations and employment of such persons during at least the last five years:

     John F. Andrews, has served as our Chairman of the Board, President, and
Chief Executive Officer since January 1999. Mr. Andrews served as Chief
Executive Officer of Sanga International, one of our significant stockholders,
from April 1998 until July 1999. Mr. Andrews continues to serve on the board of
directors with Sanga International. Prior to joining Sanga International, Mr.
Andrews was Chief Information Officer of CSX Corporation and Chief Executive
Officer of CSX Technology from April 1993 to April 1998. Mr. Andrews was Vice
President and General Manager of GTE Health Systems from 1991 to 1993. Mr.
Andrews also served as Vice President and General Manager at several other
business units at GTE and held positions in information technology, finance,
marketing, and field operations. Mr. Andrews has served on the board of
directors of PrimeRX.com since April 2000.

     Suzanne K. Hosch has served as our Interim Chief Financial Officer since
May 15, 2001. Ms. Hosch joined e-MedSoft in April 2001 as our Corporate
Controller. From October 1998 until April 2001, Ms. Hosch was employed by LC
Footwear, LLC, doing business as Liz Claiborne Shoes as the Corporate
Controller. From April 1996 to October 1998 Ms. Hosch served as the Assistant
Controller for FelCor Lodging Trust in charge of SEC Reporting. FelCor is one of
the nations largest real estate investment trust companies. Prior to joining
FelCor, Ms. Hosch also served as Assistant Vice President of Finance at Lomas
Mortgage Services from 1988 to 1996.

     Ian McPherson has served as the Managing Director of e-Net since 1995.
Prior to Mr. McPherson's current position, he acquired Relay Systems (now called
e-Net) in 1997 and merged it into Network Wales Limited, where Mr. McPhearson
was Chairman and Managing Director. In 1996 Mr. McPherson formed Network Wales
Limited, an Internet services business operating in Wales, which was a joint
venture with the U.K. government. From 1992 until 1997, he was Chairman and
Managing Director of Syntech Computer Systems, Ltd. From 1989 until 1992, Mr.
McPherson was the Chief Information Officer for Ryan International PLC.


                                       35
<PAGE>   36
     Donald H. Ayers has served as a member of our Board of Directors since July
2000. Mr. Ayers currently serves as Vice Chairman, Chief Operating Officer, and
a director of National Century Financial Enterprises, Inc., Mr. Ayers has 32
years of experience in the health care industry. In 1990, Mr. Ayers is an owner
in Chartwell, which also owns TegRx. Mr. Ayers founded Falcon Receivable
Systems, Inc., a company which was merged into a subsidiary of NCFE in December
1996. Previously, Mr. Ayers was president of two private healthcare management
companies for 10 years and president of Grant Hospital in Columbus, Ohio for 13
years. Mr. Ayers holds a B.S. in Education and Psychology from Muskingum College
in New Concord, Ohio and an M.B.A. in Health Care Management from George
Washington University.

     W. Cedric Johnson has served as a member of our board of directors since
May 2000. Mr. Johnson has served as Chief Executive Officer of Quantum Digital
Solutions Corporation, which he founded in June 1995 under the name of
CypherComm, since January 1997. Prior to founding Quantum Digital, Mr. Johnson
served as President and Chief Executive Officer of ETA Technologies Corporation,
an applied sciences firm. Prior to his term at ETA Technologies, Mr. Johnson
served as a systems engineer at Rockwell International and was a technology
consultant to Fortune 100 companies.

     Dr. Sam J. W. Romeo has served as a member of our board of directors since
September 1, 1999. Dr. Romeo, who has more than 30 years of experience in the
health care field, currently serves as the President and CEO of University
Affiliates IPA, the nation's first fully accredited IPA. In addition to having
held senior faculty positions at the USC School of Medicine, Medical College of
Wisconsin, and the St. Louis University School of Medicine, Dr. Romeo has also
served as the Medical Director of several health maintenance organizations in
California, Florida, and New York, and is licensed to practice medicine in the
States of California, Florida, Idaho, Missouri, and Wisconsin. Dr. Romeo
received the prestigious Physician Executive of the Year Award given by the
American College of Medical Practice Executives in October 1998.

     Albert Marston, Ph.D. has served as a member of our board of directors
since November 21, 2000. Dr. Marston has served as a Faculty Mediator and
Professor Emeritus, Psychology and Psychiatry at the University of Southern
California from 1994-1999 and has been a Mediator for the Los Angeles County
Superior, Ventura County and Beverly Hills Courts. Dr. Marston is a Trustee for
the Leibovitz Foundation.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT UPDATE

     Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during the fiscal year ended March 31, 2001 and certain
investment representations, no persons who were either a director, officer or
beneficial owner of more than 10 percent of the Company's common stock, failed
to file on a timely basis reports required by Section 16(a) of the Exchange Act
during the fiscal year.

ITEM 11. EXECUTIVE COMPENSATION.

     The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer whose
total annual salary and bonus exceeded $100 thousand for the fiscal years ended
March 31, 2001 and 2000, and the four months ended March 31, 1999:


<TABLE>
<CAPTION>
                                                                                                LONG-TERM COMPENSATION
                                                                                ----------------------------------------------------
                                                 ANNUAL COMPENSATION                      AWARDS               PAYOUTS
                                       --------------------------------------   --------------------------     -------
                                                                                                SECURITIES
                                                                       OTHER                    UNDERLYING                  ALL
                                                                       ANNUAL   RESTRICTED       OPTIONS/                  OTHER
                                                                       COMPEN-    STOCK            SARS         LTIP       COMPEN-
NAME AND PRINCIPAL POSITION   YEAR      SALARY          BONUS          SATION    AWARD(S)        (NUMBER)      PAYOUTS     SATION
---------------------------   ----     --------        --------        ------   ----------      ----------     -------  ------------
<S>                           <C>      <C>             <C>             <C>      <C>             <C>            <C>      <C>
John F. Andrews,........      2001     $550,000
  Chairman & CEO (1)          2000      500,000        $540,104          --            --        1,205,000       --           --
                              1999      125,000                          --            --               --       --           --
Marshall A. Gibbs,......      2001           --              --          --            --               --       --     $ 75,000(5)
  EVP, CTO (2)                2000      215,166         100,000          --            --           40,000       --           --
                              1999           --              --          --      $302,250               --       --           --
Margaret A. Harris,.....      2001      220,000          77,000          --            --           60,000       --     $110,000(5)
  SVP, CFO (3)                2000      220,000              --          --            --           60,000       --           --
                              1999           --              --          --            --               --       --           --
John Shepherd,..........      2001      214,759              --          --            --          200,000       --           --
  VP, COO (4)                 2000           --              --          --            --               --       --           --
                              1999           --              --          --            --               --       --           --
</TABLE>

----------

     (1)  During the four months ended March 31, 1999, Mr. Andrews was also
          advanced $25 thousand toward the next years' salary.

     (2)  Marshall A. Gibbs resigned as CTO on August 15, 2000.


                                       36
<PAGE>   37

     (3)  Margaret A. Harris resigned as CFO on May 15, 2001.

     (4)  John Shepherd was promoted to COO on August 30, 2000. Mr. Shepherd was
          terminated on July 11, 2001.

     (5)  Represents severance payment.


OPTION GRANTS

     The following table provides information on stock options granted to our
Chief Executive Officer and our Chief Operating Officer, our two most
highly-compensated executives during the fiscal years ended March 31, 2001.

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                               POTENTIAL REALIZABLE
                                           INDIVIDUAL GRANTS                                     VALUE AT ASSUMED
                           --------------------------------------------------                      ANNUAL RATES
                           NUMBER OF       % OF TOTAL                                             OF STOCK PRICE
                           SECURITIES       OPTIONS                   MARKET                     APPRECIATION FOR
                           UNDERLYING     GRANTED TO                 PRICE ON                        OPTION TERM
                            OPTIONS      EMPLOYEES IN   EXERCISE     THE DATE    EXPIRATION    -----------------------
NAME                       GRANTED(#)     FISCAL YEAR    PRICE       OF GRANT       DATE          5%            10%
----                       ----------    ------------   --------     --------    ----------    --------     ----------
                                                               ($/SH)
<S>                        <C>           <C>            <C>          <C>         <C>           <C>          <C>
John F. Andrews........        5,000         0.13%       $0.00       $8.38        04/28/10     $ 64,950     $   98,750
                               5,000         0.13%       $0.00       $8.38        05/31/10     $ 64,950     $   98,750
                               5,000         0.13%       $0.00       $8.00        06/30/10     $ 62,050     $   94,300
                             225,000         5.98%       $8.00       $8.00        06/30/10     $992,250     $2,443,500
                               5,000         0.13%       $0.00       $6.00        07/31/10     $ 46,550     $   70,750
                               5,000         0.13%       $0.00       $3.88        08/31/10     $ 30,050     $   45,700
                               5,000         0.13%       $0.00       $2.63        09/29/10     $ 20,350     $   30,950
                             225,000         5.98%       $2.63       $2.63        09/29/10     $325,125     $  802,125
                               5,000         0.13%       $0.00       $1.50        10/31/10     $ 11,650     $   17,700
                               5,000         0.13%       $0.00       $1.13        11/30/10     $  8,750     $   13,250
                               5,000         0.13%       $0.00       $0.63        12/29/10     $  4,850     $    7,350
                             225,000         5.98%       $0.63       $0.63        12/29/10     $ 77,625     $  190,125
                               5,000         0.13%       $0.00       $1.81        01/31/10     $ 14,050     $   21,350
                               5,000         0.13%       $0.00       $1.09        02/28/11     $  8,450     $   12.850
                             230,000         6.12%       $0.00       $0.67        03/30/11     $239,200     $  363,400

John Shepherd..........       50,000         1.33%       $7.63       $7.63        04/14/10     $210,250     $517,750
                             150,000         3.99%       $3.88       $3.88        08/31/10     $320,250     $789,750
</TABLE>

Potential gains are net of the exercise price, but before taxes associated with
the exercise. The amounts represent hypothetical gains that could be achieved
for the respective options if exercised at the end of the option term. The
assumed 5 percent and 10 percent rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission and do
not represent our estimate or projection of the future price of our common
stock. Actual gains, if any, on stock option exercises will depend upon the
future market prices of our common stock.

YEAR-END OPTION VALUES

     The following table provides information respecting the options held by our
Chief Executive Officer and our three other most highly compensated executive
officers who were employed by the Company during the FY ended March 31, 2001.
The executive officers did not exercise options during fiscal 2001.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                     AND OPTION VALUES AS OF MARCH 31, 2001

<TABLE>
<CAPTION>
                                          NUMBER OF SECURITIES                     VALUE OF UNEXERCISED
                                         UNDERLYING UNEXERCISED                    IN-THE-MONEY OPTIONS
                                      OPTIONS AT FISCAL YEAR-END(#)                AT FISCAL YEAR-END($)
                                    --------------------------------          --------------------------------
NAME                                EXERCISABLE        UNEXERCISABLE          EXERCISABLE        UNEXERCISABLE
----                                -----------        -------------          -----------        -------------
<S>                                 <C>                <C>                    <C>                <C>
John F. Andrews.............         1,197,500                 --              $ 58,700                  --
Marshall A. Gibbs...........                --                 --                    --                  --
Margaret A. Harris..........           120,000             60,000              $     --             $    --
John Shepherd...............            96,500            103,500              $     --             $    --
</TABLE>

Calculated based upon the closing price of our common stock as quoted on the
American Stock Exchange on March 31, 2001 of $0.67 per share.

EMPLOYMENT AGREEMENTS

     On August 31, 1999, we entered into an Executive Employment Agreement with
John F. Andrews, the Company's Chairman of the Board, President and Chief
Executive Officer. The initial term of the Agreement is from January 15, 1999
through January 15, 2002. The Agreement will be automatically renewed for
additional one year periods unless terminated. In the event of a termination by
the Company without cause, or by Mr. Andrews for "good reason," Mr. Andrews will
receive full compensation for the remainder of the initial term or eighteen
months from the date of termination, whichever is longer. In the event of a
termination by the Company with cause, he will receive full compensation for the
remainder of the initial term or twelve months from the date of termination,
whichever is longer. In the event of a termination by Mr. Andrews without a
"good reason," he will receive no further compensation.

     The base salary under the Agreement is $500 thousand per year, which is to
be increased by at least 10 percent at the end of each year. Mr. Andrews is also
to receive a whole life insurance policy with a face amount of $2.0 million for
his benefit; the use of a fully insured automobile; club dues for one country
club and one luncheon club; disability and medical insurance; an allowance of up
to $12.5 thousand per year for professional counseling and services; and four to
five weeks of vacation per year.


                                       37
<PAGE>   38

     Mr. Andrews also had the right to immediately receive shares of the
Company's common stock without any required payment 1) for each month of
employment and 2) e-MedSoft meeting revenue and earnings targets on a quarterly
basis.

     During fiscal 2000, we amended his employment agreement because he waived
his rights to the shares earned from inception of his contract through January
15, 2000. In connection therewith, we agreed to pay Mr. Andrews a bonus for our
fiscal year ended March 31, 2000 in the amount of $500 thousand over a two year
period. In addition, the terms of the contract concerning stock and options were
clarified and amended.

     Mr. Andrews now has the right to receive options to purchase shares of our
common stock upon the occurrence of the following events:

          a. 5 thousand shares for each month he is employed commencing January
     15, 2000.

          b. 50 thousand shares for each quarter in which we have gross revenues
     in excess of $7.0 million commencing with the quarter ending March 31,
     2000.

          c. 175 thousand shares for each quarter in which we have gross
     revenues in excess of $20.0 million commencing with the quarter ending
     March 31, 2000.

          d. 350 thousand shares for each quarter in which we have gross
     revenues in excess of $50.0 million commencing with the quarter ending
     March 31, 2000.

     The option price for the options earned under subparagraph a. above will be
zero. The option price for the options earned under b., c., and d., above will
be determined by Mr. Andrews at the grant date.

     In addition to the above, Mr. Andrews is entitled to receive a percentage
of the Company's net profit before taxes as follows:

          a. One percent of net profit before taxes for each quarter such profit
     exceeds $1.0 million plus

          b. Two percent of net profit before taxes for each quarter such profit
     exceeds $3.0 million plus

          c. Three percent of net profit before taxes for each quarter such
     profit exceeds $10.0 million plus

          d. Four percent of net profit before taxes for each quarter such
     profit exceeds $20.0 million.

     In the event of a "change in control" of the Company, as defined in the
Agreement, Mr. Andrews has the right to terminate the Agreement and receive a
$2.5 million payment. The Company believes it critical and vital to compensate
Mr. Andrews in this manner as Mr. Andrews is critical to the Company's success
and is likely to be so as the Company continues its attempts to achieve its
business objectives and maximize its growth.

On January 10, 2000 we entered into an employment agreement with Marshall A.
Gibbs, our Executive Vice President and Chief Technical Officer, retroactive to
January 10, 1999. The initial term of the agreement expires in January 2002.
Under the agreement, Mr. Gibbs' base salary was $250 thousand per year, and he
was entitled to a $100 thousand signing bonus and options to purchase 40
thousand shares of our common stock. On August 15, 2000 Mr. Gibbs resigned from
the Company and his directorship of B2B, Net Technologies, Ltd, our Australian
subsidiary. In accordance with his separation agreement, he received 25 thousand
shares of the Company's stock that was included in the stock award received
during fiscal 2000 and a severance payment of $75 thousand, payable over six
months.

     On August 30, 2000, the Company entered into an employment agreement with
John Shepherd, our Vice President and Chief Operating Officer. The initial term
of the agreement expires in August 2003 and will automatically renew for
additional one year periods unless terminated by Mr. Shepherd or the Company. If
Mr. Shepherd's employment is terminated by the Company without cause, or the
Company willfully breaches a material provision of this agreement that is not
cured within 30 days of written notice by Mr. Shepherd, Mr. Shepherd will
receive a lump-sum amount equal to the greater of (1) the sum of twelve (12)
months' pay, or (2) the sum of the monthly portion of the current salary times
the number of months remaining until the Termination Date. If his employment is
terminated by the Company with cause, Mr. Shepherd will receive no further
compensation. Under the agreement, Mr. Shepherd's base salary is $225 thousand
per year and he is eligible to receive in addition to his base salary, annual
incentive compensation of up to 60 percent of his then current base salary. The
annual incentive compensation will be based on business and personal performance
objectives established by the President and Chief Executive Officer.


                                       38
<PAGE>   39
     Mr. Shepherd has the right to receive options to purchase 150 thousand
shares of common stock. 80 thousand of the options have an accelerated vesting
schedule and the remaining 70 thousand options shall be subject to normal
vesting terms. In addition, Mr. Shepherd is eligible to receive quarterly stock
option grants which will be determined by the establishment of milestones which
are critical to the success of the Company. The annual pool will be 100 thousand
stock options, with the maximum award each quarter being 25 thousand. On July
11, 2001, Mr. Shepherd was terminated from the Company and will receive
severance in accordance with his employment agreement


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

     The following table sets forth, as of July 12, 2001, the stock ownership of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, each director and executive officer
individually, and all officers and directors as a group. Each person has sole
voting and investment power over the shares except as noted.

<TABLE>
<CAPTION>
                                                                    AMOUNT AND NATURE OF
                                                                   BENEFICIAL OWNERSHIP(2)
                                                                 -----------------------------     PERCENT
                                                                 OWNED            UNDERLYING          OF
NAME AND ADDRESS OF BENEFICIAL OWNERS(1)                         SHARES          OPTIONS/WARR.     CLASS(3)
----------------------------------------                         ------          -------------     --------
<S>                                                             <C>              <C>               <C>
Directors and Executive Officers:
John F. Andrews (4) ...................................                --         1,437,500          1.7%
W. Cedric Johnson (5) .................................         2,405,363            20,000          3.0%
Sam J. W. Romeo M.D(6) ................................         1,721,793            20,000          2.2%
Donald H. Ayers(7) ....................................         3,877,500           270,000          5.1%
Albert Marston M.D ....................................                --            20,000            *
All Directors and Officers as a Group (5 persons) .....         8,004,656         1,767,500         12.0%

5% Stockholders:
TSI Technologies, LLC
c/o Emanuel Barling Jr.
233 Wilshire Blvd.
Suite 400
Santa Monica, CA 90401 ................................        18,881,460         4,800,000         27.6%
Sanga International
Mark Bielenson
c/o Pachulski, Stang, Ziehl & Young
10100 Santa Monica Blvd., Suite 110
Century City, CA 90067 ................................         9,130,000         2,000,000         13.4%
National Century Financial Enterprises, Inc.
6125 Memorial Drive
Dublin, Ohio 43017 ....................................         4,750,000                --          5.9%
</TABLE>

----------

*    Less than one percent of the outstanding shares of common stock.

(1)  Each director and officer of the Company may be reached through our
     principal executive offices, which are at 1300 Marsh Landing Parkway, Suite
     106, Jacksonville, Florida 32250.

(2)  The numbers shown include the shares of common stock actually owned as of
     July 12, 2001 and the underlying options and warrants representing shares
     that the person has the right or will have the right to acquire within 60
     days of July 12, 2001.

(3)  In calculating the percentage of ownership, all shares of common stock that
     the identified person will have the right to acquire within 60 days of July
     12, 2001 upon the exercise of options and warrants are deemed to be
     outstanding for the purposes of computing the percentage of shares of
     common stock owned by such person, but are not deemed to be outstanding for
     the purpose of computing the percentage of the shares of common stock owned
     by any other person.

(4)  Includes 1.4 million shares underlying stock options held by Mr. Andrews
     exercisable within 60 days of July 12, 2001, pursuant to the terms of his
     employment agreement.

(5)  Includes 2.4 million shares held by CypherCom, Inc. for which Mr. Johnson
     serves as President and CEO.

(6)  Includes 1.7 million shares held by University Affiliates, Inc. for which
     Mr. Romeo serves as President and CEO.

(7)  Includes 1.1 million shares held of record by Mr. Ayers. Also includes 500
     thousand shares held by Ayers, LLC, of which Mr. Ayers is the member. Also
     includes 25 percent of the 2.6 million shares held of record by Healthcare
     Capital LLC, 25 percent of the 4.8 million shares held of record by
     National Century Financial Enterprises, Inc., and 25 percent of the 1.9
     million shares held of record by Intercontinental Investment Associates,
     Ltd, which represents his percentage interest in these entities. Mr. Ayers
     disclaims beneficial ownership of the shares held by the trust and the
     three entities of which he is a 25 percent owner.


                                       39
<PAGE>   40

     As a result of entering into the Agreement and Plan of Merger and
Reorganization with Chartwell Diversified Services, the Company could issue up
to 50 million shares of our common stock, which as of July 12, 2001 would
constitute over 38 percent of our common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     During the quarter ended June 30, 2000, the Company advanced $2.0 million
to University Affiliates for the purpose of creating a new joint venture to
combine University Affiliates healthcare management expertise with the Company's
internet healthcare management systems for the purpose of obtaining new
business. Dr. Sam Romeo, President of University Affiliates is also on
e-MedSoft.com's Board of Directors. At March 31, 2001, the companies had not
entered into the joint venture. Per the original agreement to advance the funds,
if a joint venture was not entered into by University Affiliate and
e-MedSoft.com, University Affiliates would guarantee repayment of the $2.0
million advance by July 1, 2001. At this time the advance has not been repaid.
The Company is currently negotiating a promissory note with University
Affiliates for repayment.

     During the three months ended June 30, 2000, the Company recorded revenue
of $855 thousand from consulting and software services provided to Millennium
Healthcare, a company owned indirectly by NCFE and managed by Dr. Sam W. Romeo.
Donald Ayers, a director of e-MedSoft.com is also a 25 percent owner and
Vice-Chairman of NCFE. During the same period, the Company also recorded
approximately $1.2 million in revenue from NCFE, for project management,
infrastructure development, e-business implementation and planning and other
consulting services. Approximately 20 percent of these services were provided
prior to March 31, 2000 but not recognized into revenues until acceptance by the
customer in the first quarter of fiscal 2001. The Company recorded the related
party receivables based on its contracts and its best estimate of the amount
ultimately to be realized. Company management, in consultation with its legal
counsel, believed that the billings were collectible and expected to collect
these outstanding receivables. As of July 12, 2001 we had not collected $4.3
million of these receivables.

     During the following nine months from July 1, 2000 to March 31, 2001, the
Company recorded revenue of approximately $6.0 million from these companies for
project management, infrastructure development, e-business implementation and
other consulting and software services. As of March 31, 2001, the Company had an
outstanding balance of approximately $2.3 million due from the two related
entities. We obtained written representations from NCFE that it would pay all
invoices as of December 31, 2000 for services rendered to NCFE and its
subsidiaries and affiliates by July 31, 2001, and it would pay all invoices
generated subsequent to December 31, 2000 on a more current basis in accordance
with the terms of existing agreements. Although we have received various
confirmations from NCFE as to the validity of the invoices and their commitment
to pay the outstanding balances, to date the Company has not received payment
from NCFE as previously guaranteed and therefore has not recognized any revenue
associated with these services.

     On January 15, 2001 and March 2, 2001, the Company entered into two Sale
and Subservicing agreements with NCFE to finance our pharmacy division
operations through the sale of pharmacy trade receivables. We have received an
approximately $6.6 million to date from NCFE under these Sale and Subservicing
agreements. This program will continue as a means to provide determinable
working capital for these operations.

     On June 8, 2001 we received additional funding from NCFE of approximately
$2.3 million. This funding represented a financing loan for which we signed a
one year promissory note bearing interest of a rate of 10 percent.

     The Company entered into a Management Services (Loan Out) Agreement (the
"Management Agreement") with TegRx Pharmacy Management Co., Inc. ("TegRx") on
March 6, 2001. The Agreement was for a period of ten years and gave TegRx all
power and authority necessary to carry out the management of the pharmacy
segment of the Company's business. TegRx is to be paid a management fee of the
greater of $200,000 per month or 40 percent of EBITDA of the pharmacy segment
for the previous month. TegRx is a majority owned operation of Chartwell which
has ownership in common with NCFE. During FY 2001, the Company expensed TegRx
management fees of $50 thousand.

     On May 14, 2001, we announced execution of an Agreement and Plan of Merger
and Reorganization with Chartwell Diversified Services, Inc., which agreement
was amended and restated in its entirety on June 4, 2001. Donald Ayers, a member
of e-MedSoft.com's Board of Directors is a shareholder in Chartwell. Pursuant to
this Merger, the outstanding shares of Chartwell shall be converted solely at
our option (i) either into 50.0 million shares of the Company's common stock or
$90.0 million in cash and (ii) warrants to purchase 20.0 million shares of the
Company's common stock at the exchange ratio specified in the Merger Agreement.
Chartwell Diversified Services, Inc. is a privately held company that provides
home infusion services, clinical respiratory services, home medical equipment,
home health services and specialty pharmacy services throughout the United
States. The principal owners of Chartwell are also the principal owners of NCFE
including Don Ayers, a director of e-MedSoft.com.


                                       40
<PAGE>   41

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) 3. Exhibits.

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                     DESCRIPTION                                               LOCATION
 -------                    -----------                                               --------
<S>            <C>                                                     <C>
    3.1        Articles of Incorporation, as Amended                   Incorporated by reference to the
                                                                       Registrant's Form S-18 Registration
                                                                       Statement (No. 33-8420-D)

    3.2        Bylaws                                                  Incorporated by reference to Registrant's
                                                                       Form S-18 Registration Statement (No.
                                                                       33-8420-D)

    3.3        Restated Articles of Incorporation                      Incorporated by reference to Exhibit 3.3
                                                                       to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.0        Stock Acquisition and Technology Transfer               Incorporated by reference to Exhibit 10 to
               Agreement dated December 22, 1998, between              the Registrant's Form 8-K dated January 7,
               MedTech, Inc. (formerly "High Hopes,                    1999
               Inc.") and Sanga e-Health LLC

   10.1        Loan and Security Agreement dated March                 Incorporated by reference to Exhibit 10.1
               19, 1999, among the Company, Trammel                    to the Registrant's Form 8-K dated March
               Investors LLC and Donald H. Ayers                       19, 1999

   10.2        Registration Rights Agreement among the                 Incorporated by reference to Exhibit 10.2
               Company, Trammel Investors LLC and Donald               to the Registrant's Form 8-K dated March
               H. Ayers                                                19, 1999

   10.3        Waiver, Rescission and Termination of                   Incorporated by reference to Exhibit 10.1
               Software License Agreement between Sanga                to Amendment No. 1 to the Registrant's
               e-Health LLC and Sanga Corporation dated                Form 8-K dated January 7, 1999
               December 2, 1998

   10.4        Assignment of Rights Under Financing                    Incorporated by reference to Exhibit 10.4
               Agreements                                              to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.5        Agreement with Donald H. Ayers dated June               Incorporated by reference to Exhibit 10.5
               14, 1999                                                to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.6        Agreement with Trammel Investors LLC dated              Incorporated by reference to Exhibit 10.6
               May 15, 1999                                            to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.7        Asset Purchase Agreement dated September                Incorporated by reference to Exhibit 10.7
               1, 1999 among Sanga e-Health LLC,                       to the Registrant's Form 8-K dated
               e-MedSoft.com, and University Affiliates                September 1, 1999
               IPA, Inc.

   10.8        Software License and Services Agreement                 Incorporated by reference to Exhibit 10.8
               dated September 1, 1999 between University              to the Registrant's Form 8-K dated
               Affiliates IPA, Inc. and e-MedSoft.com                  September 1, 1999

   10.9        Registration Rights Agreement dated                     Incorporated by reference to Exhibit 10.9
               September 1, 1999 between University                    to the Registrant's Form 8-K dated
               Affiliates IPA, Inc. and e-MedSoft.com                  September 1, 1999

  10.10        Corrected Agreement and Plan of Merger and              Incorporated by reference to Exhibit 10.1
               Reorganization dated February 21, 2000,                 to the Registrant's Form 8-K dated
               among e-MedSoft.com, VirTx Acquisition                  February 29, 2000 and amended on May 12,
               Corporation and VirTx, Inc.                             2000

  10.11        Acquisition and Joint Venture Agreement                 Incorporated by reference to Exhibit 10.11
               dated March 18, 2000, between CypherComm,               to the Registrant's Form 8-K dated March
               Inc. and the Company                                    18, 2000

  10.12        Management Services and Joint Venture                   Incorporated by reference to Exhibit 10.12
               Agreement dated April 6, 2000, between                  to the Registrant's Form 8-K/A filed on
               Prime RX.com, Inc. and e-MedSoft.com, as                May 2, 2000
               modified

  10.13        Master Preferred Provider Agreement                     Incorporated by reference to Exhibit 10.13
               between e-MedSoft.com and Prime RX.com,                 to the Registrant's Form 8-K/A filed on
               Inc.                                                    May 2, 2000

  10.14        Agreement dated April 7, 2000, between                  Incorporated by reference to Exhibit 10.14
               e-MedSoft.com and the shareholders of                   to the Registrant's Form 8-K/A filed on
               Prime RX.com, Inc.                                      May 2, 2000

  10.15        Agreement and Plan of Merger and                        Incorporated by reference to Exhibit 10.10
               Reorganization dated April 18, 2000, among              to Registrant's Form 8-K dated May 5, 2000
               e-MedSoft.com, Illumea Acquisition
               Corporation and Illumea Corporation

  10.16        Agreement and Plan of Merger and                        Incorporated by reference to the Exhibits to
               Reorganization, dated June 6, 2000, among               the Registrant's Current Report on Form 8-K, as
               the the Registrant, Vidimedix                           filed on June 28, 2000.
               Acquisition Corporation, and Vidimedix
               Corporation (10)

  10.17        Compromise and Settlement Agreement between             To be filed by amendment.
               Registrant and prior shareholders of
               Vidimedix Corporation+

  10.18        Common Stock Purchase Agreement between                 Incorporated by reference to the Exhibits to the
               e-MedSoft.com and Hoskin International Limited          Registrant's Current Report on Form 8-K, as
</TABLE>


                                       41
<PAGE>   42

<TABLE>
<S>            <C>                                                     <C>
               dated February 20, 2001 (12)                            filed on March 2, 2001.

  10.19        Executive Employment Agreement between                  To be filed by amendment.
               Registrant and John F. Andrews dated as of
               January 15, 1999, amended January 15, 2000+

  10.20        Executive Employment Agreement between Registrant       To be filed by amendment.
               and John Shepherd dated August 30, 2000+

  10.21        1999 Stock Compensation Plan+                           To be filed by amendment.

  10.22        2000 Nonqualified Stock Option and Stock                To be filed by amendment.
               Bonus Plan+

  10.23        Amended and Restated Agreement and Plan of              Incorporated by reference to
               Merger and Reorganization dated June 4,
               2001, among e-MedSoft.com, CDS Acquisition
               Corporation and Chartwell Diversified
               Services, Inc.

   21.0        Subsidiaries of the Registrant                          Filed herewith electronically

   23.1        Consent of KPMG LLP                                     Filed herewith electronically

   23.2        Consent of Arthur Andersen LLP                          Filed herewith electronically

</TABLE>

     (b) Reports on Form 8-K. The Company filed a Form 8-K dated March 2, 2001,
reporting under Item 5 the Equity Line Agreement with Hoskin International. The
Company filed a Form 8-K/A dated March 2, 2001, reporting under Item 5 the
correction to exhibit 10.18 to the 8-K filed on March 2, 2001 for the Equity
Line Agreement with Hoskin International. The Company filed a Form 8-K dated
March 08, 2001, reporting under Item 4 the change of independent accounting
firms from Arthur Andersen LLP to KPMG LLP. The Company filed a Form 8-K dated
April 11, 2001, reporting under Item 2 the Settlement Agreement and Mutual
Releases with PrimeRx and its shareholders. The Company filed a Form 8-K dated
June 11, 2001 reporting under Item 5 further disclosures on the March 26th
Settlement Agreement with PrimeRx. The Company filed a Form 8-K, dated July 16,
2001, reporting under Item 5 notification of late filing on Form 12b-25 relating
to its Annual Report on Form 10-K.


                                       42
<PAGE>   43

                                  e-MEDSOFT.com

                          INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE
                                                                            ----

 Reports of Independent Public Accountants............................      F-1

  Consolidated Balance Sheets as of March 31, 2001 and 2000...........      F-3

  Consolidated Statements of Operations for the years ended
      March 31, 2001 and 2000, and the four months ended March
      31, 1999........................................................      F-4

  Consolidated Statements of Stockholders' Equity and Comprehensive
      Income (Loss) for the years ended March 31, 2001 and
      2000, and the four months ended March 31, 1999..................      F-5

 Consolidated Statements of Cash Flows for the years ended March
      31, 2001 and 2000, and the four months ended March 31, 1999.....      F-6

  Notes to Consolidated Financial Statements..........................      F-7


                                       43
<PAGE>   44

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of e-MedSoft.com:

     We have audited the accompanying consolidated balance sheet of
e-MedSoft.com and subsidiaries as of March 31, 2001 and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
e-MedSoft.com and subsidiaries as of March 31, 2001 and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has suffered recurring
losses from operations, has negative working capital and negative cash flows
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                                        /s/ KPMG LLP

Jacksonville, Florida
July 23, 2001


                                      F-1

<PAGE>   45

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of e-MedSoft.com:

     We have audited the accompanying consolidated balance sheet of
e-MedSoft.com (a Nevada corporation) and subsidiaries as of March 31, 2000 and
the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for the year ended March 31, 2000 and
the four months ended March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of e-MedSoft.com and
subsidiaries as of March 31, 2000 and 1999, and the results of their operations
and their cash flows for the year ended March 31, 2000 and the four months ended
March 31, 1999 in conformity with accounting principles generally accepted in
the United States.


                                        /s/ ARTHUR ANDERSEN LLP

Los Angeles, California
June 28, 2000


                                      F-2

<PAGE>   46

                                  e-MEDSOFT.com

                           CONSOLIDATED BALANCE SHEETS
                          AS OF MARCH 31, 2001 AND 2000
                        (IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
<CAPTION>
                                                                                     2001              2000
                                                                                   ---------         ---------
<S>                                                                                <C>               <C>
ASSETS
Current Assets:
  Cash and cash equivalents ...............................................        $   2,061         $  55,635
  Accounts receivable, net of allowance for doubtful
     accounts of $5,300 in 2001 and $155 in 2000 ..........................            8,994               711
  Accounts receivable from affiliates, net of allowance for
     doubtful accounts of $1,000 in 2001 and $0 in 2000 ...................              783                --
  Other receivables .......................................................              308               184
  Inventory ...............................................................            4,554               112
  Prepayments and other ...................................................              880               231
                                                                                   ---------         ---------
                                                                                      17,580            56,873
                                                                                   ---------         ---------
Non-current Assets:
  Property and equipment, net .............................................            5,677               661
  Goodwill, net of accumulated amortization of $2,749 in 2001 and $1,206
     in 2000 ..............................................................           11,404            30,620
  Investments .............................................................               --            25,203
  Technology license fee ..................................................            2,800             2,800
  Deferred software costs .................................................           10,856             8,640
  Distribution channel ....................................................            2,500            36,100
  Deferred contract .......................................................               --            67,463
  Assets of discontinued operations .......................................            9,340            31,464
  Other assets ............................................................            4,899               881
                                                                                   ---------         ---------
                                                                                      47,476           203,832
                                                                                   ---------         ---------
                                                                                   $  65,056         $ 260,705
                                                                                   =========         =========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable ........................................................        $  15,645         $   2,464
  Accrued liabilities .....................................................            6,535             2,133
  Related party debt ......................................................            2,904               139
  Liabilities of discontinued operations ..................................           12,546            22,470
  Current maturities of long-term debt and capital leases .................            2,960               625
                                                                                   ---------         ---------
                                                                                      40,590            27,831
                                                                                   ---------         ---------
Long-Term Liabilities:
  Capital leases ..........................................................              878                 4
  Debt ....................................................................            3,077                68
  Long-term debt and lease commitments of discontinued operations .........            2,358               735
  Lease commitments .......................................................            3,223             3,064
                                                                                   ---------         ---------
                                                                                       9,536             3,871

Minority interest .........................................................            7,351                --
Stockholders' Equity:
  Common shares, $.001 par value, 200,000 shares
     authorized, 79,388 and 75,735, issued and
     outstanding at March 31, 2001 and 2000, respectively .................               79                76
  Paid in capital .........................................................          303,685           244,496
  Stock subscription ......................................................           (5,000)           (5,000)
  Deferred charge - equity financing ......................................           (4,616)               --
  Accumulated deficit .....................................................         (285,822)          (10,570)
  Accumulated other comprehensive income ..................................              190                 1
  Less treasury shares at cost ............................................             (937)               --
                                                                                   ---------         ---------
                                                                                       7,579           229,003
                                                                                   ---------         ---------
                                                                                   $  65,056         $ 260,705
                                                                                   =========         =========
</TABLE>

                     See accompanying notes to consolidated
                             financial statements.


                                      F-3
<PAGE>   47

                                  e-MEDSOFT.com

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED MARCH 31, 2001 AND 2000 AND
                      THE FOUR MONTHS ENDED MARCH 31, 1999
                  (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)


<TABLE>
<CAPTION>
                                                                                      2001               2000              1999
                                                                                   ----------         ---------         ---------
<S>                                                                                <C>                <C>               <C>
NET SALES
   Non affiliates ..........................................................       $   81,997         $     941         $      --
   Affiliates ..............................................................            6,000                --                --
                                                                                   ----------         ---------         ---------
        Total Net Sales ....................................................           87,997               941
                                                                                   ----------         ---------         ---------

COSTS AND EXPENSES:
  Cost of sales ............................................................           63,200               476                --
  Research and development .................................................            7,267               710                21
  Sales and marketing expense ..............................................            8,255               772                49
  General and administrative ...............................................           55,909             6,970               701
  Asset impairment charges .................................................          201,034                --                --
  Restructuring costs ......................................................            1,626                --                --
  Depreciation and amortization ............................................            9,988               442                 1
                                                                                   ----------         ---------         ---------
     Total Costs and Expenses ..............................................          347,279             9,370               772
                                                                                   ----------         ---------         ---------

OPERATING LOSS .............................................................         (259,282)           (8,429)             (772)

OTHER INCOME (EXPENSE):
  Interest expense .........................................................           (2,018)           (1,493)             (370)
  Interest income ..........................................................              880               280                --
  Other income (expense) ...................................................               --               (36)               --
                                                                                   ----------         ---------         ---------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY INCOME AND MINORITY
  INTEREST .................................................................         (260,420)           (9,678)           (1,142)
EXTRAORDINARY INCOME .......................................................               --               357                --
                                                                                   ----------         ---------         ---------

LOSS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND MINORITY INTEREST ....         (260,420)           (9,321)           (1,142)
MINORITY INTEREST, NET OF TAXES ............................................            1,603                --                --
INCOME TAXES ...............................................................               --                --                --
                                                                                   ----------         ---------         ---------

NET LOSS FROM CONTINUING OPERATIONS ........................................         (258,817)           (9,321)           (1,142)
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS .............................          (16,435)             (344)              237
                                                                                   ----------         ---------         ---------
NET LOSS ...................................................................       $ (275,252)        $  (9,665)        $    (905)
                                                                                   ==========         =========         =========
BASIC AND DILUTED LOSS PER SHARE FROM CONTINUING OPERATIONS ................       $    (3.25)        $   (0.17)        $   (0.03)
                                                                                   ==========         =========         =========
BASIC AND DILUTED (LOSS) INCOME PER SHARE FROM DISCONTINUED OPERATIONS .....       $    (0.21)        $   (0.01)        $    0.01
                                                                                   ==========         =========         =========

WEIGHTED AVERAGE SHARES OUTSTANDING ........................................           79,587            56,345            38,061
</TABLE>


                     See accompanying notes to consolidated
                              financial statements.


                                      F-4
<PAGE>   48

                                  e-MEDSOFT.com

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
                           COMPREHENSIVE INCOME (LOSS)
                 FOR THE YEARS ENDED MARCH 31, 2001 AND 2000 AND
                      THE FOUR MONTHS ENDED MARCH 31, 1999
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)


<TABLE>
<CAPTION>

                                                   COMMON SHARES
                                             -------------------------      PAID-IN          STOCK        TREASURY       DEFERRED
                                                NUMBER        AMOUNT        CAPITAL      SUBSCRIPTION       STOCK         CHARGES
                                             -----------    ----------   -------------   ------------   ------------   ------------
<S>                                          <C>            <C>          <C>             <C>            <C>            <C>
OPENING BALANCE, TSI DECEMBER 1, 1998 ....            --    $       --   $          --    $        --    $        --    $        --
Recapitalization of e-MedSoft ............         7,801             8               2             --             --             --
Restricted common stock issued for
  acquisition of TSI assets ..............        43,970            44             (44)            --             --             --
Restricted common shares issued for
  services ...............................            45            --             155             --             --             --
Issue of warrants for services ...........            --            --             225             --             --             --
Restricted common stock contributed
  by TSI for acquisition of e-Net ........            --            --           5,400             --             --             --
Restricted common stock contributed
  by TSI for loan inducement .............            --            --           1,213             --             --             --
Comprehensive income (loss):
Operating losses of TSI through
  acquisition, January 7, 1999 ...........            --            --              --             --             --             --
Operating losses of e-MedSoft for
  the period January 8, 1999 to
  March 31, 1999 .........................            --            --              --             --             --             --
Translation adjustment ...................            --            --              --             --             --             --
                                             -----------    ----------   -------------    -----------    -----------    -----------
BALANCE, MARCH 31, 1999 ..................        51,816    $       52   $       6,951    $        --    $        --    $        --
Restricted common stock issued in
  acquisitions ...........................         1,854             2          30,180             --             --             --
Restricted common stock issued for
  cash ...................................         8,155             8          63,625             --             --             --
Restricted common stock issued for
  assets .................................         3,127             3          29,465             --             --             --
Restricted common stock issued to
  NCFE for assets ........................         9,500            10         112,803         (5,000)            --             --
Warrants issued for payment of
  debt ...................................            --            --             506             --             --             --
Common stock issued on exercise of
  warrants ...............................         1,217             1             100             --             --             --
Common stock issued on exercise of
  stock options ..........................            33            --              34             --             --             --
Common stock issued for services .........            33            --             615             --             --             --
Stock options and warrants issued
  for services ...........................            --            --             217             --             --             --
Comprehensive loss:
Net loss .................................            --            --              --             --             --             --
Translation adjustment ...................            --            --              --             --             --             --
                                             -----------    ----------   -------------    -----------    -----------    -----------
BALANCE, MARCH 31, 2000 ..................        75,735    $       76   $     244,496    $    (5,000)   $        --    $        --
Restricted common stock issued in
  acquisitions ...........................         4,425             4          41,728             --             --             --
Restricted common stock issued for
  services ...............................         1,000             1           1,399             --             --             --
Restricted common stock contributed by
  TSI and reversal of previously issued
  common stock for legal settlement ......          (300)           --           1,040             --             --             --
Warrants issued for acquisitions .........            --            --           1,976             --             --             --
Common stock issued on exercise of
  warrants ...............................           175            --             512             --             --             --
Common Stock issued on exercise of
  stock options ..........................            82            --             138             --             --             --
Common stock issued for services .........           689             1           1,614             --             --             --
Stock options and warrants issued
  for services ...........................            --            --           2,700             --             --             --
Earn out settlement on acquisition .......           136            --           3,561             --             --             --
Stock options issued in acquisitions .....            --            --           1,165             --             --             --
Warrants issued for deferred equity
  funding costs ..........................            --            --           3,817             --             --             --
Warrants issued for deferred financing ...            --            --              --             --             --         (4,616)
Capital contributions ....................            86            --           1,515             --             --             --
Purchase of 187 thousand treasury shares .            --            --              --             --           (937)            --
Expiration of warrants ...................            --            --          (1,976)            --             --             --
Abandonment of common stock issued
  in acquisitions ........................        (2,640)           (3)             --             --             --             --
Comprehensive loss .......................            --            --              --             --             --             --
Net loss .................................            --            --              --             --             --             --
Translation adjustment ...................            --            --              --             --             --             --
                                             -----------    ----------   -------------    -----------    -----------    -----------
BALANCE, MARCH 31, 2001 ..................        79,388    $       79   $     303,685    $    (5,000)   $      (937)   $    (4,616)
                                             ===========    ==========   =============    ===========    ===========    ===========
</TABLE>


<TABLE>
<CAPTION>
                                                              ACCUMULATED
                                                                 OTHER
                                               ACCUMULATED   COMPREHENSIVE        TOTAL
                                                 DEFICIT      INCOME(LOSS)       EQUITY
                                              -------------  -------------   -------------
<S>                                           <C>            <C>             <C>
OPENING BALANCE, TSI DECEMBER 1, 1998 ....    $          --     $      --    $          --
Recapitalization of e-MedSoft ............               --            --               10
Restricted common stock issued for
  acquisition of TSI assets ..............               --            --               --
Restricted common shares issued for
  services ...............................               --            --              155
Issue of warrants for services ...........               --            --              225
Restricted common stock contributed
  by TSI for acquisition of e-Net ........               --            --            5,400
Restricted common stock contributed
  by TSI for loan inducement .............               --            --            1,213
Comprehensive income (loss):
Operating losses of TSI through
  acquisition, January 7, 1999 ...........              (34)           --              (34)
Operating losses of e-MedSoft for
  the period January 8, 1999 to
  March 31, 1999 .........................             (871)           --             (871)
Translation adjustment ...................               --            14               14
                                              -------------     ---------    -------------
BALANCE, MARCH 31, 1999 ..................    $        (905)    $      14    $       6,112
Restricted common stock issued in
  acquisitions ...........................               --            --           30,182
Restricted common stock issued for
  cash ...................................               --            --           63,633
Restricted common stock issued for
  assets .................................               --            --           29,468
Restricted common stock issued to
  NCFE for assets ........................               --            --          107,813
Warrants issued for payment of
  debt ...................................               --            --              506
Common stock issued on exercise of
  warrants ...............................               --            --              102
Common stock issued on exercise of
  stock options ..........................               --            --               33
Common stock issued for services .........               --            --              615
Stock options and warrants issued
  for services ...........................               --            --              217
Comprehensive loss:
Net loss .................................           (9,665)           --           (9,665)
Translation adjustment ...................               --           (13)             (13)
                                              -------------     ---------    -------------
BALANCE, MARCH 31, 2000 ..................    $     (10,570)    $       1    $     229,003
Restricted common stock issued in
  acquisitions ...........................               --            --           41,732
Restricted common stock issued for
  services ...............................               --            --            1,400
Restricted common stock contributed by
  TSI and reversal of previously issued
  common stock for legal settlement ......               --            --            1,040
Warrants issued for acquisitions .........               --            --            1,976
Common stock issued on exercise of
  warrants ...............................               --            --              512
Common Stock issued on exercise of
  stock options ..........................               --            --              138
Common stock issued for services .........               --            --            1,615
Stock options and warrants issued
  for services ...........................               --            --            2,700
Earn out settlement on acquisition .......               --            --            3,561
Stock options issued in acquisitions .....               --            --            1,165
Warrants issued for deferred equity                                                  3,817
  funding costs ..........................               --            --
Warrants issued for deferred financing ...               --            --           (4,616)
Capital contributions ....................               --            --            1,515
Purchase of treasury shares ..............               --            --             (937)
Expiration of warrants ...................               --            --           (1,976)
Abandonment of common stock issued
  in acquisitions ........................               --            --               (3)
Comprehensive loss:
Net loss .................................         (275,252)           --         (275,252)
Translation adjustment ...................               --           189              189
                                              -------------     ---------    -------------
BALANCE, MARCH 31, 2001 ..................    $    (285,822)    $     190    $       7,579
                                              =============     =========    =============
</Table>


          See accompanying notes to consolidated financial statements.


                                      F-5

<PAGE>   49
                                  e-MEDSOFT.com

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED MARCH 31, 2001 AND 2000 AND
                      THE FOUR MONTHS ENDED MARCH 31, 1999
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                     2001           2000           1999
                                                                  ---------       --------       --------
<S>                                                               <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ..................................................     $(275,252)      $ (9,665)      $   (905)
  Add loss (income) from discontinued operations.............        16,435            344           (237)
  Minority interest..........................................        (1,603)            --             --
  Adjustments to reconcile loss from continuing operations to
   net cash used in continuing operations:
  Impairment charges ........................................       201,034             --             --
  Losses of joint venture ...................................           519             --             --
  Non cash compensation .....................................         1,431             --             --
  Other non cash expenses ...................................         5,839             --             --
  Gain on exchange of debt for warrants .....................            --           (357)            --
  Provision for doubtful accounts ...........................         6,655            193             --
  Depreciation ..............................................         1,971             73             --
  Amortization of goodwill and other intangibles ............         8,017            369             --
  Amortization of deferred financing costs ..................            --          1,243            362
  Amortization of distribution channel ......................         2,448             --             --
  Issuance of shares and warrants for services provided .....         1,584            832            380
  Other .....................................................          (754)            --             --
  Net change in assets and liabilities affecting
     operations, net of acquisitions:
     Accounts receivable ....................................        (7,299)          (646)            --
     Inventory ..............................................           146            (82)            --
     Prepayments and other ..................................          (215)          (378)            20
     Related party receivables ..............................            --             --           (186)
     Accounts payable and accrued liabilities ...............         6,471          3,116            176
                                                                  ---------       --------       --------
  Net Cash Used In Operating Activities......................       (32,573)        (4,958)          (390)
                                                                  ---------       --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Business acquisition, net of cash acquired ................        (1,830)          (808)        (2,254)
  Capital expenditures ......................................        (4,838)          (466)            --
  Cash (advances) receipts from discontinued operations......        (2,247)           328              1
  Investment in software ....................................        (1,558)        (4,172)            --
  Payment for deferred contract .............................            --           (511)            --
  Purchase of long-term investment ..........................            --           (770)            --
  Other investments .........................................        (4,686)          (154)            --
                                                                  ---------       --------       --------
     Cash Used In Investing Activities ......................       (15,159)        (6,553)        (2,254)
                                                                  ---------       --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt ................................       (16,870)          (561)            --
  Proceeds from long-term debt ..............................        13,142          3,889          1,500
  Proceeds from other long-term liabilities .................            --             --          1,500
  Payments on other long-term liabilities ...................            --             --           (306)
  Repayments of capital lease obligations ...................          (428)            --             --
  Treasury stock purchases ..................................          (937)             --             --
  Proceeds from exercise of stock options and warrants ......           651            135             --
  Equity financing ..........................................            --         63,633             --
  Cost of equity financing ..................................        (1,400)            --             --
                                                                  ---------       --------       --------
     Cash  (Used in) Provided By Financing Activities .......        (5,842)        67,096          2,694
                                                                  ---------       --------       --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............       (53,574)        55,585             50
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD ....        55,635             50             --
                                                                  ---------       --------       --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ..........     $   2,061       $ 55,635       $     50
                                                                  =========       ========       ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-6

<PAGE>   50

                                  e-MEDSOFT.com

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Risk

     e-MedSoft.com ("e-MedSoft" or the "Company") was initially organized in
Nevada on August 25, 1986, under the name of High Hopes, Inc., in order to
evaluate, structure and complete a merger with, or acquisition of, prospects
consisting of private companies, partnerships or sole proprietorships.

e-MedSoft acquired and has continued to develop an Internet-based information
and transaction platform application and software designed to facilitate and
streamline interactions among physicians, payers, suppliers and patients. During
the year ended March 31, 2000, the Company acquired a multimedia company, VirTx,
Inc., entered into a preferred provider agreement with National Century
Financial Enterprises, Inc. ("NCFE") to provide its services and software
solutions, acquired and entered into software license agreements with University
Affiliates and Quantum Digital Solutions Corporation to introduce new health
care products, and lastly acquired an ownership interest and entered into a
license agreement with B2B, an Australian Company, to distribute e-MedSoft
product in Australia and Asia. During the year ended March 31, 2001, the Company
acquired of two multimedia companies, Illumea Corporation and VidiMedix
Corporation, and a pharmaceutical company, Resource Healthcare (See Note 3). In
addition, during the year ended March 31, 2001, the Company acquired 29 percent
ownership and we entered into a 30 year management agreement and a preferred
provider agreement with PrimeRx.com, Inc. ("PrimeRx") a pharmacy management
services company. The operating results and related assets and liabilities of
the acquired businesses have been consolidated into our financial statements
from the date of transaction based on accounting principals generally accepted
in the United States.

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.

Accounting Estimates

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

Accounts Receivable

     Accounts receivable consists primarily of trade receivables from the sale
of pharmacy prescription drugs and other pharmacy products and services as well
as internet products and services to the Company's customers. The Company
reviews its trade receivables for collectability and provides an allowance for
uncollectible balances based upon management's best estimates. Approximately
86.7 percent of the Company's total trade receivables (net) represent
receivables of our pharmacy division of $8.5 million. Pharmacy sales are
generated at the time our pharmacy dispenses drugs to a patient that is covered
by a third party payor arrangement. Sales are primarily to Commercial and
Managed Care accounts (64.7 percent), Medicare/Medicaid (17.5 percent) and
institutions (16.4 percent). Of the remaining $1.3 million of our receivable
balance approximately $783 thousand is due from related parties.



                                      F-7
<PAGE>   51


Inventory

     Inventory consists primarily of pharmaceuticals and pharmacy products and
is stated at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method. At March 31, 2001, the Company owed a vendor $9.1
million for pharmaceutical inventory and is included in accounts payable on the
consolidated balance sheet.

Fair Value of Financial Instruments and Concentration of Sales and Credit Risk

     The carrying amounts reported in the consolidated balance sheets for cash,
receivables, accounts payable and accrued liabilities approximate fair value
because of the immediate or short-term maturity of these financial instruments.
The carrying value of the Company's debt and capital leases approximate their
fair value because of the short maturities and/or interest rates which are
comparable to those available to the Company on similar terms.

Property and Equipment

     Property and equipment are stated at cost and are depreciated using the
straight-line method based on the estimated useful life of the related asset.
Useful lives are generally three to six years except for leasehold improvements
and equipment acquired under capital leases which are amortized over the shorter
of the remaining lease term or the estimated useful life of the related asset.

Goodwill

     Goodwill represents the excess of cost over the fair value of net tangible
and identifiable intangible assets acquired and is amortized using the
straight-line method.

     Goodwill related to the acquisition of our multimedia companies, Illumea
and VidiMedix, is amortized over a seven-year period and goodwill related to the
acquisition of Resource Healthcare Pharmacy is amortized over a fifteen-year
period. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill recorded may not be
recoverable (See Notes 3 and 4). When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of undiscounted
future net cash flows over the remaining life of the goodwill to determine if
impairment has occurred. Assets are grouped at the lowest level for which there
are identifiable cash flows that are largely independent from other asset
groups. The Company uses discounted future expected net cash flows to determine
the amount of impairment loss.

Software Development Costs

     The Company is internally developing software and has acquired software
that it plans to market to providers, payers, suppliers and consumers through
licensing of software and through hosting service as an application service
provider. Costs incurred related to the development of software to be licensed
prior to technological feasibility have been expensed. Under Statement of
Financial Accounting Standards ("SFAS") No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed", once the Company
concludes that technological feasibility is obtained, all subsequent development
costs are capitalized and reported at the lower of unamortized cost or net
realizable value. Software development costs incurred related to software to be
used internally as part of a hosting arrangement have been capitalized in
accordance with Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Internally Developed or Obtained for Internal Use". Software
development costs expensed are included in research and development expenses in
the accompanying consolidated statements of operations and were approximately
$7.3 million and $710 thousand for the two fiscal years ended March 31, 2001 and
2000, respectively, and $21 thousand the four-month period ended March 31, 1999.
During the years ended March 31, 2001 and 2000, the Company incurred salary and
contractor costs of approximately $2.0 million and $2.2 million, respectively,
that were capitalized.

Recognition of Sales

     The Company's software products and services are provided based upon
purchase orders and written contractual agreements. Software sales are
recognized upon acceptance by the customer. Sales from services are recorded
upon performance. Sales from maintenance contracts are recognized on a
straight-line basis over the contract period. The sales components for the
fiscal year ended March 31, 2001 and 2000 and the four-month period ended March
31, 1999 is summarized as follows (in thousands):

                                     F-8
<PAGE>   52

<TABLE>
<CAPTION>
                                         2001              2000           1999
                                        -------          -------          -----
<S>                                    <C>              <C>              <C>
 Pharmacy ....................          $78,410          $    --          $  --
 Internet Services ...........            9,587              941             --
                                        -------          -------          -----
                                        $87,997          $   941          $  --
                                        =======          =======          =====
</TABLE>

Income Taxes

    The Company accounts for income taxes pursuant to SFAS 109, "Accounting for
Income Taxes," which uses the asset and liability method to calculate income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be realized or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

Basic and Diluted Loss Per Share

    In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing the net earnings available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.

    Common equivalent shares, consisting of incremental common shares issuable
upon the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation if their effect is anti-dilutive.

         A summary of the shares used to compute net loss per share is as
follows (in thousands):


<TABLE>
<CAPTION>
                                                                           YEAR ENDED          YEAR ENDED     FOUR MONTHS ENDED
                                                                         MARCH 31, 2001      MARCH 31, 2000     MARCH 31, 1999
                                                                         --------------      --------------   -----------------
<S>                                                                        <C>                <C>                <C>
               Weighted average common shares used to compute basic          79,587              56,345            38,061
                 net loss per share
               Effect of dilutive securities ......................            --                  --                 --
                                                                            -------              ------            ------
               Weighted average common shares used to compute
                 diluted net loss per share .......................          79,587              56,345            38,061
                                                                             ======              ======            ======
</TABLE>

    For the years ended March 31, 2001 and 2000 and the four months ended March
31, 1999, options and warrants to purchase 13.4 million, 5.7 million and 1.7
million shares of common stock, respectively, were excluded from the computation
of diluted loss per share as such options and warrants were anti-dilutive.

Reclassifications

    Certain previously reported amounts have been reclassified to conform with
the current year presentation.

Recent Accounting Pronouncements

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which was amended by SFAS No. 137. The
Company is required to adopt this new standard in April 2001 for its year ending
March 31, 2002. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because the Company currently holds no
derivative financial instruments and does not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
the Company's financial condition or results of operations.



                                      F-9

<PAGE>   53

2. LIQUIDITY AND CAPITAL RESOURCES

     The accompanying consolidated financial statements have been prepared on
the basis that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. As discussed in our Notes 3 and 4, the Company has recorded
material asset impairment charges in the fiscal year ended March 31, 2001. The
development of some key products that the Company was relying on to generate
revenue have been decreased or abandoned. In addition, funding that the Company
expected to receive from existing agreements and commitments has not occurred.
At March 31, 2001, the Company had negative working capital from continuing
operations of $10.5 million (excluding working capital of discontinued
operations) and cash and cash equivalents have decreased from $55.6 million at
March 31, 2000 to $2.1 million at March 31, 2001.

     The Company's ability to continue to operate as a going concern is
dependent on its ability to raise additional capital through issuance of
additional equity securities. There is no guarantee that funding will be
available on terms acceptable to the Company.

3. BUSINESS COMBINATIONS AND JOINT VENTURES


ACQUISITIONS AND JOINT VENTURES FROM INCEPTION THROUGH MARCH 31, 2000

Acquisition of Health Care Management System

    On January 7, 1999, the Company consummated the agreement dated December 29,
1998 between e-MedSoft.com and Technologies and Holdings, LLC ("TSI") to acquire
from TSI, the rights to a JAVA-based, on-line healthcare management system in
exchange for 41.4 million restricted shares (post-split) of the Company's common
stock. In addition, in exchange for finder's fees and services, the Company
issued 2.6 million restricted shares of the Company's common stock and 1.0
million warrants to purchase restricted shares of the Company's common stock
exercisable at $.25 per share over five years. As a result of these
transactions, TSI owned approximately 80 percent of the then outstanding shares
and is considered the acquiring company. This transaction is considered a
reverse acquisition that resulted in a capital reorganization. Accordingly, the
Company's assets have been reflected at book value and the acquiring company's
assets at acquisition date have been reflected at their carryover basis. There
has been no goodwill or intangible assets recognized for this acquisition in the
consolidated financial statements. No significant costs were incurred in
preparing the software for commercial use prior to December 1, 1998. In
connection with this transaction, the Company completed a 5 for 1 forward stock
split having a record date of January 4, 1999, which has been reflected for all
data presented.

Acquisition of e-Net Technology LTD

     On March 19, 1999, the Company completed the acquisition of all of the
issued and outstanding stock of e-Net Technology Ltd. ("e-Net"), a U.K. based
company, for approximately $7.6 million consisting of $2.2 million in cash and
$5.4 million in stock. e-Net was a diversified computer services company,
providing training, technical support, computer software and computer hardware
to a broad range of customers. This acquisition was accounted for under the
purchase method.




                                      F-10

<PAGE>   54

    The Company purchased the shares of e-Net pursuant to a Share Acquisition
Agreement, which was originally entered into on July 22, 1998 between e-Net's
shareholders and Sanga International ("Sanga"). (During the period, Sanga was a
member of e-MedSoft's principal stockholder, TSI, and it ceased being a member
on July 30, 1999.) The Company paid $2.2 million in cash at the time of the
closing. Of this amount $1.5 million was borrowed and the balance was paid out
of working capital (see Note 5). In addition, TSI contributed and transferred
3.0 million of its restricted shares to Sanga for consideration of Sanga's
assignment of all rights and obligations under its agreement. The Company
obtained an appraisal for the valuation of these shares. These shares were
valued based on the market price of the shares at closing date of the
transaction and discounted to take into consideration the marketability of the
shares issued, the restrictive nature of the shares and the limited trading
history of the stock. As a result, a 54 percent discount was applied to the
market price to determine fair market value of $5.4 million. The following table
details the allocation of the e-Net purchase price (in thousands):

<TABLE>
<S>                                               <C>
               Purchase price ...............      $7,590
               Acquisition costs ............          65
                                                   ------
               Adjusted purchase price ......       7,655
               Add: excess of liabilities
               assumed over assets acquired..         428
                                                   ------
               Goodwill .....................      $8,083
                                                   ======

</TABLE>

    The 10-year amortization of goodwill represented management's best estimate
of the future benefit of this acquisition.

     On June 15, 2001, we voluntarily placed e-Net into receivership and
appointed a receiver. Accordingly, we have accounted for e-Net as a discontinued
operation for the years ended March 31, 2001 and 2000 and four months ended
March 31, 1999 and have included the results under discontinued operations. In
addition we have reclassified the net assets and liabilities separately on the
consolidated balance sheets as discontinued operations. We have written down the
net assets at March 31, 2001 to their estimated net realizable value.
Additionally, the remaining goodwill of $6.4 million was written off and
included in the results of discontinued operations. See Note 12 for further
information on discontinued operations.





                                      F-11
<PAGE>   55
 Preferred Provider Agreement with National Century Financial Enterprises
("NCFE")

     On February 2, 2000, the Company entered into a seven year Preferred
Provider Agreement with NCFE to provide its services and software solutions and
to have exclusive marketing access to all of NCFE's clients for the provision of
e-MedSoft's products. In addition, the agreement provides for a proprietary
Master Portal wherein all of NCFE's and e-MedSoft's products and services will
be marketed and sold to NCFE's and e-MedSoft's customers. e-MedSoft will receive
fees for its services based on agreed upon fee schedules and negotiated project
fees. e-MedSoft issued 9.5 million shares to NCFE in consideration of the
following by NCFE: 1) entering into the agreement, 2) canceling approximately
$4.8 million of e-MedSoft's debt 3) providing $1.0 million of equity financing
and 4) providing an additional $4.0 million in financing that will convert into
equity upon the ability of NCFE to sell $4.0 million worth of e-MedSoft stock at
a share price in excess of $9.50 per share. There is no specific performance
required by NCFE to retain the 9.5 million shares other than not breaching the
contract. The Company was also required to file a registration statement to
register these shares. The value of the shares at the date of issuance was
approximately $113.0 million based on the market price of e-MedSoft stock on
February 2, 2000, the transaction date. This value was allocated as follows: a
1) reduction of debt 2) financing receivable reflected in equity and 3) value of
NCFE's distribution channel and an inducement for NCFE to enter into the
agreement representing deferred contract cost. The value of the NCFE
distribution channel and deferred contract cost with a combined value of
approximately $104.0 million was supported by an appraisal obtained by the
Company. The fair market value of the assets acquired was based on the value of
the equity consideration as determined using an income approach valuation
methodology. A seven year forecast of revenues and costs was prepared with the
resulting cash flows reduced by working capital and capital expenditures. The
net results were then discounted to present value based on a weighted average
discount rate of 25 percent. The components of the assets valued were based on
their related revenue streams and were approximately $120 million for NCFE to
use e-MedSoft technology and $36.1 million for the NCFE distribution channel.
The total valuation of these revenue streams was approximately $156.1 million.
This valuation was in excess of the market price value of the shares issued and
therefore these assets are reflected at the lower value of approximately $104
million. On July 28, 2000, the Company completed Phase 1 of the joint portal to
market its products to NCFE clients and other potential clients visiting the web
site. To date, the Company has not generated any sales from the distribution
channel. The portion of the portal planned to be implemented for NCFE to manage
its clients on line was not completed at March 31, 2001. The Company has not
generated any sales as originally anticipated from this deferred contract asset.
As a result of these events, and the fact that the Company no longer believes
that the original interactive connectivity between NCFE and its clients can be
achieved, the Company has reevaluated these assets and has reflected an
impairment loss to write-off the deferred contract asset and reduce the
distribution channel asset (see Note 4). The remaining value of the distribution
channel asset will be amortized on a straight line basis over a seven year
period.

Acquisition of VirTx, Inc.

     On February 29, 2000, e-MedSoft.com consummated its agreement dated
February 21, 2000 to acquire privately held VirTx, Inc., a provider of secure
collaborative medical networks that are able to support the implementation of
multimedia telemedicine, telehealth, and telescience collaboration. In
connection with the transaction, the Company issued approximately 1.9 million
shares of e-MedSoft's common stock to the VirTx shareholders and may issue up to
an additional $23.0 million in shares pursuant to an earn-out arrangement. The
1.9 million shares issued were valued using an average market closing price of
the Company's stock for 3 days before and after the parties mutually agreed to
and announced the terms of the acquisition. This transaction has been accounted
for as a purchase resulting in approximately $31.0 million of goodwill. The
Company was amortizing the goodwill over a seven year period which was
managements' best estimate of the future benefit of this acquisition. The
following table details the allocation of the VirTx purchase price (in
thousands):


<TABLE>
<S>                                                   <C>
               Purchase price ...................     $30,182
               Acquisition costs ................          35
                                                      -------
               Adjusted purchase price ..........      30,217
               Add: Excess of liabilities
                 assumed over assets acquired ...         773
                                                      -------
               Goodwill .........................     $30,990
                                                      =======
</TABLE>

     As a result of our review of the operations of VirTx, we determined that an
analysis of the on-going value of the goodwill established on the acquisition
date was required. As a result, during the fourth quarter of this year the
Company wrote off $26.0 million of unamortized goodwill relating to this
acquisition.

     The following pro forma information gives effect to the acquisition of
VirTx as if such transaction had occurred at April 1, 1999 (unaudited, in
thousands except per share amounts):


                                      F-12
<PAGE>   56


<TABLE>
<CAPTION>
                                                          YEAR ENDED
                                                        MARCH 31, 2000
                                                        --------------
<S>                                                       <C>
               Net sales ........................         $  1,699
               Costs and expenses ...............           11,336
               Amortization of goodwill .........              736
               Net loss .........................          (11,095)
               Net loss per share ...............            (0.20)
</TABLE>

Acquisition of Software License and Joint Venture with Quantum Digital Solutions
Corporation

     On March 18, 2000, e-MedSoft acquired an exclusive 10-year license, with an
option to extend another 20 years, from Quantum Digital Solutions Corporation
("Quantum Digital") for application of their security encryption and data
scrambling technology. The Company intends to include the security technology
into its application services and will seek to develop a separate subsidiary
("Securus") that will focus on selling security solutions to the health care
industry. In accordance with the original agreement as amended on February 19,
2001, in return for the license, Quantum Digital will receive 25 percent of
Securus profits, plus warrants to purchase up to 25 percent of Securus equity at
$0.01 per share in the event of a sale of any Securus equity securities.
e-MedSoft issued approximately 1.4 million shares of its common stock to Quantum
Digital for the right to purchase up to 15 percent of the outstanding common
stock of Quantum Digital for an aggregate cash purchase price of $15.0 million,
either in a single transaction or in tranches over a period of up to five years.
The issuance of these shares were valued at $25.0 million based on the market
price of e-MedSoft.com stock on the closing date of the transaction, March 18,
2000. As of March 31, 2001, the Company had purchased 1.5 percent of Quantum
Digital's common stock for $1.5 million. e-MedSoft will also issue Quantum
Digital a 10-year warrant to purchase an additional 1.0 million shares of
e-MedSoft common stock following the introduction of a commercially
distributable product using Quantum Digital's technology and receipt of a seat
on Quantum Digital's board of directors. The warrant exercise price per share
will be calculated based on the weighted average of the closing prices of
e-MedSoft common stock for the five trading days immediately preceding August 1,
2001. In addition, e-MedSoft and Quantum Digital have established a jointly
owned technical lab for further development of the encryption technology to fit
various markets. As payment for the Company's share of all costs related to the
lab joint venture from inception through March 1, 2002, the Company issued to
Quantum Digital, 1 million restricted shares of our common stock in March 2001.
The Company recorded the value of these shares based on the market price of
e-MedSoft.com stock on the issuance date. At March 31, 2000, the Company had
reflected approximately $29.1 million on the consolidated balance sheet which
represented $25.0 million for the value of the shares issued to obtain the
option to acquire equity in Quantum Digital, $750 thousand paid upon partial
exercise of the option to acquire equity interest and approximately $3.3 million
in present value of the lease commitment made by the Company for the acquisition
of the option. The Company made a preliminary analysis of the relative values of
the acquired assets and allocated $2.8 million to the value of the technology
license and software and $26.3 million to the value of the equity option
reflected as investment.

     At the end of the fiscal year ended March 31, 2001, the expected product
had not been completed. As a result, management revised its analysis on the
value of the Quantum Digital investment. During this analysis we determined that
the recent market value of Quantum Digital's common stock was permanently
impaired. As a result, we have recorded an asset impairment charge for $27.0
million during fiscal year 2001.

ACQUISITIONS AND JOINT VENTURES FOR THE CURRENT FISCAL YEAR, MARCH 31, 2001

Acquisitions

     On May 5, 2000, the Company consummated the agreement dated April 18, 2000
between e-MedSoft.com and Illumea Corporation (Illumea) to acquire Illumea in
exchange for approximately 1.3 million shares of the Company's common stock,
valued at approximating $10.4 million and $150 thousand in cash. The 1.3 million
shares issued were valued using an average market closing price of the Company's
stock for 3 days before and after the parties mutually agreed to and announced
the terms of the acquisition. This acquisition was accounted for as a purchase.
As a result of this acquisition the Company recorded approximately $10.2 million
in goodwill. During the fourth quarter of fiscal 2001, the Company determined
that certain events warranted a review of the business and the underlying
assumptions of its projected revenue and earning potential. Based on the review
of Illumea's revised discounted cash flow stream, the Company has recorded an
asset impairment writedown of approximately $5.0 million.

    Illumea develops and markets Internet-based remote inspection and image
sharing solutions in the medical and life sciences industries. FiberPix (now
known as MedMicroscopy), Illumea's core application, enables multiple
simultaneous users to view and interact with a microscope's high fidelity images
in real time over the Internet. For example, pathologists can view tissue
samples without traveling to a hospital. This acquisition has been accounted for
as a purchase.


                                      F-13

<PAGE>   57
On June 16, 2000, the Company consummated the agreement dated June 6, 2000
between e-MedSoft.com and VidiMedix Corporation to acquire VidiMedix for
assumption of approximately $6.2 million in debt and liabilities. Of this amount
approximately $3.3 million was repaid with approximately 380 thousand shares of
common stock and warrants to purchase approximately 336 thousand shares of
common stock at an exercise price of $8.63 per share. The warrants were
immediately vested with a nine-month term. The 380 thousand common shares issued
were valued using an average market closing price of the Company's stock for 3
days before and after the parties mutually agreed to and announced the terms of
the acquisition. The Company has estimated the fair value of the 336 thousand
warrants issued based on the Black-Scholes model. In addition, the Company
committed to issue up to an additional $6.0 million in shares of common stock to
the VidiMedix shareholders as an earn out payment based on VidiMedix achieving
pre-determined sales targets over the next fiscal year. VidiMedix provides
network medicine solutions that enable physicians to deliver remote examination,
diagnosis, that allows for secure, private and collaborative interactions and
treatment to patients using advanced Internet and Web technologies. This
acquisition has been accounted for as a purchase. In November, 2000 the Company
entered into an agreement with eight of the fourteen prior VidiMedix
shareholders to issue approximately $3.4 million in shares of e-MedSoft.com
common stock to satisfy the earn out provisions in the purchase agreement. This
agreement was amended in February 2001. The number of shares required to be
issued is the higher of 1.3 million or the product of $3.4 million divided by an
average closing price calculated using the first six days of the nine days prior
to the effective date of this registration. The Company filed an S-1 to register
the shares on March 7, 2001. However, since the S-1 registration was not
effective by April 30, 2001, the Company is required at the option of the prior
VidiMedix shareholders, to (1) issue the shares calculated in the default
provision or (2) pay these VidiMedix shareholders $4.0 million in cash. The
Company also entered into a settlement agreement in February 2001 with those
VidiMedix shareholders who were not parties to the November settlement
agreement. Under the February settlement agreement the Company is obligated to
issue 136 thousand shares of common stock to six of the prior VidiMedix
shareholders. Shares to be issued under these settlements have been accounted
for in the fourth quarter of the fiscal year as legal expense in the
accompanying Statement of Operations as of and for the year ended March 31,
2001. The following pro forma information for the fiscal year ended March 31,
2000, details the effect of the acquisition of VidiMedix as if this transaction
had occurred at April 1, 1999 (unaudited and in thousands except for per share
amounts):

<TABLE>
<S>                                        <C>
Net sales ........................         $  2,241
Costs and expenses ...............           13,101
Amortization of goodwill .........              468
Net loss .........................          (12,495)
Net loss per share ...............             (.22)
</TABLE>

    Also on June 16, 2000, the Company acquired Resource Healthcare (Resource)
for approximately $1.5 million in cash and $1.0 million in common stock (113
thousand shares). The number of shares issued was in accordance with the terms
of the agreement and was determined by dividing the $1 million by the average
closing market price of e-MedSoft.com shares during the thirty (30) trading days
ending two (2) days before the closing date. In addition the Company has
committed to issue additional common stock with a value of $500 thousand as an
earn out payment based on Resource achieving pre-determined earning targets over
the next fiscal year. Resource provides pharmaceutical and infusion services to
long-term care, assisted living and residential care facilities throughout
Nevada. Services offered by Resource include consulting, training, billing,
supplies management and facility systems development. This acquisition has been
accounted for as a purchase. The following table details the allocation of the
purchase price of these acquisitions (in thousands):

<TABLE>
<CAPTION>
                                             ILLUMEA          VIDIMEDIX          RESOURCE
                                             --------         ---------          --------
<S>                                          <C>               <C>               <C>
Purchase Price .....................         $ 10,506          $  8,287          $  2,804
Less: Assets acquired less
  liabilities assumed ..............             (335)            2,561               151
                                             --------          --------          --------
Goodwill recorded at acquisition....           10,171            10,848             2,955
Amortization of goodwill............           (1,204)           (1,396)             (149)
Asset impairment....................           (4,961)           (3,761)                0
Expiration of warrants..............               --            (1,099)               --
                                             --------          --------          --------
Goodwill after adjustment for
impairment and amortization.........         $  4,006          $  4,592          $  2,806
                                             ========          ========          ========
</TABLE>



                                      F-14

<PAGE>   58
    Goodwill resulting from the acquisitions of Illumea and VidiMedix is being
amortized over a 7-year period. Goodwill resulting from the acquisition of
Resource is being amortized over a 15-year period.

Other Business Agreements

PRIMERX.COM

     Effective April 12, 2000, the Company acquired a 29 percent interest in
PrimeRx.com, Inc. and entered into a 30-year management agreement and a
preferred provider agreement with PrimeRx.com, Inc. for 2.7 million shares of
the Company's common stock (PrimeRx previously known as PrimeMed Pharmacy
Services Group, Inc.), a pharmacy management services company. PrimeRx offers a
variety of managed care pharmacy services. PrimeRx's customers include physician
offices and clinics, independent physician associations, physician practice
management organizations, managed care health plans, nursing homes, correctional
facilities, and community health centers. The management agreement provided for
an option to exchange up to 33 percent of PrimeRx stock for 3.0 million
e-MedSoft.com shares. The agreement gives full control over PrimeRx operations
to the Company. Accordingly, the Company has consolidated the operations of
PrimeRx for the year ended March 31, 2001 and has included 100 percent of its
losses as e-MedSoft.com is responsible for funding PrimeRx's operations (see
Note 20 "Contingencies and Legal Matters"). The Company has reflected the excess
of net assets over net liabilities at acquisition date as goodwill of
approximately $40.6 million. The goodwill was being amortized over the
management contract term of 30 years. Based on managements revised projection,
this goodwill has been written off during fiscal year 2001. (See note 4 "Asset
Impairment Write-offs".) The following pro forma information for the fiscal year
ended March 31, 2000, gives effect to the consolidation of PrimeRx as if such
transaction had occurred at April 1, 1999 (unaudited in thousands except per
share amount):


<TABLE>
<CAPTION>
<S>                                                                <C>
               Net sales ..................................         $ 52,743
               Costs and expenses .........................           62,465
               Amortization of goodwill ...................            1,720
               Net loss ...................................          (13,151)
               Net loss per share .........................             (.23)
</TABLE>

NCFE

     In September 2000, the Company amended its Preferred Provider Agreement
dated February 2, 2000 with National Century Financial Enterprise "NCFE". The
amendment included clarifications of the original agreement and extended the
term of the agreement from a 7-year term with a 5-year option to a 21-year term.
The Company obtained access to NCFE customers on July 28, 2000. Accordingly,
during the year ended March 31, 2001 the Company recorded amortization on the
distribution channel for the month of August 2000 using an estimated useful life
of 7 years and recorded amortization for the months of September through March
31, 2001 using an estimated useful life of 15 years. The amortization of the
distribution channel is reflected in sales and marketing expense on the
consolidated income statement. As described in note 4 to the consolidated
financial statements the Company has written off $31.1 million and $67.5 million
associated with the distribution channel and deferred contract respectively.

TEGRX

     The Company entered into a Management Services (Loan Out) Agreement (the
"Management Agreement") with TegRx Pharmacy Management Co., Inc. ("TegRx"), an
affiliate of Chartwell Diversified Services, on March 6, 2001. The Agreement was
for a period of ten years and gave TegRx all power and authority necessary to
carry out the management of the pharmacy segment of the Company's business.
TegRx is to be paid a management fee of the greater of $200,000 per month or 40
percent of earnings before interest, taxes, depreciation and amortization
("EBITDA") of the pharmacy segment for the previous month.


                                       F-15

<PAGE>   59
4. ASSET IMPAIRMENT WRITE-OFFS

   During the year ended March 31, 2001, the Company incurred asset impairment
   charges as follows:

    NCFE Deferred Contract

            In the year ended March 31, 2000 the Company entered into a
        preferred provider agreement with NCFE that resulted in recording
        intangible assets of approximately $104.0 million consisting of $36.1
        million in distribution channel and $67.5 million in deferred contract.
        The agreement included the development of a joint portal from which
        various products and services of both companies could be marketed. In
        July 2000 the Company completed the joint portal and began marketing its
        products, however the portal's functionality for NCFE to accept finance
        applications and manage their current clients assets was not yet
        operable. Under our original agreement with NCFE, we were to generate
        revenues from the portal from both a flat fee for every doctor that
        signed up to transact business with NCFE through the portal and through
        receiving a percentage of the receivables under NCFE management from
        clients transacting over the portal. Because of the problems
        encountered, we abandoned future development on the portal for NCFE.
        Accordingly, the Company wrote-off the deferred contract asset of $67.5
        million and wrote-down the value of the distribution channel by $31.1
        million during the fourth quarter of 2001.

    Investment in Quantum Digital Solutions

            At the end of fiscal year 2000, the Company acquired an option to
        purchase 15 percent of Quantum Digital Solutions Corporation
        ("Quantum"), a company that had security encryption and data scrambling
        technology. In addition, we entered into a 10-year license with Quantum
        to include the security technology into the Company's application
        services. The Company paid Quantum $25.0 million in e-MedSoft.com shares
        (1.4 million shares) and committed to provide Quantum office space for
        the option for e-MedSoft.com to acquire 15 percent of Quantum for $15.0
        million in cash. As of March 31, 2001 the expected product had not
        been completed. As a result of this delay and the sudden decrease in
        market valuations of technology companies, management revised its
        analysis on the value of the Quantum investment. During this analysis we
        determined that the recent market value of Quantum's common stock was
        significantly lower than what we had paid in the prior year and the
        reduction in value was deemed to be permanent. As a result, during
        the fourth quarter of fiscal year 2001, the Company recorded an asset
        impairment charge of $27.0 million.

    PrimeRx

            The operations of PrimeRx.com, Inc. ("PrimeRx") have not performed
        as originally anticipated. As a result, the Company changed the existing
        management of PrimeRx and engaged TegRx, see note 3, a pharmacy
        management company (see note 3), to manage and evaluate the operations
        of PrimeRx. Based on the decision to close additional pharmacies, new
        projections were prepared. Based on discounted net cash flows, the
        Company wrote off the remaining goodwill on PrimeRx of $40.6 million.

    Distance Medicine Division

            During the last quarter of the year ended March 31, 2000 and the
        first quarter of the year ended March 31, 2001, the Company acquired
        three companies in the distance medicine field that were newly developed
        or in the final development stages. These companies were VirTx, Inc.
        acquired in February 2001, Illumea Corporation acquired in May 2000 and
        VidiMedix acquired in June 2000. The products developed in these
        businesses had either been recently released or were anticipated to be
        released by the end of our fiscal year 2001 or the beginning of our
        first quarter of fiscal year 2002. Subsequent to December 2000, our
        ability to allocate funds for continued development and marketing of the
        products and businesses became more difficult because of the Company's
        cash flow problems and the Company's anticipated financing plans in the
        last quarter of fiscal 2001 did not come to fruition. In addition, the
        Company determined that access to certain products in the VirTx business
        were redundant and could be replaced with VidiMedix products alleviating
        some of the required costs that would be required to be invested in the
        VirTx business. The Company analyzed the acquired operations as to the
        recoverability of the goodwill under the existing set of circumstances.
        As a result, the underlying business assumptions that were previously
        used to determine the business and cash flow projections of the acquired
        companies have been revised and the expected results of operations
        originally anticipated have not occurred. Therefore, during fiscal year
        2001 the Company has reflected a total asset impairment charge reducing
        goodwill by $34.8 million on these acquisitions, consisting of $26.0
        million write-off of VirTx goodwill, $5.0 million write-off of Illumea
        goodwill and $3.8 million write-off of VidiMedix goodwill.


                                      F-16
<PAGE>   60
5. SOFTWARE LICENSE/ACQUISITIONS

    On January 23, 1999, the Company approved and ratified the termination of
the Software License Agreement which was entered into on December 2, 1998
between TSI and Sanga for the sub-licensing of the healthcare management
system's software ("Software") to end-users thereof. The effect of this
termination was the assignment and transfer from Sanga to the Company of all
rights, title and interest under or with respect to all of Sanga's contractual
rights and privileges arising from their agreements with various healthcare
providers for the sub-leasing of the Software. In connection therewith, previous
funding received by Sanga from such healthcare agreements was transferred to the
Company. The funding received by Sanga was based on an agreement between NCFE
and a member of TSI, to provide an initial funding of $1.5 million for accounts
receivable to be derived from signed Master Agreements and Memorandums of
Understanding. The Company reflected these funds as other long-term liabilities
of $1.2 million at March 31, 1999. In February, 2000, this debt was converted to
equity in conjunction with NCFE's preferred provider agreement described in Note
3 above.

On September 1, 1999, the Company acquired from University Affiliates IPA ("UA")
a managed care computer software technology for approximately $6.5 million. The
consideration included a cash payment of $2.0 million with the remaining $4.5
million purchase price paid through the issuance of approximately 1.7 million
shares of the Company's common stock. The number of shares issued were based on
the terms of the agreement by dividing $4.5 million by the average closing price
of the Company's common stock for the 30 day period prior to August 24, 1999,
which was $2.597. In addition, the Company entered into a ten-year contract with
UA. The agreement includes revenue sharing of UA's network and exclusive use of
the technology in connection with UA's expansion of its physician network. In
addition, the Company agreed to finance certain costs to further develop the
software.

6. PROPERTY AND EQUIPMENT

    Property and equipment at March 31, 2001 and 2000 consisted of the following
(in thousands):


<TABLE>
<CAPTION>
                                                                  2001             2000
                                                                 -------          -------
<S>                                                              <C>              <C>
               Computer equipment ......................         $ 3,172          $   308
               Office equipment, furniture and
                 fixtures ..............................           3,322              476
               Automobiles .............................              52               --
                                                                 -------          -------
                                                                   6,546              784
               Less accumulated depreciation ...........            (869)            (123)
                                                                 -------          -------
               Property and equipment, net .............         $ 5,677          $   661
                                                                 =======          =======
</TABLE>

    Property and equipment included assets acquired under capital lease
obligations with a cost of approximately $100 thousand and $1.0 million at March
31, 2001 and 2000, respectively.

7. DEBT AND CAPITAL LEASES

    During the year ended March 31, 2000, the Company renegotiated the terms of
its bridge financing incurred in connection with the acquisition of e-Net that
consisted of two notes, one from Donald H. Ayers for $750 thousand and one from
Trammel Investor, LLC for $1.0 million. As a result, the $750 thousand note
payable to Donald Ayers was exchanged for 150 thousand warrants to acquire 150
thousand shares of the Company's common stock at $.01. The warrants were valued
at approximately $506 thousand and reflected as an increase to paid in capital.
The difference between the debt exchanged and the value of the warrants was
recorded as an extraordinary gain of $357 thousand. The payout terms on the
remaining note to Trammel for $1.0 million was extended 24 months to May 19,
2001. The Company made a $300 thousand principal payment to Trammel to obtain
this extension. The remaining unpaid origination fees of $120 thousand, in
connection with the original transaction were waived by the debt holders.
Accordingly, all deferred financing costs remaining on this bridge financing of
$1.2 million was amortized and reflected in interest expense in the accompanying
Statement of Operations in the year ended March 31, 2000.

    During the year ended March 31, 2000, the Company entered into a financing
arrangement with NCFE to fund the Company's operations in an amount not to
exceed $5.5 million. The obligation, which was secured by the Company's assets,
boar interest at the prime interest rate (9 percent at March 31, 2000) plus 1
percent and was due one year from the draw date or on the date the Company
successfully obtained refinancing for the amounts loaned under the financing
arrangement, whichever was the earlier date. The Company borrowed $3.5 million
under this agreement. In February 2000, the Company entered into a Preferred
Provider Agreement with NCFE, whereby all of the debt payable to NCFE was
converted into equity.

    During the year ended March 31, 2000, the Company received approximately
$1.3 million from National Trust Properties, Inc. ("NTP"), a related party, as
interim funding of its operations. In consideration for approximately $888
thousand of the funding provided by NTP to the Company, the Company issued
approximately 287 thousand shares of its common stock based on the trading price
of the stock at the dates the funds were received. The remaining balance of the
funds received of $389 thousand, was recorded as related party debt. During
December 1999 the Company repaid $250 thousand of this debt leaving a balance at
March 31, 2000 of approximately $139 thousand. There was no outstanding balance
at March 31, 2001. This debt bears interest at prime plus 1 percent and is due
within one year from the funding date.


     During the fourth quarter of fiscal 2001, the Company's pharmacy
subsidiaries, Prime Med Pharmacy Services, Inc. and Resource Healthcare, each
entered into a Sale and Subservicing Agreement with National Premier Financial
Services, Inc., a subsidiary of NCFE. The Agreement has a five year term and
provides for funding of eligible accounts receivable. The Company is charged
interest at prime plus three percent on outstanding loan balances. At March 31,
2001, the unpaid balance was approximately $2.6 million and is included in
related party debt in the consolidated balance sheet.

                                      F-17

<PAGE>   61

    Debt at March 31, 2001 and 2000 is as follows (in thousands):


<TABLE>
<CAPTION>
                                                                                       2001            2000
                                                                                      -------         -------
<S>                                                                                  <C>             <C>
             Bridge financing secured by the Company's assets, interest
               at prime, due May 19, 2001 .......................................      $  220         $   689
             Term Note, interest at Prime plus 0.75%, expiring 2005..............       4,982              --
             Term Note, interest at 7.50%, expiring 2004.........................          46              --
             Term Note, interest at 9.00%, expiring 2003.........................         246              --
             Term Notes, interest at 10.00%, expiring 2002.......................          20              --
             Term Note, interest at Prime plus 1.00%, expiring 2002..............         130              --
             Related party debt, interest at prime plus 1.00% ...................         333             139
             Related party debt, asset based funding at prime plus 3% ...........       2,571              --
             Capital leases, including lease commitments, interest at various
               rates ranging from 9.00% to 11.00%, expiring from 2001
               through 2003 .....................................................       1,271               8
                                                                                      -------         -------
             Total debt .........................................................       9,819             836
             Less current portion ...............................................      (5,864)           (764)
                                                                                      -------         -------
             Long-term portion ..................................................     $ 3,955         $    72
                                                                                      =======         =======
</TABLE>

    The debt maturity schedule is as follows (in thousands):

    Year ending March 31:


<TABLE>
<CAPTION>
                                       CAPITAL
                                     LEASES AND
                                        LEASE            LONG-TERM
                                     COMMITMENTS            DEBT              TOTAL
                                     -----------         ----------         ----------
<S>                                    <C>                <C>                <C>
               2002 .............       $  576             $5,288            $ 5,864
               2003 .............          548              1,336              1,884
               2004 .............          147              1,362              1,509
               2005 .............           --                562                562
                                        ------             ------            -------
                                        $1,271             $8,548            $ 9,819
                                        ======             ======            =======
</TABLE>

8. OPERATING LEASE COMMITMENTS

    At March 31, 2001, the Company had operating lease obligations for office
space, primarily in California and Florida expiring at various dates through
2009. The minimum aggregate annual rentals were $2.3 million of which $2.3
million, $553 thousand and $12 thousand is reflected in the Company's statement
of operations for the fiscal years ended March 31, 2001 and 2000 and the four
months ended March 31, 1999, respectively.

     Future minimum lease payments on noncancelable operating leases is as
follows (in thousands):


<TABLE>
<CAPTION>
               YEAR ENDING MARCH 31:
<S>                                       <C>
               2002 ...............           2,751
               2003 ...............           1,954
               2004 ...............           1,766
               2005 ...............           1,576
               2006 ...............             982
               Thereafter .........           1,920
                                            -------
                                            $10,949
                                            =======
</TABLE>

9. LINE OF CREDIT

     During the second quarter ended September 30, 2000, the Company obtained a
secured bank line of credit for $8.0 million with a term of one year and
expiring on October 1, 2001. The Company had the choice of selecting its rate of
interest; such rate will be at the Bank's Prime Rate or the optional rate at
LIBOR plus 2 percent. The line of credit was secured by a certificate of deposit
in the amount of $8.1 million. At December 31, 2000, the Company had drawn down
the total amount of the line for working capital purposes. This bank line of
credit was fully repaid and terminated in January 2001.

10. DEFERRED EQUITY FINANCING

    Deferred financing costs resulting from the acquisition bridge financing
(see Note 7) was amortized over the life of the bridge financing. During the
years ended March 31, 2001, March 31, 2000 and the four months ended March 31,
1999, $0, $1.2 million and $362 thousand were reflected in financing costs,
respectively.

11. RESTRUCTURING COSTS

    During the quarter ended September 30, 2000 the Company's Senior Management,
who had the appropriate level of authority, completed its defined restructuring
plan and began its implementation to integrate new acquisitions and eliminate
redundancies within the Company. In line with this restructuring plan various
activities were identified to be discontinued and employees were identified to
be involuntarily terminated or relocated. The following tables and discussion
provide a summary of the activities that were or plan to be exited or relocated.


                                       F-18
<PAGE>   62


                      RESTRUCTURING CHARGES UNDER EITF 94-3

<TABLE>
<CAPTION>
                                                                                    Charges to Accrual
                                                                   Original      -------------------------      Remaining
                                                                   Accrual          Cash        Non Cash         Accrual
                                                                  ----------     ----------     ----------     ----------
  LIABILITY COMPONENTS
<S>                                                               <C>            <C>            <C>            <C>
Employee termination and relocation                                 $  399           $367             --           $ 32
Facility and equipment lease termination and commitment costs          330            105             --            225
Asset impairment related to exiting activity                           781             --           $749             32
                                                                    ------           -----          -----          -----
Totals                                                              $1,510           $472           $749           $289
                                                                    ======           =====          =====          =====
</TABLE>


                     RESTRUCTURING CHARGES UNDER EITF 95-3
<TABLE>
<CAPTION>

                                                                                   Charges to Accrual
                                                                   Original      -------------------------      Remaining
                                                                   Accrual         Cash          Non Cash        Accrual
                                                                  ----------     ----------     ----------     ----------
  LIABILITY COMPONENTS
<S>                                                               <C>            <C>           <C>             <C>
Employee termination and relocation                                $  372         $372              --           $   --
Facility and equipment lease termination and commitment costs       1,456          406              --            1,050
Asset impairment related to exiting activity                          994           --             994               --
                                                                    ------        -----           -----          -------
Totals                                                              $2,822        $778            $994           $1,050
                                                                    ======        =====           =====          =======
</TABLE>

    PRIMERX.COM.

     The Company identified 13 owned or managed pharmacies to be closed, one
management contract to be terminated and two division activities to be exited
or substantially reduced. In addition, the Company relocated PrimeRx's executive
operations and finance functions to the Company's corporate headquarters. Most
of these activities and related costs were in existence prior to the
consummation date of the PrimeRx transaction. Restructuring costs to exit these
activities of approximately $2.3 million were accrued as a liability as of the
transaction date and included in goodwill from the transaction in accordance
with EITF Issue 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination" ("EITF 95-3"). This accrual includes employee termination
and relocation costs, facility lease termination and commitment costs as well as
any resulting asset impairment writedowns. For the year ended March 31, 2001,
approximately $1.4 million has been incurred from the Transaction date and
offset against the original accrual. The exit costs of activities that were not
in existence prior to the consummation date have been expensed or accrued for in
accordance with EITF Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity" ("EITF 94-3") have
been reflected under "Restructuring Costs". For the year ended March 31, 2001,
approximately $861 thousand has been expensed. The remaining accrual for these
costs at March 31, 2001 was approximately $854 thousand for costs under EITF
95-3 and $0 for costs under EITF 94-3 and are included in accrued liabilities in
the consolidated balance sheets.

    VIDIMEDIX CORPORATION

     The Company determined that some offices and functions of the VidiMedix
operations should be consolidated within its corporate headquarters. These
activities and related costs were in existence prior to the consummation date of
the VidiMedix acquisition. Restructuring costs to close these offices of
approximately $566 thousand were accrued as a liability as of the transaction
date and included in goodwill from the transaction in accordance with EITF 95-3.
This accrual includes employee termination costs, facility lease termination and
commitment costs as well as any resulting asset impairment writedowns. For the
year ended March 31, 2001, approximately $370 thousand has been incurred from
the transaction date and offset against the original accrual.



                                      F-19
<PAGE>   63

    CORPORATE

     The Company defined and started implementation of a plan to reduce staff
and consolidate various financial and operational functions. The restructuring
costs associated with the implementation of these plans were estimated and
accrued. The accrual of approximately $649 thousand is reflected under
Restructuring Costs in accordance with EITF 94-3 and includes employee
termination costs, facility lease termination and commitment costs. Under this
plan approximately 45 employees have been involuntarily terminated and one
office has been identified for closure. For the year ended March 31, 2001,
approximately $360 thousand has been incurred and offset against this original
accrual.

12. DISCONTINUED OPERATIONS

The results of discontinued operations presented herein reflect the operations
of our wholly owned subsidiary, e-Net Technology Ltd. which is located in the
U.K. On June 15, 2001, e-Net voluntarily filed for receivership. At the end of
our fiscal year March 31, 2001, e-Net had approximately $1.1 available under its
bank credit facility with the Bank of Wales.

     Although the measurement date of this event is in our first quarter of
fiscal year 2002, in accordance with EITF 95-18, "Accounting and Reporting for a
Discontinued Business Segment when the Measurement Date Occurs After the Balance
Sheet Dated but Before the Issuance of Financial Statements", we have reflected
the discontinued operations in our fiscal year ended March 31, 2001 and have
reclassified the prior periods presentation to conform with the reporting
requirements. We have estimated the net realizable value of the assets of the
discontinued operations and have recorded a write down of $6.4 million.

The net sales, expenses, net assets and net liabilities of e-Net have been
included in our financial statements under discontinued operations, since these
operations represented 100 percent of our product business segment and
contributed less than 1 percent to any other business segment. The financial
information included herein provides the components comprising the results from
discontinued operations (in thousands):


<TABLE>
<CAPTION>
                                                                          For the Years Ended          For the Four
                                                                                March 31,              Months Ended
                                                                       -------------------------         March 31,
                                                                         2001             2000             1999
                                                                       --------         --------       ------------
<S>                                                                    <C>              <C>            <C>
          Net sales                                                     $37,857         $ 45,043         $  2,650
          Costs and expenses:
            Cost of sales                                                33,184           35,415            1,999
            Research and development                                        862              805               17
            Sales and marketing                                           6,879            4,484              139
            General and administrative                                    5,066            2,606               66
            Impairment of goodwill                                        6,438               --               --
            Depreciation and amortization                                 1,693            1,474               46
                                                                       --------         --------         --------
           Total costs and expenses                                      54,122           44,784            2,267
                                                                       --------         --------         --------
          Operating income (loss) from discontinued operations          (16,265)             259              383
          Interest and taxes                                                170              603              146
                                                                       --------         --------         --------
          Net income (loss) from discontinued operations               $(16,435)        $   (344)        $    237
                                                                       ========         ========         ========
</TABLE>

The following is a condensed balance sheet for e-Net (in thousands):



                                      F-20
<PAGE>   64
<TABLE>
<CAPTION>
                                                                                    March 31
                                                                             ---------------------
                                                                             2001          2000
                                                                             -----        ------
                       <S>                                                 <C>          <C>
                         Cash                                               $     2       $   941
                         Trade receivables, net                               4,901        17,107
                         Inventory                                              216           995
                         Prepayments                                            703         1,309
                         Other receivables                                      113         1,919
                         Other assets                                           417            20
                                                                            -------       -------
                                                                              6,352        22,291
                                                                            -------       -------
                         Property and equipment, net                          2,988         1,927
                         Goodwill, net                                           --         7,246
                                                                            -------       -------
                                                                            $ 9,340       $31,464
                                                                            =======       =======
                         Accounts payable and accrued
                           liabilities                                      $10,568       $21,220
                         Bank credit facility                                 1,601           807
                         Income tax payable                                     377           443
                                                                            -------       -------
                                                                             12,546        22,470
                         Long term debt and capital
                           leases                                             2,358           735
                                                                            -------       -------
                                                                             14,904        23,205
                                                                            -------       -------
                         Stockholders' equity                                (5,564)        8,259
                                                                            -------       -------
                                                                            $ 9,340       $31,464
                                                                            =======       =======
</TABLE>

13. RELATED PARTY TRANSACTIONS

     During the year ended March 31, 1999, transactions with related parties
were primarily as a result of the realignment of its operations in connection
with the acquisition and development of the healthcare management system. There
were related party receivables at March 31, 2001 of $783 thousand and $0 at
March 31, 2000, other than the transactions between Sanga International and
e-MedSoft.com described below.

    In December 1998 NCFE, one of the Company's strategic partners, transferred
$750 thousand to Sanga in accordance with its agreement to provide an initial
funding of $1.5 million for accounts receivable to be derived from signed Master
Agreements and Memorandum of Understanding. On January 23, 1999, Sanga assigned
and transferred to e-MedSoft all rights, title and interest with respect to all
of Sanga's contractual rights and privileges arising from its agreements with
various healthcare providers. Additionally, the rights held by Sanga in and to
its funding agreement with NCFE was assigned to e-MedSoft. In connection with
these activities, the previous funding received by Sanga from such healthcare
agreements was legally transferred to the Company and was included in other
long-term liabilities at March 31, 1999. Subsequent to and arising out of this
assignment, Sanga transferred $604 thousand of the NCFE funding to e-MedSoft.
The remaining balance of $145 thousand was reflected as a related party
receivable from Sanga at March 31, 1999. During the fiscal year ended March 31,
2000, Sanga filed for bankruptcy and this receivable was written off. In
February 2000, NCFE entered into a Preferred Provider Agreement with the Company
and converted the debt to equity.

    The Company's President, Chief Executive Officer and Chairman of the Board
also served as President and Chief Executive Officer of Sanga through July 30,
1999.

    During the four months ended March 31, 1999 and the year ended March 31,
2000, HealthMed, a member of TSI, paid some travel and utility expenses on
behalf of the Company and TSI. In addition, the Company reimbursed HealthMed for
some of these expenses and paid some consulting expenses on behalf of TSI. The
individual advances and repayments were immaterial.

    During the year ended March 31, 2000, the Company recognized funding from
National Trust Properties, Inc. for the issuance of shares and debt (see Note
7). The officer and director (but not owner) of NTP was on the Company's board
at the time and a beneficial shareholder of the Company through his management
of TSI.

    During the three months ended June 30, 2000, the Company advanced $2.0
million to University Affiliates for the purpose of creating a new joint venture
to combine University Affiliates healthcare management expertise with the
Company's internet healthcare management systems for the purpose of obtaining
new business. Dr. Sam Romeo, President of University Affiliates is also on
e-MedSoft.com's Board of Directors. At March 31, 2001, the companies had not
entered into the joint venture. Per the original agreement to advance the funds,
if a joint venture was not entered into by University Affiliate and
e-MedSoft.com, University Affiliates would guarantee repayment of the $2.0
million advance by July 1, 2001. At this time the advance has not been repaid.
The Company is currently negotiating a promissory note with University
Affiliates for repayment.

     During the three months ended June 30, 2000, the Company recorded revenue
of $855 thousand from consulting and software services provided to a company
related to a director of the Company. During the same period the Company also
recorded approximately $1.2 million in revenue from an entity, also related
through a member of the board of directors, for project management,
infrastructure development, e-business implementation and planning and other
consulting services. Approximately 20 percent of these services were provided
prior to March 31, 2000 but not recognized into revenues until acceptance by the
customer in the first quarter of fiscal 2001. The Company recorded the related
party receivables based on its contracts and its best estimate of the amount
ultimately to be realized.

     During the following nine months from July 1, 2000 to March 31, 2001, the
Company recorded revenue of approximately $3.4 million from such related parties
for project management, infrastructure development, e-business implementation
and other consulting and software services. As of March 31, 2001, the Company
had a net outstanding balance of approximately $783 thousand due from the two
related entities.


                                      F-21

<PAGE>   65
    In addition, because of our strategic alliances and interests and the
significant stock position NCFE has in e-MedSoft.com, they confirmed that if we
are required to pay $4.0 million to the prior VidiMedix shareholders in lieu of
the VidiMedix settlement shares, NCFE will remit the cost equivalent of $4.0
million to the prior VidiMedix shareholders in exchange for the VidiMedix
settlement shares to be held as collateral for the payment. As support for this
payment, NCFE has placed approximately 2.5 million shares of e-MedSoft stock in
trust for the Company.

    On January 15, 2001 and March 2, 2001, the Company entered into two Sale and
Subservicing Agreements with NCFE to finance our pharmacy division operations
through the sale of pharmacy trade receivables. The Agreement is for five years
and the Company is charged an upfront fee of three percent of the balance
financed plus interest at prime plus three percent on outstanding loan balances.
At March 31, 2001, the unpaid balance was approximately $2.1 million and is
included in related party debt in the consolidated balance sheet. During the
year ended March 31, 2001, the Company incurred expenses associated with this
financing of $363 thousand.

     The Company entered into a Management Services (Loan Out) Agreement (the
"Management Agreement") with TegRx Pharmacy Management Co., Inc. ("TegRx") on
March 6, 2001. The Agreement was for a period of ten years and gave TegRx all
power and authority necessary to carry out the management of the pharmacy
segment of the Company's business. TegRx is to be paid a management fee of the
greater of up to $200,000 per month or 40 percent of EBITDA of the pharmacy
segment for the previous month.

14. STOCKHOLDERS' EQUITY

    On January 7, 1999, the Company issued 44 million restricted shares
(post-split) of the Company's common stock and 1.0 million warrants to purchase
restricted shares of the Company's common stock for the acquisition of a
healthcare management system. This transaction resulted in a reverse acquisition
with TSI as the acquiring company (see Note 2). In connection with this
transaction, the Company completed a 5 for 1 forward stock split having a record
date of January 4, 1999 increasing the shares outstanding by 6.2 million. The 5
for 1 forward stock split is reflected in the Company's outstanding shares.

    In March 1999, the Company issued 44 thousand shares of restricted stock as
payment for consulting services. The fair market value of these restricted
common shares were valued based on the market price of the Company's common
stock on issuance date and has been expensed as general and administrative
expense.

    During fiscal 2000, the Company amended its Articles of Incorporation to
increase its authorized shares to 100.0 million shares of $.001 par value common
stock. During fiscal 2001, the Company's shareholders approved the increase in
authorized shares from 100.0 million to 200.0 million. Also during the year
ended March 31, 2000 the Company amended its Articles of Incorporation to allow
the Company to issue 5.0 million shares of $.001 par value preferred stock. The
preferred stock has rights and privileges as determined by the Company's Board
of Directors. No preferred shares were outstanding at March 31, 2000 or 1999.

    During the year ended March 31, 2000, the Company raised approximately $63.6
million in net funds through the sale of 8.2 million restricted shares of its
common stock. Private placements in December 1999 and March 2000 raised $67.1
million of the gross proceeds through the sale of 7.6 million restricted shares
and warrants to purchase an additional 1.6 million restricted shares of common
stock. The warrants carry an exercise price of $4.00 per share. The gross
proceeds from these sales were reduced by approximately $5.0 million in private
placement commissions and expenses. In addition to the fees received, the
private placement agent received warrants to purchase 350 thousand restricted
shares of e-MedSoft's stock at $5.00 per share and warrants to purchase
1.3 million restricted shares of e-MedSoft stock at $.01 per share. TSI has
agreed to contribute 1.3 million restricted shares of the Company's stock for
the exercise of the 1.3 million warrants. In return for TSI contributing the
1.3 million restricted shares the Company agreed to issue TSI 500 thousand
warrants at the market price on grant date.

     On November 11, 1999, the Company entered into a stock subscription
agreement with Startnest, LLC and received $600 thousand for the issuance of
300,000 shares of its common stock and agreed to issue another 750 thousand
shares of its common stock for no additional consideration upon the completion
and acceptance of software being developed for the Company. At March 31, 2000
the Company had not received or accepted the software being developed. The
original transaction was recorded as an equity financing and the shares were
included in the outstanding shares for the calculation of Earnings Per Share
("EPS") The shares in this transaction were not issued due to disputes between
the parties. The Company and Startnest signed a settlement agreement in November
2000 to resolve the disputes. As a result of the settlement, the Company  paid
Startnest $1.0 million in cash in return for a Promissory Note from them. This
note is due in full on September 30, 2003 only if the Company's stock market
price is at least $10.00 per share. Due to the contingent nature of this note
the $1.0 million was not recorded as an asset and, accordingly, the cash payment
was recorded as a reduction to equity of $600 thousand, to reverse the original
recording to equity in the prior period, and as interest expense of $400
thousand. In addition, the Company was responsible for the delivery of 1.0
million shares of e-MedSoft common stock to Startnest. TSI was a party to the
legal claims made by Startnest and as a result agreed to transfer their
e-MedSoft shares to fulfill this settlement. The Company has recorded this
transaction as a contribution to equity and a charge to settlement expense.

    During the year ended March 31, 2000 the Company received approximately $1.3
million from NTP, a related party as described above, as interim funding of its
operations. In consideration for approximately $888 thousand of the funding
provided by NTP to the Company, the Company issued 287 thousand shares of its
common stock based on the trading price of the stock at the dates the funds were
received.



                                      F-22
<PAGE>   66
    On July 31, 2000, the Company's Board of Directors approved the repurchase
on the open market of up to 2 million shares of its common stock over the next
eighteen months. During the year ended March 31, 2001, the Company repurchased
187 thousand shares of its common stock for an aggregate purchase price of
$937 thousand. No repurchases were made subsequent to March 31, 2001. The shares
repurchased are recorded as treasury stock and result in a reduction to
stockholders' equity.

    In May 2001, the Company issued 689 thousand shares of its common stock for
consulting services rendered during fiscal year 2001. The Company has recorded
the value of these shares based on the market price of its common stock on the
issuance date. The resulting non cash compensation of $700 thousand that was
earned in the last quarter of fiscal 2001 has been recorded as an expense in
the March 31, 2001 consolidated statement of operations.

15. EQUITY LINE OF CREDIT

    On February 20, 2001, the Company entered into a Common Stock Purchase
Agreement and Registration Rights Agreement with Hoskin International Ltd., a
British Virgin Islands corporation, for the future issuance and purchase of
shares of our common stock. This common stock purchase agreement establishes
what is sometimes called an equity line of credit or an equity drawdown
facility.

     In general, the equity drawdown facility operates as follows: the investor,
Hoskin International, has committed to provide the Company up to $50.0 million
as we request it over a 36-month period, in return for common stock the Company
issues to Hoskin International. Once every 25 trading days, the Company may
request a draw. The amount that the Company can drawdown for each request must
be at least $250 thousand. The maximum amount the Company can actually drawdown
for each request is also limited to 8 percent of the weighted average price of
our common stock for the sixty days prior to the date of our request multiplied
by the total trading volume of our common stock for the sixty days prior to our
request. We are under no obligation to request a draw for any period.

     The per share dollar amount that Hoskin International pays for our common
stock for each drawdown includes a 7.5 percent discount to the average daily
market price of our common stock. Such discount can be reduced to a minimum of
5.5 percent based on predetermined increases to our average market
capitalization. We will receive the amount of the drawdown less an escrow agent
fee of $1 thousand and a placement fee equal to 7.5 percent of the first $25.0
million and 7.25 percent of the next $25.0 million of gross proceeds payable to
the placement agent, Cappello Capital Corp., which introduced Hoskin to the
Company. The actual amount to be paid to Cappello Capital in connection with its
cash fee at each drawdown will be reduced by retainer fees paid to Cappello
Capital, and, pro-rata over the $50.0 million in draw downs, by a fee of 1
percent of the equity line amount of $50.0 million or $500 thousand payable to
Cappello Capital during the sixty days following February 20, 2001.

     The common stock purchase agreement does not permit the Company to drawdown
funds if the issuance of shares of common stock to Hoskin pursuant to the
drawdown would result in Hoskin owning more than 9.9 percent of the Company's
outstanding common stock on the drawdown exercise date.

     Cappello Capital is not obligated to purchase any of the Company's shares,
but as an additional placement fee, the Company has issued to Cappello Capital a
stock purchase warrant to purchase 3.1 million shares of the Company's common
stock at an exercise price per share equal to 150 percent of the lesser of
either $1.5967 or such lower purchase price as Hoskin subsequently purchases the
shares of our common stock pursuant to any drawdown under the equity line. The
warrant issued to Cappello Capital expires on February 20, 2011.

     The Company has also issued to Hoskin a stock purchase warrant to purchase
626 thousand shares of the Company's common stock with an exercise price of
$1.9959, which was 125 percent of the average closing bid price for the
Company's common stock during the fifteen trading days prior to February 20,
2001, the date on which the common stock purchase agreement was signed. This
stock purchase warrant expires February 20, 2006.

     The Company has accounted for securities that have been issued upon the
signing of the agreement as a prepayment of equity financing fees that will be
charged to additional paid-in-capital upon receipt of any drawdowns on the
equity line. Because the securities are fully vested and no specific performance
is required by Hoskins or Cappello, the securities have been valued at $4.6
million based on the Black-Scholes model at the time of grant date in accordance
with EITF 96-18 and EITF 00-18.

16. WARRANTS, STOCK OPTIONS AND OTHER COMPENSATION ARRANGEMENTS

Warrants

    At March 31, 1999, the Company had issued 1.6 million warrants to purchase
1.6 million restricted shares of the Company's common stock. The purchase price
of the warrants ranged from $0.25 per share to $3.85 per share over a five year
period with an aggregate purchase price of $2.2 million. Of these warrants, 2.0
million were issued in connection with the acquisition of the Internet-based
health care management software and 500 thousand were issued in connection with
the funding of the e-Net acquisition. In addition, the Company issued warrants
to purchase 50 thousand shares of the Company's common stock at $0.25 per share
to a consultant in


                                      F-23
<PAGE>   67


exchange for professional services. The Company recorded an expense of $225
thousand related to this issuance.

    During the year ended March 31, 2000, in addition to the warrants issued
through the raising of equity financing (see Note 7), the Company issued
warrants to purchase 150,000 shares of common stock at $.01 each in satisfaction
of a $750 thousand note payable. The Company also agreed to issue
50,000 warrants to purchase 50,000 shares of its common stock at $2.00 for
professional services rendered. The value of the 50,000 warrants was
approximately $90 thousand and was amortized during the year ended March 31,
2000.

     On February 14, 2001, the Company was ordered to issue a warrant to Sanga
International, Inc. by the United States Bankruptcy Court as a result of the
final decree on the Sanga International Bankruptcy filing. Per the decree, a
warrant to purchase 2.0 million shares of e-MedSoft.com common stock at an
exercise price of $1.60 was issued. This warrant and related legal expense has
been reflected in the March 31, 2001 consolidated financial statements. The
value of these warrants have been determined using the Black-Scholes method and
$ 1.6 million was reflected in equity and legal expense.

    On February 20, 2001, the Company entered into a Common Stock Purchase
Agreement and Registration Rights Agreement with Hoskin International Ltd. In
connection with this Agreement, the Company issued to Hoskin a stock purchase
warrant to purchase 626,292 shares of our common stock with an exercise price of
$1.9959. This warrant expires February 20, 2006. In addition, the Company issued
to Cappello Capital, our financial advisor on this transaction, a stock purchase
warrant to purchase 3,131,459 shares our common stock at an exercise price per
share equal to 150% of the lesser of either $1.5967 or such lower purchase price
as Hoskin subsequently purchases the shares of our common stock pursuant to any
drawdown under the equity line. The warrant to Cappello expires on February 20,
2011. We have recorded the issuance of these securities as a prepayment of
equity financing fees that will be charged directly to additional
paid-in-capital. Because the securities are fully vested, and no specific
performance is required by Hoskin or Cappello, these securities will be valued
based on the Black- Scholes model at the time of grant date in accordance with
EITF 96-18.

     The Company has estimated the fair value of the warrants issued based on
the Black-Scholes model which includes the warrant exercise price, the market
price of shares on grant date, the weighted average information for risk free
interest, expected life of warrant, expected volatility of the Company's stock
and expected dividends.

     If the warrants have been issued as compensation for services, the
estimated value is set up as equity when granted and expensed when the services
are performed and benefit is received. If the warrants have been issued for
consideration in an acquisition, the value of the warrants are included in
equity at the time of the transaction and included in the purchase price to be
allocated. The estimated value for warrants issued in connection with debt
financing are recorded in equity when granted and as deferred financing costs
and is amortized into expense over the term of the debt.

    Information relating to warrants in 2001, 2000 and 1999 is as follows
(in thousands):


<TABLE>
<CAPTION>
                                               YEAR ENDED             YEAR ENDED          FOUR MONTHS ENDED
                                             MARCH 31, 2001         MARCH 31, 2000         MARCH 31, 1999
                                             --------------         --------------        -----------------
<S>                                            <C>                   <C>                    <C>
          Beginning balance .......                 4,968                  1,585                     --
          Granted .................                 5,374                  4,618                  1,585
          Exercised ...............                  (175)                (1,216)                    --
          Cancelled/Expired .......                  (336)                   (19)                    --
                                               ----------             ----------             ----------
          Outstanding .............                 9,831                  4,968                  1,585
                                               ==========             ==========             ==========
</TABLE>

     On June 13, 2001, the Company issued to TSI a warrant to purchase
4.8 million shares of its common stock at an exercise price of $2.30 per share.
The issuance of this warrant was in consideration for e-MedSoft.com stock
previously contributed by TSI on the Company's behalf. The Company has accrued
for the value this warrant in the year ended March 31, 2001. The warrant value
of $2.7 million was determined based on the Black-Scholes method using the
market price of the Company's shares on June 13, 2001. The warrant cost is
recorded as an increase to equity and an increase to operating expense.

Stock Options

1999 Stock Compensation Plan

    In February 1999, the Company's Board of Directors approved the
establishment of the 1999 Stock Compensation Plan (the "1999 Plan"). The 1999
plan was approved by the Company's stockholders in February 2000. The total
number of shares of common stock subject to options under the 1999 Plan is
5,000,000, subject to adjustment in the event of certain recapitalizations,
reorganizations and similar transactions as described in the plan. Options may
be exercisable by the payment of cash or by other means as authorized by the
Board of Directors.


                                      F-24
<PAGE>   68


    The 1999 Plan also provides that the Board may issue restricted stock
pursuant to restricted stock right agreements that will contain such terms and
conditions as the Board determines.

    The Company has granted stock options to officers and employees. The options
expire in 10 years from date of grant, and vest over a three year period. The
Company has elected to follow APB No. 25, "Accounting for Stock Issued to
Employees", in accounting for its employee stock options. Accordingly, no
compensation cost has been recognized for the 1999 option plan.

2000 Nonqualified Stock Option and Stock Bonus Plan

     In March 2000, the Company's board of directors approved the establishment
of the 2000 Nonqualified Stock Option and Stock Bonus Plan (2000 Plan). The
Company's board of directors believes that the 2000 Plan encourages employees,
officers, directors, and consultants to acquire an equity interest in the
Company and provides additional incentives and awards and recognition of their
contribution to the Company's success and to encourage these persons to continue
to promote the best interest of the Company.

    The 2000 Plan allows the Company's board of directors to grant stock options
or issue stock bonuses to the Company's employees, officers, directors, and
consultants. Options granted under the 2000 Plan will not qualify under Section
422 of the Internal Revenue Code of 1986 as an incentive stock option. As a
result, there was no stockholder approval required to make the plan effective.

     The 2000 Plan also provides that the Company's board of directors, or a
committee designated by the Board, may issue restricted stock pursuant to
restricted stock right agreements containing such terms and conditions as the
Company's board of directors deems appropriate.

    The total number of shares of common stock subject to the Company's options
and grants of restricted stock under the 2000 Plan may not exceed 3.5 million
shares, subject to adjustment in the event of defined capitalizations,
reorganizations, and similar transactions. Options may be exercisable by the
payment of cash or by other means as authorized by the board of directors.

    The Company's board of directors may amend the 2000 Plan at any time,
provided that the board of directors may not amend the 2000 Plan to adversely
effect the rights of participants under the 2000 Plan, without stockholder
approval. During the year ended March 31, 2001, 150 thousand shares were issued
to employees under this plan. The non-cash compensation expense of $724 thousand
is included in operating expenses.

    Had the determination of compensation costs been based on the fair market
value at the grant dates for awards under these plans, consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's
net loss would have been $275.6 million, $10.3 million and $911 thousand and
basic and diluted loss per share would have been $3.46, $0.18 and $0.02 for the
fiscal year ended March 31, 2001, March 31, 2000 and for the four months ended
March 31, 1999, respectively.

Other Option Issuances

    During the year ended March 31, 2000, the Company issued 302,500 options to
purchase 303 thousand shares of its common stock at $1.00. The value of these
options was approximately $530 thousand and is being amortized over the vesting
periods of twelve to eighteen months. The Company expensed approximately $344
thousand and $186 thousand for the years ended March 31, 2001 and 2000.

    Information relating to all stock options during 2001, 2000 and 1999 is as
follows:

<TABLE>
<CAPTION>
                                                                           OPTIONS OUTSTANDING
                                                           --------------------------------------------------------
                                                            OPTIONS                                    OPTION PRICE
                                                           AVAILABLE              NUMBER OF              PER SHARE
                                                           FOR GRANT                SHARES                AVERAGE
                                                           ----------             ----------             ----------
<S>                                                          <C>                     <C>                 <C>
          Balance at inception,
          February 21, 1999 ...................                 5,000                     --                     --
            Granted ...........................                  (209)                   209             $     2.56
            Exercised .........................                    --                     --                     --
            Forfeited .........................                    60                    (60)            $     2.56
                                                           ----------             ----------
          BALANCE AT MARCH 31, 1999 ...........                 4,851                    149             $     2.56
                                                           ----------             ----------
            Available under 2000 plan .........                 3,500                     --                     --
            Granted ...........................                  (354)                   354             $     4.16
            Granted outside of plans ..........                    --                    302             $     1.00
            Exercised .........................                    --                    (33)            $     1.00
            Forfeited .........................                    25                    (25)            $     2.56
                                                           ----------             ----------
          BALANCE AT MARCH 31, 2000 ...........                 8,022                    747             $     2.76
                                                           ----------             ----------
            Granted ...........................                (3,760)                 3,760             $     4.79
            Granted outside of plans ..........                    --                     --                     --
            Exercised .........................                    82                    (82)            $     1.71
            Forfeited .........................                   832                   (832)            $     7.32
                                                           ----------             ----------
          BALANCE AT MARCH 31, 2001 ...........                 5,176                  3,593             $     4.80
                                                           ==========             ==========
</TABLE>


                                      F-25

<PAGE>   69

    The following table summarizes information concerning outstanding and
exercisable options at March 31, 2001 and 2000 in thousands except per share
information:



<TABLE>
<CAPTION>
             AT MARCH 31, 2001
                                                               OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                                            --------------------------       --------------------------
                                                             WEIGHTED        WEIGHTED                         WEIGHTED
                                                              AVERAGE        AVERAGE                          AVERAGE
                                                             REMAINING      EXERCISE                          EXERCISE
                                                            CONTRACTUAL       PRICE                            PRICE
                                            NUMBER           LIFE (IN         PER              NUMBER            PER
             RANGE OF EXERCISE            OUTSTANDING          YEARS)         SHARE          EXERCISABLE        SHARE
             -----------------            -----------       -----------     ----------       -----------     ----------
<S>           <C>                        <C>                 <C>           <C>              <C>             <C>
              $0.00-- $1.00                    766              7.80        $     0.70            729        $     0.70
              $1.50 - $1.88                    711              9.60        $     1.57             --        $     0.00
              $2.19 - $3.88                    617              7.50        $     2.88            441        $     2.82
              $5.69 - $7.23                    665              9.10        $     7.32            298        $     7.59
              $8.00 - $9.31                    649              9.20        $     8.34            248        $     8.07
             $19.13 - $19.13                   185              9.00        $    19.13             61        $    19.13
                                            ------                                              -----
                                             3,593              8.71        $     4.80          1,777        $     3.91
                                            ======                                              =====
</TABLE>

<TABLE>
<CAPTION>
               AT MARCH 31, 2000
                                                            OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                                                         -------------------------     ---------------------------
                                                          WEIGHTED        WEIGHTED                        WEIGHTED
                                                           AVERAGE        AVERAGE                         AVERAGE
                                                          REMAINING      EXERCISE                         EXERCISE
                                                         CONTRACTUAL       PRICE                           PRICE
                                          NUMBER           LIFE (IN         PER          NUMBER             PER
               RANGE OF EXERCISE        OUTSTANDING        YEARS)          SHARE       EXERCISABLE         SHARE
               -----------------        -----------      -----------     ---------     -----------        --------
<S>            <C>                       <C>              <C>             <C>            <C>              <C>
               $1.00-- $1.00                269              5.00         $  1.00           71            $  1.00
               $2.06-- $2.75                337              9.55         $  2.54          184            $  2.54
               $4.08-- $4.28                 16             10.00         $  4.14           --                 --
               $6.25-- $7.75                125             10.00         $  6.94           --                 --
                                            ---                                            ---
                                            747              8.00         $  2.76          255            $  2.11
                                            ===                                            ===
</TABLE>

    As of March 31, 1999, none of the outstanding options were exercisable.

    The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes option-pricing model. The following weighted average
assumptions were used:


<TABLE>
<CAPTION>
                                                                                             2001         2000         1999
                                                                                             ----         ----         ----
<S>                                                                                         <C>          <C>          <C>
          Expected dividend yield ..................................................           0%           0%           0%
          Expected volatility ......................................................         100%         100%         110%
          Weighted average risk-free interest rates ................................         5.55%        6.02%        5.55%
          Expected option lives (years) ............................................         8.7            3            3
          Weighted average fair value of options granted during the period .........         $0.49        $2.70        $1.76
</TABLE>

Employment Agreements

    During the year ended March 31, 2000, the Company entered into an employment
agreement with its Chairman and Chief Executive Officer for an initial term of
three years beginning January 15, 1999. The agreement, which was amended in
January 2000, provides for a base salary, bonus and other benefits. The
agreement also provides for a $2.5 million payment to the Executive in the event
of a "change in control" of the Company, as defined. The agreement also provides
for a $2.5 million payment to the Executive in the event of a "change in
control" of the Company as defined. As part of the amendment, the Executive
waived his rights to shares previously earned for his first year of employment
under the original agreement in exchange for a $500 thousand bonus. The amended
agreement provides that the Executive Officer earns 5 thousand stock options for
shares of the Company's common stock, at no cost to the Executive, for each
month of employment and additional options to purchase shares if the Company
meets defined sales or net income targets. The price of the options earned based
on meeting targets will be determined by the executive at the grant date. For
the fiscal year ended March 31, 2001 and 2000 the Company expensed approximately
$285 thousand and $699 thousand, respectively, under this agreement for stock
compensation.

    The Company entered into an employment agreement with the Company's
Executive Vice President and Chief Technical Officer. The initial term of the
agreement expires in January 2002 and will automatically renew for additional
one year periods unless terminated by the officer or e-MedSoft. If the Company
terminates the officer's employment without cause or if the officer terminates
his employment as a result of the Company's material breach of the agreement,
the officer will receive full compensation for the remainder of the initial term
plus a severance payment equal to 12 months pay. If e-MedSoft terminates his
employment with cause,



                                      F-26
<PAGE>   70

the officer will receive compensation for the remainder of the initial term.

The officer also has the right to receive 150 thousand common shares of our
stock without any required payment and 40 thousand stock options to purchase our
stock. The stock vests ratably over a three-year period, and the options vest
over a one year period. On August 15, 2000 the Executive Vice President and
Chief Technical Officer resigned from the Company and his directorship of B2B.
Net Technologies, Ltd, our Australian subsidiary. In accordance with his
separation agreement, he received 25 thousand shares of the Company's stock and
a severance payment of $75 thousand, payable over six months.

    On August 30, 2000, the Company entered into an employment agreement with
the Company's Vice President and Chief Operating Officer. The initial term of
the agreement expires in August, 2003 and was to automatically renew for
additional one year periods unless terminated by the Officer or the Company. If
the Officer's employment is terminated by the Company without cause or the
Company willfully breaches a material provision of this agreement that is not
cured within 30 days of written notice by the Officer, the Officer will receive
a lump-sum amount equal to the greater of (1) the sum of twelve (12) months'
pay, or (2) the sum of the monthly portion of the current salary times the
number of months remaining until the Termination Date. If his employment is
terminated by the Company with cause, the Officer will receive no further
compensation. Under the agreement, the Officer's base salary was $225,000 per
year and he was eligible to receive in addition to his base salary, annual
incentive compensation of up to 60 percent of his then current base salary. The
annual incentive compensation was based on business and personal performance
objectives established by the President and Chief Executive Officer.

    The Officer also had the right to receive options to purchase 150 thousand
shares of our common stock. Eighty thousand of the options had an accelerated
vesting schedule and the remaining 70 thousand options were subject to normal
vesting terms. In addition, the Officer was eligible to receive quarterly stock
option grants which will be determined by the establishment of milestones which
are critical to the success of the Company. The annual pool was 100,000 stock
options, with the maximum award each quarter being 25 thousand. For the year
ended March 31, 2001, the Company has expensed 183 thousand under this agreement
for stock compensation. On July 11, 2001, this position was terminated.

17. MINORITY INTEREST

    The Company has reflected minority interest relating to its management
contract with PrimeRx of approximately $7.4 million. The PrimeRx minority
interest represents the right of 735 thousand Series A preferred shareholders in
PrimeRx. This series A preferred stock has a $10 per share liquidation
preference on the net assets of PrimeRx (as adjusted) upon a change in control
and is otherwise redeemable at the option of the preferred shareholders by 2005.

18. INCOME TAXES

    There are no income taxes from continuing operations for the years ended
March 31, 2001 and 2000 and the four months ended March 31, 1999.

    The components of the Company's net deferred tax asset are as follows:


<TABLE>
<CAPTION>
                                                        2001                 2000                  1999
                                                     -----------         -----------          -----------
<S>                                                 <C>                  <C>                  <C>
        Deferred tax assets:
          Net operating loss ...............          $28,738                 $ 5,469            $    709
          Net book value of software
            expensed .......................            1,519                      --                  --
          Other assets .....................               28                      50                  15
          Deferred software costs ..........               --                  (1,372)                 --
          Deferred financing costs .........               --                     142                  --
          Bad debt reserves ................            2,998                      --                  --
          Accrued expenses .................              944                      --                  --
                                                     --------                 -------            --------
                                                       34,227                   4,289                 724


        Deferred tax liabilities:
          Internally developed software ....           (2,483)                     --                  --
                                                     --------                 -------            --------
            Total gross deferred tax
              liabilities ..................           (2,483)                     --                  --
                                                     --------                 -------            --------
            Net deferred tax asset .........           31,744                   4,289                 724
            Less: valuation allowance ......          (31,744)                 (4,289)               (724)
                                                     --------                 -------            --------
            Net deferred tax asset .........         $     --                 $    --            $     --
                                                     =========                =======            ========
</TABLE>

    A reconciliation of the provision for income taxes to the amount computed at
the federal statutory rate is as follows:



                                      F-27

<PAGE>   71
<TABLE>
<CAPTION>
                                                                                2001           2000             1999
                                                                             --------       ---------       ---------
<S>                                                                          <C>            <C>             <C>
          Federal income tax at statutory rate ....................          $(93,210)      $  (3,286)      $    (308)
          State income tax, net of federal benefit ................           (16,284)           (574)            (53)
          Change in valuation allowance ...........................            26,471           3,389             360
          Impairment of assets ....................................            78,312              --              --
          Goodwill amortization ...................................             4,442              --              --
          Non cash compensation ...................................               265              --              --
          Restricted stock ........................................              (135)             --              --
          Other, net ..............................................               139             471               1
                                                                             --------       ---------       ---------
                                                                             $     --       $      --       $      --
                                                                             ========       =========       =========
</TABLE>

    The net operating losses start to expire in 2012. Because of a change in
ownership of the Company, future utilization of these loss carryovers has been
limited, and consequently, the deferred tax asset relating to domestic
operations has been fully reserved.

19. SEGMENT INFORMATION

    The Company derives its net sales from two operating segments: (1) Internet
based transaction and information services comprised of our Distance Medicine
and Medical e-Business products and (2) Pharmacy Services comprised of
pharmaceutical management and distribution services. The Company's Product
business segment has been discontinued as a result of e-Net voluntarily filing
for receivership in June 2001.

    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating earnings of the respective business segments, as
such there is no separately identifiable statements of operations data below
operating loss.

    The Company's financial information by business segment are summarized as
follows (in thousands). The "Other" column includes corporate related items and
other expenses not allocated to reportable segments. In addition, other includes
$9.3 million in assets from discontinued operations (in thousands):

<TABLE>
<CAPTION>
                                                        INTERNET           PHARMACY           OTHER              TOTAL
                                                       ---------          ---------         ---------          ---------
<S>                                                    <C>                <C>               <C>                <C>
          Fiscal Year Ended March 31, 2001
          Net Sales                                     $  9,587           $ 78,410         $      --          $  87,997
          Operating (Loss) Before Depreciation
            and Amortization                            (152,732)           (51,647)          (44,915)          (249,294)
          Depreciation and Amortization                      867                870             8,251              9,988
          Operating (Loss)                              (153,599)           (52,517)          (53,166)          (259,282)

          Total Assets at March 31, 2001                  36,303             13,890            14,863             65,056
          Capital Expenditures                             2,288              1,580               970              4,838

          Fiscal Year Ended March 31, 2000
          Net Sales                                          941                 --                --                941
          Operating (Loss) Before Depreciation
            and Amortization                              (2,157)                --            (5,830)            (7,987)
          Depreciation and Amortization                      370                 --                72                442
          Operating (Loss)                                (2,527)                --            (5,902)            (8,429)

          Total Assets at March 31, 2000                 204,740                 --            55,965            260,705
          Capital Expenditures                               466                 --                --                466

          Four Months Ended March 31, 1999
          Net Sales                                           --                 --                --                 --
          Operating (Loss) Income Before Depreciation
            and Amortization                                  52                 --              (823)              (771)
          Depreciation and Amortization                       --                 --                 1                  1
          Operating (Loss) Income                             52                 --              (824)              (772)

          Total Assets at March 31, 1999                      50                 --            17,413             17,463
          Capital Expenditures                                --                 --                --                 --
</TABLE>

     During fiscal 2001, the Company's U.S. operations, excluding pharmacy
services which represent 89.1 percent of total sales, had two customers whose
sales, on an individual basis,


                                      F-28

<PAGE>   72

represented over 5 percent of U.S. operations' net sales for an aggregate of
85.8 percent. These two customers represented 9.7 percent of the Company's total
sales. One customer, NCFE a related party, represented 7.9 percent of the
Company's total sales.

20. CONTINGENCIES AND LEGAL MATTERS

    The Company has national and international operations, which, occasionally,
result in litigation that the Company views as immaterial and arising in the
ordinary course of business. Because of the significant value of the Company's
technologies, it may occasionally be appropriate for the Company to initiate
litigation of its own to protect those technologies. Whether brought by the
Company or defended against by the Company, the litigation is often immaterial.
The Company believes that none of the pending litigation will have a material
adverse impact on its consolidated financial condition.

    EMED TECHNOLOGIES

    A dispute exists between Emed Technologies, a company which sends
radiographic images over the internet, and e-Medsoft.com regarding the use of
the prefix EMed as a descriptor of services. e-Medsoft.com filed a legal action
in U.S. District Court against EMed Technologies asserting E-Med Technologies is
infringing on the e-MedSoft.com trademark. This action was filed on June 8,
2000, and accordingly, no substantive actions have been taken and no legal
determinations regarding this action have been made. Emed Technologies, however,
did make a motion to transfer venue outside of the California District Court.
This motion has been rejected. E-Med has filed a cross-claim against
e-Medsoft.com claiming it is the infringing party. e-MedSoft.com has already
curtailed its use of the E-Med descriptor, and, accordingly, the lawsuit does
not appear to implicate import commercial concerns of e-MedSoft.com. Formal
discovery has only just commenced, and no discovery has been provided by either
party regarding the scope of any alleged monetary damages.

    SUTRO NASD ARBITRATION

    A dispute between Sutro & Co., and e-MedSoft.com is currently being
arbitrated before the National Association of Securities Dealers. e-MedSoft.com
made the claim in its counter-claim that Sutro committed fraud, breach of
fiduciary duty, negligent misrepresentation, professional negligence, and breach
of contract arising from Sutro's activities as an investment banker for the
Company. e-MedSoft.com seeks compensatory damages and injunctive relief. Sutro &
Co. initiated the dispute with a claim for compensatory and punitive damages and
declaratory and injunctive relief arising from e-MedSoft.com's alleged
unjustified refusal to (1) honor warrants it issued to Sutro to purchase shares
of e-MedSoft.com's common stock; (2) register all of Sutro's e-MedSoft.com's
common stock and warrants as allegedly required by the parties' Registration
Rights Agreement; (3) provide Sutro with its shareholder voting rights
consistent with the shares it acquired by exercise of the warrants, and (4) pay
$150,000 plus expenses for valuation investment banking services allegedly
rendered by Sutro to e-MedSoft.com. The hearing on this dispute began on July
23, 2001 but is not yet complete.

    Sutro NASD Arbitration No. 2

An investor in our Company has sued Sutro for failing to honor commitments and
failures to act in accordance with its fiduciary duties. This matter is also
being arbitrated before the National Association of Securities Dealers. Sutro
has filed a cross-claim against us for indemnification claiming that if Sutro is
liable to the investor, we are responsible for the payment of any awarded
damages. This matter is in the discovery stage and there have been no hearings
or determination on the merits. No date has been set for the formal
adjudication.

    STARTNEST SETTLEMENT

     On November 11, 1999, the Company entered into a stock subscription
agreement with Startnest, LLC and received $600 thousand for the issuance of
300,000 shares of its common stock and agreed to issue another 750 thousand
shares of its common stock for no additional consideration upon the completion
and acceptance of software being developed for the Company. At March 31, 2000
the Company had not received or accepted the software being developed. The
original transaction was recorded as an equity financing and the shares were
included in the outstanding shares for the calculation of Earnings Per Share
("EPS"). The shares in this transaction were not issued due to disputes between
the parties. The Company and Startnest signed a settlement agreement in November
2000 to resolve the disputes. As a result of the settlement, the Company paid
Startnest $1.0 million in cash in return for a Promissory Note from them. This
note is due in full on September 30, 2003 only if the Company's stock market
price is at least $10.00 per share. Due to the contingent nature of this note
the $1.0 million was not recorded as an asset and, accordingly, the cash payment
was recorded as a reduction to equity of $600 thousand, to reverse the original
recording to equity in the prior period, and as interest expense of $400
thousand. In addition, the Company was responsible for the delivery of 1.0
million shares of e-MedSoft common stock to Startnest. TSI was a party to the
legal claims made by Startnest and as a result agreed to transfer their
e-MedSoft shares to fulfill this settlement. The Company has recorded this
transaction as a contribution to equity and a charge to settlement expense.

                                       F-29
<PAGE>   73

    PRIMERX.COM

    Since April 2000, we have consolidated the results of operations of
PrimeRx.com with ours. Among other factors, this consolidation is based upon a
30 year exclusive management contract with PrimeRx and our ownership of
approximately 29 percent of PrimeRx. Our ownership interest was obtained
effective as of April 12, 2000, pursuant to the exercise of an option to
exchange shares of our common stock for shares of PrimeRx common stock held by
the principal stockholders of PrimeRx, consisting of Dr. Prem Reddy and a
related trust. Notwithstanding the principal stockholders' exercise and delivery
of their option to acquire our stock in exchange for PrimeRx stock, their
participation in a prior registration of a portion of those shares, and other
actions consistent with the arrangement, following a significant decline in the
price of our common stock they claimed, among other allegations, that they were
misled as to the tax consequences of their exercise of the options. They made
this claim although they admit at the time they were represented by separate and
qualified tax counsel.

    On December 13, 2000, the principal stockholders filed a complaint against
us and other parties in connection with the stock option agreement and exchange
of shares for fraud, negligent representation, breach of oral contract,
promissory estoppel, declaratory relief and breach of fiduciary duty in the
Superior Court of the State of California for the County of Los Angeles (Central
District), entitled Prime A Investments, LLC and Dr. Prem Reddy vs.
E-MedSoft.com, et. al (Case No. BC241745). This complaint was dismissed without
prejudice on December 15, 2000.

     On March 26, 2001, we entered into a Settlement Agreement and Mutual
Releases dated March 19, 2001 with PrimeRx.com, Inc., Network Pharmaceuticals,
Inc., PrimeMed Pharmacy Services, Inc. and the other shareholders of PrimeRx.
The purpose of the Settlement Agreement was to resolve all of the outstanding
disputes among the parties by specifying the responsibility for certain
obligations among the parties; allocating the ownership of Network with the
principal shareholders of PrimeRx, and the ownership of PrimeRx with
e-MedSoft.com; and providing for the continued management of Network by us on
revised terms and conditions in a manner that would permit the continued
consolidation of the financial statements and results of operations of Network
with ours. More specifically, once consummated, the Settlement Agreement
provides for the following:

    -   The principal shareholders of PrimeRx, other than us, agreed to exchange
        all of their common and preferred stock in PrimeRx for all of the issued
        and outstanding stock of Network, which is currently owned in its
        entirety by PrimeRx. After this transaction, PrimeRx will no longer have
        an ownership interest in Network, and the majority of the outstanding
        ownership interests in PrimeRx, and indirectly PrimeMed, will be owned
        by us. Prior to this transfer of shares, we owned 29 percent of PrimeRx
        outstanding common stock and thereby owned 29 percent of Network's
        outstanding common stock. The exchange will result in us owning
        approximately 89 percent of PrimeRx stock. PrimeRx will no longer own
        any outstanding shares of Network which will be held 100 percent by the
        prior PrimeRx shareholders, other than us.

    -   We agreed that prior to May 25, 2001, we will pay all of the legitimate
        debts, obligations and liabilities of Network, including trade payables,
        that are greater than 15 days old. Further, we agreed that all
        inter-company obligations owed to us from Network are discharged in
        consideration of the other assets and benefits to be received by us
        under the Settlement Agreement. These assets include PrimeRx Pharmacies
        and ownership of all proprietary software and related technology systems
        in the PrimeRx business. As of March 31, 2001, we estimate the amount of
        inter-company obligations to be included as part of our acquisition
        costs of PrimeRx relative to this agreement as approximately $2.8
        million.

    -   Network is currently indebted to a commercial bank in the amount of
        approximately $6.0 million. The indebtedness is secured by all of the
        assets and outstanding stock of Network. We agreed to assume or pay this
        loan and to obtain a release of the security interests in the assets and
        common stock held by the bank prior to September 22, 2001. We also have
        the right to extend the time for obtaining this bank release for an
        additional 30 days in consideration for forgiveness of the additional
        advances for working capital to be made by us as discussed below.
        Thereafter, if we have not provided for the bank release by October 22,
        2001, we are obligated to pay Network an additional sum of 10 percent of
        the then unpaid balance of the bank loan. Until such time as we obtain
        this release, the PrimeRx shares to be exchanged for all of the
        outstanding stock of Network shall be held in escrow and the Network
        shares will be held by the bank.

    -   The principal shareholder of PrimeRX has personally guaranteed the
        payment of obligations to a supplier of pharmaceutical products. We have
        agreed to obtain the release of this shareholder's personal guarantee
        from the pharmaceutical supplier before August 23, 2001. If we are
        unsuccessful in obtaining this release within the specified time period,
        under the Settlement Agreement we are obligated to pay this shareholder
        the sum of 10 percent of the then unpaid balance of the amount owed by
        Network to this supplier. We have also agreed, that prior to August 23,
        2001, we will obtain the release of the principal shareholder of all
        legitimate debts, obligations and liabilities of ours or Network's which
        this shareholder has either personally guaranteed or incurred direct
        liability excluding Network facility leases.

    -   Until we have obtained the bank release described above, we will provide
        working capital funding to Network in the amount of $300 thousand per
        month. These advances together with interest are to be repaid in full by
        Network no later than one (1) year following delivery of the bank
        release. In the event we are unsuccessful in obtaining the bank release
        within the time period



                                      F-30

<PAGE>   74


        specified, we have agreed to contribute these advances to the capital of
        Network as additional consideration for this transaction. The
        principal shareholder of Network has unconditionally and personally
        guaranteed Network's obligation to repay us.

    -   Network has agreed to pay a total of $2.2 million of its debts and
        obligations to be applied first towards trade payables that are not more
        than 15 days old, then to other trade payables of Network and thereafter
        to the general debts and obligations of Network.

    -   Network and we have agreed to enter into a new Network Management
        Agreement prior to April 25, 2001, consistent with the terms of the
        Settlement Agreement. This new Network Management Agreement is to
        provide that we are to render management services to Network with our
        employees the compensation and benefits of which shall be paid by
        Network. The accounting and financial functions are to be managed
        exclusively by a management team headed by persons designated by or
        appointed with the approval of the principal shareholders of Network.

    -   The parties expressly agreed that the financial statements and results
        of operations of Network are to be consolidated with our financial
        statements while the Network Management Agreement is in effect. The
        parties also agreed, without any further consideration, to perform all
        reasonable acts to effectuate such consolidation. The Settlement
        Agreement provides that the Network Management Agreement may be
        terminated upon the occurrence of any of the following:

        -   Any change to the Network Management or interference with the
            operations of Network without the express written consent of the new
            principal shareholders of Network.

        -   The sale of Network to a third party which may not take place until
            after January 1, 2002; or

        -   The breach by us of any material provision of the Settlement
            Agreement.

        The Settlement Agreement in its current form is insufficient to provide
        for this intended consolidation without additional terms, conditions or
        provisions that must be added to the Network Management Agreement to
        meet consolidation requirements.

    In addition to the ownership restructuring and other transactions described
above, all of the parties to the Settlement Agreement agreed to grant to each
other mutual general releases.

    Until this settlement is effective and any transfer of shares are made, the
Company owns 29 percent of PrimeRx outstanding common stock and thereby owned 29
percent of Network's outstanding common stock. The proposed exchange of stock in
the Settlement Agreement will result in us owning approximately 89 percent of
PrimeRx stock as they are a wholly owned subsidiary of PrimeRx. PrimeRx will no
longer own any outstanding shares of Network which will be held 100 percent by
the prior PrimeRx shareholders, other than the Company.

    VIDIMEDIX CONTINGENCY

     On or about September 15, 2000, certain former securities holders of
VidiMedix filed a Petition against us arising out of our acquisition of
VidiMedix. (Moncrief, et al vs. e-MedSoft.com and VidiMedix Acquisition
Corporation, Harris County (Texas) Court, No. 2000-47334). The Petition was
amended on or about May 24, 2001. Plaintiffs allege that they were the majority
shareholders in VidiMedix, and that they consented to our acquisition of
VidiMedix based on allegedly false representations regarding the earn-out
provision in the merger agreement. In addition, they allege that we entered into
an agreement or agreements to deliver certain shares to them and failed to do
so. Plaintiffs also assert claims for breach of contracts, breach of the merger
agreement, fraudulent inducement and negligent inducement, fraudulent
misrepresentation and fraud, negligent misrepresentation, statutory fraud and
breach of fiduciary duty.

    In November 2000 we entered into a settlement agreement with these parties.
This agreement was amended in February 2001. Under this amended settlement
agreement, we agreed to issue $3.4 million in shares of our common stock to
satisfy the earn-out provisions in the merger agreement. The number of share
required to be issued is the higher of 1.3 million or the product of $3.4
million divided by weighted average closing price calculated using the first six
days of the nine days prior to whichever of several reference dates would result
in the greatest number of shares to be issued. Plaintiffs have claimed that we
owe them either 6.0 million shares of common stock or liquidated damages of $5.1
million. We dispute these claims.



                                      F-31
<PAGE>   75
    On May 3, 2001, we filed a lawsuit against the plaintiffs and others in
California Superior Court for the County of Los Angeles (e-MedSoft.com vs.
Moncrief, et. al, Case No. BC249782). In this suit we have alleged that the
Defendants fraudulently induced us to acquire the assets and liabilities of
VidiMedix by concealing accurate financial documents, misrepresenting its
technology, its clientele, and the level of client satisfaction. We have also
allege claims for conspiracy to commit fraud, negligence, misrepresentation and
breach of the implied covenant of good faith and fair dealing. We are seeking
compensatory and punitive damages according to proof.

    These disputes are in the discovery stage. There have been no hearings or
determinations on the merits. No dates have been set for formal adjudication.

    In February 2001 we settled a separate dispute with the six former VidiMedix
shareholders who were not parties to the November settlement agreement. These
parties are not involved in either of the 2 lawsuits described above. Pursuant
to this settlement, we issued 136 thousand shares of common stock.

     Illumea (Asia), Ltd.

    On December 13, 2000, Illumea (Asia), Ltd., Nathalie j.v.d. Doornmalen,
David Chung Shing Wu, George K.K. Tong, Edna Liu, Yee Mau Chen, Norman Yuen
Tsing Tao, Jeffrey Sun, Boris Luchterhand, Carol Andretta, Kin Yu, Kathryn Ma,
Alan Munro, Yonanda j.v.d. Doornmalen, Hunter Vest, Ltd., Eltrinic Enterprises,
Ltd., and True Will Investments ("Plaintiffs") filed a First Amended Complaint
against the Company. Illumea Corporation ("Illumea") and Andrew Borsanyi arising
out of the Company's acquisition of Illumea.

    Plaintiffs allege that they were shareholders in Illumea, and that they
consented to the Company's acquisition of Illumea based on the allegedly false
representation that the Company would hire plaintiff Nathalie Doornmalen, the
chief executive of plaintiff Illumea (Asia), Ltd. ("IAL"). In addition,
plaintiff IAL alleges that Illumea breached an agency agreement between those
companies and engaged in fraud in connection with the agency relationship.
Plaintiffs assert claims for securities fraud under 15 U.S.C. Section 78j(b) and
Rule 10b-5, "conspiracy," breach of contract, fraud, false promise, defamation,
and violation of California Business & Professions Code Section 17200.
Plaintiffs seek compensatory damages, disgorgement under Section 17200, and
attorneys' fees.

    On March 26, 2001, the Company and Illumea filed a Counterclaim against IAL
and Nathalie Doornmalen for breach of contract, breach of fiduciary duty and
fraud. The Counterclaim alleges that IAL and Doornmalen have refused to repay
Illumea for providing funding and equipment to IAL, and that Doornmalen failed
to make certain disclosures in connection with the merger between Illumea and
the Company.

    Defendants and counterdefendants each filed a motion under Federal Rule of
Civil Procedure 12(b)(6) to dismiss certain claims in the First Amended
Complaint and the Counterclaim, respectively. The Court denied both motions.

    The parties have made their initial disclosures under Rule 26, and discovery
is now under way. The court recently issued a Pretrial Scheduling Order setting
the following dates: discovery cutoff of December 3, 2001, Final Pretrial
Conference on March 1, 2002, and trial in April 2002 (the exact date to be
announced during the Final Pretrial Conference).

21. QUARTERLY FINANCIAL DATA (UNAUDITED)

    Quarterly data for the years ended March 31, 2001 (as restated) and 2000,
was as follows: (in thousands except per share data)


<TABLE>
<CAPTION>
                                              FIRST QUARTER       SECOND QUARTER      THIRD QUARTER       FOURTH QUARTER
                                              -------------       --------------      -------------       --------------
<S>                                           <C>                 <C>                 <C>                 <C>
          Year ended March 31, 2001
            Net Sales                          $ 19,895            $ 24,734            $ 22,198            $  21,170
            Operating Loss from Continuing
               Operations                       (10,628)            (14,341)            (13,242)            (221,071)
            Net Loss from Continuing
               Operations                       (10,004)            (13,548)            (13,431)            (221,834)
            Net Loss from Discontinued
               Operations                          (538)             (3,058)             (1,931)             (10,908)
            Net Loss                            (10,542)            (16,606)            (15,362)            (232,742)
            Loss Per Share from Continuing
               Operations                      $  (0.12)           $  (0.17)           $  (0.17)           $   (2.79)
            Loss Per Share from Discontinued
               Operations                      $  (0.01)           $  (0.04)           $  (0.02)           $   (0.14)

          Year ended March 31, 2000
            Net Sales                          $      0            $      0            $    183            $     758
            Operating Loss from Continuing
               Operations                          (895)             (1,640)             (2,294)              (3,600)
            Net Loss from Continuing
               Operations                        (1,831)             (1,705)             (2,399)              (3,386)
            Net Loss from Discontinued
               Operations                          (697)               (208)                209                  352
            Net Loss                             (2,528)             (1,913)             (2,190)              (3,034)
            Loss Per Share from Continuing
               Operations                      $  (0.04)           $  (0.03)           $  (0.04)           $   (0.05)
            Loss Per Share from Discontinued
               Operations                      $  (0.01)           $  (0.00)           $   0.00            $    0.01


</TABLE>

22. STATEMENTS OF CASH FLOWS

    The Company had the following supplemental and non-cash activities each
year:

<TABLE>
<CAPTION>
                                                                                2001              2000              1999
                                                                             ------------     ------------     ------------
<S>                                                                         <C>              <C>              <C>
     SUPPLEMENTAL CASH FLOW DATA (IN THOUSANDS)
     Cash paid during the year for:
       Interest ........................................................     $      2,149     $        397     $          3
                                                                             ============     ============     ============
       Income taxes ....................................................     $         --     $         78     $         --
                                                                             ============     ============     ============
     NON-CASH TRANSACTIONS
       Issuance of restricted stock for acquisition of Resource ........     $      1,280     $         --     $         --
       Issuance of restricted stock for investment in PrimeMed .........           27,797               --               --
       Issuance of restricted stock for acquisition of Illumea .........           10,354               --               --
       Transfer of restricted stock for acquisition of VirTx ...........                            30,182               --
       Issuance of restricted stock and warrants for acquisition of
          VidiMedix ....................................................            8,287               --               --
       Expiration of VidiMedix Warrants ................................            1,099               --               --
       Issuance of restricted stock for technology license and
          investment in Quantum Digital ................................               --           25,000               --
       Assumption of lease commitment for investment in Quantum Digital                --            3,315               --
       Issuance of restricted stock for a deferred contract and
          distribution channel .........................................               --          103,052               --
       Issuance of restricted stock for settlement of debt .............               --            4,761               --
       Transfer of restricted stock for acquisition of e-Net ...........               --               --            5,400
       Transfer of restricted stock for inducement to lend .............               --               --            1,212
       Issuance of warrants for payment of debt ........................               --              506               --
       Issuance of shares for acquisition of software ..................               --            4,468               --
       Property and equipment purchased through capital
          lease ........................................................               61              945               --
</TABLE>

23. SUBSEQUENT EVENTS

    Chartwell Merger

     On May 14, 2001, we announced execution of an Agreement and Plan of Merger
and Reorganization with Chartwell Diversified Services, Inc. (Chartwell), which
agreement was amended and restated in its entirety on June 4, 2001. Donald
Ayers, a member of e-MedSoft.com's board of directors is a shareholder of
Chartwell. Pursuant to this Merger, the outstanding


                                      F-32

<PAGE>   76
shares of Chartwell shall be converted solely at the option of e-MedSoft.com (i)
either into 50 million shares of the Company's common stock or $90.0 million in
cash and (ii) warrants to purchase 20.0 million shares of the Company's common
stock at the exchange ratio specified in the Merger Agreement. The warrants will
have a term of five years at an initial exercise price of $4.00 per share. The
warrants may be exercised up to 4.0 million shares per year.

     On June 8, 2001 the Company signed a $2.3 million promissory note payable
to NCFE which bears interest at the rate of 10% per annum. The entire principal
amount of the note together with all accrued unpaid interest is due on June 7,
2002. There is no prepayment penalty on the note.

Equity Investment

     On July 16, 2001 we executed a definitive purchase agreement with an
institutional investor with more than $700.0 million of assets under management,
for the sale of $83.0 million of newly issued shares of common stock. Completion
of the agreement is subject to several conditions, including the completion of
the previously announced merger with Chartwell Diversified Services, Inc., and
the post-merger retention of Frank Magliochetti, President of Chartwell and John
Andrews , President of e-MedSoft. Additional material conditions include (a) the
Company must be in full compliance with all listing requirements of the American
Stock Exchange and the post-merger company - Med Diversified - must reach gross
revenues of $30.0 million during a 45-day operational span with EBIDTA for that
period of at least $100 thousand, (b) the Company must have cash on hand at time
of closing of at least $5.0 million, (c) the Company's common stock must reach
$4.20 per share after completion of the merger; and (d) the existing equity line
with Hoskins International will not have been drawn down by the Company unless
the Company has achieved a full year of positive EBIDTA in excess of $35.0
million. The issuance of shares will be priced at 90 percent of the market price
on closing date of the sale. If we sold shares at a market price of $4.20 we
would issue approximately 22.0 million shares.

     On July 16, 2001 the Company filed a Form 8-K, reporting under Item 5 that
the Company would be delinquent filing the Form 10-K for the fiscal year ended
March 31, 2001.

                                      F-33

<PAGE>   77
                                   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.


                                             e-MedSoft.com


                                             By: /s/ JOHN F. ANDREWS
                                                 ------------------------------
                                                 John F. Andrews, President


Date: July 26, 2001

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

<TABLE>
<CAPTION>
            SIGNATURE                             TITLE                      DATE
            ---------                             -----                      ----
<S>                                    <C>                                  <C>
        /s/ JOHN F. ANDREWS            Chairman, President and              July 26, 2001
-----------------------------------    Chief Executive Officer
          John F. Andrews


         /s/ SUZANNE HOSCH             Interim Chief Financial Officer      July 26, 2001
-----------------------------------
           Suzanne Hosch


        /s/ SAM J. W. ROMEO            Director                             July 26, 2001
-----------------------------------
          Sam J. W. Romeo


        /s/ ALBERT MARSTON             Director                             July 26, 2001
-----------------------------------
          Albert Marston


       /s/ W. CEDRIC JOHNSON           Director                             July 26, 2001
-----------------------------------
         W. Cedric Johnson


         /s/ DONALD AYERS              Director                             July 26, 2001
-----------------------------------
           Donald Ayers
</TABLE>



                                      II-1

<PAGE>   78

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                     DESCRIPTION                                               LOCATION
 -------                    -----------                                               --------
<S>            <C>                                                     <C>
    3.1        Articles of Incorporation, as Amended                   Incorporated by reference to the
                                                                       Registrant's Form S-18 Registration
                                                                       Statement (No. 33-8420-D)

    3.2        Bylaws                                                  Incorporated by reference to Registrant's
                                                                       Form S-18 Registration Statement (No.
                                                                       33-8420-D)

    3.3        Restated Articles of Incorporation                      Incorporated by reference to Exhibit 3.3
                                                                       to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.0        Stock Acquisition and Technology Transfer               Incorporated by reference to Exhibit 10 to
               Agreement dated December 22, 1998, between              the Registrant's Form 8-K dated January 7,
               MedTech, Inc. (formerly "High Hopes,                    1999
               Inc.") and Sanga e-Health LLC

   10.1        Loan and Security Agreement dated March                 Incorporated by reference to Exhibit 10.1
               19, 1999, among the Company, Trammel                    to the Registrant's Form 8-K dated March
               Investors LLC and Donald H. Ayers                       19, 1999

   10.2        Registration Rights Agreement among the                 Incorporated by reference to Exhibit 10.2
               Company, Trammel Investors LLC and Donald               to the Registrant's Form 8-K dated March
               H. Ayers                                                19, 1999

   10.3        Waiver, Rescission and Termination of                   Incorporated by reference to Exhibit 10.1
               Software License Agreement between Sanga                to Amendment No. 1 to the Registrant's
               e-Health LLC and Sanga Corporation dated                Form 8-K dated January 7, 1999
               December 2, 1998

   10.4        Assignment of Rights Under Financing                    Incorporated by reference to Exhibit 10.4
               Agreements                                              to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.5        Agreement with Donald H. Ayers dated June               Incorporated by reference to Exhibit 10.5
               14, 1999                                                to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.6        Agreement with Trammel Investors LLC dated              Incorporated by reference to Exhibit 10.6
               May 15, 1999                                            to the Registrant's Form 10-KSB for the
                                                                       year ended March 31, 1999

   10.7        Asset Purchase Agreement dated September                Incorporated by reference to Exhibit 10.7
               1, 1999 among Sanga e-Health LLC,                       to the Registrant's Form 8-K dated
               e-MedSoft.com, and University Affiliates                September 1, 1999
               IPA, Inc.

   10.8        Software License and Services Agreement                 Incorporated by reference to Exhibit 10.8
               dated September 1, 1999 between University              to the Registrant's Form 8-K dated
               Affiliates IPA, Inc. and e-MedSoft.com                  September 1, 1999

   10.9        Registration Rights Agreement dated                     Incorporated by reference to Exhibit 10.9
               September 1, 1999 between University                    to the Registrant's Form 8-K dated
               Affiliates IPA, Inc. and e-MedSoft.com                  September 1, 1999

  10.10        Corrected Agreement and Plan of Merger and              Incorporated by reference to Exhibit 10.1
               Reorganization dated February 21, 2000,                 to the Registrant's Form 8-K dated
               among e-MedSoft.com, VirTx Acquisition                  February 29, 2000 and amended on May 12,
               Corporation and VirTx, Inc.                             2000

  10.11        Acquisition and Joint Venture Agreement                 Incorporated by reference to Exhibit 10.11
               dated March 18, 2000, between CypherComm,               to the Registrant's Form 8-K dated March
               Inc. and the Company                                    18, 2000

  10.12        Management Services and Joint Venture                   Incorporated by reference to Exhibit 10.12
               Agreement dated April 6, 2000, between                  to the Registrant's Form 8-K/A filed on
               Prime RX.com, Inc. and e-MedSoft.com, as                May 2, 2000
               modified

  10.13        Master Preferred Provider Agreement                     Incorporated by reference to Exhibit 10.13
               between e-MedSoft.com and Prime RX.com,                 to the Registrant's Form 8-K/A filed on
               Inc.                                                    May 2, 2000

  10.14        Agreement dated April 7, 2000, between                  Incorporated by reference to Exhibit 10.14
               e-MedSoft.com and the shareholders of                   to the Registrant's Form 8-K/A filed on
               Prime RX.com, Inc.                                      May 2, 2000

  10.15        Agreement and Plan of Merger and                        Incorporated by reference to Exhibit 10.10
               Reorganization dated April 18, 2000, among              to Registrant's Form 8-K dated May 5, 2000
               e-MedSoft.com, Illumea Acquisition
               Corporation and Illumea Corporation

  10.16        Agreement and Plan of Merger and                        Incorporated by reference to the Exhibits to
               Reorganization, dated June 6, 2000, among               the Registrant's Current Report on Form 8-K, as
               the the Registrant, Vidimedix                           filed on June 28, 2000.
               Acquisition Corporation, and Vidimedix
               Corporation (10)

  10.17        Compromise and Settlement Agreement between             To be filed by amendment.
               Registrant and prior shareholders of
               Vidimedix Corporation+

  10.18        Common Stock Purchase Agreement between                 Incorporated by reference to the Exhibits to the
               e-MedSoft.com and Hoskin International Limited          Registrant's Current Report on Form 8-K, as
               dated February 20, 2001 (12)                            filed on March 2, 2001.

  10.19        Executive Employment Agreement between                  To be filed by amendment.
               Registrant and John F. Andrews dated as of
               January 15, 1999, amended January 15, 2000+

  10.20        Executive Employment Agreement between Registrant       To be filed by amendment.
               and John Shepherd dated August 30, 2000+

  10.21        1999 Stock Compensation Plan+                           To be filed by amendment.

  10.22        2000 Nonqualified Stock Option and Stock                To be filed by amendment.
               Bonus Plan+

  10.23        Amended and Restated Agreement and Plan of              Incorporated by reference to
               Merger and Reorganization dated June 4,
               2001, among e-MedSoft.com, CDS Acquisition
               Corporation and Chartwell Diversified
               Services, Inc.

   21.0        Subsidiaries of the Registrant                          Filed herewith electronically

   23.1        Consent of KPMG LLP                                     Filed herewith electronically

   23.2        Consent of Arthur Andersen LLP                          Filed herewith electronically

</TABLE>