<HTML>
<HEAD>
<TITLE>FORM S-1</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>As filed with the Securities and Exchange Commission on
May&nbsp;12, 2005</B>
</DIV>

<DIV align="right" style="font-size: 10pt;">
<B>Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>
</DIV>

<DIV align="center" style="font-size: 6pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 3pt;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNITED STATES</B>
</DIV>

<DIV align="center" style="font-size: 14pt;">
<B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Form&nbsp;S-1</B>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>UNDER</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WEBMD HEALTH HOLDINGS, INC.</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Exact name of registrant as specified in its charter)</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="28%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Delaware</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>7375</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>20-2783228</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I>(State or other jurisdiction of<BR>
    incorporation or organization)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(Primary Standard Industrial<BR>
    Classification Code Number)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(IRS Employer<BR>
    Identification Number)</I></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 9pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>224 West 30th Street</B>
</DIV>

<DIV align="center" style="font-size: 9pt;">
<B>New York, New York 10001</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Address, including zip code, and telephone number, including
area code, of</I>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>registrant&#146;s principal executive offices)</I>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Douglas W. Wamsley</B>
</DIV>

<DIV align="center" style="font-size: 9pt;">
<B>Executive Vice President</B>
</DIV>

<DIV align="center" style="font-size: 9pt;">
<B>General Counsel and Secretary</B>
</DIV>

<DIV align="center" style="font-size: 9pt;">
<B>224 West 30th Street</B>
</DIV>

<DIV align="center" style="font-size: 9pt;">
<B>New York, New York 10001</B>
</DIV>

<DIV align="center" style="font-size: 9pt;">
<B>(212)&nbsp;624-3700</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Name, address, including zip code, and telephone number,</I>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>including area code, of agent for service)</I>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Copies to:</I></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; ">

<TR style="font-size: 1pt;">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Stephen T. Giove,&nbsp;Esq.<BR>
    Shearman&nbsp;&#38; Sterling LLP<BR>
    599 Lexington Avenue<BR>
    New York, New York 10022<BR>
    Telephone: (212)&nbsp;848-4000<BR>
    Facsimile: (212)&nbsp;848-7179</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>Marc Rosenberg,&nbsp;Esq.<BR>
    Andrew J. Pitts,&nbsp;Esq.<BR>
    Cravath, Swaine&nbsp;&#38; Moore LLP<BR>
    Worldwide Plaza<BR>
    825 8th Avenue<BR>
    New York, New York 10019<BR>
    Telephone: (212)&nbsp;474-1000<BR>
    Facsimile: (212)&nbsp;474-3700</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
<B>Approximate date of commencement of proposed sale of the
securities to the public:</B> As soon as practicable after this
Registration Statement becomes effective.
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule&nbsp;415 under the Securities Act of 1933, check the
following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If this form is filed to register additional securities for an
offering pursuant to Rule&nbsp;462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If this form is a post-effective amendment filed pursuant to
Rule&nbsp;462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If this form is a post-effective amendment filed pursuant to
Rule&nbsp;462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If delivery of the prospectus is expected to be made pursuant to
Rule&nbsp;434, please check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CALCULATION OF REGISTRATION FEE</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="55%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposed Maximum</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amount of</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Title of Each Class of</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Aggregate Offering</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Registration</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Securities to be Registered</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Price(1)(2)</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Fee</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A Common Stock, $.01&nbsp;par value per share</DIV>
    </TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $50,000,000</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $5,885</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Estimated solely for the purpose of calculating the registration
    fee pursuant to Rule&nbsp;457(o).</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Including shares of common stock that may be purchased by the
    underwriters to cover overallotments, if any.</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
<B>The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section&nbsp;8(a)
of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to such Section&nbsp;8(a), may
determine.</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 4pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" cellpadding="5" style="border: 3pt double #000000; margin-bottom: 6pt; font-size: 10pt"><TR><TD>
<FONT style="font-size: 8pt" color="#E8112D" face="helvetica,arial">The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.

</FONT>
</TD></TR></TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 1pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#E8112D" face="helvetica,arial">SUBJECT TO
COMPLETION DATED MAY&nbsp;11, 2005</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT face="helvetica,arial">PROSPECTUS</FONT></B>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT face="helvetica,arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</FONT></B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT face="helvetica,arial">WEBMD HEALTH HOLDINGS,
INC.</FONT></B>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT face="helvetica,arial">Class&nbsp;A Common
Stock</FONT></B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This is our initial public offering of our Class&nbsp;A common
stock. We are selling all of the Class&nbsp;A common stock in
this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a wholly owned subsidiary of WebMD Corporation, which we
refer to in this prospectus as our Parent. We intend to change
our corporate name, prior to completion of this offering, to a
new name that has not yet been chosen, but that will include
&#147;WebMD,&#148; which will also continue to be the primary
brand name for our products and services. Our Parent intends to
take the steps, over the next several months, needed to change
its corporate name to one that does not include
&#147;WebMD&#148; and to cease using &#147;WebMD&#148; as a
brand name for the products and services of its other business
segments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have two classes of authorized common stock&nbsp;&#151;
Class&nbsp;A common stock, which is offered hereby, and
Class&nbsp;B common stock, all of which will be owned by our
Parent. Holders of our Class&nbsp;A common stock generally will
have identical rights to holders of our Class&nbsp;B common
stock, except that holders of our Class&nbsp;A common stock will
be entitled to one vote per share on all matters to be voted on
by stockholders, while holders of our Class&nbsp;B common stock
will be entitled to ten votes per share on all matters to be
voted on by stockholders. The holders of our Class&nbsp;A common
stock and Class&nbsp;B common stock generally will vote together
as a single class. Upon the completion of this offering, without
giving effect to any exercise of the underwriters&#146; option
to purchase additional shares, our Parent will own all of our
outstanding Class&nbsp;B common stock, which will represent
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock, and
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our outstanding common stock. As
a result, after this offering, our Parent will continue to
control us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect the public offering price of our Class&nbsp;A common
stock to be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. Currently, no public market exists for our shares. We
intend to apply to have our Class&nbsp;A common stock quoted on
The Nasdaq National Market under the symbol &#147;WBMD.&#148;
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Investing in our Class&nbsp;A common stock involves risks
that are described in the &#147;Risk Factors&#148; section
beginning on page&nbsp;9.</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Public offering price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Underwriting discount</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to our company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters may also purchase up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock from us, at the public offering
price, less the underwriting discount, within 30&nbsp;days from
the date of this prospectus to cover overallotments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The shares of Class&nbsp;A common stock will be ready for
delivery on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The date of this prospectus
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">
<!-- TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="93%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#101'>Summary</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#102'>Risk Factors</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#103'>Forward-Looking Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#104'>Use of Proceeds</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#105'>Dividend Policy</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#106'>Capitalization</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#107'>Dilution</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#108'>Selected Financial Information</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#109'>Management&#146;s Discussion and Analysis
    of Financial Condition and Results of Operations</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#110'>Business</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#111'>Government Regulation</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#112'>Management</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#113'>Certain Relationships and Related Party
    Transactions</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#114'>Principal Shareholders</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#115'>Description of Capital Stock</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#116'>Shares Eligible For Future Sale</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#117'>Certain U.S.&nbsp;Federal Income and Estate
    Tax Considerations for Non-U.S.&nbsp;Holders</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#118'>Underwriting</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#119'>Legal Matters</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#120'>Experts</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#121'>Where You Can Find Additional
    Information</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#122'>Index to Combined Consolidated Financial
    Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94455exv23w1.htm">EX-23.1: CONSENT OF ERNST & YOUNG LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94455exv23w2.htm">EX-23.2: CONSENT OF J.H. COHN LLP</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<!-- /TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus is accurate only as of the date on the front
cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that
date.</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MARKET AND INDUSTRY DATA</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This prospectus contains market and industry data and forecasts
that we obtained from third-party industry publications and
research firms, including Manhattan Research LLC, a leading
Internet marketing research firm. Unless we indicate otherwise,
all Manhattan Research studies referred to in this prospectus
were initiated and paid for by us. We refer to each of those
studies initiated by Manhattan Research, without our
participation, as a &#147;subscription study,&#148; since these
studies are available to the public on a subscription basis.
Industry publications and studies generally state that the
information contained therein has been obtained from sources
believed to be reliable, but there can be no assurance as to the
accuracy and completeness of such information. We have not
independently verified any of the publications or studies
prepared by third parties. The information contained in such
publications or studies may prove to be inaccurate because of
the way they were prepared and other limitations and
uncertainties inherent in data gathering processes. As a result,
you should be aware that market, ranking and other similar
information included in this prospectus, and estimates and
beliefs based on such information, may be incorrect. Neither we
nor the underwriters can guarantee the accuracy of such
information contained in this prospectus.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All Web site references in this prospectus are intended to be
inactive textual references only. The content of such Web sites
are not incorporated by reference in this prospectus.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
WebMD&#174;, WebMD Health&#174;, Medscape&#174;, CME
Circle&#174;, Medpulse&#174;, The Little Blue Book&#153;,
MedicineNet&#174;, RxList&#174;, Select Quality Care&#174; are
among our trademarks.
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
<A name='101'></A>
</DIV>

<!-- link1 "SUMMARY" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SUMMARY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>This summary highlights information contained elsewhere in
this prospectus. This summary sets forth the material terms of
this offering, but does not contain all of the information that
you should consider before investing in our Class&nbsp;A common
stock. You should read the entire prospectus carefully before
making an investment decision, especially the risks of investing
in our Class&nbsp;A common stock discussed under &#147;Risk
Factors.&#148; Unless the context otherwise requires, the terms
&#147;we,&#148; &#147;us,&#148; &#147;our,&#148; &#147;our
company&#148; and &#147;WebMD&#148; refer to WebMD Health
Holdings, Inc. and its consolidated subsidiaries following the
contribution and transfer to us of the subsidiaries and certain
related assets and liabilities that comprise our Parent&#146;s
WebMD Health business segment. Unless the context otherwise
requires, the term &#147;Parent&#148; refers to our parent
company, currently known as WebMD Corporation, and its other
consolidated subsidiaries. We expect to retain the WebMD brand.
References in this prospectus to &#147;common stock&#148;
include both our Class&nbsp;A common stock, par value
$.01&nbsp;per share, and our Class&nbsp;B common stock, par
value $.01&nbsp;per share. Unless otherwise indicated, industry
data are derived from publicly available sources, which we have
not independently verified.</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Introduction</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a leading provider of health information services to
consumers, physicians and healthcare professionals through our
public and private online portals. The online healthcare
information, decision-support applications and communications
services that we provide:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    enable consumers to obtain detailed information on a particular
    disease or condition, analyze symptoms, locate physicians, store
    individual healthcare information, receive periodic
    e-newsletters on topics of individual interest, enroll in
    interactive courses and participate in online communities with
    peers and experts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    make it easier for physicians and healthcare professionals to
    access clinical reference sources, stay abreast of the latest
    clinical information, learn about new treatment options, earn
    continuing medical education credits and communicate with
    peers;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    enable employers and health plans to provide their employees and
    plan members with access to personalized health and benefit
    information and decision-support technology that helps them make
    more informed benefit, provider and treatment choices.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our publicly available online services, which we refer to as
<I>The WebMD Health Network</I>, include <I>WebMD Health,</I>
our primary public portal for consumers, and <I>Medscape from
WebMD,</I> our public portal for physicians and healthcare
professionals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>WebMD Health </I>and our other consumer portals help
consumers take an active role in managing their health by
providing objective and trusted healthcare and lifestyle
information. <I>WebMD Health</I>&#146;s content offerings
include access to high quality health and wellness news articles
and features, and its decision-support services help consumers
make better informed decisions about healthcare providers,
health risks and treatment options. <I>Medscape from WebMD
</I>helps physicians and healthcare professionals improve their
clinical knowledge and practice of medicine. Its original
content, including daily medical news, commentary, conference
coverage, expert columns and continuing medical education, or
CME, activities are written by authors from widely respected
academic institutions and edited and managed by our in-house
editorial staff.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>The WebMD Health Network </I>had an average of approximately
23&nbsp;million aggregate unique users per month and generated
approximately 588&nbsp;million aggregate page views in the first
quarter of 2005. We believe our focus on creating and organizing
high quality content and offering innovative interactive
services has made <I>The WebMD Health Network </I>the leading
online health destination and has made the WebMD brand among the
most recognized and trusted in healthcare. According to recent
studies conducted by Manhattan Research, a leading Internet
market research firm, WebMD is the information
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">1
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
source most frequently recommended by physicians to their
patients for healthcare information and <I>Medscape from
WebMD</I> is the information source most recommended by
physicians to their peers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our public portals generate revenue primarily through the sale
of advertising and sponsorship products, including CME services.
We do not charge user fees for access to our public portals.
<I>The WebMD Health Network </I>provides an efficient and
effective means for sponsors to reach, educate and inform target
audiences of health-involved consumers and clinically-active
physicians within the trusted environment of WebMD. We work
closely with our sponsors to develop programs for specific
groups of consumers, physicians and healthcare professionals and
give them placement on the most relevant areas on our portals.
Our advertisers and sponsors consist primarily of
pharmaceutical, biotechnology and medical device companies. We
are also increasingly attracting advertising sponsorships from
consumer products companies whose products relate to health,
wellness, diet, fitness, lifestyle, safety and illness
prevention.
</DIV>

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Our private portals enable employees and health plan members to
make more informed benefit, provider and treatment decisions. We
provide a personalized user experience by integrating individual
user data (including personal health information), plan-specific
data from our employer or health plan clients and much of the
content, decision-support technology and personal communication
services that we make available through our public portals. We
generate revenue from private portals through the licensing of
our content and technology to employers, such as American
Airlines, Inc., Microsoft Corporation and PepsiCo, Inc., and to
health plans, such as Blue Cross Blue Shield of Massachusetts,
Cigna and Empire Blue Cross and Blue Shield.
</DIV>

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In addition to our online presence, we also have a publishing
segment that provides complementary offline health content to
our user community. Our publications increase awareness of our
brand among consumers, physicians and healthcare professionals.
These publications include <I>The Little Blue Book,</I> a
physician directory, and <I>WebMD the Magazine,</I> a consumer
publication launched in early 2005 that we distribute free of
charge to physician office waiting rooms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our revenues have increased to $134.1&nbsp;million in 2004 from
$84.2&nbsp;million in 2002, an increase of $49.9&nbsp;million.
Our net income for 2004 was $6.5&nbsp;million compared to a net
loss of $24.4&nbsp;million in 2002, an improvement of
$30.9&nbsp;million. We cannot assure you that our revenues or
net income will continue to increase; however, to the extent
that our revenues increase in the future, we expect that our net
income as a percentage of our revenues will continue to increase.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Strengths</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our goal is to provide an efficient and effective means for
advertisers and sponsors to reach, educate and influence
health-involved consumers and clinically-active physicians
within the trusted environment of WebMD. We believe that we are
able to fulfill the needs of our clients with a differentiated
offering based on our following strengths:
</DIV>

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    Our brand is widely recognized and viewed as a trusted source of
    health and wellness information.</TD>
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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>The WebMD Health Network</I> is the leading online health
    destination today. We had an average of approximately
    23&nbsp;million aggregate unique users per month and generated
    approximately 588&nbsp;million page views in the first quarter
    of 2005.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Medscape from WebMD</I> is the leading online provider of CME
    programs, with approximately 63% of the online market for CME
    services in 2003.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We are able to offer advertisers and sponsors programs that
    deliver their message to either our entire audience or to more
    targeted audiences of consumers, physicians and other healthcare
    professionals based upon their interests or specialties.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We are able to offer advertisers and sponsors programs to reach
    both health-involved consumers and clinically-active physicians.</TD>
</TR>

</TABLE>
</DIV>

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    <TD align="left">
    We have good working relationships with our advertising and
    sponsorship clients and a track record of providing them with a
    more efficient use of their marketing expenditures compared to
    traditional media.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We have the ability to offer employers and health plans a
    platform that provides a personalized user experience for
    employees and health plan members, which includes access to
    individual user data, specific health plan benefit data,
    relevant health-oriented content, treatment decision-support
    applications, personal communication services, and integrated
    third party applications and data.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our senior management&#146;s experience in and understanding of
    the healthcare industry allows us to respond quickly to
    developing industry trends with new products and services based
    on our existing content, infrastructure and capabilities.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Industry Background</B>
</DIV>

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<I>The Internet.</I> The Internet has emerged as a major
communications medium and has already fundamentally changed many
sectors of the economy, including the marketing and sales of
financial services, travel and entertainment, among others. The
Internet is also changing the healthcare industry, as more
consumers and physicians use it as a convenient source for
up-to-date health information and interactive decision-support
tools. Until recently, quality healthcare information was not
easily accessible. Most consumers relied on their physicians,
conversations with family and friends, their neighborhood
library and magazines when they needed answers to healthcare
questions. Physicians relied on medical societies, journals and
other publications, reference textbooks, conferences,
pharmaceutical sales representatives and industry meetings and
other physicians to keep informed. The Internet has transformed
how consumers and physicians find and utilize healthcare
information and WebMD has been a leader in enabling this
transition.
</DIV>

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<I>Advertising and sponsorship trends.</I> Internet advertising
continues to grow rapidly. According to a February 2005 report
by eMarketer, an Internet market research firm, total online
advertising spending was about $9.5&nbsp;billion in 2004, is
projected to grow approximately 20% in 2005 to $11.5 billon, and
is expected to reach approximately $17.6&nbsp;billion in 2008.
We believe that this market growth is driven by the benefits of
online advertising relative to traditional media, which include
interactivity, rapid and measurable user feedback and the
ability to target consumers more efficiently.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Based upon industry estimates, we believe that pharmaceutical,
biotechnology and medical device companies spent approximately
$12&nbsp;billion on marketing and education activities during
2004, excluding costs of product samples. We estimate that these
companies currently spend less than 5% of their marketing and
educational budgets on online media, but are becoming
increasingly aware of the benefits of using online media,
including the ability to reach targeted audiences
cost-effectively. As a result, we expect these companies&#146;
online marketing and educational budgets to continue to
increase. According to an April 2005 report sponsored by the
Interactive Advertising Bureau, pharmaceutical and other
healthcare advertisers accounted for 6% of total online
advertising in 2004, an increase from 4% in 2003. We believe
that we are well positioned to benefit from the trend toward
increased online spending by these companies because of our
track record in providing a more efficient use of advertising
expenditures than traditional media and our strong working
relationships with a significant number of the major
pharmaceutical, biotechnology and medical device companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Healthcare industry trends.</I> Our business is affected by
the following trends in the healthcare industry:
</DIV>

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    <TD>&#149;&nbsp;</TD>
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    <I>Continued increases in healthcare costs have led to
    cost-shifting by employers.</I> According to a report from the
    Centers for Medicare&nbsp;&#38; Medicaid Services, or CMS,
    healthcare spending in the United States rose to
    $1.7&nbsp;trillion in 2003, up from $1.6&nbsp;trillion in 2002,
    $1.4&nbsp;trillion in 2001 and $1.3&nbsp;trillion in 2000. The
    CMS report indicated a growth rate in healthcare spending of
    7.7% for 2003, compared to 9.3% for 2002, and 8.5% for 2001.
    While overall healthcare costs are rising at a rapid annual
    rate, employers&#146; costs of providing healthcare benefits to
    their employees are increasing</TD>
</TR>

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</DIV>

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    at an even faster rate. In response to these cost increases,
    employers and health plans have been changing benefit plan
    designs to increase consumer out-of-pocket costs and taking
    other steps to motivate their members and employees to evaluate
    their healthcare decisions more carefully in order to be more
    cost-effective. This has led employers and health plans to
    enhance wellness programs and take steps to provide healthcare
    information and education to employees and members, including
    through the use of online services.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Quality initiatives.</I> In 1999 and 2000, a series of major
    studies suggested that the nation&#146;s healthcare system
    should be fundamentally redirected to focus on continuous
    quality improvement and anticipating healthcare needs, rather
    than controlling access to services. Since then, health plans
    have begun to recognize that encouraging the good health of
    their members not only benefits the members but also has
    financial benefits for the health plans. Healthier people need
    less care and fewer costly services. Thus, controlling costs by
    keeping people healthier and better managing chronic conditions
    has become a significant focus for America&#146;s healthcare
    system. As part of these initiatives, health plans are offering
    their members online access to health and wellness information
    and decision-support tools.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our private portals are well positioned to
benefit from these trends because they provide the tools and
information employees and plan members need to take a more
active role in their healthcare, such as helping them make more
informed decisions about healthcare provider, benefit and
treatment options. Employers and health plans can help their
employees and members make choices that reduce overall
healthcare costs by implementing our services and making the
needed information and decision-support tools available through
a convenient and easy-to-use online service. In addition, as
employers continue to implement high deductible and
consumer-directed healthcare plans, we believe we will be able
to attract more employers and health plans to use our private
online portals. Additionally, the increased financial
responsibility of consumers for their healthcare will also
benefit our public portals as we continue to expand the public
portal decision-support and personal health information
applications and as consumers and healthcare professionals
increasingly utilize the Internet for the information and tools
necessary to manage their health decisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Strategy</B>
</DIV>

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We have positioned our services to benefit from the trends
described above, and the other trends affecting the Internet,
online advertising and healthcare industries described in this
prospectus. Our goal is to be the leading provider of online
health information services in each of the markets in which we
participate and to use our content, technology platform and
expertise to continue to enter additional complementary markets.
To achieve our goal, we intend to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <I>Enhance our current products and services.</I> We intend to
    continue to invest in the resources needed to deliver high
    quality health and medical information. In addition, we intend
    to continue to build our repository of in-depth health content,
    broaden our interactive services and increase their
    functionality, improve our technology platform and add
    additional products and services. Our goal is to continue to
    increase the number of consumers, physicians and healthcare
    professionals using our Web sites, the amount of time they spend
    there and, most importantly, the trust they have in WebMD.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Expand awareness of the WebMD brand.</I> We plan to promote
    the WebMD brand through relationships with strategic partners,
    through advertising and through the breadth of products and
    services that we offer. For example, we recently introduced
    <I>WebMD the Magazine,</I> a consumer publication that we
    distribute free of charge to patients in physician waiting
    rooms, as a means of extending our brand into offline channels
    and attracting incremental advertising dollars.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Deepen our relationships with existing clients and expand our
    sponsorship base.</I> We intend to increase <I>The WebMD Health
    Network&#146;s </I>advertising and sponsorship revenues by
    continuing to provide an efficient and effective channel for
    sponsors to reach, educate and inform large audiences of
    health-involved consumers and clinically-active physicians
    within the trusted environment of</TD>
</TR>

</TABLE>
</DIV>

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    WebMD. We believe that we are well positioned to benefit from
    the expected shift of sponsorship spending from offline to
    online media by pharmaceutical, biotechnology and medical device
    companies as they continue to see the benefits of online
    sponsorship relative to traditional offline media, including
    interactivity, rapid and measurable user feedback and the
    ability to more efficiently reach specific audiences. In
    addition, we are focused on increasing sponsorship of <I>The
    WebMD Health Network </I>by consumer products companies that
    wish to communicate health- and lifestyle-related messages for
    their products.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Increase market penetration of our private portals.</I> We
    intend to increase the market penetration of our private health
    and benefits portals for employers and health plans by
    demonstrating to prospective clients the return on investment
    and increase in employee satisfaction on the part of our
    existing clients from implementing our services. We expect
    demand for these services to increase as more employers and
    health plans seek to complement or replace their existing
    offline benefit-related services with more efficient Web-based
    decision-support tools and related online services.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Acquire complementary online and offline services.</I> We
    have a history of acquiring and successfully integrating
    complementary companies. We expect to continue to supplement our
    internal product development efforts with strategic acquisitions
    that add new capabilities or help us enter additional
    complementary markets.</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Capitalize upon governmental initiatives relating to use of
    information technology in healthcare.</I> There are currently
    numerous federal, state and private initiatives seeking ways to
    increase the use of information technology in healthcare,
    including the creation of portable consumer health records. We
    believe that we are well positioned to play a role in such
    efforts, as well as efforts to establish the adoption of
    electronic medical records among physicians and to provide
    channels for the exchange of information among patients,
    providers and payers.</TD>
</TR>

</TABLE>

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</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our principal executive offices are located at 224 West 30th
Street, New York, New York 10001 and our telephone number at
that address is (212)&nbsp;624-3700.
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">5

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<B>Our Corporate Structure</B>
</DIV>

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The businesses that comprise our company include acquisitions
made by our Parent beginning in 1999. Our operations were, until
2001, commingled with other operations of our Parent. In 2001,
our businesses were organized as a separate segment of our
Parent, which is currently called &#147;WebMD Health.&#148;
</DIV>

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WebMD Health Holdings, Inc., the registrant whose name appears
on the cover of the registration statement of which this
prospectus is a part, was incorporated in Delaware on
May&nbsp;3, 2005 to be a holding company for our Parent&#146;s
WebMD Health business segment in order to conduct this offering.
Prior to the completion of this offering, our Parent will
contribute and transfer to us the subsidiaries and certain
related assets and liabilities that comprise our Parent&#146;s
WebMD Health business segment. We intend to change our corporate
name, prior to completion of this offering, to a new name that
has not yet been chosen, but that will include
&#147;WebMD,&#148; which will also continue to be the primary
brand name for our products and services. Our Parent intends to
take the steps, over the next several months, needed to change
its corporate name to one that does not include
&#147;WebMD&#148; and to cease using &#147;WebMD&#148; as a
brand name for the products and services of its other segments.
</DIV>

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Prior to the completion of this offering, the certificate of
incorporation of WebMD Health Holdings, Inc. will be amended and
restated to, among other things:
</DIV>

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    create two classes of common stock&nbsp;&#151; Class&nbsp;A
    common stock and Class&nbsp;B common stock;</TD>
</TR>

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    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    establish the voting rights associated with each such class of
    our common stock, pursuant to which holders of our Class&nbsp;A
    common stock will be entitled to one vote per share on all
    matters to be voted on by stockholders and holders of our
    Class&nbsp;B common stock will be entitled to ten votes per
    share on all matters to be voted on by stockholders;&nbsp;and</TD>
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    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    provide for the conversion of the Class&nbsp;B common stock into
    Class&nbsp;A common stock upon the terms and subject to the
    conditions set forth therein.</TD>
</TR>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Immediately following this offering, holders of our Class&nbsp;A
common stock will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our outstanding common stock
(approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our outstanding common stock if
the underwriters exercise in full their option to purchase
additional shares).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Immediately following this offering, our Parent, which will hold
100% of our Class&nbsp;B common stock, will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our outstanding common stock
(approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our outstanding common stock if
the underwriters exercise in full their option to purchase
additional shares).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a result, our Parent will continue to control us following
the completion of this offering, and will be able to exercise
control over all matters requiring shareholder approval,
including the election of our directors and approval of
significant corporate transactions. In addition, our
Parent&#146;s controlling interest may discourage a change of
control that the holders of our Class&nbsp;A common stock may
favor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of the date of this prospectus, our Parent has indicated that
it has no current intention to sell or otherwise dispose of its
Class&nbsp;B common stock. However, our Parent is not subject to
any contractual obligation to retain any of its Class&nbsp;B
common stock, except that it has agreed not to sell or otherwise
dispose of any of our common stock for a period of 180&nbsp;days
after the date of this prospectus without the prior written
consent of the representatives of the underwriters, as described
in &#147;Underwriting.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect to enter into a number of agreements with our Parent
governing our separation from and our future relationship with
our Parent, including a services agreement. Under the services
agreement, we expect that our Parent will provide us with
administrative services, including payroll, accounting, tax,
employee benefit plan, employee insurance, intellectual
property, legal and information processing services. We
anticipate that the services agreement will provide for an
initial term of five years. We will, as a result, initially be
dependent on our relationship with our Parent for shared
services following this offering. It is also possible that some
or all of these services would be provided for longer periods
than the initial term. See &#147;Certain Relationships and
Related Party Transactions&nbsp;&#151; Agreements Between Us and
Our Parent.&#148;
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The Offering</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt;">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    Class&nbsp;A common stock offered <BR>
     by us</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Common stock outstanding after the offering:</TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;A common stock</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;B common stock</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Use of proceeds</TD>
    <TD></TD>
    <TD valign="top">
    We estimate that our net proceeds from this offering will be
    approximately
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    ($&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    if the underwriters exercise in full their option to purchase
    additional shares). We intend to use these net proceeds for
    working capital and general corporate purposes, including
    capital expenditures and acquisitions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Voting rights</TD>
    <TD></TD>
    <TD valign="top">
    Each share of our Class&nbsp;A common stock will entitle its
    holder to one vote on all matters to be voted on by stockholders
    generally. The holders of our Class&nbsp;B common stock
    generally will have rights identical to holders of our
    Class&nbsp;A common stock, except that each share of
    Class&nbsp;B common stock will entitle its holder to ten votes
    on all matters to be voted on by stockholders generally. Holders
    of our Class&nbsp;A common stock and Class&nbsp;B common stock
    will generally vote together as a single class.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Conversion rights</TD>
    <TD></TD>
    <TD valign="top">
    Upon the completion of this offering, we expect our certificate
    of incorporation to provide that, under certain circumstances,
    our Class&nbsp;B common stock may be converted into our
    Class&nbsp;A common stock at the option of the holder or
    automatically.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Risk factors</TD>
    <TD></TD>
    <TD valign="top">
    See &#147;Risk Factors&#148; and other information included in
    this prospectus for a discussion of factors you should carefully
    consider before deciding to invest in shares of our common stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Proposed Nasdaq National Market symbol</TD>
    <TD></TD>
    <TD valign="top">
    &#147;WBMD.&#148;</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unless we specifically state otherwise, all information in this
prospectus:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    assumes that the underwriters do not exercise their option to
    purchase additional shares;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    excludes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our Class&nbsp;A common stock reserved for grants under our
    incentive compensation plans after the pricing of this
    offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
    which &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;will
    be in the form of options to purchase shares of our Class&nbsp;A
    common stock with an exercise price equal to the initial public
    offering price per share,
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
    which will be in the form of restricted Class&nbsp;A common
    stock.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Summary Financial Data</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should read the following summary combined consolidated
financial data in conjunction with &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations,&#148; our combined consolidated financial statements
and notes thereto and the unaudited pro forma financial
statements and related notes, all included elsewhere in this
prospectus. The &#147;Pro Forma&#148; combined consolidated
statement of operations data below is adjusted to reflect our
acquisitions of MedicineNet, Inc. and HealthShare Technology,
Inc., as though those acquisitions occurred as of
January&nbsp;1, 2004. The &#147;Pro Forma&#148; combined
consolidated balance sheet data reflects the acquisition of
HealthShare Technology, Inc. as though the acquisition occurred
on December&nbsp;31, 2004. The pro forma information is provided
for illustrative purposes only and is not necessarily indicative
of the operating results that would have occurred if the
transactions had been consummated as of January&nbsp;1, 2004,
nor is it indicative of future operating results. In addition,
the &#147;Pro Forma As Adjusted&#148; combined consolidated
balance sheet data below is further adjusted to reflect the sale
of the shares of our Class&nbsp;A common stock offered hereby
and the receipt of the estimated net proceeds after deducting
underwriting discounts and commissions and the estimated
offering expenses.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pro Forma</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Combined Consolidated Statements of Operations Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>110,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>134,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>144,637</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Costs and expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,829</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,587</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,599</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,016</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring and integration benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,850</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other (income) expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,221</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,242</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,587</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>397</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,190</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>At December&nbsp;31, 2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pro Forma</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pro Forma</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>As Adjusted(1)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Combined Consolidated Balance Sheet Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>120,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>183,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Owner&#146;s net investment/Stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>131,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Reflects (a) the sale of the shares of our Class&nbsp;A common
    stock in this offering after deducting underwriting discounts
    and commissions and estimated offering expenses and (b)&nbsp;the
    reclassification of Owner&#146;s net investment to
    Stockholders&#146; equity, reflecting the contribution to
    capital of net amounts due to our Parent and the related
    issuance of shares of our Class&nbsp;B common stock to our
    Parent.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='102'></A>
</DIV>

<!-- link1 "RISK FACTORS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>RISK FACTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Any investment in our Class&nbsp;A common stock involves a
high degree of risk. This section describes circumstances or
events that could have a negative effect on our business. You
should consider carefully the following information about these
risks, together with the other information contained in this
prospectus, before you decide whether to buy our Class&nbsp;A
common stock. The occurrence of one or more of the circumstances
or events described below could have a material adverse effect
on our financial condition, results of operations and cash flows
or on the trading prices of our Class&nbsp;A common stock, and
you could lose all or part of your investment. The risks and
uncertainties described below are not exhaustive, and additional
risks and uncertainties that are not currently known to us or
that we currently believe are immaterial may also adversely
affect our business and operations. Our Risk Factors are
organized into the following broad categories: &#147;Risks
Related to Our Operations and Financial Performance,&#148;
&#147;Risks Related to Our Relationships with Clients,&#148;
&#147;Risks Related to Our Technological Infrastructure,&#148;
&#147;Risks Related to the Legal and Regulatory Environment in
Which We Operate,&#148; &#147;Risks Related to Our Relationship
With Our Parent&#148; and &#147;Risks Related to Ownership of
the Class&nbsp;A Common Stock and this Offering.&#148;</I>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Related to Our Operations and Financial Performance</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our online businesses are difficult to evaluate because they
have a limited operating history</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our online businesses have a limited operating history and
participate in relatively new and rapidly evolving markets. As a
result, our primary businesses have undergone significant
changes during their short history and are continuing to change
as a result of acquisitions, investments and market conditions.
We cannot assure you that our current business strategy will be
successful in the long term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Many companies with business plans based on providing healthcare
information through the Internet have failed to be profitable
and some have filed for bankruptcy and/or ceased operations.
Even if demand from users exists, we cannot assure you that our
business will continue to be profitable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The timing of our advertising and sponsorship revenues may
vary significantly, which could have adverse effects on our
operating results</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our advertising and sponsorship revenues may vary significantly
from quarter to quarter due to a number of factors, not all of
which are in our control, and any of which may be difficult to
forecast accurately. The majority of our sponsorship contracts
are for terms of approximately four to 12&nbsp;months. We have
relatively few longer term contracts. We cannot assure you that
our current sponsors will continue to participate in our
existing programs beyond the terms of their existing contracts
or that they will enter into any additional contracts for new
programs that we offer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the time between the date of initial contact with a
potential advertiser or sponsor regarding a specific program and
the execution of a contract with the advertiser or sponsor for
that program may be lengthy, especially for larger contracts,
and may be subject to delays over which we have little or no
control, including as a result of budgetary constraints of the
advertiser or sponsor or their need for internal approvals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Factors that could affect the timing of our revenues from
advertisers and sponsors include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the timing of FDA approval for new products or for new approved
    uses for existing products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    seasonal factors relating to the prevalence of specific health
    conditions and other seasonal factors that may affect the timing
    of promotional campaigns for specific products;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the scheduling of conferences for physicians and other
    healthcare professionals.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Lengthy sales and implementation cycles for our private
online portals make it difficult to forecast our revenues from
these applications and, as a result, may have an adverse impact
on our business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The period from our initial contact with a potential client for
a private online portal and the first purchase of our solution
by the client is difficult to predict. In the past, it has
generally ranged from six to 12&nbsp;months, but in some cases
has extended much longer. These sales may be subject to delays
due to a clients&#146; internal procedures for approving large
expenditures and other factors beyond our control. The time it
takes to implement a private online portal is also difficult to
predict and has lasted as long as six months from contract
execution to the commencement of live operation. Implementation
may be subject to delays based on the availability of the
internal resources of the client that are needed and other
factors outside of our control. As a result, we have limited
ability to forecast the timing of revenue from new clients.
This, in turn, makes it more difficult to predict our financial
performance from quarter to quarter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the sales cycle and the implementation period, we may
expend substantial time, effort and money preparing contract
proposals, negotiating contracts and implementing the private
online portal without receiving any related revenue. In
addition, many of the expenses related to providing private
online portals are relatively fixed in the short term, including
personnel costs and technology and infrastructure costs. Even if
our revenue is lower than expected, we may not be able to reduce
our short-term spending in response. Any shortfall in revenue
would have a direct impact on our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a result, we may be unable to adjust spending quickly enough
to offset any unexpected revenue shortfall or delay, in which
case our results of operations would suffer. In addition, in an
attempt to enhance our long-term competitive position, we may
from time to time make decisions regarding pricing, marketing,
services and technology that could have a near-term adverse
effect on our operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Usage of our public portals depends on our ability to provide
high quality content, tools and services</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest in our public portals for consumers, physicians and
healthcare professionals is based upon our ability to make
available high quality health content, decision-support tools
and other services that meet the needs of our users. Our ability
to do so depends, in turn, on:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to hire and retain qualified authors, journalists
    and independent writers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to license quality content from third
    parties;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to monitor and respond to increases and decreases in
    user interest in specific topics.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot assure you that we will be able to continue to get
needed content at a reasonable cost. If we are unable to provide
content that attracts and retains users at a level that is
attractive to advertisers and sponsors, our revenues will be
reduced. In addition, our ability to deploy new interactive
tools and other features will require us to continue to improve
the technology underlying our Web sites. The required changes
may be significant and expensive, and we cannot assure you that
we will be able to execute them quickly and efficiently.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We face significant competition for our products and
services</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The markets in which we operate are intensely competitive,
continually evolving and, in some cases, subject to rapid
change. Our competitors include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    traditional media companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general purpose consumer online services and portals and other
    high-traffic Web sites that provide access to healthcare-related
    content;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    companies that focus on providing online and/or offline
    healthcare-related content, including some that are
    not-for-profit.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Many of our competitors have greater financial, technical,
product development, marketing and other resources than we do.
These organizations may be better known than we are and have
more customers or
</DIV>

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<DIV align="left" style="font-size: 10pt;">
users than we do. We cannot provide assurance that we will be
able to compete successfully against these organizations or any
alliances they have formed or may form.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Governmental and private initiatives to support the adoption
of healthcare information technology may encourage additional
companies or governmental agencies to compete with us</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are currently numerous federal, state and private
initiatives and studies seeking ways to increase the use of
information technology in healthcare as a means of improving
care and reducing costs. For example, the Department of Health
and Human Services issued a report in 2004 entitled &#147;The
Decade of Health Information Technology: Delivering
Consumer-centric and Information-rich Health Care.&#148; These
initiatives may encourage more companies to develop applications
and services that compete with us, especially with our private
online portals. The effect that these initiatives may have on
our business is difficult to predict and we cannot assure you
that we will adequately address the risks created by these
initiatives or that we will be able to take advantage of any
resulting opportunities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We have not been operated as an entity separate from our
Parent, and, as a result, our historical and pro forma financial
information may not be indicative of our historical financial
results or future financial performance</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our combined consolidated financial information included in this
prospectus assumes that, for the periods presented, we had
existed as a separate legal entity, and has been derived from
the consolidated financial statements of our Parent. Some costs
have been reflected in the combined consolidated financial
statements that are not necessarily indicative of the costs that
we would have incurred had we operated as an independent,
stand-alone entity for all periods presented. These costs
include allocated portions of our Parent&#146;s corporate
overhead, interest expense and income taxes. Our combined
consolidated financial information included in this prospectus
may not be indicative of our future financial performance,
because these statements do not necessarily reflect our
historical financial condition, results of operations and cash
flows as they would have been had we been operated during the
periods presented as a separate, stand-alone entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We expect that accounting for employee stock options using
the fair value method will have a material impact on our
combined consolidated results of operations and earnings per
share</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, FASB issued SFAS&nbsp;123R, which requires all
share-based payments to employees, including grants of stock
options by us and our Parent to our employees, to be recognized
in the financial statements based on their fair values,
beginning with the fiscal year that begins after June&nbsp;15,
2005. As permitted by SFAS&nbsp;No.&nbsp;123, we currently
account for share-based payments to employees using the
intrinsic value method prescribed in APB Opinion No.&nbsp;25.
Accordingly, the adoption of SFAS&nbsp;No.&nbsp;123R&#146;s fair
value method will have a material impact on the combined
consolidated results of operations and earnings per share. We
cannot predict what effect the reduction in our net income may
have on our stock price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We will incur increased costs as a result of being a
separately traded public company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a separately traded public company, we will incur legal,
accounting and other expenses that we did not incur as a wholly
owned subsidiary of our Parent, including costs associated with
the periodic reporting requirements applicable to a company
whose securities are registered under the Securities Exchange
Act of 1934, or the Exchange Act, recently adopted corporate
governance requirements, including requirements under the
Sarbanes-Oxley Act of 2002, and other rules implemented
relatively recently by the Securities and Exchange Commission,
or the SEC, and The Nasdaq National Market. We expect these
rules and regulations to increase substantially our legal and
financial compliance costs and to make some activities more
time-consuming and costly. We also expect that these rules and
regulations will make it more difficult and more expensive for
us to obtain directors and officers&#146; liability insurance.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Investors could lose confidence in our financial reports, and
our stock price may be adversely affected, if our or our
Parent&#146;s internal controls over financial reporting are
found not to be effective by management or by an independent
registered public accounting firm or if we or our Parent make
disclosure of existing or potential significant deficiencies or
material weaknesses in those controls</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Beginning with our Annual Report for the year ending
December&nbsp;31, 2006, Section&nbsp;404 of the Sarbanes-Oxley
Act of 2002 will require us to include an internal control
report with our Annual Report on Form&nbsp;10-K. That report
must include management&#146;s assessment of the effectiveness
of our internal control over financial reporting as of the end
of the fiscal year. Additionally, our independent registered
public accounting firm will be required to issue a report on
management&#146;s assessment of our internal control over
financial reporting and a report on their evaluation of the
operating effectiveness of our internal control over financial
reporting. Our Parent is an &#147;accelerated filer&#148; and
was required to include an internal control report in its most
recent and in its future Annual Reports on Form&nbsp;10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We continue to evaluate our existing internal controls over
financial reporting against the standards adopted by the Public
Company Accounting Oversight Board (PCAOB). During the course of
our ongoing evaluation of the internal controls, we may identify
areas requiring improvement, and may have to design enhanced
processes and controls to address issues identified through this
review. Remedying any deficiencies, significant deficiencies or
material weaknesses that we or our independent registered public
accounting firm may identify, may require us to incur
significant costs and expend significant time and management
resources. We cannot assure you that any of the measures we
implement to remedy any such deficiencies will effectively
mitigate or remedy such deficiencies. In addition, we cannot
assure you that we will be able to complete the work necessary
for our management to issue its management report in a timely
manner, or that we will be able to complete any work required
for our management to be able to conclude that our internal
control over financial reporting is operating effectively. If we
are not able to complete the assessment under Section&nbsp;404
in a timely manner, we and our independent registered public
accounting firm would be unable to conclude that our internal
control over financial reporting is effective as of
December&nbsp;31, 2006. Investors could lose confidence in our
financial reports, and our stock price may be adversely
affected, if our internal controls over financial reporting are
found not to be effective by management or by an independent
registered public accounting firm or if we make disclosure of
existing or potential significant deficiencies or material
weaknesses in those controls.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A determination that there is a significant deficiency or
material weakness in the effectiveness of our internal controls
over financial reporting could also reduce our ability to obtain
financing or could increase the cost of any financing we obtain
and require additional expenditures to comply with applicable
requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, investors could lose confidence in our financial
reports, if our Parent&#146;s internal controls over financial
reporting are found not to be effective by management or by an
independent registered public accounting firm or if our Parent
makes disclosure of existing or potential significant
deficiencies or material weaknesses in those controls,
particularly if the reasons are relevant or related to our
internal controls.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Acquisitions, business combinations and other transactions
may be difficult to complete and, if completed, may have
negative consequences for our business and our
securityholders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have been built, in part, through a series of acquisitions.
We intend to continue to seek to acquire or to engage in
business combinations with companies engaged in complementary
businesses. In addition, we may enter into joint ventures,
strategic alliances or similar arrangements with third parties.
These transactions may result in changes in the nature and scope
of our operations and changes in our financial condition. Our
success in completing these types of transactions will depend
on, among other things, our ability to locate suitable
candidates, negotiate mutually acceptable terms with them and to
obtain adequate financing. Significant competition for these
opportunities exists, which may increase the cost of and
</DIV>

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decrease the opportunities for these types of transactions.
Financing for these transactions may come from several sources,
including:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    cash and cash equivalents on hand and marketable securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    proceeds from the incurrence of indebtedness;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    proceeds from the issuance of additional common stock, preferred
    stock, convertible debt or other securities.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The issuance of additional equity or debt securities could:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    cause substantial dilution of the percentage ownership of our
    stockholders at the time of the issuance;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    cause substantial dilution of our earnings per share;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    subject us to the risks associated with increased leverage,
    including a reduction in our ability to obtain financing or an
    increase in the cost of any financing we obtain;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    may subject us to restrictive covenants that could limit our
    flexibility in conducting future business activities;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    adversely affect the prevailing market price for our outstanding
    securities.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
We do not intend to seek securityholder approval for any such
acquisition or security issuance unless required by applicable
law, regulation or by the terms of then existing securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our business will suffer if we fail to successfully integrate
acquired businesses and technologies or to assess the risks in
particular transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have in the past acquired, and may in the future acquire,
businesses, technologies, services, product lines and other
assets. The successful integration of the acquired businesses
and assets into our operations, on a cost-effective basis, can
be critical to our future performance. The amount and timing of
the expected benefits of any acquisition, including potential
synergies between our company and the acquired business, are
subject to significant risks and uncertainties. These risks and
uncertainties include, but are not limited to, those relating to:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to maintain relationships with the customers of the
    acquired business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to retain or replace key personnel;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    potential conflicts in sponsor or advertising relationships;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to coordinate organizations that are geographically
    diverse and may have different business cultures;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    compliance with regulatory requirements.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot guarantee that any acquired businesses will be
successfully integrated with our operations in a timely or
cost-effective manner, or at all. Failure to successfully
integrate acquired businesses or to achieve anticipated
operating synergies, revenue enhancements or cost savings could
have a material adverse effect on our business, financial
condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although our management attempts to evaluate the risks inherent
in each transaction and to value acquisition candidates
appropriately, we cannot assure you that we will properly
ascertain all such risks or that acquired businesses and assets
will perform as we expect or enhance the value of our company as
a whole. In addition, acquired companies or businesses may have
larger than expected liabilities that are not covered by the
indemnification, if any, we are able to obtain from the sellers.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our success depends in part on our attracting and retaining
qualified executives and employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our success depends largely on the skills, experience and
performance of key members of our senior management team. Roger
C. Holstein, who served as our chief executive officer since
October 2004, resigned, effective April&nbsp;27, 2005, from all
his positions with our Parent and its subsidiaries. Wayne
Gattinella, who has served as President of our Parent&#146;s
WebMD Health segment since August 2001, will become our
President and Co-Chief Executive Officer, and David Gang, who
previously served as Executive Vice President of AOL Products at
America Online, Inc., will be joining us as Co-Chief Executive
Officer and Chief Operating Officer prior to the consummation of
this offering. We cannot assure you that the transition in
leadership will occur without disruption to our businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also depend, in part, on our ability to attract and retain
qualified writers and editors, software developers and other
technical personnel and sales and marketing personnel. We
anticipate the need to hire and retain qualified employees in
these areas from time to time. We cannot assure you that we will
be able to hire or retain a sufficient number of qualified
personnel to meet our requirements, or that we will be able to
do so at the salary and benefit costs that are acceptable to us.
Failure to do so may have an adverse effect on our business.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Related to Our Relationships with Clients</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Developments in the healthcare industry could adversely
affect our business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Most of our revenue is derived from the healthcare industry and
could be affected by changes affecting healthcare spending.
General reductions in expenditures by healthcare industry
participants could result from, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    government regulation or private initiatives that affect the
    manner in which healthcare providers interact with patients,
    payers or other healthcare industry participants, including
    changes in pricing or means of delivery of healthcare products
    and services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    consolidation of healthcare industry participants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reductions in governmental funding for healthcare;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    adverse changes in business or economic conditions affecting
    healthcare payers or providers, pharmaceutical, biotechnology or
    medical device companies or other healthcare industry
    participants.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are particularly dependent on pharmaceutical, biotechnology
and medical device companies for our advertising and sponsorship
revenues. Our business will be adversely impacted if business or
economic conditions result in the reduction of purchases by our
customers if they decide not to renew their commitments or
decide to renew their commitments at lower levels. Even if
general expenditures by industry participants remain the same or
increase, developments in the healthcare industry may result in
reduced spending in some or all of the specific segments of that
market we serve or are planning to serve. For example, use of
our products and services could be affected by:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in the design of health insurance plans;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a decrease in the number of new drugs or medical devices coming
    to market;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    decreases in marketing expenditures by pharmaceutical companies
    or consumer product companies, including as a result of
    governmental regulation or private initiatives that discourage
    or prohibit promotional activities by pharmaceutical or medical
    device companies.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, our customers&#146; expectations regarding pending
or potential industry developments may also affect their
budgeting processes and spending plans with respect to products
and services of the types we provide.
</DIV>

<P align="center" style="font-size: 10pt;">14

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The healthcare industry has changed significantly in recent
years and we expect that significant changes will continue to
occur. However, the timing and impact of developments in the
healthcare industry are difficult to predict. We cannot assure
you that the markets for our products and services will continue
to exist at current levels or that we will have adequate
technical, financial and marketing resources to react to changes
in those markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our ability to maintain or increase our advertising and
sponsorship revenues depends on our ability to retain or
increase usage of our online offerings by consumers, physicians
and healthcare professionals</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot assure you that we will be able to attract a large
audience of health-involved consumers and clinically-active
healthcare professionals to our Web sites. Since users of our
public portals may be attracted to our Web sites as a result of
a specific condition or for a specific purpose, it is difficult
for us to predict the rate at which users will return to the
public portals or become members. Further, users of our Web
sites have numerous other online and offline sources of
healthcare information services. In addition, some of our
traffic and new members come to us through relationships with
third parties and, as a result, our traffic may vary based on
the amount of traffic to Web sites of these third parties and
other factors outside our control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Because we generate revenues by, among other things, selling
sponsorships of specific pages, sections or events on our Web
sites for healthcare providers and consumers and related
e-newsletters, a decline in user traffic levels or a reduction
in the number of pages viewed by users could cause our revenues
to decrease and could have a material adverse effect on our
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We may be unsuccessful in our efforts to increase advertising
and sponsorship revenue from consumer products companies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Most of our advertising and sponsorship revenues have, in the
past, come from pharmaceutical, biotechnology and medical device
companies. During the past year, we have begun to focus on
increasing sponsorship revenue from consumer products companies
that are interested in communicating health-related or
safety-related information about their products to our audience.
However, while a number of consumer products companies have
indicated an intent to increase the portion of their promotional
spending used on the Internet, we cannot assure you that these
advertisers and sponsors will find our consumer Web site to be
as effective as other Web sites or traditional media for
promoting their products and services. If we encounter
difficulties in competing with the other alternatives available
to consumer products companies, this portion of our business may
develop more slowly than we expect or may fail to develop.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Related to Our Technological Infrastructure</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our users depend on Internet service providers, online
service providers and other Web site operators to access our
online services</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Users of our Web-based services depend on Internet service
providers, online service providers and other Web site operators
for access to our Web sites. Many of these providers have
experienced significant outages in the past and could experience
outages, delays and other difficulties in the future due to
system failures unrelated to our systems. Any significant
interruptions in our services or increases in response time
could result in a loss of potential or existing users of and
advertisers and sponsors on our Web site and, if sustained or
repeated, could reduce the attractiveness of our Web-based
services.
</DIV>

<P align="center" style="font-size: 10pt;">15

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Delivery of our online services requires uninterrupted
communications and computer service from third party service
providers and our own systems</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our online services are designed to operate 24&nbsp;hours a day,
seven days a week, without interruption. To do so, we rely on
internal systems as well as communications and hosting services
provided by third parties. We do not maintain redundant systems
or facilities for some of these services. To operate without
interruption, both we and our service providers must guard
against:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    damage from fire, power loss and other natural disasters;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    communications failures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    software and hardware errors, failures or crashes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    security breaches, computer viruses and similar disruptive
    problems;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    other potential interruptions.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have experienced periodic system interruptions in the past,
and we cannot guarantee that they will not occur again. In
addition, some of our online services may, at times, be required
to accommodate higher than expected volumes of traffic. At those
times, we may experience slower response times or system
failures. Any sustained or repeated interruptions or disruptions
in these systems or increase in response times could damage our
relationships with clients. Although we maintain insurance for
our business, we cannot guarantee that our insurance will be
adequate to compensate us for all losses that may occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Implementation of changes in hardware and software platforms
used to deliver our online services may result in performance
problems</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
From time to time, we implement changes to the hardware and
software platforms we use for providing our online services.
During and after the implementation of those changes, a platform
may not perform as expected, which could result in interruptions
in operations, an increase in response time or an inability to
track performance metrics. Any significant interruption in our
ability to operate any of our online services could have an
adverse effect on our relationship with users and clients and,
as a result, on our financial results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>If the systems we use to provide online portals experience
security breaches or are otherwise perceived to be insecure, our
business could suffer</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We retain and transmit confidential information, including
personal health records, in the processing centers and other
facilities we use to provide online services. It is critical
that these facilities and infrastructure remain secure and be
perceived by the marketplace as secure. A security breach could
damage our reputation or result in liability. We may be required
to expend significant capital and other resources to protect
against security breaches and hackers or to alleviate problems
caused by breaches. Despite the implementation of security
measures, this infrastructure or other systems that we interface
with, including the Internet and related systems, may be
vulnerable to physical break-ins, hackers, improper employee or
contractor access, computer viruses, programming errors, attacks
by third parties or similar disruptive problems. Any compromise
of our security, whether as a result of our own systems or the
systems that they interface with, could reduce demand for our
services, and could subject us to legal claims from our clients
and users, including for breach of contract or breach of
warranty.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">16

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<DIV align="center" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Related to the Legal and Regulatory Environment in
Which We Operate</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Government regulation of the Internet could adversely affect
our business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Internet and its associated technologies are subject to
government regulation. Our failure, or the failure of our
business partners or third party providers, to accurately
anticipate the application of laws and regulations affecting our
products and services and the manner in which we deliver them,
or any other failure to comply, could create liability for us,
result in adverse publicity, or negatively affect our business.
In addition, new laws and regulations, or new interpretations of
existing laws and regulations, may be adopted with respect to
the Internet or other online services covering user privacy,
patient confidentiality, consumer protection and other issues,
including pricing, content, copyrights and patents, distribution
and characteristics and quality of products and services. We
cannot predict whether these laws or regulations will change or
how such changes will affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Government regulation of healthcare creates risks and
challenges with respect to our compliance efforts and our
business strategies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The healthcare industry is highly regulated and is subject to
changing political, legislative, regulatory and other
influences. Existing and new laws and regulations affecting the
healthcare industry could create unexpected liabilities for us,
cause us to incur additional costs and restrict our operations.
Many healthcare laws are complex and their application to
specific products and services may not be clear. In particular,
many existing healthcare laws and regulations, when enacted, did
not anticipate the healthcare information services that we
provide. However, these laws and regulations may nonetheless be
applied to our products and services. Our failure to accurately
anticipate the application of these laws and regulations, or
other failure to comply, could create liability for us, result
in adverse publicity and negatively affect our businesses. Some
of the risks we face from healthcare regulation are as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    because our business involves advertising and promotion of
    prescription and over-the-counter drugs and medical devices, any
    increase in regulation of these areas by the Federal Drug
    Administration or the Federal Trade Commission could make it
    more difficult for us to contract for sponsorships and
    advertising;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our practices must comply with federal and state anti-kickback
    laws;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    because we are in the business of applying information
    technology to healthcare, various aspects of HIPAA have affected
    and are expected to continue to affect our business;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    in providing health information to consumers, we must not engage
    in activities that could be deemed to be the practice of
    medicine and a violation of applicable laws.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Changes in industry guidelines or government regulation could
adversely affect our online Medscape offerings</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our CME activities are planned and implemented in accordance
with the Essential Areas and Policies of the Accreditation
Council for Continuing Medical Education, or ACCME, which
oversees providers of CME credit, and other applicable
accreditation standards. In September 2004, ACCME revised its
standards for commercial support of CME. The revised standards
are intended to ensure, among other things, that CME activities
of ACCME-accredited providers are independent of providers of
healthcare goods and services that fund the development of CME.
ACCME expects accredited providers to implement these standards
by May 2005. Implementation has required additional disclosures
to CME participants about those in a position to influence
content and other adjustments to the management and operations
of our CME programs. We believe we have modified our procedures
as appropriate to meet the revised standards. However, we cannot
be certain whether these adjustments will ensure that we meet
the new standards or predict whether ACCME may impose additional
requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
CME activities may also subject to government regulation by the
Food and Drug Administration, or FDA, the Office of Inspector
General, or OIG, of the United States Department of Health and
Human
</DIV>

<P align="center" style="font-size: 10pt;">17

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<DIV align="left" style="font-size: 10pt;">
Services, a federal agency responsible for interpreting certain
federal laws relating to healthcare and state regulatory
agencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the past several years, educational programs, including
CME, directed toward physicians have been subject to increased
scrutiny to ensure that sponsors do not influence or control the
content of the program. In response to governmental and industry
initiatives, pharmaceutical companies and medical device
companies have been developing and implementing internal
controls and procedures that promote adherence to applicable
regulations and requirements. In implementing these controls and
procedures, different clients may interpret the regulations and
requirements differently and may implement procedures or
requirements that vary from client to client. These controls and
procedures:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    may discourage pharmaceutical companies from engaging in
    educational activities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    may slow their internal approval for such programs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    may reduce the volume of sponsored educational programs
    implemented through our Medscape Web site to levels that are
    lower than in the past; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    may require us to make changes to how we offer or provide
    educational programs, including CME.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, future changes to existing regulations or
accreditation standards, or to the internal compliance programs
of potential clients, may further discourage or prohibit
potential clients from engaging in educational activities with
us, or may require us to make further changes in the way we
offer or provide educational programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We face potential liability related to the privacy and
security of personal information we collect from consumer and
healthcare professionals through our Web sites</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Internet user privacy has become a major issue both in the
United States and abroad. We have privacy policies posted on our
Web sites that we believe comply with applicable laws requiring
notice to users about our information collection, use and
disclosure practices. However, whether and how existing privacy
and consumer protection laws in various jurisdictions apply to
the Internet is still uncertain and may take years to resolve.
Any legislation or regulation in the area of privacy of personal
information could affect the way we operate our Web sites and
could harm our business. Further, we cannot assure you that the
privacy policies and other statements on our Web sites or our
practices will be found sufficient to protect us from liability
or adverse publicity relating to the privacy and security of
personal information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under HIPAA, Congress established a set of basic national
privacy standards for the protection by health plans, healthcare
clearinghouses, healthcare providers and their business
associates of individually identifiable health information. We
cannot assure you that we will adequately address the risks
created by these privacy rules and we are unable to predict what
changes to HIPAA might be made in the future or how those
changes could affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to HIPAA, numerous other state and federal laws
govern the collection, dissemination, use, access to and
confidentiality of patient health information. In addition, some
states are considering new laws and regulations that further
protect the confidentiality of medical records or medical
information. In many cases, these state laws are not preempted
by the HIPAA Privacy Standard and may be subject to
interpretation by various courts and other governmental
authorities, thus creating potentially complex compliance issues
for us and our customers and strategic partners. These privacy
laws at a state or federal level, or new interpretations of
these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We may not be successful in protecting our intellectual
property and proprietary rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our intellectual property is important to our businesses. We
rely on a combination of trade secret, patent and other
intellectual property laws and confidentiality procedures and
non-disclosure contractual provisions to protect our
intellectual property. We believe that our non-patented
proprietary technologies
</DIV>

<P align="center" style="font-size: 10pt;">18

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<DIV align="left" style="font-size: 10pt;">
and business processes are protected under trade secret,
contractual and other intellectual property rights. However,
those rights do not afford the statutory exclusivity provided by
patented processes. In addition, the steps that we take to
protect our intellectual property, proprietary information and
trade secrets may prove to be inadequate and, whether or not
adequate, may be expensive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot assure you that we will be able to detect potential or
actual misappropriation or infringement of our intellectual
property, proprietary information or trade secrets. Even if we
detect misappropriation or infringement by a third party, we
cannot assure you that we will be able to enforce our rights at
a reasonable cost, or at all. In addition, our rights to
intellectual property, proprietary information and trade secrets
may not prevent independent third-party development and
commercialization of competing products or services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Third parties may claim that we are infringing their
intellectual property, and we could suffer significant
litigation or licensing expenses or be prevented from providing
certain services, and which may otherwise harm our business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We could be subject to claims that we are misappropriating or
infringing intellectual property or other proprietary rights of
others. These claims, even if not meritorious, could be
expensive to defend and divert management&#146;s attention from
our operations. If we become liable to third parties for
infringing these rights, we could be required to pay a
substantial damage award and to develop non-infringing
technology, obtain a license or cease selling the products or
services that use or contain the infringing intellectual
property. We may be unable to develop non-infringing products or
services or obtain a license on commercially reasonable terms,
or at all. We may also be required to indemnify our customers if
they become subject to third party claims relating to
intellectual property that we license or otherwise provide to
them, which could be costly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We may be subject to claims brought against us as a result of
content we provide</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Consumers access health-related information through our online
services, including information regarding particular medical
conditions and possible adverse reactions or side effects from
medications. If our content, or content we obtain from third
parties, contains inaccuracies, it is possible that consumers,
employees, health plan members or others may sue us for various
causes of action. Although our Web sites contain terms and
conditions, including disclaimers of liability, that are
intended to reduce or eliminate our liability, the law governing
the validity and enforceability of online agreements and other
electronic transactions is evolving. We could be subject to
claims by third parties that our online agreements with
consumers and physicians that provide the terms and conditions
for use of our public or private portals are unenforceable. A
finding by a court that these agreements are invalid and that we
are subject to liability could harm our business and require
costly changes to our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have editorial procedures in place to provide quality control
of the information that we publish or provide. However, we
cannot assure you that our editorial and other quality control
procedures will be sufficient to ensure that there are no errors
or omissions in particular content. Even if potential claims do
not result in liability to us, investigating and defending
against these claims could be expensive and time consuming and
could divert management&#146;s attention away from our
operations. In addition, our business is based on establishing
the reputation of our portals as trustworthy and dependable
sources of healthcare information. Allegations of impropriety or
inaccuracy, even if unfounded, could therefore harm our
reputation and business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We could be subject to breach of warranty or other claims by
clients of our online portals, or if the software and systems we
use to provide them, contain errors or experience failures</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Errors in the software and systems we use could cause serious
problems for clients of our online portals. We may fail to meet
contractual performance standards or fail to meet expectations
that our clients have for them. Clients of our online portals
may seek compensation from us or may seek to terminate their
agreements with us, withhold payments due to us, seek refunds
from us of part or all of the
</DIV>

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<DIV align="left" style="font-size: 10pt;">
fees charged under those agreements or initiate litigation or
other dispute resolution procedures. In addition, we could face
breach of warranty or other claims by clients or additional
development costs. Our software and systems are inherently
complex and, despite testing and quality control, we cannot be
certain that they are error free.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We attempt to limit, by contract, our liability to our clients
for damages arising from our negligence, errors or mistakes.
However, contractual limitations on liability may not be
enforceable in certain circumstances or may otherwise not
provide sufficient protection to us from liability for damages.
We maintain liability insurance coverage, including coverage for
errors and omissions. However, it is possible that claims could
exceed the amount of our applicable insurance coverage, if any,
or that this coverage may not continue to be available on
acceptable terms or in sufficient amounts. Even if these claims
do not result in liability to us, investigating and defending
against them could be expensive and time consuming and could
divert management&#146;s attention away from our operations. In
addition, negative publicity caused by these events may delay or
hinder market acceptance of our services, including unrelated
services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The ongoing Department of Justice investigation of our Parent
could have an adverse impact on our company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On September&nbsp;3, 2003, our Parent first learned that the
U.S.&nbsp;Attorney for the District of South Carolina, with the
assistance of the Federal Bureau of Investigation and the
Internal Revenue Service, was conducting an investigation of our
Parent relating to activities which may have been engaged in
before and after Medical Manager Corporation (now part of
Parent&#146;s WebMD Practice Services business segment) merged
in 1999 with a predecessor of Parent, as well as after the
merged entity became a subsidiary of our Parent in 2000. Our
Parent believes that the investigation relates principally to
issues of financial accounting improprieties relating to Medical
Manager, including activities that artificially inflated
revenues and earnings of Medical Manager. Our Parent understands
that the SEC is also conducting a formal investigation into this
matter. In 2005, certain former employees of Medical Manager
agreed to plead guilty to mail fraud and tax evasion as a result
of the foregoing investigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
While our Parent is not sure of the investigation&#146;s exact
scope, it does not believe that the investigation relates to the
business of our company. However, documents filed by the
U.S.&nbsp;Attorney in connection with the plea agreements
entered into by the former Medical Manager employees state that
these employees engaged in their fraudulent conduct &#147;in
concert with senior management,&#148; and &#147;at the direction
of senior Medical Manager officers.&#148; In its statement, the
U.S. Attorney stated that &#147;the senior management and
officers referred to in the Court documents were members of
senior management of the Medical Manager subsidiary during the
relevant time period.&#148; Based on the information it has
obtained to date, our Parent does not believe that any member of
its senior management whose duties were not primarily related to
the operations of Medical Manager engaged in the alleged
improprieties. Our Parent understands, however, that in light of
the nature of the allegations involved, the
U.S.&nbsp;Attorney&#146;s Office has been investigating all
levels of our Parent&#146;s management. Some members of our
company&#146;s senior management are also serving or have served
as members of senior management of our Parent. In the event
members of senior management were to be implicated in any
wrongdoing, it could have an adverse impact on our company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Parent has been cooperating and intends to continue to
cooperate fully with the U.S.&nbsp;Attorney&#146;s Office. Our
Parent&#146;s Board of Directors has formed a Special Committee
consisting solely of independent directors to oversee this
matter, with the sole authority to direct our Parent&#146;s
response to the allegations that have been raised. The Special
Committee has retained independent legal counsel to advise it.
Our Parent has retained counsel to advise it in connection with
the investigation, and such counsel reports directly to the
Special Committee.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Related to Our Relationship With Our Parent</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Parent controls the direction of our business. The
concentrated ownership of our common stock and certain corporate
governance arrangements will prevent you and other stockholders
from influencing significant corporate decisions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have two classes of common stock:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
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    <TD width="96%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Class&nbsp;A common stock, which entitles the holder to one vote
    per share;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Class&nbsp;B common stock, which entitles the holder to ten
    votes per share,</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
on all matters submitted to our stockholders. Following
completion of this offering, our Parent will own 100% of our
Class&nbsp;B common stock, which will represent
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock after this offering, or
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
if the underwriters exercise in full their option to purchase
additional shares. These shares collectively will
represent &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our outstanding common stock
(or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
if the underwriters exercise their in full option to purchase
additional shares). Given its ownership interest, our Parent
will be able to control the outcome of all matters submitted to
our shareholders for approval, including the election of
directors, mergers or other business combinations and
acquisitions, dispositions of assets, future issuances of our
common stock or other securities, the incurrence of debt by us,
the payment of dividends on our common stock (including the
frequency and the amount of dividends that would be payable on
our common stock, a substantial majority of which our parent
owns) and amendments to our certificate of incorporation and
bylaws. In addition, our Parent&#146;s controlling interest may
discourage a change of control that the holders of our
Class&nbsp;A common stock may favor. Any of these provisions
could be used by our Parent for its own advantage to the
detriment of our other stockholders and our company. This in
turn may have an adverse affect on the market price of our
Class&nbsp;A common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The interests of our Parent may conflict with the interests
of our other stockholders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot assure you that the interests of our Parent will
coincide with the interests of the other holders of our common
stock. For example, our Parent could cause us to make
acquisitions that increase the amount of our indebtedness or
outstanding shares of common stock or sell revenue-generating
assets. Also, after this offering, our Parent or its directors
and officers, may allocate corporate opportunities to itself or
direct them to other affiliates, which, prior to this offering,
could have been directed to us. So long as our Parent continues
to own shares of our common stock with significant voting power
our Parent will continue to be able to strongly influence or
effectively control our decisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Some of our directors and officers may also serve as
directors or officers of our Parent, and may have conflicts of
interest because they may own our Parent&#146;s stock or options
to purchase our Parent&#146;s stock, or they may receive cash or
equity based awards based on the performance of our Parent</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Some of our directors and officers may also serve as directors
or officers of our Parent, and may own our Parent&#146;s stock
or options to purchase our Parent&#146;s stock, or they may be
entitled to participate in our Parent&#146;s benefit plans,
which provide cash- and equity-based compensation to employees
based on our Parent&#146;s performance. For example, Martin J.
Wygod, who currently serves as the Chairman of our Parent&#146;s
Board of Directors, will also serve as the Chairman of our Board
of Directors. These arrangements and ownership interests or
cash-or equity-based awards could create, or appear to create,
potential conflicts of interest when directors or officers who
own our Parent&#146;s stock or stock options or who participate
in our Parent&#146;s benefit plans are faced with decisions that
could have different implications for our Parent than they do
for us. We anticipate that our certificate of incorporation will
include provisions addressing potential conflicts of interest
between us and our Parent and its non-WebMD Health-related
subsidiaries and other similar entities. In addition, we
anticipate that our certificate of incorporation will include
provisions regulating and defining our conduct as it may involve
us and our Parent and our and its subsidiaries, directors and
officers. We cannot assure you, however, that the provisions in
our certificate of
</DIV>

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<DIV align="left" style="font-size: 10pt;">
incorporation will adequately address potential conflicts of
interest or that potential conflicts of interest will be
resolved in our favor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Following this offering, we will no longer receive capital
contributions from our Parent or have access to its assets or
borrowing power. We may not be able to raise additional funds
when needed for our business or to exploit opportunities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To date, our primary sources of financing have been from our
Parent. We will receive all of the net proceeds of this
offering. Following completion of this offering, our Parent will
have no obligation to provide any additional financing to us and
we will no longer have access to the borrowing capacity, cash
flow or assets of our Parent. Our future liquidity and capital
requirements will depend upon numerous factors, some of which
are outside our control, including the future development of the
markets we participate in. We may need to raise additional funds
to support expansion, develop new or enhanced services, respond
to competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities.
If our capital resources are not sufficient to satisfy our
liquidity needs, we may seek to sell additional equity or debt
securities or obtain other debt financing. The sale of
additional equity or convertible debt securities would result in
additional dilution to our stockholders. The sale of debt would
result in increased expenses and could result in covenants that
would restrict our operations. We have not made arrangements to
obtain additional financing. We may not be able to obtain
additional financing, if required, in amounts or on terms
acceptable to us, or at all. As discussed below, we may also be
limited for tax reasons in our ability to sell equity or
convertible debt securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Following this offering, we will continue to be dependent on
our Parent to provide us with many key services for our
business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have not been operated as a stand-alone company. We have been
operated as a wholly owned subsidiary of our Parent, and many
key services required by us for the operation of our business
are currently provided to us by our Parent and its subsidiaries.
Prior to the completion of this offering, we will enter into
agreements with our Parent relating to certain intercompany
transactions between us and our Parent, including, among others,
a services agreement, a registration rights agreement, a release
and indemnification agreement and a tax sharing agreement. Under
the services agreement, our Parent will provide us with
administrative services, including payroll, accounting, tax,
employee benefit plan, employee insurance, intellectual
property, legal and information processing services. We
anticipate that our services agreement with our Parent will be
for an initial term of five years. We believe that it will be
necessary for our Parent to provide these services for us under
the services agreement to facilitate the efficient operation of
our business as we transition to becoming a public company. We
will, as a result, initially be dependent on our relationship
with our Parent for shared services following this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Once the transition periods specified in the services agreement
expires and if the services agreement is not renewed, or if our
Parent does not or is unable to perform its obligations under
the services agreement, we will be required to provide these
services ourselves or to obtain substitute arrangements with
third parties. We may be unable to provide these services
because of financial or other constraints or be unable to timely
implement substitute arrangements on terms that are favorable to
us, or at all, which would have an adverse effect on our
business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We may be prevented from issuing stock to raise capital, to
effectuate acquisitions or to provide equity incentives to
members of our management and Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Beneficial ownership of at least 80% of the total voting power
and value of our capital stock is required in order for our
Parent to continue to include us in its consolidated group for
federal income tax purposes, and beneficial ownership of at
least 80% of the total voting power of our capital stock and 80%
of each class of any non-voting capital stock that we may issue
is required in order for our Parent to effect a tax-free
split-off, spin-off or other similar transaction. As of the date
of this prospectus, our Parent does not intend or plan to
undertake a split-off or spin-off of our capital stock to our
Parent&#146;s shareholders or to deconsolidate us from our
Parent&#146;s consolidated group. Under the terms of the tax
sharing agreement that
</DIV>

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<DIV align="left" style="font-size: 10pt;">
we anticipate entering into with our Parent, however, we have
agreed that we will not knowingly take or fail to take any
action that could reasonably be expected to preclude our
Parent&#146;s ability to undertake a tax-free split-off or
spin-off. This may prevent us from issuing additional equity
securities to raise capital, to effectuate acquisitions or to
provide management or director equity incentives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The new agreements we are entering into with our Parent in
connection with this offering could restrict our operations and
adversely affect our financial condition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect to enter into a number of agreements with our Parent
governing our separation from and our future relationship with
our Parent, including a services agreement, a registration
rights agreement, a release and indemnity agreement and a tax
sharing agreement, each of which will become effective upon
consummation of this offering. The terms and provisions of these
agreements may be less favorable to us than terms and provisions
we could have obtained in arm&#146;s length negotiations with
unaffiliated third parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our prior and continuing relationship with our Parent exposes
us to risks attributable to our Parent&#146;s businesses</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect to enter into a release and indemnification agreement
with our Parent, to be effective upon completion of this
offering. Under the terms of this agreement, our Parent is
obligated to indemnify us for losses that a party may seek to
impose upon us or our subsidiaries for liabilities relating to
our Parent&#146;s business that are incurred through a breach of
any agreement to which our Parent is a party, if such losses are
attributable to our Parent or are not otherwise expressly
assumed by us under any such agreement. Immediately following
this offering, any claims made against us that are properly
attributable to our Parent would require us to exercise our
rights under the release and indemnification agreement that we
expect to enter into with our Parent to obtain payment from our
Parent. We are exposed to the risk that, in these circumstances,
our Parent cannot or will not make the required payment. If this
were to occur, our business and financial performance could be
adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We will be included in our Parent&#146;s consolidated group
for federal income tax purposes and, as a result, may be liable
for any shortfall in our Parent&#146;s federal income tax
payments</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For so long as our Parent continues to own 80% of the total
voting power and value of our capital stock, we will be included
in our Parent&#146;s consolidated group for federal income tax
purposes. By virtue of its controlling ownership and the tax
sharing agreement that we anticipate entering into with our
Parent, our Parent will effectively control all our tax
decisions. Moreover, notwithstanding the tax sharing agreement,
federal tax law provides that each member of a consolidated
group is jointly and severally liable for the group&#146;s
entire federal income tax obligation. Thus, to the extent our
Parent or other members of the group fail to make any federal
income tax payments required of them by law, we would be liable
for the shortfall. Similar principles generally apply for state
income tax purposes in many states.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Related to Ownership of the Class&nbsp;A Common Stock
and this Offering</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The price of our Class&nbsp;A common stock may be subject to
wide fluctuations and may trade below the initial public
offering price</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Before this offering, there has not been a public market for our
Class&nbsp;A common stock. The initial public offering price of
our Class&nbsp;A common stock will be determined by negotiations
between our Parent, us and representatives of the underwriters,
based on numerous factors, including those that we discuss under
&#147;Underwriting.&#148; This price may not be indicative of
the market price of our Class&nbsp;A common stock after this
offering. We cannot assure you that an active public market for
our Class&nbsp;A common stock will develop or be sustained after
this offering. The market price of our common stock also could
be subject to significant fluctuations. As a result, you may not
be able to sell your shares of our Class&nbsp;A common stock
quickly or at prices equal to or greater than the price you paid
in this offering.
</DIV>

<P align="center" style="font-size: 10pt;">23
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Among the factors that could affect our Class&nbsp;A common
stock price are the risks described in this section and other
factors, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    quarterly variations in our operating results compared to market
    expectations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in expectations as to our future financial performance,
    including financial estimates or reports by securities analysts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in market valuations of similar companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    liquidity and activity in the market for our common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    sales of our common stock by our Parent or other stockholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    strategic moves by us or our competitors, such as acquisitions
    or restructurings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general market conditions;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    domestic and international economic, legal and regulatory
    factors unrelated to our performance.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stock markets in general have experienced extreme volatility
that has often been unrelated to the operating performance of a
particular company. These broad market fluctuations may
adversely affect the trading price of our common stock,
regardless of our operating performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Sales of substantial amounts of our common stock in the
public markets, including by our Parent, or the perception that
they might occur could reduce the price our Class&nbsp;A common
stock might otherwise obtain and may dilute your voting power
and your ownership interest in us</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After the completion of this offering, we will
have&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding
shares of Class&nbsp;A common stock
(&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock if the underwriters exercise in
full their option to purchase additional shares). This number is
comprised of all the shares of our Class&nbsp;A common stock
that we are selling in this offering, which may be resold
immediately in the public market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, our Parent will
own&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;B common stock. It is anticipated that our
directors, executive officers and our Parent will agree, with
limited exceptions, that we and they will not directly or
indirectly, without the prior written consent of the
underwriters, offer to sell, sell or otherwise dispose of any of
our common stock for a period of 180&nbsp;days after the date of
this prospectus. Subject to the selling restrictions described
under &#147;Shares Eligible for Future Sale&#148; and
&#147;Underwriting,&#148; our Parent could, from time to time,
convert their Class&nbsp;B common stock into Class&nbsp;A common
stock and sell any or all of those shares. Further, following
the consummation of this offering, pursuant to the terms of a
registration rights agreement that we expect to enter into with
our Parent, our Parent and its permitted transferees will have
the right to require us to register their common stock under the
Securities Act of 1933, or the Securities Act, for sale into the
public markets. Upon the effectiveness of any such registration
statement, all shares covered by the registration statement will
be freely transferable. Following the consummation of this
offering, we also intend to file a registration statement on
Form&nbsp;S-8 under the Securities Act to register an aggregate
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock reserved for issuance under our
Long-Term Incentive Plan. Subject to the exercise of issued and
outstanding options, shares registered under the registration
statement on Form&nbsp;S-8 will be available for sale into the
public markets after the expiration of the 180-day lock-up
agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot predict what effect, if any, future sales of our
common stock, or the availability of common stock for future
sale, will have on the market price of our Class&nbsp;A common
stock. Sales of substantial amounts of our common stock in the
public market following our initial public offering, or the
perception that such sales could occur, could adversely affect
the market price of our Class&nbsp;A common stock and may make
it more difficult for you to sell your Class&nbsp;A common stock
at a time and price which you deem appropriate. The sale by our
Parent of additional shares of Class&nbsp;A common stock in the
public market, the perception that such sales might occur, or
the conversion of shares of Class&nbsp;B common stock into
Class&nbsp;A common stock, could dilute your voting power and
your ownership interest us, and
</DIV>

<P align="center" style="font-size: 10pt;">24
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<DIV align="left" style="font-size: 10pt;">
could reduce the price that our Class&nbsp;A common stock might
otherwise obtain or could impair our ability to obtain capital
through an offering of equity securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our management has broad discretion as to the use of the net
proceeds from this offering and may not use those proceeds in
ways that will enhance our market value</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our management has broad discretion as to the use of the net
proceeds that we will receive from this offering. In the event
management does not apply these funds effectively, your
investment in our common stock may not result in a favorable
return.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We do not expect to pay dividends in the foreseeable
future</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We currently anticipate that we will retain all of our future
earnings, if any, to fund the operation and expansion of our
business and to use as working capital and for other general
corporate purposes. Our Board of Directors will have sole
discretion to determine the dividend amount, if any, to be paid.
Our Board of Directors will consider a number of factors,
including applicable provisions of Delaware corporate law, our
financial condition, capital requirements, funds generated from
operations, future business prospects, applicable contractual
restrictions and any other factors our board may deem relevant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Parent&#146;s ownership of our Class&nbsp;B common stock
and the provisions of Delaware law and of our charter and
by-laws may discourage a change of control that our stockholders
may favor, which could negatively affect our stock price</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Following completion of this offering, our Parent will own 100%
of our Class&nbsp;B common stock, which will represent
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock after this offering, or
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
if the underwriters exercise in full their option to purchase
additional shares. These shares collectively will
represent &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the combined voting power of our outstanding common stock
(or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
if the underwriters exercise in full their option to purchase
additional shares). Given its ownership interest, our Parent
will be able to control the outcome of all matters submitted to
our shareholders for approval, and will be able to prevent a
change in control of our company that our stockholders may
otherwise favor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Further, provisions in our certificate of incorporation and
by-laws and in the Delaware General Corporation Law may make it
difficult and expensive for a third party to pursue a tender
offer, change in control or takeover attempt that our management
and Board of Directors oppose. Public stockholders that might
desire to participate in one of these transactions may not have
an opportunity to do so. Such anti-takeover provisions could
substantially impede the ability of public stockholders to
benefit from a change in control or to change our management and
Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Investors purchasing Class&nbsp;A common stock in this
offering will experience immediate and substantial dilution</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The assumed initial public offering price of our Class&nbsp;A
common stock is substantially higher than the net tangible book
value per outstanding share of our common stock immediately
after this offering. As a result, you will pay a price per share
that substantially exceeds the book value of our assets after
subtracting our liabilities. Purchasers of our Class&nbsp;A
common stock in this offering will incur immediate and
substantial dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share in the net tangible book value of our common stock from
the assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, which is the mid-point of the estimated range set forth
on the cover of this prospectus. If the underwriters exercise
their in full their option to purchase additional shares, there
will be an additional dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share in the net tangible book value of our common stock,
assuming the same public offering price.
</DIV>

<P align="center" style="font-size: 10pt;">25

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<DIV align="left" style="font-size: 10pt;">
<A name='103'></A>
</DIV>

<!-- link1 "FORWARD-LOOKING STATEMENTS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>FORWARD-LOOKING STATEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This prospectus contains both historical and forward-looking
statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements.
For example, statements concerning projections, predictions,
expectations, estimates or forecasts and statements that
describe our objectives, plans or goals are or may be
forward-looking statements. These forward-looking statements
reflect management&#146;s current expectations concerning future
results and events and generally can be identified by use of
expressions such as &#147;may,&#148; &#147;will,&#148;
&#147;should,&#148; &#147;could,&#148; &#147;would,&#148;
&#147;predict,&#148; &#147;potential,&#148;
&#147;continue,&#148; &#147;expect,&#148;
&#147;anticipate,&#148; &#147;future,&#148; &#147;intend,&#148;
&#147;plan,&#148; &#147;foresee,&#148; &#147;believe,&#148;
&#147;estimate,&#148; and similar expressions, as well as
statements in future tense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual
results, performance or achievements to be different from any
future results, performance and achievements expressed or
implied by these statements. General economic, business or
regulatory conditions affecting the healthcare, information
technology and Internet industries being less favorable than
expected and the other risks and uncertainties described under
the headings &#147;Risk Factors,&#148; &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations,&#148; &#147;Business&#148; and &#147;Government
Regulation,&#148; could affect our future results, causing those
results to differ materially from those expressed in our
forward-looking statements. In addition, other unknown or
unpredictable factors could also have material adverse effects
on our future results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The forward-looking statements included in this prospectus are
made only as of the date of this prospectus. We expressly
disclaim any intent or obligation to update any forward-looking
statements to reflect subsequent events or circumstances.
</DIV>

<P align="center" style="font-size: 10pt;">26

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<DIV align="left" style="font-size: 10pt;">
<A name='104'></A>
</DIV>

<!-- link1 "USE OF PROCEEDS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>USE OF PROCEEDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The net proceeds from the sale of the shares of the Class&nbsp;A
common stock offered by us will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
based on an estimated initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the mid-point of the range set forth on the cover page of
this prospectus), after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The primary purposes of the offering are to create a public
market for our common stock and to obtain additional capital. We
will be retaining all of the net proceeds of the offering and
expect to use those proceeds for working capital and general
corporate purposes, including capital expenditures and
acquisitions. We have no present commitments with respect to any
future acquisitions. Management will have broad discretion as to
the use of the net proceeds from this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The amounts actually expended for each purpose and the timing of
such expenditures will depend on a number of factors, including
our realization of the different elements of our growth strategy
and the amount of cash generated by our operations. Pending
their use, the proceeds of the offering will be invested in
interest-bearing securities.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='105'></A>
</DIV>

<!-- link1 "DIVIDEND POLICY" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DIVIDEND POLICY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have never declared or paid dividends on our common stock.
Following consummation of this offering, we do not intend to pay
any cash dividends on our common stock in the foreseeable
future. Instead, we currently anticipate that we will retain all
of our future earnings, if any, to fund the operation and
expansion of our business and to use as working capital and for
other general corporate purposes. Our Board of Directors will
have sole discretion to determine whether to pay dividends in
the future based on conditions then existing, including our
earnings, financial condition and capital requirements, the
availability of third-party financing and any economic and other
conditions that our Board of Directors may deem relevant.
</DIV>

<P align="center" style="font-size: 10pt;">27

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<DIV align="left" style="font-size: 10pt;">
<A name='106'></A>
</DIV>

<!-- link1 "CAPITALIZATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CAPITALIZATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth our cash and cash equivalents and
our capitalization as of December&nbsp;31, 2004:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    on an actual basis;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    on a pro forma basis to give effect to our acquisition of
    HealthShare Technology, Inc. as though the acquisition occurred
    on December&nbsp;31, 2004;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    on a pro forma as adjusted basis to give effect to (1)&nbsp;the
    sale of the shares of our Class&nbsp;A common stock in this
    offering and the receipt of the estimated net proceeds after
    deducting underwriting discounts and commissions and the
    estimated offering expenses and (2)&nbsp;the reclassification of
    Owner&#146;s net investment to Stockholder&#146;s equity,
    reflecting the contribution of capital of net amounts due to our
    Parent and the related issuance of shares of our Class&nbsp;B
    common stock to our Parent.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should read this table together with the &#147;Use of
Proceeds,&#148; &#147;Management&#146;s Discussion and Analysis
of Financial Condition and Results of Operations,&#148;
&#147;Description of Capital Stock,&#148; our combined
consolidated financial statements, our pro forma financial
statements and the individual financial statements of certain
acquired businesses, along with the notes thereto, included
elsewhere in this prospectus.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>As of December&nbsp;31, 2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pro Forma</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pro Forma</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>As Adjusted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>3,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>8,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity(1):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A common stock, $.01&nbsp;par value per share, shares
    authorized (actual and pro forma as adjusted); shares issued and
    outstanding
    (actual); &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding (pro forma as adjusted)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;B common stock, $.01&nbsp;par value per share, shares
    authorized (actual, pro forma and pro forma as adjusted); shares
    issued and outstanding
    (actual); &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding (pro forma as adjusted)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Owner&#146;s net investment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>131,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>131,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>131,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Excludes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of our Class&nbsp;A common stock reserved for grants under our
    incentive compensation plans expected to be granted after the
    pricing of this offering, of
    which &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;will
    be in the form of options to purchase shares of our Class&nbsp;A
    common stock with an exercise price equal to the initial public
    offering price per share,
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
    which will be in the form of restricted Class&nbsp;A common
    stock.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">28

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='107'></A>
</DIV>

<!-- link1 "DILUTION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DILUTION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If you invest in our Class&nbsp;A common stock, your interest
will be diluted to the extent of the difference between the
initial public offering price per share of our Class&nbsp;A
common stock and the pro forma net tangible book value per share
of our common stock after the offering. Dilution results from
the fact that the per share offering price of the common stock
is substantially in excess of the net tangible book value per
share attributable to the existing stockholders for the
presently outstanding stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our pro forma net tangible book value at December&nbsp;31, 2004,
after giving effect to our formation as a Delaware corporation
and assuming that our Parent converted all outstanding shares of
our Class&nbsp;B common stock
into &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock, was
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. Pro forma net tangible book value per
share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Class&nbsp;A
common stock outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After giving effect to our sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock offered by this prospectus at
an estimated initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the mid-point of the range set forth on the cover of this
prospectus) and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us, our
pro forma net tangible book value as of December&nbsp;31, 2004,
after giving effect to our formation as a Delaware corporation
and assuming that our Parent converted all outstanding shares of
our Class&nbsp;B common stock
into &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock, would have been
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. This represents an immediate increase in
pro forma net tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to our Parent, currently our sole stockholder, and an
immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to new investors purchasing the Class&nbsp;A common stock
in this offering. The following table illustrates this per share
dilution:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Assumed initial public offering price per share of Class&nbsp;A
    common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net tangible book value per share of Class&nbsp;A
    common stock at December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase in pro forma net tangible book value per share of
    Class&nbsp;A common attributable to new investors purchasing
    Class&nbsp;A common stock in this offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net tangible book value per share of common stock
    after this offering(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma dilution per share of common stock to new investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    If the underwriters&#146; option to purchased additional shares
    is exercised in full, the dilution per share to new investors
    will be
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes, on a pro forma basis as of
December&nbsp;31, 2004, the differences between our Parent
(currently our sole stockholder) and new investors with respect
to the number of shares of Class&nbsp;A common stock purchased
from us, the total consideration paid and the average price per
share paid before deducting the underwriting discounts and
commissions and our estimated offering expenses, assuming an
initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share and assuming that our Parent converted all outstanding
shares of our Class&nbsp;B common stock
into &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock as of the date of this offering.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Purchased</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Total Consideration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price per</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Share</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(Dollars in thousands, except per share amount)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Our Parent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investors purchasing common stock in the offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">29

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='108'></A>
</DIV>

<!-- link1 "SELECTED FINANCIAL INFORMATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SELECTED FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We present below our selected combined consolidated financial
data. The selected combined consolidated statement of operations
for each of the years in the three-year period ended
December&nbsp;31, 2004 and the selected combined consolidated
balance sheet data as of December&nbsp;31, 2003 and 2004 have
been derived from the audited financial statements of WebMD
Health Holdings, Inc. included elsewhere in this prospectus. The
selected historical combined consolidated statement of
operations data for the year ended December&nbsp;31, 2001 and
the combined consolidated balance sheet data as of
December&nbsp;31, 2001 and 2002 have been derived from our
unaudited combined consolidated financial statements. Our
unaudited financial information was prepared on a basis
consistent with that used in preparing our audited combined
consolidated financial statements and includes all adjustments,
consisting of normal and recurring items, that we consider
necessary for a fair presentation of the financial position and
results of operations for the unaudited periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should read the following selected combined consolidated
financial data in conjunction with &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations,&#148; the combined consolidated financial statements
and notes thereto and the unaudited pro forma financial
statements and related notes, all included elsewhere in this
prospectus.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Combined Consolidated Statements of Operations Data(1):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>74,626</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>110,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>134,148</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Costs and expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,879</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,701</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,277</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>883,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,620</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of long-lived and other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,415,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring and integration charge (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,850</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,529,724</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,221</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,242</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,671</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,529,828</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>As of December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Combined Consolidated Balance Sheets Data(1):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,642</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(547</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,119</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>132,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>120,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,496</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Owner&#146;s net investment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>92,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Our combined consolidated results of operations and balance
    sheet data as of and for the year ended December&nbsp;31, 2000
    are not available. Our Parent managed its operations as a single
    business segment from its inception in 1995 until 2001 when, as
    a result of a restructuring plan, it segregated its business
    into multiple segments. As a result of this restructuring plan,
    as of January&nbsp;1, 2001, our operations were identified and
    managed as a separate segment of our Parent. The Internet
    operations that were unrelated to our Parent&#146;s other
    segments were identified and established as the WebMD Health
    segment, which now comprises our company. It is impracticable to
    identify our results of operations for our company for periods
    prior to 2001 because our business was commingled with other
    operations of our Parent.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">30

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='109'></A>
</DIV>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This management&#146;s discussion and analysis of financial
condition and results of operations contains forward-looking
statements that involve risks and uncertainties. Please see
&#147;Forward-Looking Statements&#148; for a discussion of the
uncertainties, risks and assumptions associated with these
statements. The results of operations for the periods reflected
herein are not necessarily indicative of results that may be
expected for future periods, and our actual results may differ
materially from those discussed in the forward-looking
statements as a result of various factors, including but not
limited to those listed under &#147;Risk Factors&#148; and
included elsewhere in this prospectus. In this management&#146;s
discussion and analysis of financial condition and results of
operations, or MD&#38;A, dollar amounts are in thousands.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
MD&#38;A is a supplement to our combined consolidated financial
statements and notes thereto included elsewhere in this
prospectus to provide an understanding of our results of
operations, financial condition, and changes in financial
condition. Our MD&#38;A is organized as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Introduction.</I> This section provides a general description
    of our company and operating segments, key trends affecting our
    business, a description of the basis of presentation of our
    financial statements, and a summary of the acquisitions we
    completed during the current year and the last three years.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Critical Accounting Policies and Estimates.</I> This section
    discusses those accounting policies that both are considered
    important to our financial condition and results of operations,
    and require us to exercise subjective or complex judgments in
    their application. In addition, all of our significant
    accounting policies, including our critical accounting policies,
    are summarized in Note&nbsp;2 to the combined consolidated
    financial statements included in this Registration Statement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Results of Operations and Results of Operations by Operating
    Segment.</I> These sections provide our analysis and outlook for
    the significant line items on our combined consolidated
    statements of operations, on both a company-wide and a
    segment-by-segment basis.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Liquidity and Capital Resources.</I> This section provides an
    analysis of our liquidity and cash flows, as well as a
    discussion of our commitments that existed as of
    December&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Recent Accounting Pronouncements.</I> This section provides a
    summary of the most recent authoritative accounting standards
    and guidance that have either been recently adopted by our
    company or may be adopted in the future.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Introduction</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Our Company</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a leading provider of health information services to
consumers, physicians and healthcare professionals. We have
aligned our business into two operating segments as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Online Services.</I> We provide both public and private
    online portals. Our public portals generate revenue primarily
    through the sale of advertising and sponsorship products,
    including CME services. Our sponsors and advertisers include
    pharmaceutical, biotechnology, medical device and consumer
    products companies. Our private portals for employers and health
    plans provide information and services that enable their
    employees and members to make more informed benefit, provider
    and treatment decisions. We generate revenue from private
    portals through the licensing of our private portals to
    employers and health plans. We also distribute our online
    content and services to other entities and generate revenue from
    these arrangements through the sale of advertising and
    sponsorship products and content syndication fees.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">31

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Publishing Services.</I> We publish: <I>ACP Medicine</I> and
    <I>ACS Surgery: Principles of Practice</I>, our medical
    reference textbooks; <I>The Little Blue Book,</I> a physician
    directory; and <I>WebMD the Magazine,</I> a consumer publication
    launched in early 2005 that we distribute free of charge to
    physician office waiting rooms. We generate revenue from sales
    of subscriptions to our medical reference publications, from
    sales of <I>The Little Blue Book</I> directories and from
    advertisements in those directories, as well as from sales of
    advertisements in <I>WebMD the Magazine.</I> Our publishing
    business is a complementary business to our Online Services and
    extends the reach of our brand and our influence with
    health-involved consumers and clinically-active physicians.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Key Trends Affecting Our Business</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our business is affected by the continuing evolution of the
Internet and by trends affecting the healthcare industry,
including changes in healthcare regulation. The key trends that
are influencing our current strategies and investments are:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;</TD>
    <TD align="left">
    <I>Consumers, Physicians and Healthcare Professionals Are
    Increasingly Turning to the Internet.</I> The Internet is
    transforming the way health and medical information is accessed
    by consumers, physicians and healthcare professionals. The
    Internet allows consumers to have immediate access to searchable
    information and dynamic interactive content. Consumers have an
    increased interest in educating themselves about health and
    wellness issues, motivated in part by the continued availability
    of new treatment options and in part by the larger share of
    their healthcare expenditures they are being asked to bear due
    to changes in the design of health benefits being offered by
    health plans and employers. The Internet has also become a
    primary source of information for physicians and healthcare
    professionals and is growing relative to traditional information
    sources, such as conferences, meetings and offline journals.
    According to the Accreditation Council for Continuing Medical
    Education (ACCME), the Internet is an efficient way to educate
    physicians and healthcare professionals and to promulgate
    adherence to clinical guidelines in order to reduce the variance
    in treatment patterns and raise the quality of care management.
    Over the past several years, usage of our online services by
    consumers, physicians and healthcare professionals has grown
    significantly. While we cannot provide assurance that usage will
    grow as quickly as it has during the past several years, we
    intend to make the necessary investments to continue to provide
    high quality and timely content and interactive services and to
    continue to increase awareness of our brand.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;</TD>
    <TD align="left">
    <I>Increased Online Marketing and Education Spending for
    Healthcare Products.</I> Pharmaceutical, biotechnology and
    medical device companies spend large amounts each year marketing
    their products and educating consumers and physicians about
    them, only a small portion of which is currently spent for
    online services. We believe that these companies are becoming
    increasingly aware of the effectiveness of the Internet relative
    to traditional media in providing appropriate health and
    clinical information to inform consumers and physicians about
    their products. We believe the increasing awareness of the value
    of the Internet is likely to result in continued increases in
    demand for our services from those advertisers and sponsors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;</TD>
    <TD align="left">
    <I>Continued Rapid Increases in Healthcare Costs.</I> According
    to a report from CMS, healthcare spending in the United States
    rose to $1.7 trillion in 2003, up from $1.6 trillion in 2002,
    $1.4 trillion in 2001 and $1.3 trillion in 2000. The CMS report
    indicated a growth rate in healthcare spending of 7.7% for 2003,
    compared to 9.3% for 2002, and 8.5% for 2001. While overall
    healthcare costs are rising at a rapid annual rate,
    employers&#146; costs of providing healthcare benefits to their
    employees are increasing at an even faster rate. In response,
    employers and health plans have been changing benefit plan
    designs to increase consumer out-of-pocket costs and have taken
    other steps to motivate their members and employees to evaluate
    their healthcare decisions more carefully in order to be more
    cost effective. This has led employers and health plans to
    enhance wellness programs and to take steps to provide
    healthcare information and education to employees and members,
    including through the use of online services of the types we
    provide through our private portals. By implementing our
    services and making the needed information and decision-</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">32

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<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    support tools available through a convenient and easy-to-use
    online service, employers and health plans can help their
    employees and members make choices that reduce overall
    healthcare costs. We expect the efforts to control healthcare
    costs to continue and to create opportunities for additional
    revenue from providing existing and new products and services
    through our private portals and our public portals.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, there are other trends that we believe may become
more important over the next several years, including the
increasing focus at various levels of government on the
potential benefits of increased use of healthcare information
technology and related services.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Basis of Presentation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Parent managed its operations as a single segment from its
inception in 1995 until 2001 when, as a result of a
restructuring plan, it segregated its business into multiple
segments. As a result of this restructuring plan, as of
January&nbsp;1, 2001, our operations were identified and managed
as a separate segment of our Parent. The Internet operations
that were unrelated to our Parent&#146;s other segments were
identified and established as the WebMD Health business segment,
which now comprises our company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our combined consolidated financial statements have been derived
from the consolidated financial statements and accounting
records of our Parent, principally representing the WebMD Health
segment, using the historical results of operations, and
historical basis of assets and liabilities of the WebMD Health
related businesses. Management believes the assumptions
underlying the combined consolidated financial statements are
reasonable. However, the combined consolidated financial
statements included herein may not necessarily reflect our
results of operations, financial position and cash flows in the
future or what our results of operations, financial position and
cash flows would have been had we been a stand-alone company
during the periods presented.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Acquisitions</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;14, 2005, we acquired HealthShare Technology,
Inc., which we refer to as &#147;HealthShare&#148;. The purchase
price paid at closing was approximately $31,000 in cash. In
addition, we have agreed to pay up to an additional $5,000
during 2006 if certain milestones are achieved. HealthShare
provides health plans and employers, and their members and
employees, with online decision-support tools that evaluate both
the cost and quality of hospital care. HealthShare also provides
professional decision-support tools used by health plan
executives to develop provider networks, identify centers of
excellence, and evaluate comparative hospital quality.
HealthShare tools are also used by hospitals to provide online
decision-support to help enhance quality of care, manage costs
and profitability, and better understand market position. The
results of operations of HealthShare will be included in our
Online Services segment beginning March&nbsp;14, 2005, the
closing date of the acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 2004, we acquired two companies, MedicineNet, Inc. and
RxList, LLC, which we refer to as the &#147;2004
Acquisitions&#148;, for a total purchase consideration of
approximately $22,489, comprised of $20,894 in cash, net of cash
acquired, $838 to be paid during the next two years and $757 of
estimated acquisition costs. In connection with the preliminary
allocation of the purchase prices, we recorded goodwill of
$13,387 and intangible assets of $8,216, with estimated useful
lives ranging from two to five years. Additionally, we agreed to
pay in 2006 and 2007 up to an additional aggregate amount of
$20,000 if certain milestones are achieved for these
acquisitions. The 2004 Acquisitions are included in our Online
Services segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 2003, we acquired <I>The Little Blue Book </I>and Optate,
Inc., which we refer to as the &#147;2003 Acquisitions&#148; for
a total purchase consideration of approximately $14,113,
comprised of $13,926 in cash, net of cash acquired, and $187 of
acquisition costs. We agreed to pay up to an additional $2,500
if certain milestones are achieved. In connection with the
initial allocation of the purchase prices, we recorded goodwill
of $12,615 and intangible assets of $3,525, with estimated
useful lives of three to seven years. In addition, we paid an
additional purchase price of $1,500 and $1,000 in April 2004 and
2005, respectively, as a result of achieving the milestones
noted above, with such payments being recorded as increases to
</DIV>

<P align="center" style="font-size: 10pt;">33

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<DIV align="left" style="font-size: 10pt;">
goodwill. <I>The Little Blue Book </I>is included in our
Publishing Services segment and Optate is included in our Online
Services segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 2002, we acquired one company, WellMed, Inc., which we refer
to as the &#147;2002 Acquisition&#148; for a total purchase
consideration of approximately $19,013, comprised of $18,763 in
cash and $250 of acquisition costs. In connection with the
allocation of the purchase price, we recorded goodwill of
$18,380 and an intangible asset of $2,700, with an estimated
useful life of three years. The 2002 Acquisition is included in
our Online Services segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Critical Accounting Policies and Estimates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our discussion and analysis of our financial condition and
results of operations are based upon our combined consolidated
financial statements and notes to combined consolidated
financial statements, which were prepared in conformity with
U.S.&nbsp;generally accepted accounting principles. The
preparation of the combined consolidated financial statements
requires us to make estimates and assumptions that affect the
amounts reported in the combined consolidated financial
statements and accompanying notes. We base our estimates on
historical experience, current business factors, and various
other assumptions that we believe are necessary to form a basis
for making judgments about the carrying values of assets and
liabilities and disclosure of contingent assets and liabilities.
We are subject to uncertainties such as the impact of future
events, economic, environmental and political factors, and
changes in our business environment; therefore, actual results
could differ from these estimates. Accordingly, the accounting
estimates used in preparation of our financial statements will
change as new events occur, as more experience is acquired, as
additional information is obtained and as our operating
environment changes. Changes in estimates are made when
circumstances warrant. Such changes in estimates and refinements
in estimation methodologies are reflected in reported results of
operations; if material, the effects of changes in estimates are
disclosed in the notes to our combined consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We evaluate our estimates on an ongoing basis, including those
related to revenue recognition, the allowance for doubtful
accounts, the carrying value of prepaid advertising, the
carrying value of long-lived assets (including goodwill and
intangible assets), the amortization period of long-lived assets
(other than goodwill), the carrying value, capitalization and
amortization of software development costs, the provision for
income taxes and related deferred tax accounts, certain accrued
expenses and contingencies, transactions with Parent and the
value attributed to warrants issued for services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe the following reflects our critical accounting
policies and our more significant judgments and estimates used
in the preparation of our combined consolidated financial
statements:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Revenue Recognition</I>&nbsp;&#151; Revenues from advertising
    are recognized as advertisements are delivered or as
    publications are distributed. Revenues from sponsorship
    arrangements, content syndication and distribution arrangements
    and licenses of our healthcare management tools and private
    online portals are recognized ratably over the term of the
    applicable agreement. Revenue from the sponsorship of CME is
    recognized over the period we satisfy the minimum distribution
    requirements. Subscription revenue is recognized over the
    subscription period. When contractual arrangements contain
    multiple elements, revenue is allocated to the elements based on
    their relative fair values, determined using prices charged when
    elements are sold separately.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Long-Lived Assets</I>&nbsp;&#151; Our long-lived assets
    consist of property and equipment, goodwill and other intangible
    assets. Goodwill and other intangible assets arise from the
    acquisitions we have made. The amount assigned to intangible
    assets is subjective and based on our estimates of the future
    benefit of the intangible assets using accepted valuation
    techniques, such as discounted cash flow and replacement cost
    models. Our long-lived assets, other than goodwill, are
    amortized over their estimated useful lives, which we determined
    based on the consideration of several factors including the
    period of time the asset is expected to remain in service. We
    evaluate the carrying value and remaining useful lives of
    long-lived assets, other than goodwill, whenever indicators of
    impairment are present. We evaluate the carrying value of
    goodwill annually, and whenever indicators of impairment are
    present. We use a discounted cash flow approach to determine the
    fair value of</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">34

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    goodwill. There was no impairment of goodwill noted as a result
    of our impairment testing in 2002, 2003 or 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Deferred Tax Assets</I>&nbsp;&#151; Our deferred tax assets
    are comprised primarily of net operating loss carryforwards. At
    December&nbsp;31, 2004, we had net operating loss carryforwards
    of approximately $607,000. Subject to certain limitations, these
    loss carryforwards may be used to offset taxable income in
    future periods, reducing the amount of taxes we might otherwise
    be required to pay. Due to a lack of a history of generating
    taxable income, we record a valuation allowance equal to 100% of
    our net deferred tax assets. In the event that we are able to
    generate taxable earnings in the future and determine it is more
    likely than not that we can realize our deferred tax assets, an
    adjustment to the valuation allowance would be made which may
    increase income in the period that such determination is made,
    and may decrease income in subsequent periods.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Transactions with Parent</I>&nbsp;&#151; Our expenses reflect
    a services fee for costs related to corporate services provided
    by our Parent for accounting, tax, treasury, legal, human
    resources, certain information technology functions and other
    services. The services fee is based on an estimate of the cost
    of such services utilized by us and is determined based on a
    specific identification basis where appropriate or an allocation
    based upon total employees of both us and our Parent or other
    reasonable measures of allocation. Our expenses also reflect
    healthcare expenses related to the cost of our Parent&#146;s
    healthcare plans and stock compensation expense related to
    restricted stock awards and deferred stock compensation. Our
    sales and marketing expense reflects an allocation to our Parent
    for the utilization of our advertising services available to us
    from News Corporation. We and our Parent consider the services
    fee, healthcare expenses and stock compensation, as well as the
    allocation of advertising services to our Parent, to be a
    reasonable estimate of the utilization of the services. Our cost
    and benefit received as a stand-alone company would likely be
    different than the amounts reflected in the combined
    consolidated statements of operations. After the completion of
    this initial public offering, our expenses related to these
    items will be governed by a services agreement that we expect to
    enter into with our Parent.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth our combined consolidated
statements of operations data and expresses that data as a
percentage of revenue for the periods presented (amounts in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>110,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>134,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Costs and expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring and integration benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,850</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6.9</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.0</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,221</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(28.8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,242</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6.6</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(28.9</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6.7</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.8</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenue is derived from our two business segments: Online
Services and Publishing Services. Online Services include
advertising, sponsorship, including online CME services, content
syndication and distribution, and licenses of private online
portals to employers and healthcare payers. Publishing Services
</DIV>

<P align="center" style="font-size: 10pt;">35

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<DIV align="left" style="font-size: 10pt;">
include sales of, and advertising in, physician directories,
subscriptions to professional medical reference textbooks,
broadcast fax services, and advertisements in our consumer
publication distributed to physician waiting rooms. Our
customers include pharmaceutical, biotechnology, medical device
and consumer products companies, as well as employers and health
plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cost of operations consists of costs related to services and
products we provide to customers and costs associated with the
operation and maintenance of our public and private portals.
These costs include editorial and production, Web site
operations and development, and costs related to the production
and distribution of our publications. These costs consist of
expenses related to compensation, creating and licensing
content, telecommunication, leased personnel, printing and
distribution, and non-cash advertising expenses related to the
sale of offline advertising through our media partners.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Sales and marketing expense consists primarily of advertising,
product and brand promotion, salaries and related expenses.
These expenses include items related to salaries and related
expenses of account executives, account management and marketing
personnel, costs and expenses for marketing programs, and fees
for professional marketing and advertising services. Also
included are non-cash expenses related to advertising services
acquired in exchange for equity securities of our Parent.
Advertising services consist of advertising, promotion and
distribution services incurred under our arrangements with News
Corporation, America Online, Inc. (AOL) and other partners.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
General and administrative expense consists primarily of
salaries and related expenses of administrative, finance, legal,
information technology, human resources and executive personnel.
These expenses include costs of general insurance and costs of
accounting and internal control systems to support our
operations, a services fee for our portion of certain expenses
shared across all segments of Parent, as well as facilities
expense. Also included are non-cash expenses related to stock
compensation resulting from restricted stock awards in our
Parent&#146;s common stock that have been granted to certain of
our employees and stock options assumed or issued in connection
with certain acquisitions with exercise prices less than the
fair market value of our Parent&#146;s stock on the date of
grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our revenues have increased to $134,148 in 2004 from $84,203 in
2002, an increase of $49,945. Our net income for 2004 was $6,461
compared to a net loss of $24,361 in 2002, an improvement of
$30,822. We cannot assure you that our revenues or net income
will continue to increase; however, to the extent that our
revenues increase in the future, we expect that our net income
as a percentage of our revenues will continue to increase.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>2004 and 2003</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion is a comparison of our results of
operations on a combined consolidated basis for the year ended
December&nbsp;31, 2004 to the year ended December&nbsp;31, 2003.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Revenue</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our total revenues increased 21.8% to $134,148 in 2004 from
$110,152 in 2003. Online Services and Publishing Services
accounted for $20,136 or 83.9% and $3,860 or 16.1%, of the
revenue increase, respectively. The increase in Publishing
Services revenue was primarily due to the full year impact of
the 2003 acquisition of <I>The Little Blue Book</I>. Our
revenues from customers acquired through our acquisitions in
2004 were not a significant portion of our 2004 revenues because
these acquisitions occurred late in 2004. Included in our 2004
and 2003 revenues are $12,000 per year relating to our content
syndication agreement with News Corporation, which expired in
January 2005.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Costs and Expenses</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our company achieved a significant increase in combined
consolidated revenues without incurring a proportionate increase
in expenses. This resulted in an improvement in cost of
operations, sales and marketing and general and administrative
expenses as a percentage of revenue when comparing 2004 to 2003.
</DIV>

<P align="center" style="font-size: 10pt;">36

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cost of Operations.</I> Cost of operations increased to
$51,879 in 2004 from $46,552 in 2003. Our cost of operations
represented 38.7% of revenues in 2004, compared to 42.3% of
revenue in 2003. Included in cost of operations were non-cash
advertising costs of $901 and $2,757 for 2004 and 2003,
respectively, which reflects lower sales of offline advertising
in 2004. Excluding the non-cash advertising costs, cost of
operations increased to $50,978 in 2004 or 38.0% of revenue from
$43,795 in 2003 or 39.8% of revenue. The $7,183 increase was
attributable to increased spending on information technology
and, to a lesser extent the full year impact in 2004 of printing
and distribution costs as a result of the 2003 acquisition of
<I>The Little Blue Book.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Sales and Marketing.</I> Sales and marketing expense
increased to $48,701 in 2004, from $47,369 in 2003, which
represents an increase of $1,332. Included in sales and
marketing expense were non-cash expenses related to advertising
and distribution services of $11,246 in 2004, a decrease from
$16,211 in 2003. This decrease was primarily due to a decline in
the expense related to our distribution arrangement with AOL
which was fully amortized in May 2004. Sales and marketing
expense excluding these non-cash expenses was $37,455, or 27.9%
of revenue in 2004, compared to $31,158, or 28.3% of revenue in
2003. The $6,297 increase is due to compensation related costs
due to a combination of increased commissions and increased
staffing, and the full year impact in 2004 of the acquisition of
<I>The Little Blue Book.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General and Administrative.</I> General and administrative
expense increased to $21,277 in 2004 from $19,010 in 2003.
Included in general and administrative expense are non-cash
expenses of $1,749 and $1,597 in 2004 and 2003, related to stock
compensation expense, which was higher in 2004 compared to 2003
primarily due to additional compensation expense related to
restricted stock issued to certain employees in early 2004.
General and administrative expense excluding these non-cash
expenses was $19,528 or 14.6% of revenue in 2004, compared to
$17,413 or 15.8% of revenue in 2003. The $2,115 increase is due
to increases in personnel related expenses resulting from an
increase in the number of our staff, and the full year impact in
2004 of the 2003 acquisition of <I>The Little Blue Book</I>. We
expect to report a charge related to the recruitment of our
co-CEO and the resignation of our former CEO during the second
quarter of 2005 in an amount of approximately $2.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Depreciation and Amortization.</I> Depreciation and
amortization expense increased to $5,620 in 2004 from $4,463 in
2003. The increase was primarily due to intangible assets
relating to the 2004 Acquisitions and 2003 Acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Income Tax Provision.</I> Income tax provision in 2004 and
2003 primarily represents taxes from profitable operations in
certain jurisdictions in which we do not have net operating
losses to offset that income. Accordingly, we provided for taxes
of $210 and $183 related to state and other jurisdictions during
2004 and 2003, respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>2003 and 2002</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion is a comparison of our results of
operations on a combined consolidated basis for the year ended
December&nbsp;31, 2003 to the year ended December&nbsp;31, 2002.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Revenue</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our total revenues increased 30.8% to $110,152 in 2003 from
$84,203 in 2002. Online Services and Publishing Services
accounted for $20,702 or 79.8% and $5,247 or 20.2%, of the
revenue increase, respectively. The increase is primarily
related to increased sales of our Online Services products and,
to a lesser extent, Publishing Services products. Revenue from
customers acquired through the 2003 Acquisitions and 2002
Acquisition contributed $9,579 to the overall increase in
revenue for 2003. We integrate acquisitions as quickly as
practicable, and only revenue recognized during the first twelve
months following the quarter in which the acquisitions close is
considered to be revenue from acquired customers. Included in
2003 and 2002 revenues are $12,000&nbsp;per year relating to our
content syndication agreement with News Corporation, which
expired in January 2005.
</DIV>

<P align="center" style="font-size: 10pt;">37

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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Costs and Expenses</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our company achieved a significant increase in combined
consolidated revenues without incurring a proportional increase
in expenses. This resulted in an improvement in cost of
operations, sales and marketing and general and administrative
expenses as a percentage of revenue when comparing 2003 to 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cost of Operations.</I> Cost of operations decreased to
$46,552 in 2003 from $47,420 in 2002. Our cost of operations
represented 42.3% of revenues in 2003, compared to 56.3% of
revenue in 2002. Included in cost of operations were non-cash
advertising costs of $2,757 and $3,945 for 2003 and 2002,
respectively, which reflects lower sales of offline advertising
in 2003. Cost of operations excluding these non-cash advertising
expenses was $43,795 in 2003 compared to $43,475 in 2002. The
$320 increase is due to the full year impact of the 2002
Acquisition and the partial year impact of increased printing
and distribution costs as a result of the 2003 acquisition of
<I>The Little Blue Book, </I>offset by the full year impact of
reduced compensation related expense as a result of the
consolidation of Web site development and operations effected
during 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Sales and Marketing.</I> Sales and marketing expense
decreased to $47,369 in 2003, compared to $47,814 in 2002.
Included in sales and marketing expense are non-cash expenses
related to advertising and distribution services of $16,211 in
2003, compared to $18,864 in 2002. Sales and marketing expense
excluding the non-cash expenses previously discussed was
$31,158, or 28.3% of revenue in 2003, compared to $28,950, or
34.4% of revenue in 2002. The $2,208 increase was due to a
significant increase in membership acquisition costs in 2003,
primarily related to the acquisition of a membership database,
increased staffing as a result of the full year impact of the
2002 Acquisition and the partial year impact of the 2003
acquisition of <I>The Little Blue Book,</I> offset by a
reduction in fees for marketing and advertising services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General and Administrative.</I> General and administrative
expense increased to $19,010 in 2003 from $17,377 in 2002.
Included in general and administrative expense are non-cash
expenses related to stock compensation of $1,597 in 2003,
compared to $2,665 in 2002. The decrease in non-cash stock
compensation was primarily related to the vesting schedules of
options issued and assumed in connection with our 2000
acquisitions. General and administrative expense excluding these
non-cash expenses was $17,413, or 15.8% of revenue in 2003,
compared to $14,712, or 17.5% of revenue in 2002. The $2,701
increase is due to the full year impact of the 2002 Acquisition
and the partial year impact of the 2003 acquisition of <I>The
Little Blue Book</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Depreciation and Amortization.</I> Depreciation and
amortization expense increased to $4,463 in 2003 from $2,486 in
2002. The increase was primarily due to amortization of
intangible assets relating to certain 2003 Acquisitions and a
2002 Acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Restructuring and Integration Benefit.</I> During 2000 and
2001, our Parent initiated a restructuring, during which many
business relationships were exited or restructured in an effort
to reduce operating losses. During 2002, we recorded a benefit
of $5,850 related to the 2000 and 2001 restructuring activity
resulting from the favorable settlements of certain of these
restructured arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Income Tax Provision.</I> Income tax provision in 2003 and
2002 primarily represents taxes from profitable operations in
certain states in which we do not have net operating losses to
offset that income. Accordingly, we provided for taxes of $183
and $140 related to state and other jurisdictions during 2003
and 2002, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Results of Operations by Operating Segment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We monitor the performance of our business based on income or
loss before restructuring, taxes, non-cash and other items.
Non-cash and other items include depreciation and amortization,
other income, non-cash advertising and distribution expenses
related to services acquired in exchange for our Parent&#146;s
equity securities in acquisitions and strategic alliances, and
stock compensation expense. Corporate and other overhead
functions are allocated to segments on a specifically
identifiable basis or other reasonable method
</DIV>

<P align="center" style="font-size: 10pt;">38

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<DIV align="left" style="font-size: 10pt;">
of allocation. We consider these allocations to be a reasonable
reflection of the utilization of costs incurred. We do not
disaggregate assets for internal management reporting and,
therefore, such information is not presented. There are no
inter-segment revenue transactions and, therefore, revenues are
only to external customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table presents the results of our operations for
each of our operating segments and a reconciliation to net
income (loss):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Revenues</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Online Services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Advertising and promotion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>61,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>71,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>83,828</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Licensing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,841</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Content syndication and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,618</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Online Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>120,287</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Publishing Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,861</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>110,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>134,148</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Income (loss) before restructuring, taxes, non-cash and other
    items</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Online Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,086</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24,902</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Publishing Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(848</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,285</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,934</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,187</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Restructuring, taxes, non-cash and other items</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,486</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,463</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,620</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash advertising and distribution</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,809</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,968</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,147</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,665</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,597</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,749</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring and integration benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(140</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(183</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(210</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>2004 and 2003</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion is a comparison of the results of
operations for each of our operating segments for the year ended
December&nbsp;31, 2004 to the year ended December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Online Services.</I> Revenues were $120,287 in 2004, an
increase of $20,136 or 20.1% from 2003. The increase was related
to increased advertising and sponsorship revenue related to our
public portals and licensing revenues from our private online
portals. The revenue increase is primarily due to increased
demand for our public and private portals. Included in content
syndication and other revenues for 2004 and 2003 are
$12,000&nbsp;per year related to our content syndication
agreement with News Corporation which expired in January 2005.
Income before restructuring, taxes, non-cash and other items was
$24,902 in 2004, an increase of $8,757 or 54.2% from 2003. As a
percentage of revenue, income before restructuring, taxes,
non-cash and other items was 20.7% in 2004, compared to 16.1% in
2003. The growth in earnings and margins is due to our ability
to deliver the increased revenues without incurring a
proportionate share of variable expenses.
</DIV>

<P align="center" style="font-size: 10pt;">39

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Publishing Services.</I> Revenues were $13,861 in 2004,
compared to $10,001 for 2003. The increase was attributable to
the full year impact of the 2003 acquisition of <I>The Little
Blue Book.</I> Income before restructuring, taxes, non-cash and
other items was $1,285 in 2004, a decrease of $356 from 2003.
Our Publishing Services segment is seasonal, where approximately
70% of our revenues were generated during the second and third
quarter of 2004 when the majority of our physician directories
are delivered. Due to the full year impact of <I>The Little Blue
Book </I>acquisition on 2004 fixed expenses, as a percentage of
revenue, income before restructuring, taxes, non-cash and other
items declined to 9.3% in 2004, compared to 16.4% in 2003.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>2003 and 2002</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion is a comparison of the results of
operations for each of our operating segments for the year ended
December&nbsp;31, 2003 to the year ended December&nbsp;31, 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Online Services.</I> Revenues were $100,151 in 2003, an
increase of $20,702 or 26.1% from 2002. Revenues from customers
acquired through the 2003 Acquisitions contributed $5,853 to the
increase in revenue. The remaining increase of $14,849 for 2003
was primarily the result of increased sales related to
advertising and sponsorship on our public portals and licensing
revenues from our private online portals. Included in content
syndication and other revenue for 2003 and 2002 is
$12,000&nbsp;per year related to our content syndication
agreement with News Corporation which expired in January 2005.
Income (loss) before restructuring, taxes, non-cash and other
items was $16,145 in 2003, an increase of $18,231 from a 2002
loss of $2,086. As a percentage of revenue, income (loss) before
restructuring, taxes, non-cash and other items was 16.1% in
2003, compared to (2.6%) in 2002. The growth in earnings and
margins is due our ability to deliver the increased revenues
without incurring a proportionate share of variable expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Publishing Services.</I> Revenues were $10,001 in 2003,
compared to $4,754 for 2002. Revenues from customers acquired
through the 2003 Acquisitions contributed $3,726 to the increase
in revenue. The remaining increase of $1,521 for 2003 was
attributable to growth in advertising revenues for <I>The Little
Blue Book.</I> Income (loss) before restructuring, taxes,
non-cash and other items was $1,641 in 2003, an increase of
$2,489 from a loss in 2002 of $848. As a percentage of revenue,
income before restructuring, taxes, non-cash and other items was
16.4% in 2003, compared to (17.8)% in 2002. The improvement is
due primarily to the acquisition of <I>The Little Blue Book.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Liquidity and Capital Resources</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our primary source of financing has been net cash amounts
received from our Parent. Our Parent will continue to finance
our operations until this offering is completed. We will be
receiving the net proceeds of this offering and following
completion of this offering, Parent will have no obligation to
provide any additional financing. We plan to continue to enhance
the relevance of our online services to our audience and
sponsors and will continue to invest in acquisitions, strategic
relationships, infrastructure and product development. We intend
to grow each of our existing businesses and enter into
complementary ones through both internal investments and
acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash provided by operating activities was $18,138 in 2004,
compared to cash provided by operating activities of $2,917 in
2003. The cash provided by operating activities in 2004 was
attributable to net income of $6,461 and non-cash charges of
$19,516, partially offset by net changes in operating assets and
liabilities of $7,839. The impact of changes in operating assets
and liabilities may change in future periods, depending on the
timing of each period end in relation to items such as internal
payroll and billing cycles, payments from customers and payments
to vendors. The cash provided by operating activities in 2003
was attributable to a net loss of $7,425 and net changes in
operating assets and liabilities of $14,686, offset by non-cash
charges of $25,028. The non-cash charges consist of depreciation
and amortization, non-cash expenses related to advertising and
distribution and stock compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash used in investing activities was $26,742 in 2004, compared
to cash used in investing activities of $15,444 in 2003. Cash
paid for business acquisitions, net of cash acquired, was
$22,421 in 2004 and
</DIV>

<P align="center" style="font-size: 10pt;">40

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<DIV align="left" style="font-size: 10pt;">
primarily related to the 2004 Acquisitions. The 2003
Acquisitions consumed cash of $13,926&nbsp;net of cash acquired.
Investments in property and equipment were $4,321 in 2004,
compared to $1,518 in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash provided by financing activities was $11,702 in 2004,
compared to cash provided by financing activities of $12,736 in
2003. Cash provided by financing activities for 2004 and 2003
related to net cash amounts received from our Parent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our principal commitments at December&nbsp;31, 2004 consisted
primarily of our obligations under operating leases and
contingent consideration payments of up to an aggregate of
$20,000 related to certain acquisitions achieving certain
milestones. Additionally, in connection with the March&nbsp;2005
acquisition of HealthShare, we committed to pay up to an
additional $5,000 during 2006 if certain milestones are achieved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes our principal commitments as of
December&nbsp;31, 2004, as well as management&#146;s estimates
of the timing of the cash flows associated with these
commitments. Management&#146;s estimates of the timing of future
cash flows are largely based on historical experience, and
accordingly, actual timing of cash flows may vary from these
estimates. The contingent consideration payments of up to an
aggregate of $25,000, have not been included in the table below
as it is impracticable to estimate the timing or amount of any
payments related to these commitments.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Less Than</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>More Than</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1-3&nbsp;Years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>4-5&nbsp;Years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>5&nbsp;Years</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leases(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>35,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,957</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase obligations(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Strategic relationships(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,957</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    The lease amounts are net of sublease income.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Purchase obligations include amounts committed under legally
    enforceable contracts or purchase orders for goods and services
    with defined terms as to price, quantity and delivery.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    The strategic relationships represent commitments in connection
    with content and distribution services obtained for use on our
    Web site and certain distribution arrangements.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
We believe that the net proceeds from this offering, together
with our available cash resources and future cash flow from
operations, will provide sufficient cash resources to meet the
commitments described above and our currently anticipated
working capital and capital expenditure requirements for the
foreseeable future, including the capital requirements of
approximately $20&nbsp;million in 2005 primarily related to the
roll-out of new or updated products and services and the
relocation of our offices. Our future liquidity and capital
requirements will depend upon numerous factors, including
retention of customers at current volume and revenue levels, our
existing and new application and service offerings, competing
technological and market developments, and potential future
acquisitions. In addition, our ability to generate cash flow is
subject to numerous factors beyond our control, including
general economic, regulatory and other matters affecting us and
our customers. We may need to raise additional funds to support
expansion, develop new or enhanced applications and services,
respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated
opportunities. If required, we may raise such additional funds
through public or private debt or equity financing, strategic
relationships or other arrangements. We cannot assure you that
such financing will be available on acceptable terms, if at all,
or that such financing will not be dilutive to our stockholders.
Future indebtedness may impose various restrictions and
covenants on us that could limit our ability to respond to
market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.
</DIV>

<P align="center" style="font-size: 10pt;">41

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Qualitative and Quantitative Disclosures About Market Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have had no exposure to interest rate sensitivity or exchange
rate sensitivity. We have no investments as of December&nbsp;31,
2004 and we do not conduct business in foreign currencies. We
may have future risk related to interest rate sensitivity if we
invest the net proceeds from the sale of our Class&nbsp;A common
stock in certain types of interest bearing obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Recent Accounting Pronouncements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued SFAS&nbsp;No.&nbsp;123, &#147;(Revised
2004): Share-Based Payment&#148; (&#147;SFAS&nbsp;123R&#148;),
which replaces SFAS&nbsp;No.&nbsp;123, &#147;Accounting for
Stock-Based Compensation,&#148; (&#147;SFAS&nbsp;123&#148;) and
supersedes APB Opinion No.&nbsp;25, &#147;Accounting for Stock
Issued to Employees.&#148; SFAS&nbsp;123R requires all
share-based payments to employees, including grants of stock
options by us and our Parent to our employees, to be recognized
in the financial statements based on their fair values. The pro
forma disclosures previously permitted under SFAS&nbsp;123 no
longer will be an alternative to financial statement
recognition. We anticipate adopting SFAS&nbsp;123R in the first
quarter of 2006. Under SFAS&nbsp;123R, we must determine the
appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The transition
methods include prospective and retroactive adoption options.
Under the retroactive option, prior periods may be restated
either as of the beginning of the year of adoption or for all
periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options
and restricted stock at the beginning of the first quarter of
adoption of SFAS&nbsp;123R. We are evaluating the requirements
of SFAS&nbsp;123R and expect that the adoption of SFAS&nbsp;123R
will have a material impact on the combined consolidated results
of operations and earnings per share. We have not yet determined
the method of adoption or the effect of adopting SFAS&nbsp;123R.
</DIV>

<P align="center" style="font-size: 10pt;">42

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<DIV align="left" style="font-size: 10pt;">
<A name='110'></A>
</DIV>

<!-- link1 "BUSINESS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BUSINESS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a leading provider of health information services to
consumers, physicians and healthcare professionals through our
public and private online portals. The online healthcare
information, decision-support applications and communications
services that we provide:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    enable consumers to obtain detailed information on a particular
    disease or condition, analyze symptoms, locate physicians, store
    individual healthcare information, receive periodic
    e-newsletters on topics of individual interest, enroll in
    interactive courses and participate in online communities with
    peers and experts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    make it easier for physicians and healthcare professionals to
    access clinical reference sources, stay abreast of the latest
    clinical information, learn about new treatment options, earn
    CME credits and communicate with peers;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    enable employers and health plans to provide their employees and
    plan members with access to personalized health and benefit
    information and decision-support technology that helps them make
    more informed benefit, provider and treatment choices.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that we are well positioned to meet both consumer and
physician demand for timely, reliable and comprehensive health
information. We provide online services through several branded
public portals, including <I>WebMD Health,</I> our primary
public portal for consumers, and <I>Medscape from WebMD,</I> our
public portal for physicians and healthcare professionals.
<I>WebMD Health </I>and our other consumer portals provide
timely and credible healthcare and lifestyle information and
assist consumers in taking an active role in managing their
health.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>The WebMD Health Network </I>had an average of approximately
23&nbsp;million aggregate unique users per month and generated
approximately 588&nbsp;million aggregate page views in the first
quarter of 2005. We believe our focus on creating and organizing
high quality content and offering innovative interactive
services has made <I>The WebMD Health Network </I>the leading
online health destination and has made the WebMD brand among the
most recognized and trusted in healthcare. According to recent
studies conducted by Manhattan Research, WebMD is the
information source most frequently recommended by physicians to
their patients for healthcare information and <I>Medscape from
WebMD</I> is the information source most recommended by
physicians to their peers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our public portals generate revenue primarily through the sale
of advertising and sponsorship products, including CME services.
We do not charge user fees for access to our public portals.
<I>The WebMD Health Network</I> provides an efficient and
effective means for sponsors to reach, educate and inform target
audiences of health-involved consumers and clinically-active
physicians within the trusted environment of WebMD. We work
closely with our sponsors to develop programs for specific
groups of consumers, physicians and healthcare professionals and
give them placement on the most relevant areas on our portals.
Our advertisers and sponsors consist primarily of
pharmaceutical, biotechnology and medical device companies. We
are also increasingly attracting advertising sponsorships from
consumer products companies whose products relate to health,
wellness, diet, fitness, lifestyle, safety and illness
prevention.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our private portals enable employees and health plan members to
make more informed benefit, provider and treatment decisions. We
provide a personalized user experience by integrating individual
user data (including personal health information), plan-specific
data from our employer or health plan clients and much of the
content, decision-support technology and personal communication
services that we make available through our public portals. We
generate revenue from private portals through the licensing of
our content and technology to employers, such as American
Airlines, Inc., Microsoft Corporation and PepsiCo, Inc., and to
health plans, such as Blue Cross Blue Shield of Massachusetts,
Cigna and Empire Blue Cross and Blue Shield.
</DIV>

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In addition to our online presence, we also have a publishing
segment that provides complementary offline health content to
our user community. Our publications increase awareness of our
brand with consumers, physicians and healthcare professionals.
These publications include <I>The Little Blue Book,</I> a
physician directory, and <I>WebMD the Magazine,</I> a consumer
publication launched in early 2005 that we distribute free of
charge to physician office waiting rooms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Strengths</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our goal is to provide an efficient and effective means for
advertisers and sponsors to reach, educate and influence
health-involved consumers and clinically-active physicians
within the trusted environment of WebMD. We believe that we are
able to fulfill the needs of our clients with a differentiated
offering based on our following strengths:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our brand is widely recognized and viewed as a trusted source of
    health and wellness information.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>The WebMD Health Network</I> is the leading online health
    destination today. We had an average of approximately
    23&nbsp;million aggregate unique users per month and generated
    approximately 588&nbsp;million page views in the first quarter
    of 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Medscape from WebMD</I> is the leading online provider of CME
    programs, with approximately 63% of the online market for CME
    services in 2003.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We are able to offer advertisers and sponsors programs that
    deliver their message to either our entire audience or to more
    targeted audiences of consumers, physicians and other healthcare
    professionals based upon their interests our specialties.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We are able to offer advertisers and sponsors programs to reach
    both health-involved consumers and clinically-active physicians.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We have good working relationships with our advertising and
    sponsorship clients and a track record of providing them with a
    more efficient use of their marketing expenditures compared to
    traditional media.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We have the ability to offer employers and health plans a
    platform that provides a personalized user experience for
    employees and health plan members, including access to
    individual user data, specific health plan benefit data,
    relevant health-oriented content, treatment decision-support
    applications, personal communication services, and integrated
    third party applications and data.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our senior management&#146;s experience in and understanding of
    the healthcare industry allows us to respond quickly to
    developing industry trends with new products and services based
    on our existing content, infrastructure and capabilities.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Industry Background</B>
</DIV>

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    <TD></TD>
    <TD>
    <B><I>The Internet</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General.</I> The Internet has emerged as a major
communications medium, enabling millions of users to obtain and
share information and to interact and conduct business on a
real-time basis. According to industry sources, approximately
120&nbsp;million American adults use the Internet on a monthly
or more frequent basis, with an estimated 90&nbsp;million users
now accessing the Internet as an integral part of their every
day routine. Despite its short history, studies show that users
now devote more hours of the day to the Internet than to any
other medium. A 2004 Manhattan Research study showed that
consumers rely on the Internet as a convenient, trusted source
of healthcare information, decision-support and communication,
and that their satisfaction with general health information on
the Internet is greater than traditional sources, such as their
neighborhood library and magazines, and second only to
physicians. Rising healthcare costs and the greater financial
responsibility consumers will have for their healthcare will
increase consumers&#146; reliance on the Internet to help inform
their choices. The Internet allows consumers to have immediate
access to searchable and dynamic interactive content to check
symptoms, assess risks, understand diseases, find providers and
evaluate treatment options.
</DIV>

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<I>Effect on Healthcare.</I> The Internet has already
fundamentally changed many sectors of the economy, including the
marketing and sales of financial services, travel, and
entertainment, among others. The Internet is also changing the
healthcare industry, as more consumers and physicians use it as
a convenient source for up-to-date health information and
interactive decision-support tools. Until recently, quality
healthcare information was not easily accessible. Most consumers
relied on their physicians, conversations with family and
friends, their neighborhood library and magazines when they
needed answers to healthcare questions. Physicians relied on
other physicians, medical societies, journals and other
publications, reference textbooks, conferences, pharmaceutical
sales representatives and industry meetings to keep informed.
Now, consumers and physicians are able to easily access
information online. According to Manhattan Research, of those
consumers who seek additional information as the result of an
offline advertisement, more than half will use the Internet. A
Manhattan Research subscription study in early 2004 cites that
approximately 63% of physicians read e-journals and
approximately 46% complete online CME programs on at least a
monthly basis. The Internet has transformed how consumers and
physicians find and utilize healthcare information and WebMD has
been a leader in enabling this transition.
</DIV>

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<I>Physicians Are Turning to the Internet to Improve Clinical
Practice.</I> The Internet has become a primary source of
information for physicians and is growing relative to
traditional information sources, such as conferences, meetings
and offline journals. According to Manhattan Research,
approximately 97% of physicians are Internet users and physician
satisfaction with online sources of clinical information is
nearly equal to traditional offline sources. According to the
Accreditation Council for Continuing Medical Education, the
Internet has become an efficient way to educate physicians and
to promote adherence to clinical guidelines, crucial steps
towards reducing the variance in treatment patterns and raising
the quality of care.
</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Advertising and Sponsorship Trends</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General.</I> The U.S.&nbsp;market for advertising, broadly
defined, is made up of multiple, well-established channels,
principally consisting of print, television and radio media.
Total advertising expenditure for 2004 was estimated by
eMarketer in February 2005 to have been approximately
$264&nbsp;billion, an increase of 7.6% compared to 2003, and is
projected by eMarketer to increase 5.4% in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Online Market.</I> Internet advertising continues to grow
rapidly and, as a result, online spending is growing faster than
offline spending. According to a February 2005 report by
eMarketer, total online advertising spending was about
$9.5&nbsp;billion in 2004, is projected to grow approximately
20% in 2005 to $11.5 billon, and is expected to reach
approximately $17.6&nbsp;billion in 2008. We believe this market
growth is driven by several factors, including consumers
shifting their buying and media preferences to online and the
benefits of online advertising relative to traditional media,
which includes interactivity, rapid and measurable user feedback
and the ability to target consumers more efficiently.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Online Healthcare and Health-Related Market. The WebMD Health
Network</I> competes in the market for online healthcare and
health-related advertising, sponsorship and education services
targeted to consumers and physicians. According to a 2005
Jupiter Research study, online spending for healthcare related
advertising is projected to grow an average of 19.7% annually
through 2009. We believe that the two primary sources for this
spending are pharmaceutical companies and consumer products
companies whose goods or services relate to health, wellness,
diet, fitness, lifestyle, safety and prevention.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Based upon industry estimates, we believe that pharmaceutical,
biotechnology and medical device companies spent approximately
$12&nbsp;billion on marketing and education activities during
2004, excluding costs of product samples. We estimate that these
companies currently spend less than 5% of their marketing and
educational budgets on online media, but that they are becoming
increasingly aware of the benefits of using online media,
including the ability to cost-effectively reach targeted
audiences. As a result, we expect these companies&#146; online
marketing and educational budgets to continue to increase.
According to an April 2005 report sponsored by the Interactive
Advertising Bureau, pharmaceutical and other healthcare
advertisers accounted for 6% of total online advertising in
2004, an increase from 4% in 2003. We believe that we are well
positioned to benefit from the trend toward increased online
spending by
</DIV>

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<DIV align="left" style="font-size: 10pt;">
these companies because of our track record in providing a more
efficient use of advertising expenditures than traditional media
and our strong working relationships with a significant number
of the leading pharmaceutical, biotechnology and medical device
companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
According to industry sources, we estimate that consumer
packaged goods companies spend in excess of $10&nbsp;billion on
advertising for products and services that relate to health,
wellness, diet, fitness, safety and prevention. Similar to
pharmaceutical and other healthcare advertisers, we estimate
that only a small percentage of their spending was for online
media. We believe that these firms will continue to direct a
growing share of their spending online during the next several
years because of the enhanced ability to reach targeted
consumers efficiently and cost-effectively.
</DIV>

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<I>Healthcare industry trends.</I> Our business is affected by
the following trends in the healthcare industry:
</DIV>

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    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;</TD>
    <TD align="left">
    <I>Continued increases in healthcare costs have led to
    cost-shifting by employers.</I> According to a report from CMS,
    healthcare spending in the United States rose to
    $1.7&nbsp;trillion in 2003, up from $1.6&nbsp;trillion in 2002,
    $1.4&nbsp;trillion in 2001 and $1.3&nbsp;trillion in 2000. The
    CMS report indicated a growth rate in healthcare spending of
    7.7% for 2003, compared to 9.3% for 2002, and 8.5% for 2001.
    While overall healthcare costs are rising at a rapid annual
    rate, employers&#146; costs of providing healthcare benefits to
    their employees are increasing at an even faster rate. In
    response to these cost increases, employers and health plans
    have been changing benefit plan designs to increase consumer
    out-of-pocket costs and taking other steps to motivate their
    members and employees to evaluate their healthcare decisions
    more carefully in order to be more cost-effective. This has also
    led employers and health plans to enhance wellness programs and
    take steps to provide healthcare information and education to
    employees and members, including through online services.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;</TD>
    <TD align="left">
    <I>Quality initiatives.</I> In 1999 and 2000, a series of major
    studies suggested that the nation&#146;s healthcare system
    should be fundamentally redirected to focus on continuous
    quality improvement and anticipating healthcare needs, rather
    than controlling access to services. Since then, health plans
    have begun to recognize that encouraging the good health of
    their members not only benefits the members but also has
    financial benefits for the health plans. Healthier people need
    less care and fewer costly services. Thus, controlling costs by
    keeping people healthier and better managing chronic conditions
    has become a significant focus for America&#146;s healthcare
    system. As part of these initiatives, health plans are offering
    their members online access to health and wellness information
    and decision-support tools.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our private portals are well positioned to
benefit from these trends because they provide the information
and decision-support tools employees and plan members need to
take a more active role in their healthcare, such as helping
them make more informed decisions about healthcare provider,
benefit and treatment options. Employers and health plans can
help their employees and members make choices that reduce
overall healthcare costs by implementing our services and making
the needed information and decision-support tools available
through a convenient and easy-to-use online service. In
addition, as employers continue to implement high deductible and
consumer-directed healthcare plans, we believe we will be able
to attract more employers and health plans to use our private
online portals. Additionally, the increased financial
responsibility of consumers for their healthcare will also
benefit our public portals as we continue to expand the public
portal decision-support and personal health information
applications and as consumers and healthcare professionals
increasingly utilize the Internet for the information and tools
necessary to manage their health decisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Strategy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have positioned our services to benefit from the trends
described above, and the other trends affecting the Internet,
online advertising and healthcare industries described in this
prospectus. Our goal is to be the leading provider of online
health information services in each of the markets in which we
</DIV>

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participate and to use our content, technology platform and
expertise to continue to enter additional complementary markets.
To achieve our goal, we intend to:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Enhance our current products and services.</I> We intend to
    continue to invest in the resources needed to deliver high
    quality health and medical information. In addition, we intend
    to continue to build our repository of in-depth health content,
    broaden our interactive services and increase their
    functionality, improve our technology platform and add
    additional products and services. Our goal is to continue to
    increase the number of consumers, physicians and healthcare
    professionals using our Web sites, the amount of time they spend
    there and, most importantly, the trust they have in WebMD.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Expand awareness of the WebMD brand.</I> We plan to promote
    the WebMD brand through relationships with strategic partners,
    through advertising and through the breadth of products and
    services that we offer. For example, we recently introduced
    <I>WebMD the Magazine,</I> as a means of extending our brand
    into offline channels and attracting incremental advertising
    dollars.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Deepen our relationships with existing clients and expand our
    sponsorship base.</I> We intend to increase <I>The WebMD Health
    Network&#146;s</I> advertising and sponsorship revenues by
    continuing to provide an efficient and effective channel for
    sponsors to reach, educate and inform large audiences of
    health-involved consumers and clinically-active physicians
    within the trusted environment of WebMD. We believe that we are
    well positioned to benefit from the expected shift of
    sponsorship spending from offline to online media by
    pharmaceutical, biotechnology and medical device companies as
    they continue to see the benefits of online sponsorship relative
    to traditional media, including interactivity, rapid and
    measurable user feedback and the ability to more efficiently
    reach specific audiences. In addition, we are focused on
    increasing sponsorship of <I>The WebMD Health Network </I>by
    consumer products companies that wish to communicate health- and
    lifestyle-related messages for their products.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Increase market penetration of our private portals.</I> We
    intend to increase the market penetration of our private health
    and benefits portals for employers and health plans by
    demonstrating to prospective clients the return on investment
    and increase in employee satisfaction on the part of our
    existing clients from implementing our services. We expect
    demand for these services to increase as more employers and
    health plans seek to complement or replace their existing
    offline benefit-related services with more efficient Web-based
    decision-support tools and related online services.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Acquire complementary online and offline services.</I> We
    have a history of acquiring and successfully integrating
    complementary companies. We expect to continue to supplement our
    internal product development efforts with strategic acquisitions
    that add new capabilities or help us enter additional
    complementary markets.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Capitalize upon governmental initiatives relating to use of
    information technology in healthcare.</I> There are currently
    numerous federal, state and private initiatives seeking ways to
    increase the use of information technology in healthcare,
    including the creation of portable consumer health records. We
    believe that we are well positioned to play a role in such
    efforts, as well as efforts to establish the adoption of
    electronic medical records among physicians and to provide
    channels for the exchange of information among patients,
    providers and payers.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Online Services</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Public Portals</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our high quality content and services have made our public
portals the leading online health destinations for consumers,
physicians and healthcare professionals. <I>The WebMD Health
Network </I>consists of public portals that we own and
third-party portals through which we provide our branded health
and wellness content, tools and services.
</DIV>

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<I>Owned Web Sites.</I> A substantial majority of the visitors
to <I>The WebMD Health Network </I>and of the page views
generated on <I>The WebMD Health Network </I>are from Web sites
that we own. The following provides a brief description of each
of our owned public portals:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Portal Site</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    www.webmd.com</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <I>WebMD Health</I>, our flagship consumer portal.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    www.medicinenet.com</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    A health information site for consumers that is produced and
    written by practicing physicians, including an online medical
    dictionary with more than 16,000 medical terms.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    www.rxlist.com</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    An online drug directory with over 1,400 drug monographs, which
    are comprehensive descriptions of pharmaceutical products
    (including chemical name, brand names, molecular structure,
    clinical pharmacology, directions and dosage, side effects, drug
    interactions and precautions).</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    www.medscape.com</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Our Web site for physicians and healthcare professionals.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    www.medgenmed.com</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The world&#146;s first online-only, primary source,
    peer-reviewed medical journal.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Other Sites.</I> The third party portals that we support
include AOL Health with WebMD, the health channels of other AOL
properties and the online Fox News Health channel with WebMD.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Consumer Portals</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Introduction.</I> Healthcare consumers increasingly seek to
educate themselves online about their healthcare related issues,
motivated in part by the continued availability of new treatment
options and in part by the larger share of healthcare
expenditures they are being asked to bear due to changes in the
benefit designs being offered by health plans and employers. The
Internet has fundamentally changed the way consumers obtain
information, enabling them to have immediate access to
searchable information and dynamic interactive content. A 2004
study by Manhattan Research indicated that general health Web
sites are the primary source for healthcare information for
consumers. Manhattan Research also indicated that consumer
satisfaction with the Internet for healthcare information is
greater than for alternative sources such as health magazines,
television, news and advertisements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Overview of Content and Service Offerings.</I> Our goal is to
provide consumers with an objective and trusted source of
information that helps them play an active role in managing
their health. <I>WebMD Health </I>and the other consumer portals
on <I>The WebMD Health Network </I>provide our users with health
and wellness related information, tools and applications in a
variety of content formats. These content offerings include
access to high quality health and wellness news articles and
features, which are written, edited and published by our
90-person in-house staff, which includes professional writers,
editors, designers and board-certified physicians. Our in-house
staff is supplemented by medical advisors and authors from
widely respected academic institutions. The news stories and
other original content and reporting presented on <I>The WebMD
Health Network </I>are based on our editors&#146; selections of
the most important and relevant health events occurring on any
given day, obtained from an array of sources, including
peer-reviewed medical journals, medical conferences, federal or
state government actions and materials derived from interviews
with medical experts. We offer searchable access to the full
contents of our Web sites, including licensed content and
referenced-based content.
</DIV>

<P align="center" style="font-size: 10pt;">48

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>WebMD Health</I> includes the following features:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Feature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    WebMD News Center</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Offers daily health news articles that are reviewed by our
    professional staff and written by health journalists. Content
    focuses on &#147;news you can use&#148; and topics for stories
    reflect national news stories of interest in the popular media
    that day with original perspective from health and medical
    experts. The News Center also features letters and feedback from
    users. Ten to 15 stories are generated per day.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    WebMD Editorial Features</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Our content asset focusing on a comprehensive look at a major
    health issues that are in the news or otherwise contemporary,
    with emphasis on health trends and national health issues. We
    generate four to five editorial features per week.</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Our features on National Health Observances contain special
    reports based upon public health initiatives, such as Breast
    Cancer Awareness Month or Heart Month, as well as seasonal
    holidays and other seasonal health-related issues, such as
    4th&nbsp;of July Safety, Super Bowl Weight Gain, Back to School,
    Getting Ready for Camp or College and Valentine&#146;s Day
    Chocolate Guide for Health.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General Medical Information</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Our medical library allows consumers to research current
    information relating to diseases and common health conditions by
    providing searchable access to easy-to-read content, including:</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;self&#150;care articles</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;drug and supplement references from leading
    publications, including <I>First Data Bank</I>&#174;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;clinical trials and research study information</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;a patient&#146;s guide to medical tests</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;health topics A-Z, an alphabetical listing of
    articles on specific health conditions and concerns</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;interactive, illustrated presentations that visually
    explain common health conditions and diseases</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;step by step in-depth interactive condition guides
    on 35 major conditions</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;medical dictionary on 16,000 terms</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    &#151;&nbsp;doctors&#146; views on important health topics</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Health and Wellness Centers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Centralized locations for content and services for both WebMD
    editorial offerings and sponsor/advertiser offerings that are
    specific to prevention and wellness topics. Each topic is
    showcased in its own &#147;Resource Center.&#148; There are 15
    major centers, including Women&#146;s Health, Men&#146;s Health,
    Nutrition, Fitness, Healthy Aging, Skin and Beauty and Dental
    Health.</TD>
</TR>

</TABLE>
</CENTER>

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<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Feature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Disease and Condition Centers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Centralized locations for content and services for both WebMD
    editorial offerings and sponsor/advertiser offerings that are
    specific to disease and condition topics. Each topic is
    showcased in its own &#147;Resource Center.&#148; Each separate
    topic center is designed to guide users through all aspects of
    diagnosis, description of disease, treatment options and
    management, as well as staying current on the latest research.
    There are 50 major centers, including Allergy, Asthma,
    Cholesterol, Diabetes, Epilepsy, GI Disorders and Hypertension.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Newly Diagnosed</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Articles and features that provide information specifically for
    users affected by a condition as to which they or a loved one
    have been newly diagnosed.</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Decision-Support Services.</I> Our decision-support services
help consumers make better-informed decisions about healthcare
providers, health risks and treatment options, and assists
consumers in their management and monitoring of specific
conditions or treatment regimens on an ongoing basis.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Feature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Personalized Self Assessment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Clinical, algorithm-based self assessments for major conditions
    yielding personalized risk score based upon individual
    characteristics (for example, gender, age, behavioral risks,
    heredity), along with customized recommendations for further
    education, treatment alternatives and a doctor report to share
    with the individual&#146;s physician.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Symptom Checker</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    An interface that allows users to select male or female body and
    area on the body where symptoms may be occurring to lead user to
    relevant educational information.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Health-E-Tools</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Provides access to over 80 interactive calculators, quizzes and
    slide shows to assess or demonstrate health topics, including a
    target health rate calculator, body mass index calculator,
    pregnancy calculator and ovulation calendar.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Find a Physician or Practice</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Allows consumers to search by physician or practice name, by
    specialty sought, as well as by zip code and mileage.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Managing Healthcare&nbsp;&#38; Benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Offerings that educate users on issues surrounding choosing and
    using health plans and managing their healthcare from a
    financial and quality perspective. Other coverage topics such as
    Medicare are addressed and resources and tools are made
    available to users.</TD>
</TR>

</TABLE>
</CENTER>

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<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Feature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    WebMD Health Manager</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    WebMD Health Manager is an online direct-to- consumer
    subscription service featuring a personal health record (an
    application that assists consumers in gathering, storing, and
    sharing essential health data), secure message center, personal
    health risk assessments for overall health as well as 15
    condition- specific assessments, doctor reports, medication
    summaries, health calendar with reminders and alerts, printable
    health emergency card, family member health record keeping,
    weight loss, fitness and smoking cessation programs, and fully
    personalized e-newsletter.</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Membership; Online Communities.</I> We also provide
interactive communication services to our registered members.
For example, members can opt-in to receive e-newsletters on
health-related topics or specific conditions and to access
topic-specific events and online communities. Our online
communities allow our members to participate in real-time
discussions in chat rooms or on message boards, and allow
members to share experiences and exchange information with
others who share common health conditions or concerns.
</DIV>

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    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>

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    <TD align="left" nowrap><B>Feature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    WebMD Live Events</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Offers scheduled live chat events, including audio and video
    Webcasts, with healthcare experts and celebrity guests
    discussing relevant health issues, with archives from each event
    added to our searchable database.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Member Communities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Provides access to over 50 online support communities allowing
    consumers to share experiences and exchange information with
    other members with their health condition or concern. Users may
    access moderated chat rooms, message boards and posted member
    columns focused on chronic health conditions and relevant health
    topics.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    WebMD University</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Topic-driven, interactive courses intended to help users
    understand and manage specific health matters, such as diabetes,
    nutrition, care giving and cancer, as well as gain insight from
    other course participants.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    E-Newsletters</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Allows consumers to receive personalized e-mail newsletters on
    general health-related subjects and topics targeted to their
    health concerns. In 2004, we offered newsletters, clinical
    alerts and e-mail reports covering approximately 30 topic areas,
    which we delivered to approximately ten&nbsp;million registered
    members.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &#147;Ask the Experts&#148;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    A forum within which users can post their health questions for
    experts. Provides over five new events each week and contains an
    archive of approximately 800 transcripts.</TD>
</TR>

</TABLE>
</CENTER>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are no membership fees and no general usage charges for
access to our online communities or to receive our
e-newsletters. However, we do offer a limited number of consumer
paid subscription services in the areas of diet and fertility
and paid membership in <I>WebMD Health Manager</I>.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Professional Portals</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Introduction.</I> The Internet has become a primary source of
information for physicians and other healthcare professionals,
and is growing relative to other sources, such as conferences,
meetings and offline journals. According to a study done by
Manhattan Research in 2003, approximately 97% of physicians are
Internet users. Approximately 63% of physicians read e-journals
and approximately 46% complete online CME programs at least on a
monthly basis. Another study by Manhattan Research completed in
July 2004 concluded that physician satisfaction with online
sources of clinical information was nearly equal to traditional
offline sources. We believe that <I>Medscape from WebMD,</I> our
Web site for physicians and other healthcare professionals,
located at <I>www.medscape.com,</I> reaches more physicians than
any other professional Web site and is well positioned to
increase usage by its existing members and to gain additional
membership and usage. <I>Medscape from WebMD,</I> enables
physicians and other healthcare professionals to stay abreast of
the latest clinical information through access to resources that
include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    timely medical news and coverage of professional conferences;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    CME activities;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    full-text medical journal articles and drug and medical
    literature databases.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Content.</I> Original content from <I>Medscape from WebMD
</I>includes daily medical news, commentary, conference
coverage, expert columns and CME activities are written by
authors from widely respected academic institutions and edited
and managed by our in-house editorial staff. We regularly
produce in-depth interviews with medical experts and newsmakers,
and provide alerts on critical clinical issues, including
pharmaceutical recalls and product advisories. <I>Medscape from
WebMD </I>also provides access to wire service stories and other
news-related content, and our CME programs include original
programs and online multimedia adaptations of live events.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also publish an original electronic-only journal, <I>Medscape
General Medicine </I>(<I>MedGenMed</I>), indexed in the National
Library of Medicine&#146;s MEDLINE reference database.
<I>MedGenMed,</I> the world&#146;s first online-only, primary
source, peer-reviewed medical journal, was established in April
1999. Visitors to <I>www.medgenmed.com </I>also can access
specialty sections, such as HIV-AIDS, Gastroenterology,
Hematology-Oncology, Pulmonary Medicine, OB-Gyn and Women&#146;s
Health, Orthopedics and Sports Medicine and Psychiatry/Mental
Health.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Membership.</I> Users must register to access the content and
features of <I>Medscape from WebMD.</I> Registration by users
enables us to deliver targeted medical content based on our
members&#146; registration profiles. The site is organized by
specialty and profession, including sites for nurses,
pharmacists, medical students, and members interested in medical
policy and business of medicine topics. The registration process
enables professional members to choose a <I>Medscape </I>home
page tailored to their medical specialty or interest. We offer
more than 30 specialty areas for <I>Medscape </I>users. For
example, a member registered as a cardiologist is automatically
directed to <I>Medscape </I>Cardiology rather than a more
generic home page. However, every member, regardless of medical
specialty or professional status, has access to
<I>Medscape&#146;</I>s full suite of original and licensed
content through a uniform, easy-to-use interface. There are no
membership fees and no general usage charges for the site.
Members receive <I>MedPulse</I>&#174;, our weekly e-mail
newsletter, which is published in more than 30
specialty-specific editions and highlights new information and
CME activities on the <I>Medscape </I>site. We also provide
&#147;Special Reports&#148; e-newsletters, which contain
information on specific conditions and treatments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Continuing Medical Education (CME).</I> <I>Medscape </I>is a
leading distributor of online CME to physicians and other
healthcare professionals, offering a wide selection of free,
regularly updated online CME activities designed to educate
healthcare professionals about important diagnostic and
therapeutic issues. Our CME programs include original programs
and online multimedia adaptations of live events. In
</DIV>

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addition, our CME Live offerings provide real-time Webcasts of
continuing education programs on key topics and conditions.
These live Webcasts combine streaming audio and slide
presentations and allow participants to interact with faculty.
In 2004 over 927,000 physicians and healthcare professional
participants earned over 827,000 CME credits at <I>Medscape,</I>
an increase of 59% and 31%, respectively, over 2003. In the
first quarter of 2005, physicians and healthcare professionals
completed approximately 277,700 CME courses, an increase of 33%
compared to the same period in 2004. We also provide to our
users a service that automatically tracks CME credits
accumulated through our site.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have organized the operations of our professional portals to
provide for appropriate separation of our education and
promotion programs from an editorial perspective. Our
educational activities for healthcare professionals are managed
within Medscape, LLC, our professional education subsidiary.
Individuals who work on educational matters within Medscape,
LLC, are not involved with promotional programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our CME activities are planned and implemented in accordance
with the Essential Areas and Policies of the Accreditation
Council for Continuing Medical Education, or ACCME, which
oversees providers of CME credit, and other applicable
accreditation standards. In addition, some of our programs have
been produced in collaboration with other ACCME-accredited CME
providers. <I>Medscape</I> received provisional ACCME
accreditation as a CME provider in July 2002 and full
accreditation, for the maximum six-year period, beginning in
July 2004. Such accreditation allows <I>Medscape </I>to continue
to certify online CME activities. In September 2004, ACCME
revised its standards for commercial support of CME. The revised
standards are intended to ensure that CME activities of
ACCME-accredited providers are independent of providers of
healthcare goods and services that fund the development of CME.
ACCME expects accredited providers to implement these standards
by May 2005. We believe that we have modified our procedures as
appropriate to meet the revised standards. For more information
relating to ACCME&#146;s new CME standards, see &#147;Risk
Factors&nbsp;&#151; Risks Related to the Legal and Regulatory
Environment in Which We Operate&nbsp;&#151; Changes in industry
guidelines or government regulation could adversely affect our
online CME offerings&#148; and &#147;Government
Regulation&nbsp;&#151; Regulation of Drug and Medical Device
Advertising and Promotion.&#148;
</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Private Portals</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Introduction.</I> According to a Hewitt Associates study
(<I>Healthcare Expectations: Future Strategy and
Direction&nbsp;2005</I>), large U.S.&nbsp;employers anticipate a
12% increase in the cost of providing healthcare coverage in
2005, which would represent an approximately 76% increase over
the last five years for healthcare premiums. In response to
increasing healthcare costs, employers and payers have been
enhancing wellness programs, educating employees, changing
benefit plan designs to increase consumer out of pocket costs
and taking other steps to motivate their members and employees
to use healthcare in a cost-effective manner. The new plan
designs include high deductible health plans that increase
consumer responsibility for healthcare costs and healthcare
decision-making. These are often referred to as
consumer-directed health plans. Consumer-directed health plans
generally combine high-deductible health insurance with a cash
account, such as a health reimbursement arrangement
(HRA)&nbsp;or a health savings account (HSA), containing pre-tax
funds that employees can spend on covered healthcare expenses.
The high-deductible insurance provides coverage for significant
health events. Consumer-directed healthcare plans put employees
in control of the first dollars they spend on healthcare each
year. The goal is to give consumers control of those dollars,
together with pertinent information about healthcare costs and
quality, so that they are able to make financially responsible
and informed healthcare purchasing decisions. In its 2005 study,
Hewitt Associates estimates that nearly one-quarter of larger
U.S.&nbsp;employers will be offering consumer-directed plans in
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In implementing consumer-directed health plans, employers and
health plans generally also make available health and benefits
information and decision-support tools to help their employees
make informed decisions about healthcare providers and treatment
options. We believe that our WebMD Health and Benefits Manager
private portals provide the tools and information employees and
plan members need to take a more active role in their
healthcare. Our cost-effective, online solutions complement the
employer&#146;s
</DIV>

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or payer&#146;s existing benefit-related services and offline
educational efforts and can be a key component of a
consumer-directed health plan. Our WebMD Health and Benefits
Manager portals also educate and encourage employees and plan
members to lower their health risks. By making the needed
information and decision-support tools available through a
convenient and easy-to-use online service, employers and payers
can help their employees and members make choices that reduce
overall costs. A 2005 study commissioned by the Blue Cross and
Blue Shield Association and conducted by the RAND Corporation
concluded that Web-based treatment decision-support tools can
play an important role in assisting in consumer treatment
decisions to foster improved outcomes. For example, RAND cited
studies that showed consumers who use decision-support tools are
less likely to choose elective surgery in favor of less invasive
procedures and are more likely to get preventive care.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that increasing consumer enrollment in high
deductible consumer directed health plans will be a significant
driver for the growth of our private portals during the next
several years. In addition, as described in more detail below,
we believe that there are benefits to employers and health
plans, regardless of health plan design considerations, in
making the WebMD Health and Benefits Manager services available
to their employees and members, including reduced benefits
administration costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>The WebMD Health and Benefits Manager.</I> We provide
proprietary health and benefit management services through
private online portals that we host for employer and health plan
sponsors. Our WebMD Health and Benefits Manager private portals
provide a personalized user experience by integrating individual
user data (including personal health information) and
plan-specific data from our employer or health plan client, with
much of the content, decision-support technology and personal
communication services we make available through our public
portals. We typically integrate our applications into the
client&#146;s web site or intranet and provide secure access for
employees and plan members. We also offer a software platform
that allows us to integrate third party applications and data.
The portal is presented to each employee or health plan member
as a personal home page, with direct access to relevant content,
tools and other resources specific to the individual&#146;s
eligibility, coverage and health profile. The WebMD Health and
Benefits Manager provides a user-friendly experience that
enables the employee or member to access and manage the
individually tailored health and benefits information and
decision-support technology in one place, with a common look and
feel, and with a single sign on. The components of the WebMD
Health and Benefits Manager include:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>WebMD Personal Health Manager.</I> WebMD Personal Health
    Manager includes health risk assessment tools, an electronic
    personal health record and a suite of treatment decision-support
    tools. These services enable members to understand their risks
    with regard to specific conditions and store this information as
    well as other medical data, including medication and treatment
    history, in an electronic health record. Our services enable
    members to receive targeted information, programs or messages
    specific to the individual employee&#146;s needs, based upon the
    information they store in their master profile.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>WebMD Benefit Manager.</I> WebMD Benefit Manager is a set of
    benefit decision-support applications that explain and provide
    comparisons of health plan benefit choices, facilitating
    informed selection and use of the employee&#146;s benefit
    options. For example, CostCompare allows an employee to forecast
    and model individual premium and out-of-pocket costs for the
    different types of benefit programs the plan sponsor may offer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>WebMD Integration Services.</I> WebMD offers a set of
    sophisticated integration services that facilitates seamless
    access from the WebMD Health and Benefits Manager to third party
    sites. This functionality allows health plans to present their
    benefit programs within a single, unified interface, enabling
    end-users to access third party sites without leaving our secure
    portals. Users of our application integration services are able
    to, among other things, view medical claims at their health plan
    sites, re-order medication from a pharmacy site and import
    medical, pharmacy and lab claims data.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>WebMD Provider Decision-Support.</I> As a result of our
    acquisition of HealthShare Technology, Inc.
    (&#147;HealthShare&#148;) in March 2005, our decision-support
    suite now provides the capability for</TD>
</TR>

</TABLE>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    employees and health plan members to compare relative cost and
    quality measures of hospitals in order to select the hospital
    they believe is most suited to their individual needs. These
    comparisons are based on evidence-based measures, such as volume
    of patients treated for particular illnesses or procedures,
    mortality rates, unfavorable outcomes for specific problems,
    average number of days patients stayed in hospitals and average
    hospital charges for procedures or illnesses.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>WebMD Site Manager.</I> WebMD Site Manager is our online
    service and administrative suite of applications that enables
    our clients to manage many of the WebMD Health and Benefits
    Manager functions locally without assistance from WebMD staff.
    With Site Manager, employers and health plans are able to
    analyze aggregate health data, address population health risks
    more effectively and proactively implement preventive programs.
    Site Manager&#146;s messaging capabilities also allow employers
    to streamline their communication with their employees.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our services provide the following potential
benefits to an employer or health plan:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reduced benefits administration, communication, and customer
    service costs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increased tax savings through increased participation in
    Flexible Spending Accounts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reduced hospital, physician and drug costs through more informed
    utilization of the benefit plan;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increased member satisfaction with the employer and the benefit
    plan; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    improved health outcomes based upon increased conformance with
    benefit plan and clinical protocols.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, we believe that our services provide the following
potential benefits to employees or plan members:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increased tax savings through increased participation in
    Flexible Spending Accounts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reduced benefit costs through more informed use of the benefit
    plan;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    improved health outcomes through more informed choice of
    providers and treatment choices;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    improved understanding of health conditions through access to
    support tools and educational information.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Membership.</I> Membership for each of our private portals is
limited to the employees and members of the respective employer
and health plan clients. Each member must initially register on
the private portal provided to them, at which point they are
given a unique user identification name and passcode that they
must utilize to achieve a secure sign-on each time they enter
the private portal.
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Advertising and Sponsorship</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>The WebMD Health Network.</I> We believe that <I>The WebMD
Health Network </I>offers an efficient means for advertisers and
sponsors to reach a large audience of health-involved consumers,
clinically-active physicians and other healthcare professionals.
<I>The WebMD Health Network </I>enables advertisers and sponsors
to reach either our entire audience or specific groups of
consumers, physicians and other healthcare professionals based
on their interests or specialties. Currently, the majority of
our sponsors and advertisers include pharmaceutical,
biotechnology, and medical device firms. In 2004, more than 65
pharmaceutical, biotechnology and medical device companies
purchased advertising and sponsorships for over 250 of their
brands on our network. As described above under
&#147;&#151;&nbsp;Industry Background,&#148; these companies
currently spend only a very small portion of their marketing and
educational budgets on online media. However, we expect their
online spending to increase as a result of increased recognition
of its potential advantages over offline marketing and
educational activities. We believe that we are well positioned
to benefit from the trend toward increased online spending by
these companies because of our track record in providing a more
efficient use of advertising expenditures than traditional media
and our excellent working relationships with many of the
relevant decision-makers at these companies. Our
</DIV>

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sponsors also include numerous consumer packaged goods companies
that provide health-related products, and we are actively
pursuing additional opportunities in that market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Key benefits that <I>The WebMD Health Network </I>offers
healthcare advertisers and other sponsors include:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our reach of over 23&nbsp;million aggregate unique users per
    month in the first quarter of 2005, which we believe is much
    larger than the number of unique users of any other sponsor
    supported health-oriented Web portal;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to help advertisers and sponsors reach specific
    groups of consumers and physicians by specialty, product,
    disease, condition or wellness topic, which typically produces a
    more efficient and productive marketing campaign;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to provide advertisers and other sponsors with
    objective measures of the effectiveness of their online
    marketing; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the broad reach of Medscape&#146;s educational related
    activities, as evidenced by the 927,000 physician and healthcare
    professional participants earning over 827,000 CME credits in
    2004.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We provide healthcare advertisers and other sponsors with the
means to communicate with targeted groups of consumers and
physicians by offering placements and programs in the most
relevant locations on our portals. The following are some of the
types of placements and programs we offer to advertisers and
sponsors:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Media Solutions.</I> These are traditional online advertising
    solutions, such as banners, used to reach health-involved
    consumers. In addition, clients can sponsor a variety of
    condition-specific or specialty-specific e-newsletters, keyword
    searches and specific educational programs.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Sponsored Content Solutions.</I> These are customized
    collections of articles, topics, and decision-support tools and
    applications, sponsored by clients and distributed within WebMD
    Health.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Patient Education Centers.</I> Patient education centers are
    sponsored destinations on <I>Medscape </I>for physicians to
    access patient education materials on a particular topic or
    condition.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We do not place advertising or accept sponsorship on private
portals we develop and host for employers and health plans for
use by their employees and members.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Sponsored Grant-Based Programs.</I> We receive revenue for
the distribution of CME and other educational programs sponsored
by pharmaceutical and medical device companies, as well as
foundations and government agencies. The following are some of
the CME products for which we receive funding:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Conference Coverage. Medscape </I>provides coverage of major
    medical conferences.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>CME Circle.</I> CME Circle provides online multimedia
    extensions of sponsor-supported CME activities, including
    symposia, monographs and CD-ROMs, which we distribute online
    through <I>Medscape</I>.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>CME Live.</I> These are original <I>Medscape </I>online
    events featuring live streaming video, audio and synchronized
    visual presentation by experts.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>CME Cases.</I> These are original CME activities presented by
    healthcare professionals in a patient case format.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Resource Centers.</I> Resource centers are grant-based
    sponsored disease or condition-specific areas for conditions
    such as congestive heart failure or breast cancers. These
    centers include news, expert columns, guidelines and reference
    material.</TD>
</TR>

</TABLE>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Publishing Services</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our offline publications for consumers, physicians and
healthcare professionals include:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>The Little Blue Book.</I> In 2003, we acquired <I>The Little
Blue Book. The Little Blue Book </I>is a physician directory
published annually in 146 distinct geographic editions, and
contains practice information on an aggregate of approximately
400,000 physicians. In 2004 we sold, both directly and through
pharmaceutical company sponsorships, approximately 350,000
copies of <I>The Little Blue Book.</I> We also use the
information used to produce <I>The Little Blue Book </I>to
generate both online and offline directory and information
products. Physicians utilize <I>The Little Blue Book </I>for
local and up-to-date physician, pharmacy and hospital contact
information. Physicians are listed free of charge in their local
area edition, along with their specialties, HMO affiliations,
office addresses and telephone numbers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Reference Publications.</I> We publish medical reference
publications, including the reference texts <I>ACP Medicine
</I>and <I>ACS Surgery: Principles and Practice. ACP Medicine
</I>and <I>ACS Surgery </I>are official publications of the
American College of Physicians and the American College of
Surgeons, respectively, although we wholly own the rights. They
are available for sale by subscription to individual physicians
and to institutions in multiple formats (print, CD-ROM and
Online). <I>ACP Medicine </I>has been a comprehensive and
regularly updated internal medicine reference for over
25&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>WebMD the Magazine.</I> We launched <I>WebMD the Magazine
</I>in April 2005 with an initial distribution of 1,000,000
copies. <I>WebMD the Magazine </I>is a full size, consumer
publication delivered free of charge to approximately 85% of
physicians&#146; offices in the United States. The editorial
format of <I>WebMD the Magazine </I>is specifically designed for
the doctor&#146;s waiting room. Its editorial features and
highly interactive format of assessments, quizzes and questions
are designed to inform consumers about important health and
wellness topics. Its distribution allows sponsors to extend
their advertising&#146;s reach and to deliver their message when
consumers are actively engaged in the healthcare process.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>User Privacy and Trust</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General.</I> We have adopted internal policies and practices
relating to, among other things, content standards and user
privacy, designed to foster our relationships with our users.
Some of those policies are described below. In addition, we
participate in the following external, independent verification
programs:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>URAC.</I> We were awarded e-Health accreditation from URAC,
    an independent accrediting body that has reviewed and approved
    the WebMD.com site and our private portal deployment of <I>WebMD
    Health Personal Manager</I> for compliance with its more than 50
    quality and ethics standards.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>TRUSTe.</I> We are a licensee of the TRUSTe Privacy Program.
    TRUSTe is an independent, non-profit organization whose goal is
    to build users&#146; trust and confidence in the Internet. In
    January 2005, a panel of privacy experts, sponsored by TRUSTe,
    ranked us among the ten most trusted companies in America for
    privacy.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Health on the Net Foundation.</I> Our WebMD.com and
    MedicineNet.com sites comply with the principles of the HON Code
    of Conduct established by the Health on the Net Foundation.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Privacy Policies.</I> We understand how important the privacy
of personal information is to our users. Our Privacy Policies
are posted on our Web sites and tell users what information we
collect about them and about their use of our portals and our
services. Our Privacy Policies also explain the choices users
have about how their personal information is used and how we
protect that information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Advertising and Promotion Policies.</I> All advertisements,
sponsorships and promotions that appear on our Web sites are
displayed in compliance with our advertising and promotions
policies. Among other things, as a matter of policy, we have
sole discretion for determining the types of advertising that we
accept, and under no circumstances would accept advertising
that, in our opinion, is not factually accurate or is not
undertaken in good taste. We also recognize and maintain a
distinct separation between advertising content that appears on
our Web site and editorial content that we publish. We take
</DIV>

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<DIV align="left" style="font-size: 10pt;">
meaningful steps to ensure that our users can easily distinguish
between sponsored content and our news reporting and other
editorial content.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Sales and Marketing</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Our Sales, Marketing and Account&nbsp;Management Teams.</I>
Our sales, marketing and account management personnel work with
pharmaceutical, medical device, biotechnology and consumer
products companies to place their advertisements and other
sponsored products on our public portals and in some of our
publications. These individuals work closely with clients and
potential clients to develop innovative means of bringing their
companies and their products and services to the attention of
targeted groups of consumers and healthcare professionals, and
to create channels of communication with these audiences.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Our Consumer Web sites.</I> We seek to attract traffic and
new members to our consumer Web sites through a variety of
methods to increase the awareness of our brand. We have an
agreement with News Corporation, which runs through August 2010.
Under the agreement, we receive advertising services,
principally on the News Corporation television and cable
properties. Approximately $30&nbsp;million of advertising
services have been available for the 12&nbsp;months ending
August 2005 and $12&nbsp;million of advertising will be
available each of the next five years thereafter ending August
2010. We use this advertising for the purpose of building brand
awareness and as a complement to our online programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Medscape from WebMD.</I> We seek to attract new members to
<I>Medscape from WebMD </I>through a variety of methods,
including advertising on other Internet sites and in medical
journals, pharmaceutical and other healthcare publications and
other targeted publications. We also promote <I>Medscape from
WebMD </I>at industry conferences, trade shows and medical
meetings and by using direct mail.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Our Private Online Portals.</I> We market our private online
portals to employers and health plans through a dedicated sales,
marketing and account management team and through relationships
with employee benefits consultants and other companies that
assist employers in purchasing or managing employee benefits,
including Fidelity Human Resources Services Company LLC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Our Publishing Services.</I> We market <I>The Little Blue
Book </I>through a team of third party marketers, as well as
WebMD Health sales persons. In addition, we also market <I>WebMD
the Magazine</I> through a team of third-party marketers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Seasonality</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The timing of revenues from our clients are affected by seasonal
factors, primarily relating to the annual budget approval
process of the advertising and sponsorship clients of our public
portals, the timing of annual benefit enrollment periods of our
private portal clients and the annual distribution schedule of
<I>The Little Blue Book</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Technological Infrastructure</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Internet-based services are delivered through Web sites
designed to address the healthcare information needs of
consumers and healthcare professionals with easy-to-use
interfaces, search functions and navigation capabilities. We use
customized content management and publishing technology to
develop, edit, publish, manage, and organize the content for our
Web sites. We use ad-serving technology to store, manage and
serve online advertisements in a contextually relevant manner to
the extent possible. We also use specialized software for
delivering personalized content through the WebMD Health and
Benefits Manager and, for registered members, through our public
Web sites. We have invested and intend to continue to invest in
software and systems that allow us to meets the demands of our
users and sponsors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Continued development of our technological infrastructure is
critical to our success. Our development teams work closely with
marketing and account management employees to create content
management capabilities, interactive tools and other
applications for use across all of our portals. The goal of our
current and planned investments is to further develop our
content and technology platform serving various
</DIV>

<P align="center" style="font-size: 10pt;">58
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<DIV align="left" style="font-size: 10pt;">
end-users, including consumers and physicians, and to create
innovative services that provide value for healthcare
advertisers, employers, payers, and other sponsors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Strategic Relationships</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>AOL Relationship.</I> In May 2001, we entered into an
agreement for a strategic alliance with the AOL division of Time
Warner, Inc. (&#147;AOL&#148;). The original term of the
agreement was three years expiring May&nbsp;9, 2004, and we have
exercised our right to extend the original agreement for an
additional three-year renewal term ending May&nbsp;8, 2007.
Under the agreement, we are the primary provider of healthcare
content, tools and services on certain AOL properties and we
distribute a co-branded interactive site to certain AOL
properties. We share with AOL certain revenues from advertising,
commerce and programming on the health channels of the AOL
properties and on the co-branded service created by us for AOL.
We receive 80% of revenues up to an agreed-upon annual threshold
and 60% thereafter. AOL has guaranteed that we will receive a
minimum of $12&nbsp;million during each year of the renewal term
for its share of advertising revenues. In the event of a change
of control resulting in WebMD being controlled by a competitor
of AOL, AOL has the right to terminate the agreement during the
sixty (60)&nbsp;day period following such change of control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Fidelity Human Resources Services Company LLC.</I> In
February 2004, we entered into a strategic relationship with
Fidelity Human Resources Services Company LLC
(&#147;FHRS&#148;), a provider of human resources and benefits
outsourcing administration services. Pursuant to the agreement,
FHRS serves as a distributor of our online personal health
management products, and in connection therewith, FHRS
integrates our products with FHRS&#146;s products to offer
employer customers of FHRS an integrated solution through
FHRS&#146; NetBenefits&#174; Web site. FHRS&#146;s integrated
solutions provide employees with employer-provided health plan
information and our personal health management tools allow
employees to access a personalized view of their health care
options so that they can make more informed healthcare
decisions. Pursuant to the FHRS agreement, we have agreed with
FHRS to cooperate in marketing and selling the NetBenefits site
to FHRS clients. The initial term of the agreement runs through
August&nbsp;31, 2007, and FHRS has the right to renew the
agreement for additional terms of one year after the initial
term (not to exceed four (4)&nbsp;one-year renewal terms). FHRS
has agreed to certain minimum level of employees to be covered
under the agreement. FHRS is an affiliate of FMR, Corp, which
reported beneficial ownership of approximately 10.8% of the
stock of our Parent at December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Competition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The markets we participate in are intensely competitive,
continually evolving and, in some cases, subject to rapid change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Public Portals.</I> Our public portals face competition from
numerous other companies, both in attracting users and in
generating revenue from advertisers and sponsors. Since there
are no substantial barriers to entry into the markets in which
we participate, we expect that additional competitors will
continue to enter these markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We compete with online services and Web sites that provide
health-related information, including both commercial sites and
not-for-profit sites. Our competitors that provide online
services, tools and applications for healthcare consumers
include iVillage.com, DrKoop.com, drugs.com and
healthcentral.com. Our competitors that provide services, tools
and applications to physicians include merkmedicus.com,
eMedicine.com, uptodate.com and mdconsult.com. We also face
competition from non-profit sites, such as NIH.com and
medline.com.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other competitors for advertising and sponsorship revenue
include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general purpose consumer online services and portals and other
    high-traffic Web sites that include healthcare-related and non
    healthcare-related content and services, including yahoo.com and
    msn.com;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">59

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    publishers and distributors of traditional offline media,
    including television and magazines targeted to consumers, as
    well as print journals and other specialized media targeted to
    healthcare professionals, many of which have established or may
    establish their own Web sites or partner with other Web sites;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    offline medical conferences, CME programs and symposia;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    vendors of healthcare information, products and services
    distributed through other means, including direct sales, mail
    and fax messaging.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Competitors for the attention of healthcare professionals and
consumers include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the competitors for advertisers and sponsors described above;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    public sector, non-profit and other Web sites that provide
    healthcare information without advertising or sponsorships from
    third parties.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Private Portals.</I> Our private portals compete with various
providers and vendors in the licensing of content and in the
sale of decision-support services and tools. Our competitors in
this market include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    providers of decision-support tools, such as Hewitt Associates
    LLP and Subimo, LLC;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    wellness and disease management vendors, including Mayo
    Foundation for Medical Education and Research and Staywell
    Productions/ MediMedia USA, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    suppliers of online health management applications, including
    HealthMedia, Health A-Z and Consumer Health Interactive;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    health information services and health management offerings of
    health plans and their affiliates, including those of Humana,
    Aetna and United Healthcare.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Company History</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Introduction.</I> In early 2001, the primary source of
revenue for our Parent&#146;s WebMD Health segment (then known
as its Portal Services segment) was from a small number of
significant sponsorship and advertising relationships with
pharmaceutical, biotechnology and medical device companies. We
have expanded our sponsorship base and our sponsors and
advertisers now include a significant number of pharmaceutical,
biotechnology and medical device companies as well as numerous
consumer products companies, none of which contributed more than
10% of our revenue in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Since 2001, our business has evolved and entered additional
markets as a result of acquisitions and internal investment as
follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Professional Portals.</I> In 2001, we acquired
<I>Medscape,</I> the leading source of online clinical
information for physicians. Since our acquisition of
<I>Medscape,</I> we have emerged as the leading commercial
portal for healthcare professionals and the leading provider of
online CME for physicians. Our acquisition of <I>Medscape
</I>also increased our ability to originate healthcare content
for physicians. In late 2003, we purchased the membership
database and other assets of Physicians Online, LLC, another
leading medical information portal for physicians, and, in early
2004, we combined its membership and resources with
<I>Medscape.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Consumer Portals.</I> We have completed several acquisitions
that strengthened our public portal offerings for consumers. In
the fourth quarter of 2004, we acquired the businesses of
<I>RxList.com </I>and <I>MedicineNet.com.</I> RxList is an
online drug directory for consumers and healthcare professionals
with over 1,400 drug monographs, and MedicineNet is a health
information Web site for consumers produced and written by
practicing physicians.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Private Portals.</I> In 2002, we acquired WellMed, Inc. and
began to provide employers and health plans with a suite of
online healthcare information services for use by their
employees and plan members. In 2003, we acquired the assets of
Optate, Inc., which provided healthcare benefit decision-support
tools.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
Recently, we have further strengthened this area of our business
with the March 2005 acquisition of HealthShare Technology, Inc.,
a leading provider of online decision-support tools that enable
consumers, payers and hospitals to compare costs and quality
measures of hospitals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Publishing Services.</I> In 2000, we began to publish <I>ACP
Medicine and ACS Surgery: Principles of Practice </I>(formerly
known as <I>Scientific American Medicine</I>&#169; and
<I>Scientific American Surgery</I>), official and
well-established medical reference publications of the American
College of Physicians and the American College of Surgeons,
which are relied upon by physicians as important clinical
reference sources. We further extended our product offerings
with the 2003 acquisition of <I>The Little Blue Book,</I> a
company that publishes a pocket sized reference book containing
physician practice and contact information. <I>The Little Blue
Book </I>is published annually in 146 distinct geographic
editions, and contains practice information on an aggregate of
approximately 400,000 physicians. Most recently, we launched
<I>WebMD the Magazine,</I> a consumer publication that we
distribute to patients free of charge in physician waiting rooms
across the country.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004, we had approximately 550
employees. Following this offering, we will continue to be
dependent on our Parent to provide us with many key services for
our business pursuant to a services agreement that we expect to
enter into with our parent upon the completion of this offering.
Our current employees are not represented by a labor union and
are not the subject of a collective bargaining agreement. We
believe our employee relations to be good.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Facilities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We lease office space in New York, New York for our headquarters
and our editorial and marketing operations and in Atlanta,
Georgia and Portland, Oregon for related operations. We believe
that the offices and other facilities described are, in general,
in good operating condition and adequate for our current
operations and that additional leased space can be obtained if
needed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Intellectual Property</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We rely upon a combination of patent, trade secret, copyright
and trademark laws, license agreements, confidentiality
procedures, employee and client nondisclosure agreements and
technical measures to protect the intellectual property used in
our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We use trademarks, trade names and service marks for healthcare
information services and technology solutions, including
WebMD&#174;, WebMD Health&#174;, <I>Medscape</I>&#174;, CME
Circle&#174; The Little Blue
Book<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
MedicineNet&#174;, RxList&#174; and Select Quality Care&#174;.
We also use other registered and unregistered trademarks and
service marks for our various products and services. In addition
to our trademark registrations and applications, we have
registered the domain names that either are or may be relevant
to conducting our business names, including
&#147;www.webmd.com,&#148; &#147;my.webmd.com&#148; and
&#147;medscape.com.&#148; We also rely on a variety of
intellectual property rights that we license from third parties,
including our Internet server software and healthcare content
used on our Web sites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Legal Proceedings</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Merrill Lynch Fundamental Growth Fund, Inc.
    et&nbsp;al.&nbsp;v. McKesson HBOC, Inc., et&nbsp;al.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Parent was named as a defendant in the action <I>Merrill
Lynch Fundamental Growth Fund, Inc., et&nbsp;al.&nbsp;v.
McKesson HBOC, Inc., et&nbsp;al.</I>, Case No.&nbsp;405792, in
the San&nbsp;Francisco Superior Court. The original complaint in
this matter alleged that McKesson HBOC (now known as McKesson
Corp.), HBO and Company (which we refer to as HBOC), certain
officers and directors of those firms, Arthur Andersen LLP, and
Bear Stearns&nbsp;&#38; Co. engaged in a number of practices
whereby HBOC and later McKesson HBOC improperly recognized
revenues. When these practices were discovered, McKesson HBOC
eliminated more than $327&nbsp;million in revenues that HBOC had
recognized over the prior three years. The
</DIV>

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<DIV align="left" style="font-size: 10pt;">
plaintiffs claim to have lost more than $150&nbsp;million as a
result of the decline in McKesson HBOC&#146;s share value after
the accounting practices came to light in April 1999.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On September&nbsp;4, 2003, the plaintiffs filed a fourth amended
complaint, naming our Parent and two other defendants, General
Electric Capital Corporation, Inc. and Computer Associates
International, Inc., for the first time. The complaint alleged
that our Parent aided and abetted alleged fraud by certain
defendants and conspired with those defendants in relation to
HBOC&#146;s and McKesson HBOC&#146;s alleged improper
recognition of approximately $14&nbsp;million in revenue on two
software transactions. The plaintiffs also alleged that our
Parent made certain negligent misrepresentations with respect to
these transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The plaintiffs alleged that our Parent, through its
participation in certain transactions with HBOC and McKesson
HBOC, learned that officers of HBOC and/or McKesson HBOC, HBOC
and McKesson HBOC were breaching duties owed to McKesson HBOC
shareholders by making material misstatements and suppressing or
omitting facts with respect to HBOC&#146;s and McKesson
HBOC&#146;s financial results for the periods ending
December&nbsp;31, 1998 and March&nbsp;31, 1999 and that our
Parent aided and abetted and conspired with these defendants.
The complaint was based on alleged conduct by WebMD, Inc., a
Georgia corporation that was then a separate private company and
will be one of our subsidiaries. One of the HBOC officers
allegedly involved became an officer of WebMD, Inc. on
December&nbsp;1, 1998, after having served as HBOC&#146;s
representative on the Board of Directors of WebMD, Inc. and was
dismissed by WebMD, Inc. after the accounting fraud at HBOC was
disclosed. The other HBOC officer allegedly involved served as
HBOC&#146;s representative on the Board of Directors of WebMD,
Inc. and ceased to be a director of WebMD, Inc. upon dismissal
by McKesson HBOC. Plaintiffs seek unspecified damages against
our Parent. The complaint alleges numerous instances of improper
accounting by HBOC unrelated to the transactions between WebMD,
Inc. and HBOC and/or McKesson HBOC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;16, 2003, our Parent filed a demurrer, seeking
dismissal of the plaintiffs&#146; two claims against it. On
July&nbsp;22, 2004, the Court sustained that demurrer, finding
that the plaintiffs&#146; claims were time barred. On
October&nbsp;8, 2004, the Court dismissed plaintiffs&#146;
Fourth Amended Complaint with prejudice as to California, but
without prejudice with respect to filing in another
jurisdiction. On November&nbsp;17, 2004, plaintiffs filed a
notice of appeal of the Court&#146;s order in favor of our
Parent. On November&nbsp;30, 2004, our Parent filed a
cross-appeal for the purpose of challenging the form of the
order. Those appeals are in the process of being briefed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 2004, McKesson Corp. filed cross-complaints against
General Electric Capital Corporation, Inc., Computer Associates
International, Inc., and our Parent for declaratory relief and
indemnification, alleging that each of these cross-defendants is
obligated to indemnify McKesson if McKesson is compelled to pay
any sum as the result of any damages, judgment or other awards
recovered by the plaintiffs against McKesson. McKesson sought
judicial determinations of the comparative fault of McKesson and
each cross-defendant for damages claimed by the plaintiffs, if
any such damages are found to exist, and declarations of the
amount that each cross-defendant is obligated to indemnify
McKesson if McKesson is compelled to pay any sum as the result
of any damages, judgment or other awards recovered by the
plaintiffs against McKesson. The cross-complaints against
General Electric and Computer Associates have since been
dismissed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On June&nbsp;8, 2004, WebMD filed a demurrer, seeking dismissal
of McKesson&#146;s claims. On September&nbsp;10, 2004, the Court
sustained the demurrer to McKesson&#146;s claims against WebMD.
On December&nbsp;7, 2004, the Court dismissed McKesson&#146;s
cross-complaint with prejudice and ordered entry of judgment in
favor of WebMD. On January&nbsp;27, 2005, McKesson filed a
notice of appeal of the Court&#146;s order in favor of WebMD.
That appeal has not yet been briefed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;12, 2004, the original plaintiffs in the
California lawsuit, Merrill Lynch Fundamental Growth Fund, Inc.
and Merrill Lynch Global Value Fund, Inc., filed a separate
lawsuit in Superior Court in New Jersey, Middlesex County,
alleging substantially the same issues and claims against our
Parent as they did in the California lawsuit. In response to our
Parent&#146;s motion to dismiss, plaintiffs filed a First
Amended Complaint on January&nbsp;4, 2005, dropping claims
against our Parent, but asserting the same claims against WebMD,
Inc., the company that engaged in the two software transactions.
On February&nbsp;4,
</DIV>

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<DIV align="left" style="font-size: 10pt;">
2005, the New Jersey court dismissed our Parent from the action
without prejudice, and stayed the New Jersey action until the
California action is resolved, subject to our Parent&#146;s
entering into a tolling agreement with plaintiffs, which our
Parent has done.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Parent intends to vigorously defend against the plaintiffs&#146;
and McKesson&#146;s claims against our Parent and WebMD, Inc.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Other</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the normal course of business, we are involved in various
other claims and legal proceedings. While the ultimate
resolution of these matters, and those discussed above, has yet
to be determined, we do not believe that their outcome will have
a material adverse effect on our consolidated combined financial
position, results of operations or liquidity.
</DIV>

<P align="center" style="font-size: 10pt;">63

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<DIV align="left" style="font-size: 10pt;">
<A name='111'></A>
</DIV>

<!-- link1 "GOVERNMENT REGULATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>GOVERNMENT REGULATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Introduction</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General.</I> This section of the prospectus contains a
description of laws and regulations applicable to us, either
directly or through their effect on our healthcare industry
customers. The healthcare industry is highly regulated and is
subject to changing political, regulatory and other influences.
These factors affect the purchasing practices and operations of
healthcare organizations as well as the behavior and attitudes
of consumers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Federal and state legislatures and agencies periodically
consider programs to reform or revise the U.S. healthcare
system. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement
rates or otherwise change the environment in which healthcare
industry participants operate. We are unable to predict future
proposals with any certainty or to predict the effect they would
have on our businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Existing and new laws and regulations affecting the healthcare,
information technology and Internet industries could create
unexpected liabilities for us, cause us to incur additional
costs and could restrict our operations. Many of the laws that
affect us, and particularly those applying to healthcare, are
very complex and may be subject to varying interpretations by
courts and other governmental authorities. Our failure, or the
failure of our business partners, to accurately anticipate the
application of these laws and regulations, or other failure to
comply, could create liability for us, result in adverse
publicity and negatively affect our businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Healthcare Regulation.</I> Most of our revenue is either from
the healthcare industry or could be affected by changes
affecting healthcare spending. The healthcare industry is highly
regulated and is subject to changing political, regulatory and
other influences. These factors affect the purchasing practices
and operations of healthcare organizations as well as the
behavior and attitudes of consumers. Federal and state
legislatures and agencies periodically consider programs to
reform or revise aspects of the United States healthcare system.
These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry
participants operate. Healthcare industry participants may
respond by reducing their investments or postponing investment
decisions, including investments in our products and services.
We are unable to predict future proposals with any certainty or
to predict the effect they would have on our businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Many healthcare laws are complex and their application to
specific products and services may not be clear. In particular,
many existing healthcare laws and regulations, when enacted, did
not anticipate the healthcare information services and
technology solutions that we provide. However, these laws and
regulations may nonetheless be applied to our products and
services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Other Regulation.</I> This section of the prospectus also
contains a description of other laws and regulations, including
general consumer protection laws and Internet-related laws that
affect some of our businesses. Laws and regulations have been
adopted, and may be adopted in the future, that address
Internet-related issues, including online content, privacy,
online marketing, unsolicited commercial e-mail, taxation,
pricing, and quality of products and services. Some of these
laws and regulations, particularly those that relate
specifically to the Internet, were adopted relatively recently
and their scope and application may still be subject to
uncertainties. Interpretations of these laws, as well as any new
or revised law or regulation, could decrease demand for our
services, increase our cost of doing business, or otherwise
cause our business to suffer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Regulation of Drug and Medical Device Advertising and
Promotion</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The FDA and the FTC regulate the form, content and dissemination
of labeling, advertising and promotional materials prepared by,
or for, pharmaceutical or medical device companies, including
direct-to-consumer prescription drug and medical device
advertising. The FTC regulates over-the-counter drug advertising
and, in some cases, medical device advertising, as well as
general product or service
</DIV>

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advertising. Generally, based on FDA requirements, regulated
companies must limit advertising and promotional materials to
discussions of FDA-approved uses and claims. In limited
circumstances, regulated companies may disseminate
non-promotional scientific information regarding product uses or
claims not yet approved by the FDA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Information that promotes the use of pharmaceutical products or
medical devices that is put on our Web sites is subject to the
full array of the FDA and FTC requirements and enforcement
actions and information regarding other products and services is
subject to FTC requirements. Areas of our Web sites that could
be the primary focus of the FDA and FTC include pages and
programs that discuss use of an FDA-regulated product or that
the regulators believe may lack editorial independence from the
influence of sponsoring pharmaceutical or medical device
companies. Television broadcast advertisements by us may also be
subject to FTC regulation and FDA regulation depending on the
content. The FDA and the FTC place the principal burden of
compliance with advertising and promotional regulations on
advertisers and sponsors to make truthful, substantiated claims.
If the FDA or the FTC finds that any information on our Web site
violates FDA or FTC regulations, they may take regulatory or
judicial action against us or the advertiser or sponsor of that
information. State attorneys general may also take similar
action based on their state&#146;s consumer protection statutes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Drug Advertising.</I> The Federal Food, Drug and Cosmetic
Act, or FDC Act, requires that prescription drugs (including
biological products) be approved for a specific medical
indication by the FDA prior to marketing. It is a violation of
the FDC Act and of FDA regulations to market, advertise or
otherwise commercialize such products prior to approval. The FDA
does allow for preapproval exchange of scientific information,
provided it is nonpromotional in nature and does not draw
conclusions regarding the ultimate safety or effectiveness of
the unapproved drug. Upon approval, the FDA&#146;s regulatory
authority extends to the labeling and advertising of
prescription drugs offered in interstate commerce. Such products
may only be promoted and advertised for approved indications. In
addition, the labeling and advertising can be neither false nor
misleading, and must present all material information, including
risk information, in a balanced manner. Labeling and advertising
that violate these legal standards are subject to FDA
enforcement action.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The FDA regulates the safety, efficacy, and labeling of
over-the-counter drugs, or OTC drugs, under the FDC Act either
through specific product approvals or through regulations that
define approved claims for specific categories of such products.
The FTC regulates the advertising of OTC drugs under the section
of the Federal Trade Commission Act that prohibits unfair or
deceptive trade practices. Together, the FDA and FTC regulatory
framework requires that OTC drugs be formulated and labeled in
accordance with FDA approvals or regulations and promoted in a
manner that is truthful, adequately substantiated, and
consistent with the labeled uses. OTC drugs that do not meet
these requirements are subject to FDA or FTC enforcement action
depending on the nature of the violation. In addition, state
attorneys general can also bring enforcement actions for alleged
unfair or deceptive advertising.
</DIV>

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There are significant administrative, civil and criminal
sanctions available to the FDA for violations of the FDC Act or
FDA regulations as they relate to labeling and advertising.
Administrative sanctions may include a written request that
violative advertising or promotion cease and/or that corrective
action be taken, such as requiring a company to provide to
healthcare providers and/or consumers information to correct
misinformation previously conveyed. In addition, the FDA may use
publicity, such as press releases, to warn the public about
false and misleading information concerning a drug or medical
device product. More serious civil sanctions include seizures
and injunctions. Such measures could prevent a company from
introducing or maintaining its product in the marketplace.
Criminal penalties for severe violations can result in a prison
term and/or substantial fines. State attorneys general have
similar investigative tools and sanctions available to them as
well. The National Association of Attorneys General has formed a
Prescription Drug Task Force that has been active in addressing
issues related to prescription drugs.
</DIV>

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Any increase in FDA regulation of the Internet or other media
for direct-to-consumer advertisements of prescription drugs
could make it more difficult for us to obtain advertising and
sponsorship revenue. In
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the last 15&nbsp;years, the FDA has gradually relaxed its
formerly restrictive policies on direct-to-consumer advertising
of prescription drugs. Companies can now advertise prescription
drugs for serious conditions to consumers in any medium if they
comply with FDA requirements. However, physician groups and
others have criticized the FDA&#146;s current policies, and have
called for restrictions on any advertising of prescription drugs
to consumers and increased FDA enforcement. These critics point
to both public health concerns and to the laws of many other
countries that make direct-to-consumer advertising of
prescription drugs a criminal offense. Scrutiny of
direct-to-consumer advertising increased after Vioxx&#174; was
withdrawn from the market due to potential safety concerns in
September 2004. Critics have proposed postponing
direct-to-consumer advertising for a new drug until the drug has
been safely marketed commercially for one or two years. In
response to these criticisms, the FDA or the FTC may alter its
present policies on the direct-to-consumer advertising of
prescription drugs or medical devices in a way that would
materially reduce our advertising and sponsorship revenues. In
early 2004, the FDA issued three draft guidance documents
intended to improve communication of: (1)&nbsp;risk information
in direct-to-consumer print advertisements, (2)&nbsp;disease
awareness information, and (3)&nbsp;risk information in
direct-to-consumer advertising of restricted medical devices.
These draft guidance documents do not alter existing FDA
regulatory requirements, but may lead to future policy changes.
</DIV>

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<I>Physician Education Programs.</I> Activities and information
provided in the context of a medical or scientific educational
program, including continuing medical education or
&#147;CME,&#148; are not regulated by the FDA if they are
non-promotional. The FDA does, however, evaluate such activities
to determine whether they are independent of the promotional
influence of the drug or medical device sponsor or whether they
are promotional activities subject to the FDA&#146;s advertising
and labeling requirements. In order to determine whether a
company&#146;s activities are sufficiently independent, the FDA
looks at a number of factors related to the planning, content,
speakers and audience selection of such activities. To the
extent that the FDA concludes that such activities are not
independent from a manufacturer, such content must fully comply
with the FDA&#146;s requirements. If the FDA or other regulatory
agency finds that an educational program violates the applicable
requirements, they may take regulatory or judicial action
against the sponsor or us.
</DIV>

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During the past several years, educational programs, including
CME, directed toward physicians have been subject to increased
scrutiny to ensure that sponsors do not influence or control the
content of the program. In response to governmental and industry
initiatives, pharmaceutical companies have been developing and
implementing internal controls and procedures that promote
adherence to applicable regulations and requirements. In
implementing these controls and procedures, different clients
may interpret the regulations and requirements differently and
may implement procedures or requirements that vary from client
to client. These controls and procedures:
</DIV>

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    may discourage pharmaceutical companies from engaging in
    educational activities;</TD>
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    <TD style="font-size: 6pt">&nbsp;</TD>
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    <TD>&nbsp;</TD>
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    may slow their internal approval for such programs;</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
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    may reduce the volume of sponsored educational programs
    implemented through our Medscape Web site to levels that are
    lower than in the past; and</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
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    may require us to make changes to how we offer or provide
    educational programs, including CME.</TD>
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In addition, future changes to existing regulations or
accreditation standards, or to the internal compliance programs
of potential clients, may further discourage or prohibit
potential clients from engaging in educational activities with
us, or may require us to make further changes in the way we
offer or provide educational programs.
</DIV>

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<B>Medical Professional Regulation</B>
</DIV>

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The practice of most healthcare professions requires licensing
under applicable state law. In addition, the laws in some states
prohibit business entities from practicing medicine, which is
referred to as the prohibition against the corporate practice of
medicine. We do not believe that we engage in the practice of
medicine and we have attempted to structure our Web site,
strategic relationships and other operations to
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avoid violating these state licensing and professional practice
laws. We do not believe we provide professional medical advice,
diagnosis or treatment. We employ and contract with physicians
who provide only medical information to consumers, and we have
no intention to provide medical care or advice. A state,
however, may determine that some portion of our business
violates these laws and may seek to have us discontinue those
portions or subject us to penalties or licensure requirements.
Any determination that we are a healthcare provider and acted
improperly as a healthcare provider may result in liability to
us. Many states regulate the ability of medical professionals to
advertise or maintain referral services. We do not represent
that a physician&#146;s use of our Web site will comply with
these or other state laws regulating professional practice and
we do not monitor or control the content that physicians post on
their individual practice Web sites using our Web site
application. It is possible a state or a court may determine we
are responsible for any non-compliance with these laws, which
could affect our ability to offer this service to our customers.
</DIV>

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<B>Anti-Kickback Laws</B>
</DIV>

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There are federal and state laws that govern patient referrals,
physician financial relationships and inducements to healthcare
providers and patients. The federal healthcare programs
anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. These
laws are applicable to manufacturers and distributors and,
therefore, may restrict how we and some of our customers market
products to healthcare providers. Also, in 2002, the Office of
the Inspector General, or OIG, of HHS, the federal government
agency responsible for interpreting the federal anti-kickback
law, issued an advisory opinion that concluded that the sale of
advertising and sponsorships to healthcare providers and vendors
by Web-based information services implicates the federal
anti-kickback law. However, the advisory opinion suggests that
enforcement action will not result if the fees paid represent
fair market value for the advertising/sponsorship arrangements,
the fees do not vary based on the volume or value of business
generated by the advertising and the advertising/sponsorship
relationships are clearly identified as such to users. We
carefully review our practices with regulatory experts in an
effort to ensure that we comply with all applicable laws.
However, the laws in this area are both broad and vague and it
is often difficult or impossible to determine precisely how the
laws will be applied, particularly to new services. Penalties
for violating the federal anti-kickback law include
imprisonment, fines and exclusion from participating, directly
or indirectly, in Medicare, Medicaid and other federal
healthcare programs. Any determination by a state or federal
regulatory agency that any of our practices violate any of these
laws could subject us to civil or criminal penalties and require
us to change or terminate some portions of our business and
could have an adverse effect on our business. Even an
unsuccessful challenge by regulatory authorities of our
practices could cause us adverse publicity and be costly for us
to respond to.
</DIV>

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<B>Privacy Standards and Security Standards Under Health
Insurance Portability and Accountability Act of 1996</B>
</DIV>

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Under HIPAA, Congress mandated a package of interlocking
administrative simplification rules to establish standards and
requirements for the electronic transmission of certain health
information. Two of these rules affect our business:
</DIV>

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    the Standards for Privacy of Individually Identifiable Health
    Information, published December&nbsp;28, 2000, which we refer to
    as the Privacy Standards;&nbsp;and</TD>
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    the Health Insurance Reform: Security Standards, published
    February&nbsp;20, 2003, which we refer to as the Security
    Standards.</TD>
</TR>

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These rules provide for civil and criminal liability for breach.
</DIV>

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<I>Privacy Standards.</I> The Privacy Standards establish a set
of basic national privacy standards for the protection by health
plans, healthcare clearinghouses, healthcare providers and their
business associates of individually identifiable health
information. This rule became effective on April&nbsp;14, 2001
and the compliance date for most entities was April&nbsp;14,
2003. The Privacy Standards apply, through our contractual
relationships, to the portions of our business that manage
employee or plan member health information for employers or
health plans. The Privacy Standards provide for civil and
criminal liability for their breach and require us, our
customers and our partners to use health information in a highly
restricted manner, to establish policies and procedures to
safeguard the information, to obtain individual authorizations
for some activities, and to provide certain access rights to
individuals. We cannot assure you that we will adequately
address the risks created by the Privacy Standards or that we
will be able to take advantage of any resulting opportunities.
In addition, we are unable to predict what changes to the
Privacy Standards might be made in the future or how those
changes could affect our business.
</DIV>

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<I>Security Standards.</I> On February&nbsp;20, 2003, HHS
published the final Security Standards. The Security Standards
establish detailed requirements for safeguarding patient
information that is electronically transmitted or electronically
stored. The rule establishes 42 implementation specifications,
20 of which are &#147;required,&#148; meaning they must be
implemented as specified in the rule. Twenty-two are
&#147;addressable.&#148; Complying with addressable
implementation specifications requires a business to assess
whether they constitute a reasonable and appropriate safeguard
for the particular business; if not, an alternative approach
must be designed and implemented to achieve the particular
standard. The Security Standards apply, through our contractual
relationships, to the portions of our business that manage
employee or plan member health information for employers or
health plans. Most participants in the healthcare industry were
required to be in compliance with the Security Standards by
April&nbsp;21, 2005. Some of the Security Standards are
technical in nature, while others may be addressed through
policies and procedures for using information systems. We
believe that our infrastructure and processes are in compliance
with the Security Standards. However, we are unable to predict
what changes might be made to the Security Standards prior to or
after the implementation deadline or how those changes might
help or hinder our business. The effect of the Security
Standards on our business is difficult to predict and we cannot
assure you that we will adequately address the risks created by
the Security Standards and their implementation or that we will
be able to take advantage of any resulting opportunities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Other Restrictions Regarding Confidentiality and Privacy of
Patient Information</B>
</DIV>

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In addition to HIPAA, numerous other state and federal laws
govern the collection, dissemination, use, access to and
confidentiality of patient health information. In addition, some
states are considering new laws and regulations that further
protect the confidentiality of medical records or medical
information. In many cases, these state laws are not preempted
by the HIPAA Privacy Standard and may be subject to
interpretation by various courts and other governmental
authorities, thus creating potentially complex compliance issues
for us and our customers and strategic partners. These privacy
laws at a state or federal level, or new interpretations of
these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business. In
addition, parties may also have contractual rights that provide
additional limits on our collection, dissemination, use, access
to and confidentiality of patient health information. Claims of
violations of privacy rights or contractual breaches, even if we
are not found liable, could be expensive and time-consuming to
defend and could result in adverse publicity that could harm our
business.
</DIV>

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<B>International Data Regulation</B>
</DIV>

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Other countries also have, or are developing, their own laws
governing the collection, use, storage and dissemination of
personal information or patient data. These laws could create
liability for us, impose additional operational requirements or
restrictions on our business, affect the manner in which we use
or transmit data and increase our cost of doing business.
</DIV>

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<B>Consumer Protection Regulation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General.</I> Advertising and promotional activities presented
to visitors on our Web sites are subject to federal and state
consumer protection laws which regulate unfair and deceptive
practices. We are also subject to various other federal and
state consumer protection laws, including the ones described
below.
</DIV>

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<I>CAN-SPAM Act.</I> Effective January&nbsp;1, 2004, the
Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or the CAN-SPAM Act, became effective.
The CAN-SPAM Act regulates commercial emails and provides a
right on the part of the recipient to request the sender to stop
sending messages, and establishes penalties for the sending of
email messages which are intended to deceive the recipient as to
source or content. Under the CAN-SPAM Act, senders of commercial
emails (and other persons who initiate those emails) are
required to make sure that those emails do not contain false or
misleading transmission information. Commercial emails are
required to include a valid return email address and other
subject heading information so that the sender and the Internet
location from which the message has been sent are accurately
identified. Recipients must be furnished with an electronic
method of informing the sender of the recipient&#146;s decision
to not receive further commercial emails. In addition, the email
must include a postal address of the sender and notice that the
email is an advertisement. The CAN-SPAM Act may apply to the
e-newsletters that our public portals distribute to members and
to some of our other commercial email communications. However,
there may be additional FTC regulations indicating that our
e-newsletters are outside the scope of CAN-SPAM. At this time,
we are applying the CAN-SPAM requirements to these email
communications, and believe that our email practices comply with
the requirements of the CAN-SPAM Act.
</DIV>

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<I>Regulation of Advertisements Sent by Fax.</I> In 2004, the
Federal Communication Commission (FCC)&nbsp;issued a new
interpretation of a section of the Telephone Consumer Protection
Act that affects advertisements sent to telephone facsimile
(fax)&nbsp;machines. Under this new interpretation, unsolicited
advertisements which advertise the commercial availability or
quality of a product or service cannot be sent to the fax
machine of a recipient unless the recipient has signed a written
statement that includes the fax number to which these
advertisements may be sent and clearly indicates the
recipient&#146;s consent to receive these advertisements by fax
from the sender. Previously, these advertisements could be sent
without permission to entities with whom a current business
relationship exists. However, the FCC has delayed the effective
date of the new interpretation until June&nbsp;30, 2005. We do
not send advertisements to fax machines in any significant
portions of our business. We intend to comply with the
FCC&#146;s new interpretation effective as of the deadline.
</DIV>

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<I>COPPA.</I> The Children&#146;s Online Privacy Protection Act,
or COPPA, applies to operators of commercial Web sites and
online services directed to U.S.&nbsp;children under the age of
13 that collect personal information from children, and
operators of general audience sites with actual knowledge that
they are collecting information from U.S.&nbsp;children under
the age of 13. Our sites are not directed at children and our
general audience site, WebMD Health, states that no one under
the applicable age is entitled to use the site. In addition, we
employ a kick-out procedure whereby anyone identifying
themselves as being under the age of 13 during the registration
process is not allowed to register for the site&#146;s member
only services, such as message boards and live chat events.
COPPA, however, is a relatively new law, can be applied broadly
and is subject to interpretation by courts and other
governmental authorities. The failure to accurately anticipate
the application or interpretation of this law could create
liability for us, result in adverse publicity and negatively
affect our business.
</DIV>

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<I>Regulation of Contests and Sweepstakes.</I> We conduct
contests and sweepstakes in some of our marketing channels. The
federal Deceptive Mail Prevention and Enforcement Act and some
state prize, gift or sweepstakes statutes may apply to these
promotions. We believe that we are in compliance with any
applicable law or regulation when we run these promotions.
</DIV>

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<I>Other Consumer Protection Regulation.</I> The FTC and many
state attorneys general are applying federal and state consumer
protection laws to require that the online collection, use and
dissemination of data, and the presentation of Web site content,
comply with certain standards for notice, choice, security and
access. Courts may also adopt these developing standards. In
many cases, the specific limitations
</DIV>

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imposed by these standards are subject to interpretation by
courts and other governmental authorities. We believe that we
are in compliance with these consumer protection standards, but
a determination by a state or federal agency or court that any
of our practices do not meet these standards could result in
liability and adversely affect our business. New interpretations
of these standards could also require us to incur additional
costs and restrict our business operations.
</DIV>

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In addition, several foreign governments have regulations
dealing with the collection and use of personal information
obtained from their citizens. Those governments may attempt to
apply such laws extraterritorially or through treaties or other
arrangements with U.S.&nbsp;governmental entities. We might
unintentionally violate such laws, such laws may be modified and
new laws may be enacted in the future. Any such developments (or
developments stemming from enactment or modification of other
laws) or the failure to accurately anticipate the application or
interpretation of these laws could create liability to us,
result in adverse publicity and negatively affect our businesses.
</DIV>

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<A name='112'></A>
</DIV>

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<B>MANAGEMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Directors and Executive Officers</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that the following persons will be our executive
officers and directors at the time of this offering:
</DIV>

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</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Age</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Position</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wayne T. Gattinella</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Co-Chief Executive Officer, President and Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David Gang</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Co-Chief Executive Officer and Chief Operating Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin J. Wygod</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chairman of the Board</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony Vuolo</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President and Chief Financial Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas W. Wamsley</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President, General Counsel and Secretary</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to the completion of this offering, we expect that our
Board will appoint additional members so that our Board will
consist of a majority of independent directors under applicable
SEC rules and The Nasdaq National Market listing standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Wayne T. Gattinella </I>has served as President, since August
2001, and as Chief Executive Officer, since April 2005, of our
Parent&#146;s WebMD Health segment. He is expected to serve as
Director and Co-Chief Executive Officer and President upon
completion of this offering. Previously, Mr.&nbsp;Gattinella was
Executive Vice President and Chief Marketing Officer for
PeoplePC, an Internet service provider, from April 2000 to
August 2001. From February 1998 to March 2000,
Mr.&nbsp;Gattinella was President of North America for
MemberWorks, Inc., a marketing services company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>David Gang</I> is expected to join our Parent&#146;s WebMD
Health segment prior to the consummation of this offering and to
serve as our Co-Chief Executive Officer and Chief Operating
Officer upon completion of this offering. Since joining America
Online, Inc., or AOL, a subsidiary of Time Warner Corporation,
and its predecessors, in 1995, Mr.&nbsp;Gang has served for more
than five years in senior management positions at AOL most
recently as Executive Vice President, AOL Products, where he was
responsible for creating and implementing all AOL products
shared across various platforms including narrowband, broadband,
wireless and voice and the launch of AOL 9.0 Optimized, the
latest version of AOL.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Martin J. Wygod </I>is expected to serve as our Chairman of
the Board following this offering, and has served as our
Parent&#146;s Chairman of the Board since March 2001 and as a
director since September 2000. From October 2000 until May 2003,
he also served as our Parent&#146;s Chief Executive Officer.
From September 2000 until October 2000, Mr.&nbsp;Wygod served as
Co-Chief Executive Officer of our Parent. For more than five
years prior to its merger with our Parent in September 2000,
Mr.&nbsp;Wygod was Chairman of the Board and a director of
Synetic, Inc., which changed its name to Medical Manager in July
1999 when it acquired the company of that name. He also served
as Chairman of the Board of CareInsite, Inc. from 1999 until its
acquisition by our Parent in September 2000. He is also engaged
in the business of racing, boarding and breeding thoroughbred
horses, and is President of River Edge Farm, Inc. It is expected
that Mr.&nbsp;Wygod will continue to serve as Chairman of the
Board of our Parent following this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Anthony Vuolo </I>is expected to serve as our Executive Vice
President and Chief Financial Officer upon the completion of
this offering. Mr. Vuolo has been Executive Vice President,
Business Development of our Parent since May 2003.
Mr.&nbsp;Vuolo has served in several executive positions at our
Parent and its predecessors since 1994. From September 2000 to
May 2003, Mr.&nbsp;Vuolo was Executive Vice President and Chief
Financial Officer of our Parent. From March 1999 until its
merger with our Parent in September 2000, Mr.&nbsp;Vuolo was
Senior Vice President&nbsp;&#151; Business Development and
Treasurer of Synetic, Inc., which changed its name to Medical
Manager in July 1999 when it acquired the company of that name.
Prior to
</DIV>

<P align="center" style="font-size: 10pt;">71
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<DIV align="left" style="font-size: 10pt;">
that, he was Executive Vice President&nbsp;&#151; Finance and
Administration and Chief Financial Officer of Synetic from March
1998 until March 1999.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Douglas W. Wamsley </I>is expected to serve as our Executive
Vice President, General Counsel and Secretary upon completion of
this offering. Mr.&nbsp;Wamsley has served as Senior Vice
President&nbsp;&#151; Legal of our company and Vice
President&nbsp;&#151; Legal of our Parent from September 2001 to
the present. Prior to joining our company, Mr.&nbsp;Wamsley
served as Executive Vice President and General Counsel of
Medical Logistics, Inc. from February 2000 through July 2001.
Prior to joining Medical Logistics, Mr.&nbsp;Wamsley served in
various legal positions with Merck-Managed Care LLC (now known
as Medco-Health Solutions) from December 1986 through January
2001.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Corporate Governance</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Since our Parent holds over 50% of the combined voting power of
our common stock, we are eligible for certain exceptions to the
corporate governance rules of The Nasdaq National Market for
controlled corporations, including the rules relating to the
independence of our Board. However, it is currently not our
intention to avail ourselves of those exceptions. In general, we
intend to implement corporate governance structures similar to
those used by our Parent, which is not a controlled corporation.
These structures are described in this section of the
Prospectus. We also intend to adopt a Code of Business Conduct
similar to our Parent&#146;s.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Board of Directors</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Board Composition</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Wayne T. Gattinella, our Co-Chief Executive Officer and
President, and Martin J. Wygod are currently the only members of
the Board of Directors of our company. Prior to the completion
of this offering, we expect that our Board will appoint
additional members so that our Board will consist of a majority
of independent directors under applicable SEC rules and The
Nasdaq National Market listing standards.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Director Classification</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that our certificate of incorporation and bylaws
will provide for our Board to be divided into classes of
directors serving staggered terms. We expect that each director
class will be as equal in number as possible, and each class
will hold office until the applicable annual stockholders&#146;
meeting for election of directors following the most recent
election of such class. Any additional directorships resulting
from an increase in the number of directors will be distributed
among the classes so that, as nearly as possible, each class
will consist of an equal number of directors. The classification
of our Board may have the effect of delaying or preventing
changes in control or management of our company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Committees of the Board</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with this offering, our Board will form standing
committees similar to the equivalent standing committees of the
Board of our Parent, as described below, and to adopt written
charters for each such committee, other than the Executive
Committee, that are generally similar to the charter for the
equivalent standing committee of the Board of our Parent. In
addition, as described below, we intend to have a standing Board
committee consisting of independent directors who are not
members of our Parent&#146;s Board with authority to review
transactions between us and our Parent to the extent such
committee determines to be appropriate. After this offering, our
Board may designate new committees, as it deems appropriate, to
assist with its responsibilities.
</DIV>

<P align="center" style="font-size: 10pt;">72

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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Executive Committee</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that prior to the completion of this offering, our
Board will form an Executive Committee consisting of directors
that will have the power to exercise, to the fullest extent
permitted by law, the powers of the full Board.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Audit Committee</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Board will form an Audit Committee, at least one of whom
will be an &#147;audit committee financial expert&#148; as
defined in the rules of The Nasdaq National Market. Each member
of the Audit Committee will be financially literate at the time
such member is appointed. The composition of the Audit Committee
will satisfy the independence requirements of The Nasdaq
National Market and the SEC, without relying on any of the
exceptions available to controlled companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that the Audit Committee will operate under a
written charter to be adopted by our Board, generally similar to
the charter of the Audit Committee of our Parent&#146;s Board,
which will set forth the responsibilities and powers delegated
by our Board to the Audit Committee. We expect that the Audit
Committee will have the responsibility for, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    retaining and overseeing the registered public accounting firm
    that serves as independent auditor and evaluating their
    performance and independence;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewing the annual audit plan with our management and
    registered public accounting firm;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pre-approving any permitted non-audit services provided by our
    registered public accounting firm;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    approving the fees to be paid to our registered public
    accounting firm;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewing the adequacy and effectiveness of our internal
    controls with our management, internal auditors and registered
    public accounting firm;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewing and discussing the annual audited financial statements
    and the interim unaudited financial statements with our
    management and registered public accounting firm;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    approving our internal audit plan and reviewing reports of our
    internal auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    determining whether to approve related party
    transactions;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    overseeing the administration of our Code of Business Conduct.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Compensation Committee</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Board is expected to form a Compensation Committee. We
expect that each of these directors will be a non-employee
director within the meaning of Section&nbsp;16 of the Exchange
Act, an outside director within the meaning of
Section&nbsp;162(m) of the Internal Revenue Code and an
independent director under applicable Nasdaq National Market
listing standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that the Compensation Committee will operate under a
written charter to be adopted by our Board, generally similar to
the charter of the Compensation Committee of our Parent&#146;s
Board, which will set forth the responsibilities and powers
delegated by our Board to the Compensation Committee. We
anticipate that the responsibilities of the Compensation
Committee will generally include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    oversight of our executive compensation program and our
    incentive and equity compensation plans;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    determination of compensation levels for grants of incentive and
    equity-based awards to our executive officers;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    review of and making recommendations regarding other matters
    relating to our compensation practices.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">73

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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Nominating Committee</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that our Board will designate a Nominating
Committee, with each director in such committee being an
independent director under applicable Nasdaq National Market
listing standards. It is expected that the Nominating Committee
will operate under a written charter to be adopted by our Board,
generally similar to the charter of the Nominating Committee of
our Parent&#146;s Board, which will set forth the
responsibilities and powers delegated by our Board to the
Nominating Committee. We expect the responsibilities of the
Nominating Committee to generally include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    identifying individuals qualified to become members of our Board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    recommending to our Board the director nominees for each annual
    meeting of stockholders;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    recommending to our Board candidates for filling vacancies that
    may occur between annual meetings.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that the Nominating Committee will adopt similar
procedures to those used by the Nominating Committee of our
Parent&#146;s Board, which has not adopted specific objective
requirements for Board service and, instead, considers various
factors in determining whether to recommend potential new
members, or the continued service of existing members. Those
factors would generally include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the amount and type of the potential nominee&#146;s managerial
    and policy-making experience in complex organizations and
    whether any such experience is particularly relevant to us;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    any specialized skills or experience that the potential nominee
    has and whether such skills or experience are particularly
    relevant to us;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    in the case of non-employee directors, whether the potential
    nominee has sufficient time to devote to service on the board
    and the nature of any conflicts of interest or potential
    conflicts of interest arising from the nominee&#146;s existing
    relationships;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    in the case of non-employee directors, whether the nominee would
    be an independent director and would be considered a
    &#147;financial expert&#148; or &#147;financially literate&#148;
    under applicable listing standards of The Nasdaq National Market
    and applicable law;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    in the case of potential new members, whether the nominee
    assists in achieving a mix of board members that represents a
    diversity of background and experience, including with respect
    to age, gender, race, areas of expertise and skills;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    in the case of existing members, the nominee&#146;s
    contributions as a member of the Board during his or her prior
    service.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Governance&nbsp;&#38; Compliance Committee</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that our Board will form a Governance&nbsp;&#38;
Compliance Committee, consisting of at least two directors, each
of whom will be an independent director under applicable Nasdaq
National Market listing standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that the Governance&nbsp;&#38; Compliance
Committee will operate under a written charter to be adopted by
our Board, generally similar to the charter of the
Governance&nbsp;&#38; Compliance Committee of our Parent&#146;s
Board, which will set forth the responsibilities and powers
delegated by our Board to the Governance&nbsp;&#38; Compliance
Committee. We expect the responsibilities of the
Governance&nbsp;&#38; Compliance Committee will generally
include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    evaluating and making recommendations to our Board regarding
    matters relating to our governance;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    assisting our Board in coordinating the activities of our
    Board&#146;s other standing committees, including with respect
    to our compliance programs and provide additional oversight of
    those compliance programs;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    providing oversight of senior executive recruitment and
    management development.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">74

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Related Parties Committee</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that our Board will form a Related Parties Committee,
consisting of at least two directors. Each of these directors
will be an independent director under applicable Nasdaq National
Market listing standards and will not be, or ever have been, a
member of the Board of Directors of our Parent. The
responsibilities of the Related Parties Committee will include
developing and implementing procedures for approval of
transactions between us and our Parent.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Executive Compensation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our company was formed in May&nbsp;2005 to be the holding
company for our Parent&#146;s WebMD Health segment and to
conduct this offering. We have not paid any compensation to the
persons we currently expect to be our executive officers. The
following table presents information concerning compensation for
services paid by Parent and/or its other subsidiaries to our
Co-Chief Executive Officer and the other persons currently
expected to be our executive officers who received the most
compensation from our Parent and/or its subsidiaries during the
year ended December&nbsp;31, 2004. In addition, the table
includes the same information for one person who formerly served
as Chief Executive Officer of our Parent&#146;s WebMD Health
segment. The individuals listed in the table are referred to in
this prospectus as our &#147;named executive officers.&#148; See
&#147;&#151;&nbsp;Compensation Arrangements with Named Executive
Officers&#148; below for a description of existing compensation
arrangements for each of the named executive officers as well as
any change in those arrangements to become effective in
connection with this offering.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Summary Compensation Table</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Long-Term</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Compensation Awards</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Securities</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Annual Compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Parent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Underlying</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Restricted Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Parent Options</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap><B>Name&nbsp;&#38; Principal Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Salary ($)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus ($)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Award(s) ($)(1)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>SARs (#)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wayne T. Gattinella</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>322,125</TD>
    <TD align="left" valign="top" nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Co-Chief Executive Officer,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    President and Director</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>410,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>165,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="22">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin J. Wygod</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1,260,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>402,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chairman of the Board</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1,308,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1,400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>475,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="22">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony Vuolo</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>260,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>322,125</TD>
    <TD align="left" valign="top" nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Executive Vice President and</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chief Financial Officer</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="22">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas W. Wamsley</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>128,850</TD>
    <TD align="left" valign="top" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Executive Vice President,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General Counsel and Secretary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="22">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Roger C. Holstein(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>915,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>402,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>715,547</TD>
    <TD align="left" valign="top" nowrap>(5)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Former Chief Executive</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>861,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Officer</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>480,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Holders of restricted shares of our Parent common stock (which
    we refer to as Restricted Parent Stock) have voting power and
    the right to receive dividends, if any are declared on our
    Parent common stock, with respect to shares of Restricted Parent
    Stock, but their ability to sell shares of Restricted Parent
    Stock is subject to vesting requirements based on continued
    employment, as described in the footnotes below. The dollar
    value of Restricted Parent Stock listed in this column is
    calculated by multiplying the number of shares granted by the
    closing market price on the date of each grant, as described in
    the footnotes below.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">75
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The dollar value listed in the table is based on $8.59&nbsp;per
    share, the closing market price of our Parent common stock on
    March&nbsp;17, 2004, the date of grant of 37,500&nbsp;shares of
    Restricted Stock, of which (a)&nbsp;12,500&nbsp;shares vested on
    March&nbsp;17, 2005, (b)&nbsp;12,500&nbsp;shares will vest on
    March&nbsp;17, 2006 and (c)&nbsp;12,500&nbsp;shares will vest on
    March&nbsp;17, 2007, subject to the terms of the plans and award
    agreements. As of December&nbsp;31, 2004, the aggregate value of
    the 37,500&nbsp;shares of Restricted Stock, all of which were
    unvested at that date, was $306,000, based on the closing market
    price of $8.16&nbsp;per share of our Parent common stock on that
    date.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    The dollar value listed in the table is based on $8.59 per
    share, the closing market price of our Parent common stock on
    March&nbsp;17, 2004, the date of grant of 15,000&nbsp;shares of
    Restricted Stock, of which (a)&nbsp;5,000&nbsp;shares vested on
    March&nbsp;17, 2005, (b)&nbsp;5,000&nbsp;shares will vest on
    March&nbsp;17, 2006 and (c)&nbsp;5,000&nbsp;shares will vest on
    March&nbsp;17, 2007 subject to the terms of the plans and award
    agreements. As of December&nbsp;31, 2004, the aggregate value of
    the 15,000&nbsp;shares of Restricted Stock, all of which were
    unvested at that date, was $122,400, based on the closing market
    price of $8.16 per share of our Parent common stock on that date.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Holstein was Chief Executive Officer of our
    Parent&#146;s WebMD Health segment from October 2004 until his
    resignation in April 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    The dollar value listed in the table is based on $8.59&nbsp;per
    share, the closing market price of our Parent common stock on
    March&nbsp;17, 2004, the date of grant of 83,300&nbsp;shares of
    Restricted Stock, of which (a)&nbsp;27,766&nbsp;shares vested on
    March&nbsp;17, 2005, (b)&nbsp;27,767&nbsp;shares had a vesting
    date of March&nbsp;17, 2006 and (c)&nbsp;27,767&nbsp;shares had
    a vesting date of March&nbsp;17, 2007. As of December&nbsp;31,
    2004, the aggregate value of the 83,300&nbsp;shares of
    Restricted Stock, all of which were unvested at that date, was
    $679,728, based on the closing market price of $8.16&nbsp;per
    share of our Parent common stock on that date. Effective as of
    April&nbsp;27, 2005, the date of Mr.&nbsp;Holstein&#146;s
    resignation from our Parent, all unvested restricted stock held
    by Mr.&nbsp;Holstein was forfeited.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with SEC rules, the above table does not include
certain perquisites and other benefits received by the named
executive officers, which do not exceed the lesser of $50,000
and 10% of any officer&#146;s salary and bonus disclosed in this
table. In each of the years covered in the above table, none of
the named executive officers received more than $15,000 in
perquisites or other benefits and most of such benefits
consisted of automobile allowances.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table presents information concerning the options
to purchase our Parent&#146;s common stock granted during the
fiscal year ended December&nbsp;31, 2004 to the named executive
officers for services rendered to our Parent and its
subsidiaries. Such options and other equity awards will continue
to be governed by the terms and conditions of our Parent&#146;s
equity plans under which they were granted.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Parent Option Grants in 2004</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>Individual Grants</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent of Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Parent Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise or</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Parent Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Employees in</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Base Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expiration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Grant Date Present</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Granted (#)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004(1)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>($/Share)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Date</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value ($)(2)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wayne T. Gattinella</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD align="left" valign="bottom" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3/17/2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,163,025</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin J. Wygod</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony Vuolo</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD align="left" valign="bottom" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3/17/2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,163,025</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas W. Wamsley</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD align="left" valign="bottom" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3/17/2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>465,210</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Roger C. Holstein</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Based upon the total number of options that our Parent granted
    to its and its subsidiaries&#146; employees during 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The estimated grant date present value reflected in the above
    table was determined using the Black-Scholes model and the
    following data and assumptions: (a)&nbsp;the applicable option
    exercise prices, (b)&nbsp;the exercise of options within
    3&nbsp;years of the date that they become exercisable,
    (c)&nbsp;a risk-free interest rate of 1.9%&nbsp;per annum,
    (d)&nbsp;volatility of 0.6 for our Parent common stock and
    (e)&nbsp;that no dividends are paid on our Parent common stock.
    The ultimate values of the options will depend on the future
    market price of our Parent common stock, which cannot be
    forecast with reasonable accuracy. The actual value, if any, an
    optionee will realize upon exercise of an option will depend on
    the excess of the market value of our Parent common stock over
    the exercise price on the date the option is exercised. We
    cannot predict whether the value realized by an optionee will be
    at or near the value estimated by the Black-Scholes model or any
    other model applied to value the options.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">76
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    These options vest and become exercisable with respect to 1/3 of
    the shares on each of September&nbsp;17, 2005,
    September&nbsp;17, 2006 and September&nbsp;17, 2007.</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
The following table presents information with respect to the
named executive officers concerning exercises of options to
purchase our Parent common stock during 2004 and exercisable and
unexercisable options to purchase our Parent common stock that
they held as of December&nbsp;31, 2004.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Aggregated Parent Option Exercises in Last Fiscal Year and
Fiscal Year-End Parent Option Values</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="21%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Number of Securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Underlying Unexercised</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Value of Unexercised</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Parent Options at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>In-the-Money Parent Options at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Parent Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31, 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31, 2004(2)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Acquired on</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Realized</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise (#)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>($)(1)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Unexercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable ($)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Unexercisable ($)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wayne T. Gattinella</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,507,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>502,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin J. Wygod</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,044,000</TD>
    <TD align="left" valign="bottom" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,382,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,685,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony Vuolo</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>312,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,438,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,015,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>269,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,365,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas W. Wamsley</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>373,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>184,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Roger C. Holstein</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,234,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,345,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,470,000</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    The value realized is calculated based on the amount by which
    the aggregate market price, on the date of exercise, of the
    Parent shares received exceeded the aggregate exercise price
    paid, regardless of whether such shares were sold or retained by
    the option holder on that date.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The value of unexercised in-the-money Parent options is
    calculated based on the closing market price per share of our
    Parent&#146;s common stock as of December&nbsp;31, 2004, which
    was $8.16, net of the applicable option exercise price per share.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Wygod has retained, through the date of this
    prospectus, ownership of the shares acquired on exercise.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Compensation Arrangements with Named Executive Officers</B>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Arrangements with Wayne T. Gattinella</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a party to an employment agreement with Wayne Gattinella,
who will serve as our Co-Chief Executive Officer and President.
The following is a description of Mr.&nbsp;Gattinella&#146;s
employment agreement:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Gattinella currently receives an annual base salary of
    $560,000 and will be eligible to earn a bonus of up to 100% of
    his base salary. Achievement of 50% of that bonus will be based
    upon the attainment of annual financial goals, and achievement
    of the remaining 50% will be based upon other annual performance
    goals.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event this initial public offering is consummated, we
    would recommend to our Compensation Committee that, upon
    consummation, Mr.&nbsp;Gattinella be granted 100,000&nbsp;shares
    of our restricted class&nbsp;A common stock and options to
    purchase&nbsp;400,000&nbsp;shares of our Class&nbsp;A common
    stock, such numbers subject to adjustment, up or down, to the
    extent our capitalization is more or less than
    100,000,000&nbsp;shares. The per share exercise price of the
    options would be the initial public offering price. The
    restricted stock and options would vest in equal installments
    over four years upon each anniversary of the grant date.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event of a &#147;change of control&#148; (as defined in
    Mr.&nbsp;Gattinella&#146;s employment agreement), the unvested
    portion of the options to purchase our Class&nbsp;A common stock
    would continue to vest until the later of (1)&nbsp;two years
    from the date of grant and (2)&nbsp;the next scheduled vesting
    date following the change of control. The continued vesting
    applies only if Mr.&nbsp;Gattinella remains employed until six
    months following such change of control or is terminated by our
    successor &#147;without cause&#148; or he resigns for &#147;good
    reason&#148; during such six-month period.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event of the termination of Mr.&nbsp;Gattinella&#146;s
    employment, prior to April&nbsp;30, 2009, by us &#147;without
    cause&#148; or by Mr.&nbsp;Gattinella for &#147;good
    reason&#148; (as those terms are defined in</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">77
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    Mr.&nbsp;Gattinella&#146;s employment agreement) he would be
    entitled to continue to receive his base salary for one year
    from the date of termination and to receive healthcare coverage
    until the earlier of one year following his termination and the
    date upon which he receives comparable coverage under another
    plan. In addition, the unvested portion of the option to
    purchase&nbsp;600,000&nbsp;shares of our Parent&#146;s common
    stock granted to Mr.&nbsp;Gattinella at the inception of his
    employment would remain outstanding and continue to vest as if
    he remained in our employ until the first anniversary of the
    date of termination. In the event that a termination of
    Mr.&nbsp;Gattinella&#146;s employment by us &#147;without
    cause&#148; or by Mr.&nbsp;Gattinella for &#147;good
    reason&#148; occurs before the fourth anniversary of the grant
    of the options to purchase our Class&nbsp;A common stock, 25% of
    such options would continue to vest through the next vesting
    date following the date of termination.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Mr.&nbsp;Gattinella is also a party to a related agreement with
WebMD, Inc. that contains confidentiality obligations that
survive indefinitely and non-solicitation and non-competition
obligations that end on the first anniversary of the date his
employment has ceased.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Arrangements with David Gang</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are party to an employment agreement with David Gang, who
will serve as our Co-Chief Executive Officer and Chief Operating
Officer. The following is a description of Mr. Gang&#146;s
employment agreement:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Gang will receive an annual base salary of $560,000 and
    will be eligible to earn a bonus of up to 100% of his base
    salary. Achievement of 50% of that bonus will be based upon the
    attainment of annual financial goals, and achievement of the
    remaining 50% will be based upon other annual performance goals.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Gang will receive a signing bonus of $500,000 and will
    be entitled to a reimbursement of relocation expenses.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Gang will be granted, on the first day of his
    employment, options to purchase&nbsp;400,000&nbsp;shares of our
    Parent&#146;s common stock. The exercise price will be the
    closing price of the common stock of our Parent on such date.
    The options will vest in equal annual installments over four
    years upon each anniversary of the grant date. In the event we
    cease to be a subsidiary of our Parent, the unvested portion of
    the options would terminate while the vested portion would
    remain outstanding in accordance with its terms. If such an
    event occurs within the first twelve months from the grant date,
    the unvested portion would continue to vest through the first
    scheduled vesting date.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Gang will also receive 100,000&nbsp;shares of
    restricted common stock of our Parent on the first day of his
    employment. The restricted stock will vest in equal annual
    installments over four years upon each anniversary of the grant
    date. In the event we cease to be a subsidiary of our Parent,
    the restricted stock not yet vested at that time would be
    forfeited.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event this initial public offering is consummated, we
    would recommend to our Compensation Committee that, upon
    consummation, Mr.&nbsp;Gang be granted 100,000&nbsp;shares of
    our restricted Class&nbsp;A common stock and options to
    purchase&nbsp;400,000&nbsp;shares of our Class&nbsp;A common
    stock, such numbers subject to adjustment, up or down, to the
    extent our capitalization is more or less than
    100,000,000&nbsp;shares. The per share exercise price of the
    options would be the initial public offering price. The
    restricted stock and options would vest in equal installments
    over four years upon each anniversary of the grant date.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event of a &#147;change of control&#148; (as defined in
    Mr.&nbsp;Gang&#146;s employment agreement), the unvested portion
    of the options to purchase our Class&nbsp;A common stock would
    continue to vest until the later of (1)&nbsp;two years from the
    date of grant and (2)&nbsp;the next scheduled vesting date
    following the change of control. The continued vesting applies
    only if Mr.&nbsp;Gang remains employed until six months
    following such change of control or is terminated by our
    successor &#147;without cause&#148; or he resigns for &#147;good
    reason&#148; during such six-month period.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">78

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event of the termination of Mr.&nbsp;Gang&#146;s
    employment, prior to the fourth anniversary of the start date,
    by us &#147;without cause&#148; or by Mr.&nbsp;Gang for
    &#147;good reason&#148; (as those terms are defined in
    Mr.&nbsp;Gang&#146;s letter agreement) he would be entitled to
    continue to receive his base salary for one year from the date
    of termination and to receive health coverage until the earlier
    of one year following his termination and the date upon which he
    receives comparable coverage under another plan. In the event
    that a termination of Mr.&nbsp;Gang&#146;s employment by us
    &#147;without cause&#148; or by Mr.&nbsp;Gang for &#147;good
    reason&#148; occurs before the fourth anniversary of
    Mr.&nbsp;Gang&#146;s start date, 25% of the options to purchase
    our Class&nbsp;A common stock described above described above
    would continue to vest through the next vesting date following
    the date of termination.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with Mr.&nbsp;Gang&#146;s employment with us, he
has entered into a related agreement that contains
confidentiality obligations that survive indefinitely and
non-solicitation and non-competition obligations that end on the
first anniversary of the date employment has ceased.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Arrangements with Martin J. Wygod</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In October 2001, our Parent entered into an employment agreement
with Martin J. Wygod, our Parent&#146;s Chairman of the Board,
who was then also our Parent&#146;s Chief Executive Officer. The
following is a description of Mr.&nbsp;Wygod&#146;s employment
agreement:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The agreement provides for an employment period through
    October&nbsp;8, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In accordance with the terms of the employment agreement,
    Mr.&nbsp;Wygod has elected to serve solely as Chairman of the
    Board of our Parent and to perform duties commensurate with that
    position; his resignation as Chief Executive Officer did not
    result in the termination of his employment agreement or in any
    change in his compensation or the other terms of his employment,
    except that his annual base salary was reduced from $1,400,000
    to $1,260,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event of termination of Mr.&nbsp;Wygod&#146;s employment
    by our Parent without &#147;cause&#148; or by Mr.&nbsp;Wygod for
    &#147;good reason,&#148; as those terms are defined in his
    employment agreement, Mr.&nbsp;Wygod would become a consultant
    for our Parent and would be entitled to receive his salary, at
    the rate then in effect, and continuation of benefits for two
    years. In addition, all options, or other forms of equity
    compensation, granted to Mr.&nbsp;Wygod of our Parent or any
    affiliate of our Parent (which includes our company) that have
    not vested prior to the date of termination would be vested as
    of the date of termination and, assuming there has not been a
    &#147;change in control&#148; (as defined in the employment
    agreement), would continue to be exercisable as long as he
    remains a consultant (or longer if the plan or agreement
    expressly provided). In the event that Mr.&nbsp;Wygod&#146;s
    employment is terminated due to death or disability, he or his
    estate would receive the same benefits as described above.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The employment agreement provides that in the event of a
    &#147;change in control&#148; (as defined in the employment
    agreement, which definition includes certain business
    combination transactions) of our Parent all outstanding options
    and other forms of equity compensation would become immediately
    vested on the date of the change in control and, if following
    the change in control, Mr.&nbsp;Wygod&#146;s employment
    terminates for any reason other than cause, they would continue
    to be exercisable until the tenth anniversary of the applicable
    date of grant. A change in control is also an event that
    constitutes &#147;good reason&#148; for purposes of a
    termination by Mr.&nbsp;Wygod.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The employment agreement contains confidentiality obligations
    that survive indefinitely and non-solicitation and
    non-competition obligations that continue until the second
    anniversary of the date his employment has ceased.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The employment agreement contains a tax gross-up provision
    relating to any excise tax that Mr.&nbsp;Wygod incurs by reason
    of his receipt of any payment that constitutes an excess
    parachute payment as defined in Section&nbsp;280G of the
    Internal Revenue Code.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">79

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Arrangements with Anthony Vuolo</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Anthony Vuolo, who will serve as our Executive Vice President,
Chief Financial Officer, is currently party to an employment
agreement with our Parent. The following is a description of
Mr.&nbsp;Vuolo&#146;s employment agreement:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Vuolo currently receives an annual base salary of
    $450,000 and is entitled to receive a bonus in the same form and
    amount received by any other executive officer with similar
    responsibilities and compensation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    In the event of the termination of Mr.&nbsp;Vuolo&#146;s
    employment due to his death or disability, by our Parent
    &#147;without cause&#148; or by Mr.&nbsp;Vuolo for &#147;good
    reason,&#148; as those terms are defined in
    Mr.&nbsp;Vuolo&#146;s employment agreement, or as a result of
    our Parent&#146;s failure to renew the agreement, he would be
    entitled to: (i)&nbsp;continuation of his base salary for a
    period of eighteen months following the date of termination;
    (ii)&nbsp;any bonuses that he would have normally been entitled
    to through July&nbsp;1, 2006 (the amount of the bonus for years
    subsequent to the year in which the termination of employment
    occurs will be equal to the bonus received for the year of
    termination); and (iii)&nbsp;continued participation in our
    benefit plans (or comparable plans) for thirty-six months. In
    addition, all options to purchase our Parent&#146;s stock
    granted to Mr.&nbsp;Vuolo which have not vested prior to the
    date of termination would be vested as of the date of
    termination and all such options would remain exercisable as if
    he remained in our Parent&#146;s employ through the expiration
    date specified in each applicable stock option agreement, unless
    otherwise specifically agreed to by Mr.&nbsp;Vuolo and our
    Parent in writing. A change in control (as defined in the
    employment agreement) of our Parent is an event that constitutes
    good reason.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The employment agreement contains confidentiality obligations
    that survive indefinitely and non-solicitation and
    non-competition obligations that end on the second anniversary
    of the date employment has ceased.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The employment agreement contains a tax gross-up provision
    relating to any excise tax that Mr.&nbsp;Vuolo incurs by reason
    of his receipt of any payment that constitutes an excess
    parachute payment as defined in Section&nbsp;280G of the
    Internal Revenue Code.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
It is our intention to enter into an amendment to
Mr.&nbsp;Vuolo&#146;s agreement in connection with this offering
which will provide for his services to our company and continued
services to our Parent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Arrangements with Douglas W. Wamsley</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Mr.&nbsp;Wamsley is currently a party to an agreement with us
that contains confidentiality obligations that survive
indefinitely and non-solicitation and non-competition
obligations that end on the first anniversary of the date his
employment has ceased. We intend to enter into an employment
agreement with Mr. Wamsley in connection with this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Letter
Agreement with Roger C. Holstein</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Roger C. Holstein resigned, effective April&nbsp;27, 2005, from
all his positions with our Parent and its subsidiaries. In
connection with the resignation, Mr.&nbsp;Holstein and our
Parent entered into a letter agreement, dated as of
April&nbsp;27, 2005. Under the letter agreement, and subject to
its terms and conditions:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Holstein will continue to receive his annual base
    salary of $660,000 until October&nbsp;27, 2007, provided that
    the base salary for the first six months will be paid to
    Mr.&nbsp;Holstein in a lump sum at the end of such six-month
    period in accordance with the requirements of Section&nbsp;409A
    of the Internal Revenue Code of 1986, as amended, except to the
    extent any future guidance issued by the Internal Revenue
    Service under Section&nbsp;409A does not subject such payments
    to Section&nbsp;409A.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Holstein will generally continue to participate in our
    Parent&#146;s welfare benefit plans until the earlier of
    October&nbsp;27, 2007 and the date upon which he receives
    comparable coverage with a subsequent employer.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">80

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    The options to purchase our Parent&#146;s common stock granted
    to Mr.&nbsp;Holstein will remain outstanding and continue to
    vest, and will otherwise be treated as if Mr.&nbsp;Holstein
    remained employed by our Parent through April&nbsp;27, 2007.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The letter agreement contains confidentiality obligations that
survive indefinitely and non-solicitation and non-competition
obligations that end on April&nbsp;27, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>2005 Long-Term Incentive Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to the completion of this offering, we intend to adopt,
and have our Parent approve, our 2005 Long-Term Incentive Plan.
Set forth below is a summary of the principal features of the
2005 Long-Term Incentive Plan, which will be subject in its
entirety to the text of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This offering will not affect the options and other equity
awards granted to our officers, employees and directors under
our Parent&#146;s equity plans that are currently outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purpose of the 2005 Long-Term Incentive Plan will be to
promote our success by linking the personal interests of our or
our Parent&#146;s employees, officers, directors and consultants
to those of our stockholders, and by providing participants with
an incentive for outstanding performance. The 2005 Long-Term
Incentive Plan will authorize the granting of awards in any of
the following forms:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    options to purchase shares of our common stock, which may be
    incentive stock options or non-qualified stock options;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    stock appreciation rights;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    performance shares;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restricted stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restricted stock units;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    dividend equivalents;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    other stock-based awards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    any other right or interest relating to our common stock;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    cash.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Share Limits</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An aggregate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock will be available for issuance under the
2005 Long-Term Incentive Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The maximum number of shares of our common stock with respect to
one or more options, stock appreciation rights or combination of
options and stock appreciation rights that may be granted during
any one calendar year under the 2005 Long-Term Incentive Plan to
any one person will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
except that that limit may be increased
by &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for
awards made in connection with a person&#146;s initial hiring.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The maximum fair market value of any awards, other than options
and stock appreciation rights, that may be received by a
participant, less any consideration paid by the participant for
such award, during any one calendar year under the 2005
Long-Term Incentive Plan will be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</DIV>

<P align="center" style="font-size: 10pt;">81

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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Administration</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 2005 Long-Term Incentive Plan will be administered for a
period of time by our Parent&#146;s Compensation Committee and
after that by the Compensation Committee of our Board of
Directors. The Compensation Committee will have the authority to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    designate participants,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    determine the type or types of awards to be granted to each
    participant and the number, terms and conditions of awards,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    establish, adopt or revise any rules and regulations as it may
    deem advisable to administer the 2005 Long-Term Incentive
    Plan,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    make all other decisions and determinations that may be required
    under the 2005 Long-Term Incentive Plan.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to certain limitations, the Compensation Committee will
be permitted to delegate to certain designated executive
officers some of its authority under the Long-Term Incentive
Plan with respect to awards granted to employees who are not
executive officers of our company.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Stock Options</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee will be authorized under the 2005
Long-Term Incentive Plan to grant options, which may be
incentive stock options or non-qualified stock options. All
options will be evidenced by a written award agreement between
us and the participant, which will include any provisions
specified by the Compensation Committee. The exercise price of
an option may not be less than the fair market value of our
common stock on the date of grant. The terms of an incentive
stock option must meet the requirements of Section&nbsp;422 of
the Internal Revenue Code.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Stock Appreciation Rights</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may also grant stock appreciation
rights. Upon the exercise of a stock appreciation right, the
holder will have the right to receive the excess, if any, of the
fair market value of one share of our common stock on the date
of exercise, over the grant price of the stock appreciation
right as determined by the Compensation Committee, which will
not be less than the fair market value of one share of our
common stock on the date of grant. All awards of stock
appreciation rights will be evidenced by an award agreement
reflecting the terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any
other terms and conditions of the stock appreciation right, as
determined by the Compensation Committee at the time of grant.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Performance Shares</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may grant performance shares to
participants on terms and conditions as may be selected by the
Compensation Committee. The Compensation Committee will have the
complete discretion to determine the number of performance
shares granted to each participant and to set performance goals
and other terms or conditions to payment of the performance
shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of performance
shares that will be paid to the participant.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Restricted Stock Awards</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may make awards of restricted stock
to participants, which will be subject to restrictions on
transferability and other restrictions as the Compensation
Committee may impose, including, without limitation, limitations
on the right to vote restricted stock or the right to receive
dividends, if any, on the restricted stock. These awards may be
subject to forfeiture upon termination of employment or upon a
failure to satisfy performance goals during the applicable
restriction period.
</DIV>

<P align="center" style="font-size: 10pt;">82
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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Dividend Equivalents</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee will be authorized to grant dividend
equivalents to participants subject to terms and conditions as
may be selected by the Compensation Committee. Dividend
equivalents will entitle the participant to receive payments
equal to dividends with respect to all or a portion of the
number of shares of or common stock subject to an award.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Annual Awards to Non-Employee Directors</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 2005 Long-Term Incentive Plan will provide for an automatic
grant on January&nbsp;1 of each year of options to
purchase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
to each member of our Board on that date who is not an employee.
These options will have an exercise price equal to the fair
market value of our common stock on the date of grant and will
vest as to 25% of the underlying shares on the first anniversary
of the date of grant and monthly thereafter for a period of
three years. These options will expire, to the extent not
previously exercised, ten years after the date of grant.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Other Stock-Based Awards</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee may, subject to limitations under
applicable law, grant other awards that are payable in or valued
relative to shares of our common stock as will be deemed by the
Compensation Committee to be consistent with the purposes of the
2005 Long-Term Incentive Plan, including without limitation
shares of common stock awarded purely as a bonus and not subject
to any restrictions or conditions. The Compensation Committee
will determine the terms and conditions of any other stock-based
awards.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Performance Goals</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In order to preserve full deductibility under
Section&nbsp;162(m) of the Internal Revenue Code, the
Compensation Committee may determine that any award will be
determined solely on the basis of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the achievement by us or our Parent or one of our subsidiaries,
    of a specified target return, or target growth in return, on
    equity or assets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    total stockholder return, described as our stock price
    appreciation plus reinvested dividends, relative to a defined
    comparison group or target over a specific performance period;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our stock price;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the achievement by an individual, us or a business unit, our
    Parent or one of our subsidiaries, of a specified target, or
    target growth in, revenues, net income, earnings per share, EBIT
    or EBITDA; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    any combination of the above.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If an award is made on this basis, the Compensation Committee
must establish goals prior to the beginning of the period for
which the performance goal relates, or by a later date as may be
permitted under applicable tax regulations, and the Compensation
Committee may for any reason reduce, but not increase, any
award, notwithstanding the achievement of a specified goal. Any
payment of an award granted with performance goals will be
conditioned on the written certification of the Compensation
Committee in each case that the performance goals and any other
material conditions were satisfied.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Limitation on Transfer and Beneficiaries</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No award under the 2005 Long-Term Incentive Plan will be
assignable or transferable other than by will or the laws of
descent and distribution or, except in the case of an incentive
stock option, pursuant to a qualified domestic relations order.
However, the Compensation Committee may permit other transfers
if it deems appropriate.
</DIV>

<P align="center" style="font-size: 10pt;">83

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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Acceleration upon Certain Events</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon the participant&#146;s death or termination of employment
as a result of disability, all outstanding options, stock
appreciation rights, and other awards in the nature of rights
that may be exercised will become fully exercisable and all
restrictions on outstanding awards will lapse. Any options or
stock appreciation rights will thereafter continue or lapse in
accordance with the other provisions of the 2005 Long-Term
Incentive Plan and the award agreement. In addition, the
compensation committee may at any time in its discretion declare
any or all awards to be fully or partially vested and
exercisable. The Compensation Committee may discriminate among
participants or among awards in exercising such discretion.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Termination and Amendment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Compensation Committee will have the right at any time to
amend or terminate the 2005 Long-Term Incentive Plan without
stockholder approval, but it may condition any amendment on the
approval of our stockholders if such approval will be necessary
or advisable under tax, securities, stock exchange or other
applicable laws, policies or regulations. The Compensation
Committee will have the right to amend or terminate any
outstanding award without approval of the participant, but an
amendment or termination may not, without the participant&#146;s
consent, reduce or diminish the value of the award determined as
if it had been exercised, vested, cashed in or otherwise settled
on the date of the amendment or termination, but the original
term of any option may not be extended.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Federal Income Tax Information</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion is a summary of the federal income tax
consequences relating to the grant and exercise of awards under
the 2005 Long-Term Incentive Plan and the subsequent sale of
common stock that will be acquired under this Plan. The tax
effect of exercising awards may vary depending upon the
particular circumstances, and the income tax laws and
regulations change frequently.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Nonqualified Stock Options.</I> There will be no federal
income tax consequences to a participant or to us upon the grant
of a nonqualified stock option. When the participant exercises a
nonqualified option, however, he will realize ordinary income in
an amount equal to the excess of the fair market value of the
option shares that he receives upon exercise of the option at
the time of exercise over the exercise price, and we will be
allowed a corresponding deduction, subject to any applicable
limitations under Section&nbsp;162(m) of the Internal Revenue
Code. Any gain that a participant realizes when the participant
later sells or disposes of the option shares will be short-term
or long-term capital gain, depending on how long the participant
held the shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Incentive Stock Options.</I> There typically will be no
federal income tax consequences to a participant or to us upon
the grant or exercise of an incentive stock option. If the
participant holds the option shares for the required holding
period of at least two years after the date the option was
granted or one year after exercise of the option, the difference
between the exercise price and the amount realized upon sale or
disposition of the option shares will be long-term capital gain
or loss, and we will not be entitled to a federal income tax
deduction. If the participant disposes of the option shares in a
sale, exchange, or other disqualifying disposition before the
required holding period ends, he will realize taxable ordinary
income in an amount equal to the excess of the fair market value
of the option shares at the time of exercise over the exercise
price, and we will be allowed a federal income tax deduction
equal to such amount, subject to any applicable limitations
under Section&nbsp;162(m) of the Internal Revenue Code. While
the exercise of an incentive stock option does not result in
current taxable income, the excess of the fair market value of
the option shares at the time of exercise over the exercise
price will be an item of adjustment for purposes of determining
the participant&#146;s alternative minimum tax.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Appreciation Rights.</I> The participant will not
recognize income, and we will not be allowed a tax deduction, at
the time a stock appreciation right is granted. When the
participant exercises the stock appreciation right, the fair
market value of any shares of common stock received will be
taxable as
</DIV>

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<DIV align="left" style="font-size: 10pt;">
ordinary income, and we will be allowed a federal income tax
deduction equal to such amount, subject to any applicable
limitations under Section&nbsp;162(m) of the Internal Revenue
Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Restricted Stock.</I> Unless a participant makes an election
to accelerate recognition of the income to the date of grant as
described below, the participant will not recognize income, and
we will not be allowed a tax deduction, at the time a restricted
stock award is granted. When the restrictions lapse, the
participant will recognize ordinary income equal to the fair
market value of the common stock as of that date, less any
amount he paid for the stock, and we will be allowed a
corresponding tax deduction at that time, subject to any
applicable limitations under Section&nbsp;162(m) of the Internal
Revenue Code. If the participant files an election under
Section&nbsp;83(b) of the Internal Revenue Code within
30&nbsp;days after the date of grant of the restricted stock, he
will recognize ordinary income as of the date of grant equal to
the fair market value of the stock as of that date, less any
amount a participant paid for the stock, and we will be allowed
a corresponding tax deduction at that time, subject to any
applicable limitations under Section&nbsp;162(m) of the Internal
Revenue Code. Any future appreciation in the stock will be
taxable to the participant at capital gains rates. However, if
the stock is later forfeited, such participant will not be able
to recover the tax previously paid pursuant to his
Section&nbsp;83(b) election.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Performance Shares.</I> A participant will not recognize
income, and we will not be allowed a tax deduction, at the time
performance shares are granted. When the participant receives
payment under the performance shares, the amount of cash and the
fair market value of any shares of stock received will be
ordinary income to the participant, and we will be allowed a
corresponding tax deduction at that time, subject to any
applicable limitations under Section&nbsp;162(m) of the Internal
Revenue Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The named executive officers have been granted options to
purchase shares of our Parent&#146;s common stock pursuant to
our Parent&#146;s stock option plans. See
&#147;Management&nbsp;&#151; Executive Compensation.&#148; Our
Parent&#146;s option plans are administered by a stock option
committee of our Parent, and contain terms and conditions, which
are substantially similar to the terms of our 2005 Long-Term
Incentive Plan. Subject to the terms and conditions of our
Parent&#146;s stock option plans, our Parent&#146;s options will
continue to vest and remain outstanding so long as the
respective named executive officer remains in the employ of our
company.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>New Benefit Plan Table</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon consummation of this offering, we will
grant &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;restricted
shares of our Class&nbsp;A common stock and options under our
2005 Long-Term Incentive Plan to
purchase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock, including the grants to
individuals listed in the table below. The exercise price of
these options will be the initial public offering price in the
offering. These options and restricted shares will vest at the
rate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%&nbsp;per
year on each of the first
through &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;anniversaries
of the date of grant.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of Restricted Shares</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wayne T. Gattinella</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David Gang</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin J. Wygod</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony Vuolo</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas W. Wamsley</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All current executive officers as a group</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All current directors who are not executive officers, as a group</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All employees, including current officers, but excluding
    directors and executive officers, as a group</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Compensation of Non-Employee Directors</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Compensation of our non-employee directors will be determined,
from time to time, by our Board&#146;s Compensation Committee.
Based on recommendations of the Compensation Committee of our
Parent&#146;s
</DIV>

<P align="center" style="font-size: 10pt;">85

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<DIV align="left" style="font-size: 10pt;">
Board, we expect that, initially, our non-employee directors
will each receive an annual retainer of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
The following additional annual retainers are expected to be
paid to non-employee directors for service on standing
committees:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Audit Committee&nbsp;&#151;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Compensation and Nominating Committees&nbsp;&#151;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Governance&nbsp;&#38; Compliance
    Committee&nbsp;&#151;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;;
    and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Related Parties
    Committee&nbsp;&#151; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following additional annual retainers are expected to be
paid to the chairpersons of each standing committee for their
services as chairperson:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Compensation Committee, Nominating Committee and Related Parties
    Committee&nbsp;&#151; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Audit Committee and Governance&nbsp;&#38; Compliance
    Committee&nbsp;&#151; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that our non-employee directors will not receive per
meeting fees for service on the Board or any of our Board&#146;s
standing committees, but they are entitled to reimbursement for
all reasonable out-of-pocket expenses incurred in connection
with their attendance at Board and Board committee meetings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our non-employee directors are eligible to receive options to
purchase our common stock under our 2005 Long-Term Incentive
Plan. An initial grant
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;stock
options, at initial public offering price per share, has been
approved by our Parent and the Compensation Committee of our
Parent&#146;s Board In addition, all non-employee directors
receive stock options pursuant to automatic annual grants of
stock options under our 2005 Long-Term Incentive Plan made
specified dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stock Ownership of Directors and Executive Officers</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of our common stock is currently owned by our Parent, and
thus none of our executive officers or directors currently own
shares of our common stock. The following table sets forth the
common stock and options of our Parent to purchase common stock
of our Parent held by our directors, the named executive
officers and all of our directors and executive officers as a
group, as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005. Except as otherwise noted, the individual director or
executive officer (including his or her family members) had sole
voting and investment power with respect to the common stock of
our Parent.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount and Nature of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percentage Owned(1)(2)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Beneficial Ownership(1)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wayne T. Gattinella</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony Vuolo</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Martin J. Wygod</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas Wamsley</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Roger C. Holstein</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All directors and executive officers as a group</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Beneficial ownership is determined in accordance with the rules
    of the SEC and generally includes voting or investment power
    with respect to securities. Shares of common stock subject to
    options that are exercisable or will become exercisable within
    60&nbsp;days
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2005 into shares of the common stock of our Parent are deemed to
    be outstanding and to be beneficially owned by the person
    holding the options for the purpose of computing the percentage
    ownership of the person, but are not treated as outstanding for
    the purpose of computing the percentage ownership of any other
    person.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    These numbers do not take into account any exercise of the
    underwriters&#146; option to purchase additional shares.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">86

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<DIV align="left" style="font-size: 10pt;">
<A name='113'></A>
</DIV>

<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Parent as Our Controlling Stockholder</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Immediately prior to this offering, our Parent will be our sole
stockholder. Upon completion of this offering, our Parent will
continue to own approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
(or approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% if the
underwriters exercise in full their option to purchase
additional shares) of the outstanding shares of our common
stock. For as long as our Parent continues to control more than
50% of the combined voting power of our common stock, our Parent
will be able to direct the election of all the members of our
Board of Directors and exercise a controlling influence over our
business and affairs, including any determinations with respect
to mergers or other business combinations involving our company,
the acquisition or disposition of assets by our company, the
incurrence of indebtedness by our company, the issuance of any
additional common stock or other equity securities, and the
payment of dividends with respect to our common stock.
Similarly, our Parent will have the power to determine matters
submitted to a vote of our stockholders without the consent of
our other stockholders, will have the power to prevent a change
in control of our company and will have the power to take other
actions that might be favorable to our Parent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of the date of this prospectus, our Parent has indicated that
it has no current intention to sell or otherwise dispose of its
Class&nbsp;B common stock. However, our Parent is not subject to
any contractual obligation to retain its controlling interest,
except that our Parent has agreed not to sell or otherwise
dispose of any of our Class&nbsp;B common stock for a period of
180&nbsp;days after the date of this prospectus without the
prior written consent of the representatives of the
underwriters. See &#147;Underwriting.&#148; As a result, we
cannot assure you as to the period of time during which our
Parent will maintain its ownership of the Class&nbsp;B common
stock owned by it following this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Agreements Between Us and Our Parent</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the ordinary course of our business, our Parent has provided
us with various services, including payroll, accounting, human
resources, business development, legal, tax, executive services
and information processing and other similar services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This section describes the material provisions of agreements we
will enter into with our Parent relating to this offering and
our relationship with our Parent after this offering, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the services agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the registration rights agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the tax sharing agreement;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the release and indemnity agreement.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The description of the agreements is not complete and, with
respect to each material agreement, is qualified by reference to
the terms of the agreement, each of which will be filed as an
exhibit to the registration statement of which this prospectus
is a part. We encourage you to read the full text of these
material agreements. The prices and other terms of these
agreements may be less favorable to us than those we could have
obtained in arm&#146;s-length negotiations with unaffiliated
third parties for similar services or under similar agreements.
These agreements are subject to negotiation, and their
descriptions may change as a result.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Services Agreement</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will enter into a services agreement with our Parent,
pursuant to which our Parent will provide us with certain
administrative services, which may include payroll, accounting,
human resources, business development, legal, tax, executive
services and information processing and other similar services.
Pursuant to the terms of this agreement, we anticipate paying
our Parent the costs of providing these services based upon
actual or allocated out-of-pocket costs to our Parent and an
allocated portion of our Parent&#146;s internal costs. For
example, such costs will include an allocable portion of the
compensation and other related
</DIV>

<P align="center" style="font-size: 10pt;">87

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<DIV align="left" style="font-size: 10pt;">
expenses of employees of our Parent who serve as officers of or
provide services to our company. This agreement will be
terminable by either party
upon &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;days&#146;
prior written notice and upon certain events, and within a
certain period of time to be determined after which our Parent
no longer holds at least 50% of the combined voting power of our
capital stock. We anticipate that the services agreement shall
terminate by its terms, if not previously terminated or renewed,
after an initial term of five years.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Registration Rights Agreement</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of the completion of this offering, we will enter into a
registration rights agreement with our Parent, which will
require us upon the request of our Parent to use our reasonable
best efforts to register under the applicable federal and state
securities laws any of the shares of our equity securities of or
owned by our Parent for sale in accordance with our
Parent&#146;s intended method of disposition, and will take such
other actions as may be necessary to permit the sale in other
jurisdictions, subject to specified limitations. Our Parent will
also have the right to include the shares of our equity
securities it beneficially owns in other registrations of these
equity securities we initiate. Except for our legal and
accounting fees and expenses, the registration rights agreement
will provide that our Parent will generally pay all or its pro
rata portion of out-of-pocket costs and expenses relating to
each such registration that our Parent requests or in which our
Parent participates. Subject to specified limitations, the
registration rights will be assignable by our Parent and its
assigns. The registration rights agreement will contain
indemnification and contribution provisions that are customary
in transactions similar to those contemplated by this prospectus.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Tax Sharing Agreement</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will enter into a tax sharing agreement with our Parent that
will become effective upon consummation of this offering. The
tax sharing agreement will govern the respective rights,
responsibilities, and obligations of our Parent and us with
respect to tax liabilities and benefits, tax attributes, tax
contests and other matters regarding taxes and related tax
returns. In addition, although as of the date of this prospectus
our Parent does not intend or plan to undertake a split-off,
spin-off or other similar transaction, we have agreed in the tax
sharing agreement that we will not knowingly take or fail to
take any action that could reasonably be expected to preclude
our Parent&#146;s ability to undertake a split-off or spin-off.
We also have agreed that, in the event our Parent decides to
undertake a split-off or spin-off of our capital stock to our
Parent&#146;s shareholders, we will enter into a new tax sharing
agreement with our Parent that will set forth our respective
rights, responsibilities and obligations with respect to any
such split-off or spin-off.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Beneficial ownership of at least 80% of the total voting power
and value of our capital stock is required in order for our
Parent to continue to include us in its consolidated group for
federal income tax purposes. It is the present intention of our
Parent to continue to file a single consolidated federal income
tax return with its eligible subsidiaries. Each member of the
consolidated group for federal income tax purposes will be
jointly and severally liable for the federal income tax
liability of each other member of the consolidated group.
Accordingly, although the tax sharing agreement will allocate
tax liabilities between us and our Parent during the period in
which we are included in the consolidated group of our Parent,
we could be liable for the federal income tax liability of any
other member of the consolidated group in the event any such
liability is incurred and not discharged by such other member.
The tax sharing agreement will provide, however, that our Parent
will indemnify us to the extent that, as a result of being a
member of the consolidated group of our Parent, we become liable
for the federal income tax liability of any other member of the
consolidated group, other than our subsidiaries. Similar
principles generally will apply for income tax purposes in many
states.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Release and Indemnity Agreement</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of the completion of this offering, we will enter into a
release and indemnity agreement with our Parent under which we
and our Parent will agree to indemnify each other and we and our
Parent will agree to release each other with respect to some
matters.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the services agreement, the registration rights
agreement and the tax matters agreement referred to above will
provide for indemnification between us and our Parent relating
to the substance of such agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will generally agree to indemnify our Parent and some of its
affiliates against all liabilities arising out of any material
untrue statements and omissions in any prospectus and any
related registration statement filed with the SEC relating to
this offering. However, our indemnification of our Parent does
not apply to information relating to our Parent, excluding
information relating to us. Our Parent will agree to indemnify
us for this information. In addition, we may enter into
agreements governing other aspects of our relationship with our
Parent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Other</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Parent was reimbursed approximately $236,000 during 2004 and
approximately $230,000 during 2003 by Martin J. Wygod, who we
expect will serve as our Chairman of the Board, and by a
corporation that he controls, for personal use of certain of our
Parent&#146;s staff and office facilities and for the personal
portion of certain travel expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Affiliates of FMR Corp. provide services to our Parent in
connection with certain of our Parent&#146;s 401(k) plans.
During 2004, the aggregate amount payable by our Parent for
these services was approximately $43,800. During 2003, the
aggregate amount payable by our Parent for these services was
approximately $64,500. In 2004, we entered into an agreement
with Fidelity Human Resources Services Company LLC (FHRS), an
affiliate of FMR Corp. FHRS provides benefits and human
resources administration, workforce effectiveness, payroll
solutions and stockplan services to employers. The agreement
provides for FHRS to integrate our employer product, Health and
Benefits Manager, into the services FHRS provides to its
clients. In addition, our Health and Benefits Manager has been
rolled out to the Fidelity employee base. We recorded
approximately $817,000 in revenue in 2004 related to the FHRS
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='114'></A>
</DIV>

<!-- link1 "PRINCIPAL SHAREHOLDERS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PRINCIPAL SHAREHOLDERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of our common stock outstanding prior to the completion of
this offering is beneficially owned by our Parent. Upon
completion of this offering, our Parent will beneficially own
100% of our issued and outstanding Class&nbsp;B common stock.
After completion of this offering, our Parent will be able,
acting alone, to elect our entire Board of Directors and to
approve any action requiring stockholder approval. Except for
our Parent, we are not aware of any person or group that will
beneficially own more than 5% of our outstanding shares of
common stock following this offering. None of our executive
officers, directors or director nominees currently owns any
shares of our common stock.
</DIV>

<P align="center" style="font-size: 10pt;">89

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<DIV align="left" style="font-size: 10pt;">
<A name='115'></A>
</DIV>

<!-- link1 "DESCRIPTION OF CAPITAL STOCK" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DESCRIPTION OF CAPITAL STOCK</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>General</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a description of the material terms of our
capital stock that we expect to include in our amended and
restated certificate of incorporation and amended and restated
bylaws and is only a summary. You should refer to (1)&nbsp;our
amended and restated certificate of incorporation and amended
and restated bylaws as in effect upon the closing of this
offering, which are included as exhibits to the registration
statement of which this prospectus is a part and
(2)&nbsp;applicable law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our authorized capital stock will consist
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of capital stock, of which:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    will be designated as Class&nbsp;A common stock, par value
    $.01&nbsp;per share;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    will be designated as Class&nbsp;B common stock, par value
    $.01&nbsp;per share;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    will be shares of our preferred stock.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Of
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock, &nbsp;will be designated as Class&nbsp;A common
stock,
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares,
or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the equity value of our company, are being offered in
connection with this offering, assuming that the underwriters do
not exercise their option to purchase additional shares. Of
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock to be designated as Class&nbsp;B common
stock, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares,
or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the equity value of our company, will be outstanding and held
by our Parent upon consummation of this offering, assuming the
underwriters do not exercise their option to purchase additional
shares. Each of the Class&nbsp;A common stock and the
Class&nbsp;B common stock constitutes a series of common stock
under the General Corporation Law of the State of Delaware.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Voting rights</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Holders of Class&nbsp;A common stock and holders of Class&nbsp;B
common stock will generally have identical rights, except:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    holders of our Class&nbsp;A common stock will be entitled to one
    vote per share;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    holders of our Class&nbsp;B common stock will be entitled to ten
    votes per share,</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
with respect to each matter presented to our stockholders on
which the holders of common stock are entitled to vote. The
holders of Class&nbsp;A common stock and Class&nbsp;B common
stock will not be entitled to cumulate their votes in the
election of directors. Generally, all matters to be voted on by
our stockholders will have to be approved by a majority of the
votes entitled to be cast by all shares of our common stock
present in person or represented by proxy, voting together as a
single class. In particular, amendments to our certificate of
incorporation will generally be approved by a majority of the
combined voting power of both classes of common stock, voting
together as a single class. However, we anticipate that our
certificate of incorporation will provide that supermajority
votes will be required to amend some provisions of our
certificate of incorporation and bylaws as described below. In
addition, we also expect that amendments to our certificate of
incorporation that would alter or change the powers, preferences
or special rights of either class of common stock so as to
affect them adversely also must be approved by a majority of the
votes entitled to be cast by the holders of the shares affected
by the amendment, voting as a separate class. We do not expect
holders of Class&nbsp;A common stock to be entitled to vote on
any change in the powers or other rights of the Class&nbsp;B
common stock that would not adversely affect the rights of
Class&nbsp;A common stock.
</DIV>

<P align="center" style="font-size: 10pt;">90

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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Dividend rights</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that holders of Class&nbsp;A common stock and
Class&nbsp;B common stock will share equally in any dividend
declared by our Board of Directors, subject to any preferential
rights of any outstanding preferred stock.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Conversion</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon completion of this offering, we expect our certificate of
incorporation to provide that, under certain circumstances, our
Class&nbsp;B common stock may be converted into our Class&nbsp;A
common stock at the option of the holder or automatically.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Liquidation rights</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon liquidation, dissolution or winding up of our affairs, our
creditors and any holders of our preferred stock will be paid
before any distribution to holders of our common stock. The
holders of our common stock would be entitled to receive a pro
rata distribution of any excess amount.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Other matters</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No shares of any class of our common stock will be subject to
redemption or have preemptive rights to purchase additional
shares of our common stock. The outstanding shares of our common
stock are, and the shares of Class&nbsp;A common stock being
offered to you will be, upon your payment, validly issued, fully
paid and nonassessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No shares of our preferred stock are outstanding as of the date
of this prospectus. However, our Board of Directors will be
empowered, without approval of our stockholders, to
cause &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our preferred stock to be issued from time to time in one or
more series, with the numbers of shares of each series and the
designations, preferences and relative, participating, optional,
dividend and other special rights of the shares of each such
series and the qualifications, limitations, restrictions,
conditions and other characteristics thereof as fixed by our
Board of Directors. Among the specific matters that may be
determined by our Board of Directors are:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the designation of each series;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the number of shares of each series;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the rate of dividends, if any;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    whether dividends, if any, shall be cumulative or noncumulative;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the terms of redemption, if any;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the rights of the series in the event of any voluntary or
    involuntary liquidation, dissolution or winding-up of the
    affairs of our company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    rights and terms of conversion or exchange, if any;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restrictions on the issuance of shares of the same series or any
    other series, if any;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    voting rights, if any.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Board of Directors will be able to, without stockholder
approval, issue preferred stock with voting and other rights
that could adversely affect all of the rights of the holders of
Class&nbsp;A common stock and Class&nbsp;B common stock,
including, but without limitation, their voting power. We have
no present plans to issue any shares of preferred stock. The
ability of our Board of Directors to issue preferred stock
without stockholder approval could have the effect of delaying,
deferring or preventing a change in control of us or the removal
of our existing management.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Anti-Takeover Effects Of Our Amended And Restated Certificate
Of Incorporation And Bylaws</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Provisions of the amended and restated certificate of
incorporation and amended and restated bylaws, which provisions
will be in effect prior to the consummation of this offering and
are summarized in the following paragraphs, may be deemed to
have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that
might result in a premium over the market price for the shares
held by stockholders. The relevant portions of the amended and
restated certificate of incorporation and amended and restated
bylaws will be designed to discourage certain types of
transactions that may involve an actual or threatened change of
control of our company. These provisions are meant to encourage
persons interested in acquiring control of our company to first
consult with the Board of Directors to negotiate terms of a
potential business combination or offer. Further, these
provisions will protect against an unsolicited proposal for our
takeover that may affect the long-term value of our stock or
that may be otherwise unfair to our stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Section&nbsp;203 of the Delaware General Corporation Law</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, Section&nbsp;203 prohibits a publicly-held Delaware
corporation from engaging in a &#147;business combination&#148;
with an &#147;interested stockholder&#148; for a period of three
years following the date the person became an interested
stockholder, unless (with certain exceptions) the &#147;business
combination&#148; or the transaction in which the person became
an interested stockholder is approved in a prescribed manner.
Generally, a &#147;business combination&#148; includes a merger,
asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an
&#147;interested stockholder&#148; is a person who, together
with affiliates and associates, owns (or within three years
prior to the determination of interested stockholder status, did
own) 15% or more of a corporation&#146;s voting stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Board of Directors will consist of a majority of independent
directors. We expect that any vacancy on our Board of Directors
resulting from death, resignation, disqualification, removal or
other causes with respect to any director, and any newly created
directorships resulting from any increase in the number of
directors, may be filled only by the affirmative vote of a
majority of the remaining directors. The limitation on filling
of vacancies could make it more difficult for a third party to
acquire, or discourage a third party from attempting to acquire,
control of our company.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Classified Board of Directors</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that our certificate of incorporation and bylaws
will provide for our Board of Directors to be divided into
classes of directors serving staggered terms. Each class will
hold office until the applicable annual stockholders&#146;
meeting for election of directors following the most recent
election of such class.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Directors removed for cause only</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that our certificate of incorporation and bylaws
will provide that, on or after the time when our Parent and its
affiliates no longer own more than a majority of the combined
voting power of our outstanding common stock, which we refer to
as the &#147;trigger date,&#148; our directors may be removed
only for cause by the affirmative vote of the holders of at
least a majority of the combined voting power of our outstanding
voting common stock. To the extent permitted by the laws of the
state of Delaware, &#147;cause&#148; shall be determined by our
Board of Directors. However, prior to the trigger date, our
directors may be removed with or without cause.
</DIV>

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<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Board meetings</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect our amended and restated bylaws to provide that
special meetings of the Board of Directors may be called by the
chairman of our Board of Directors or by a majority of the then
authorized number of directors in office.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Directors&#146; exculpation and indemnification</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will include in our amended and restated certificate of
incorporation provisions to indemnify our directors and officers
to the fullest extent permitted by Delaware law. The amended and
restated certificate of incorporation will also include
provisions to eliminate the personal liability of our directors
and officers to us and our stockholders to the fullest extent
permitted by Delaware law. Under current law, such exculpation
would extend to an officer&#146;s or director&#146;s breaches of
fiduciary duty, except for (1)&nbsp;breaches of such
person&#146;s duty of loyalty, (2)&nbsp;those instances where
such person is found not to have acted in good faith,
(3)&nbsp;those instances where such person received an improper
personal benefit as the result of such breach and (4)&nbsp;acts
in violation of Section&nbsp;174 of the Delaware General
Corporation Law. Our amended and restated bylaws will provide
that we will indemnify our directors, officers and employees
against judgments, fines, amounts paid in settlement and
reasonable expenses. Insofar as the indemnification for
liabilities resulting under the Securities Act may be permitted
to our directors or officers, we have been informed that, in the
opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is unenforceable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stockholder Meetings</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Special meetings of stockholders</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated bylaws is expected to provide that
special meetings of the stockholders may only be called by the
chairman of our Board of Directors, by a committee that is duly
designated by our Board of Directors or by resolution adopted by
the affirmative vote of the majority of our Board of Directors.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Requirements for advance notification of stockholder
    nominations and proposals</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated bylaws also is anticipated to provide
that stockholders seeking to bring business before an annual
meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide
timely notice of such proposed business in writing. To be
timely, a stockholder&#146;s notice must be delivered to or
mailed and received at our principal executive offices, not less
than 60&nbsp;days nor more than 90&nbsp;days prior to the annual
meeting. The amended and restated bylaws will also specify
certain requirements as to the form and content of a
stockholder&#146;s notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an
annual meeting of stockholders.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Shareholder action by written consent</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any action required to be taken at any annual or special meeting
of the stockholders, or any action that may be taken at any
annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a
consent in writing (or deemed to be in writing under applicable
law), setting forth the action so taken, is signed by
stockholders (or deemed to be signed by stockholders under
applicable law) representing not less than the minimum number of
votes that would be necessary to authorize or take such actions
at a meeting at which all shares entitled to vote thereon were
present and voted and is delivered and dated as required by law.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Cumulative voting</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated certificate of incorporation will
provide that our stockholders will have no cumulative voting
rights.
</DIV>

<P align="center" style="font-size: 10pt;">93

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Amendment of certificate of incorporation and bylaws</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on
any matter is required to amend a corporation&#146;s certificate
of incorporation or by-laws, unless a corporation&#146;s
certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. The affirmative vote of the
holders of at least a majority of the issued and outstanding
common stock and any preferred stock, voting as one class, is
required to amend or repeal the amended and restated certificate
of incorporation, provided that if any amendment to our amended
certificate of incorporation would alter the rights of a
particular class of stock so as to affect them adversely, the
amendment must also be approved by a majority of the votes
entitled to be cast by the holders of the shares affected by the
amendment, voting as a separate class. Subject to the amended
and restated bylaws, the Board of Directors may from time to
time make, amend, supplement or repeal the amended and restated
bylaws by vote of a majority of the Board of Directors;
provided, however, that the stockholders may change or amend or
repeal any provision of the amended and restated bylaws by the
affirmative vote of the holders of a majority of the common
stock and any preferred stock, voting as one class. We
anticipate that a supermajority vote of stockholders will be
required to amend certain provisions of our certificate of
incorporation and bylaws on or after the time when our Parent
and its affiliates no longer own more than a majority of the
combined voting power of our outstanding common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The Nasdaq National Market Trading</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to apply to have our Class&nbsp;A common stock quoted
on The Nasdaq National Market under the symbol &#147;WBMD.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Transfer Agent and Registrar</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The transfer agent and registrar for our common stock is
American Stock Transfer&nbsp;&#38; Trust Company.
</DIV>

<P align="center" style="font-size: 10pt;">94

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<DIV align="left" style="font-size: 10pt;">
<A name='116'></A>
</DIV>

<!-- link1 "SHARES ELIGIBLE FOR FUTURE SALE" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SHARES ELIGIBLE FOR FUTURE SALE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has not been a public market for
our Class&nbsp;A common stock. Future sales of substantial
amounts of our Class&nbsp;A common stock in the public market,
or the possibility of these sales, could adversely affect the
trading price of our Class&nbsp;A common stock and could impair
our future ability to raise capital through the sale of our
equity at a time and price we deem appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;A common stock sold in this offering,
or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
if the underwriters exercise in full their option to purchase
additional shares, will be freely tradable without restriction
under the Securities Act, except for any such shares which may
be acquired by an &#147;affiliate&#148; of ours, as that term is
defined in Rule&nbsp;144 promulgated under the Securities Act,
which shares will remain subject to the resale limitations of
Rule&nbsp;144.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our Class&nbsp;B common stock that will be held by our Parent
after this offering constitute &#147;restricted securities&#148;
within the meaning of Rule&nbsp;144, and will be eligible for
sale by our Parent in the open market after this offering,
subject to some contractual lockup provisions and the applicable
requirements of Rule&nbsp;144, both of which are described
below. We have granted some registration rights to our Parent.
We refer you to &#147;Certain Relationships and Related Party
Transactions&nbsp;&#151; Agreements Between Us and our
Parent&nbsp;&#151; Registration Rights Agreement.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to the lock-up agreements described in
&#147;Underwriting&#148; and the provisions of Rules&nbsp;144
and 144(k), our shares will be available for sale in the public
market as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Date</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    After the date of this prospectus.</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    After 180&nbsp;days from the date of this prospectus.</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of these restricted securities will be eligible for sale in
the public market, subject in some cases to the volume
limitations and other restrictions of Rule&nbsp;144, beginning
upon expiration of the lock-up agreements described in
&#147;Underwriting.&#148; The numbers of shares of our
Class&nbsp;A common stock listed above do not include shares of
Class&nbsp;A common stock reserved for future grants under our
incentive compensation plans. Upon completion of the offering,
we intend to file a registration statement on Form&nbsp;S-8 with
the SEC to register shares of our Class&nbsp;A common stock
reserved for issuance or sale under our incentive compensation
plan. Shares of our Class&nbsp;A common stock issuable upon the
exercise of options to be granted under our incentive
compensation plan will be freely tradable without restriction
under the Securities Act, unless such shares are held by an
affiliate of ours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Rule&nbsp;144</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, under Rule&nbsp;144 as currently in effect, a person
(or persons whose shares are required to be aggregated),
including an affiliate, who has beneficially owned shares of our
common stock for at least one year is entitled to sell in any
three-month period a number of shares that does not exceed the
greater of
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    1% of then outstanding shares of common stock,
    or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the average weekly trading volume in the common stock on The
    Nasdaq National Market during the four calendar weeks preceding
    the date on which notice of sale is filed, subject to
    restrictions.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Sales under Rule&nbsp;144 are also subject to manner of sale
provisions and notice requirements and to the availability of
current public information about us.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Rule&nbsp;144(k)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, a person who is not deemed to have been an
affiliate of ours at any time during the 90&nbsp;days preceding
a sale and who has beneficially owned the shares proposed to be
sold for at least two years, would be entitled to sell those
shares under Rule&nbsp;144(k) without regard to the manner of
sale, public information, volume limitation or notice
requirements of Rule&nbsp;144. To the extent that our affiliates
sell their shares, other than pursuant to Rule&nbsp;144 or a
registration statement, the purchaser&#146;s holding period for
the purpose of effecting a sale under Rule&nbsp;144 commences on
the date of transfer from the affiliate.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='117'></A>
</DIV>

<!-- link1 "CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CERTAIN U.S.&nbsp;FEDERAL INCOME AND ESTATE TAX
CONSIDERATIONS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>FOR NON-U.S.&nbsp;HOLDERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion is a general summary of the material
U.S.&nbsp;federal income and estate tax consequences of the
ownership and disposition of our Class&nbsp;A common stock
applicable to &#147;Non-U.S.&nbsp;Holders.&#148; As used herein,
a Non-U.S.&nbsp;Holder means a beneficial owner of our
Class&nbsp;A common stock that is neither a U.S.&nbsp;person nor
a partnership for U.S.&nbsp;federal income tax purposes, and
that will hold shares of our Class&nbsp;A common stock as
capital assets. For U.S.&nbsp;federal income tax purposes, a
U.S.&nbsp;person includes:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an individual who is a citizen or resident of the United States;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a corporation (or other business entity treated as a
    corporation) created or organized in the United States or under
    the laws of the United States, any state thereof or the District
    of Columbia;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an estate the income of which is includible in gross income
    regardless of source;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a trust that (A)&nbsp;is subject to the primary supervision of a
    court within the United States and the control of one or more
    U.S.&nbsp;persons, or (B)&nbsp;otherwise has validly elected to
    be treated as a U.S.&nbsp;domestic trust.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If a partnership (including an entity treated as a partnership
for U.S.&nbsp;federal income tax purposes) holds shares of our
Class&nbsp;A common stock, the U.S.&nbsp;federal income tax
treatment of the partnership and each partner generally will
depend on the status of the partner and the activities of the
partnership and the partner. Partnerships acquiring our
Class&nbsp;A common stock, and partners in such partnerships,
should consult their own tax advisors with respect to the
U.S.&nbsp;federal income tax consequences of the ownership and
disposition of our Class&nbsp;A common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This summary does not consider specific facts and circumstances
that may be relevant to a particular Non-U.S.&nbsp;Holder&#146;s
tax position and does not consider U.S.&nbsp;state and local or
non-U.S.&nbsp;tax consequences. It also does not consider
Non-U.S.&nbsp;Holders subject to special tax treatment under the
U.S.&nbsp;federal income tax laws (including partnerships or
other pass-through entities, banks and insurance companies,
dealers in securities, holders of our common stock held as part
of a &#147;straddle,&#148; &#147;hedge,&#148; &#147;conversion
transaction&#148; or other risk-reduction transaction,
controlled foreign corporations, passive foreign investment
companies, companies that accumulate earnings to avoid
U.S.&nbsp;federal income tax, foreign tax-exempt organizations,
former U.S.&nbsp;citizens or residents, persons who hold or
receive Class&nbsp;A common stock as compensation and persons
subject to the alternative minimum tax). This summary is based
on provisions of the U.S.&nbsp;Internal Revenue Code of 1986, as
amended (the &#147;Code&#148;), applicable Treasury regulations,
administrative pronouncements of the U.S.&nbsp;Internal Revenue
Service (&#147;IRS&#148;) and judicial decisions, all as in
effect on the date hereof, and all of which are subject to
change, possibly on a retroactive basis, and different
interpretations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>This summary is included herein as general information only.
Accordingly, each prospective Non-U.S.&nbsp;Holder is urged to
consult its own tax advisor with respect to the
U.S.&nbsp;federal, state, local and non-U.S.&nbsp;income, estate
and other tax consequences of holding and disposing of our
Class&nbsp;A common stock.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>U.S.&nbsp;Trade or Business Income</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For purposes of this discussion, dividend income and gain on the
sale or other taxable disposition of our Class&nbsp;A common
stock will be considered to be &#147;U.S.&nbsp;trade or business
income&#148; if such income or gain is (i)&nbsp;effectively
connected with the conduct by a Non-U.S.&nbsp;Holder of a trade
or business within the United States and (ii)&nbsp;in the case
of a Non-U.S.&nbsp;Holder that is eligible for the benefits of
an income tax treaty with the United States, attributable to a
permanent establishment (or, for an individual, a fixed base)
maintained by the Non-U.S.&nbsp;Holder in the United States.
Generally, U.S.&nbsp;trade or business income is not subject to
U.S.&nbsp;federal withholding tax (provided the
Non-U.S.&nbsp;Holder complies with applicable certification and
disclosure requirements); instead, U.S.&nbsp;trade or business
income is subject to U.S.&nbsp;federal
</DIV>

<P align="center" style="font-size: 10pt;">97

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<DIV align="left" style="font-size: 10pt;">
income tax on a net income basis at regular U.S.&nbsp;federal
income tax rates in the same manner as a U.S.&nbsp;person. Any
U.S.&nbsp;trade or business income received by a
Non-U.S.&nbsp;Holder that is a corporation also may be subject
to a &#147;branch profits tax&#148; at a 30% rate, or at a lower
rate prescribed by an applicable income tax treaty, under
specific circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dividends</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Distributions of cash or property that we pay will constitute
dividends for U.S.&nbsp;federal income tax purposes to the
extent paid from our current or accumulated earnings and profits
(as determined under U.S.&nbsp;federal income tax principles). A
Non-U.S.&nbsp;Holder generally will be subject to
U.S.&nbsp;federal withholding tax at a 30% rate, or at a reduced
rate prescribed by an applicable income tax treaty, on any
dividends received in respect of our Class&nbsp;A common stock.
If the amount of a distribution exceeds our current and
accumulated earnings and profits, such excess first will be
treated as a tax-free return of capital to the extent of the
Non-U.S.&nbsp;Holder&#146;s tax basis in our Class&nbsp;A common
stock (with a corresponding reduction in such
Non-U.S.&nbsp;Holder&#146;s tax basis in our Class&nbsp;A common
stock), and thereafter will be treated as capital gain. In order
to obtain a reduced rate of U.S.&nbsp;federal withholding tax
under an applicable income tax treaty, a Non-U.S.&nbsp;Holder
will be required to provide a properly executed IRS
Form&nbsp;W-8BEN certifying under penalties of perjury its
entitlement to benefits under the treaty. Special certification
requirements and other requirements apply to certain
Non-U.S.&nbsp;Holders that are entities rather than individuals.
A Non-U.S.&nbsp;Holder of our Class&nbsp;A common stock that is
eligible for a reduced rate of U.S.&nbsp;federal withholding tax
under an income tax treaty may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for a
refund with the IRS on a timely basis. A Non-U.S.&nbsp;Holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty and the
filing of a U.S.&nbsp;tax return for claiming a refund of
U.S.&nbsp;federal withholding tax.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The U.S.&nbsp;federal withholding tax does not apply to
dividends that are U.S.&nbsp;trade or business income, as
defined above, of a Non-U.S.&nbsp;Holder who provides a properly
executed IRS Form&nbsp;W-8ECI, certifying under penalties of
perjury that the dividends are effectively connected with the
Non-U.S.&nbsp;Holder&#146;s conduct of a trade or business
within the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dispositions of our Class&nbsp;A Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A Non-U.S.&nbsp;Holder generally will not be subject to
U.S.&nbsp;federal income or withholding tax in respect of any
gain on a sale or other disposition of our Class&nbsp;A common
stock unless:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the gain is U.S.&nbsp;trade or business income, as defined above;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the Non-U.S.&nbsp;Holder is an individual who is present in the
    United States for 183 or more days in the taxable year of the
    disposition and meets other conditions;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we are or have been a &#147;U.S.&nbsp;real property holding
    corporation&#148; (a &#147;USRPHC&#148;) under section&nbsp;897
    of the Code at any time during the shorter of the five-year
    period ending on the date of disposition and the
    Non-U.S.&nbsp;Holder&#146;s holding period for our Class&nbsp;A
    common stock.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, a corporation is a USRPHC if the fair market value
of its &#147;U.S.&nbsp;real property interests&#148; (as defined
in the Code and applicable Treasury regulations) equals or
exceeds 50% of the sum of the fair market value of its worldwide
real property interests and its other assets used or held for
use in a trade or business. If we are determined to be a USRPHC,
the U.S.&nbsp;federal income and withholding taxes relating to
interests in USRPHCs nevertheless will not apply to gains
derived from the sale or other disposition of our Class&nbsp;A
common stock by a Non-U.S.&nbsp;Holder whose shareholdings,
actual and constructive, at all times during the applicable
period, amount to 5% or less of our Class&nbsp;A common stock,
provided that our Class&nbsp;A common stock is regularly traded
on an established securities market. We are not currently a
USRPHC, and we do not anticipate becoming a USRPHC in the
future. However, no assurance can be given that we will not be a
USRPHC, or that our Class&nbsp;A common stock will be considered
regularly traded, when a Non-U.S.&nbsp;Holder sells its shares
of our Class&nbsp;A common stock.
</DIV>

<P align="center" style="font-size: 10pt;">98

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>U.S.&nbsp;Federal Estate Taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shares of our Class&nbsp;A common stock owned or treated as
owned by an individual who is a Non-U.S.&nbsp;Holder at the time
of death will be included in the individual&#146;s gross estate
for U.S.&nbsp;federal estate tax purposes, and may be subject to
U.S.&nbsp;federal estate tax, unless an applicable estate tax
treaty provides otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Information Reporting and Backup Withholding Requirements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We must annually report to the IRS and to each
Non-U.S.&nbsp;Holder any dividend income that is subject to
U.S.&nbsp;federal withholding tax, or that is exempt from such
withholding tax pursuant to an income tax treaty. Copies of
these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S.&nbsp;Holder
resides. Under certain circumstances, the Code imposes a backup
withholding obligation (currently at a rate of 28%) on certain
reportable payments. Dividends paid to a Non-U.S.&nbsp;Holder of
our Class&nbsp;A common stock generally will be exempt from
backup withholding if the Non-U.S.&nbsp;Holder provides a
properly executed IRS Form&nbsp;W-8BEN or otherwise establishes
an exemption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The payment of the proceeds from the disposition of our
Class&nbsp;A common stock to or through the U.S.&nbsp;office of
any broker, U.S.&nbsp;or foreign, will be subject to information
reporting and possible backup withholding unless the holder
certifies as to its non-U.S.&nbsp;status under penalties of
perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge or reason to know that the
holder is a U.S.&nbsp;person or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the
proceeds from the disposition of our Class&nbsp;A common stock
to or through a non-U.S.&nbsp;office of a non-U.S.&nbsp;broker
will not be subject to information reporting or backup
withholding unless the non-U.S.&nbsp;broker has certain types of
relationships with the United States (a &#147;U.S.&nbsp;related
person&#148;). In the case of the payment of the proceeds from
the disposition of our Class&nbsp;A common stock to or through a
non-U.S.&nbsp;office of a broker that is either a
U.S.&nbsp;person or a U.S.&nbsp;related person, the Treasury
regulations require information reporting (but not the backup
withholding) on the payment unless the broker has documentary
evidence in its files that the holder is a Non-U.S.&nbsp;Holder
and the broker has no knowledge to the contrary.
Non-U.S.&nbsp;Holders should consult their own tax advisors on
the application of information reporting and backup withholding
to them in their particular circumstances (including upon their
disposition of our Class&nbsp;A common stock).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
Non-U.S.&nbsp;Holder will be refunded or credited against the
Non-U.S.&nbsp;Holder&#146;s U.S.&nbsp;federal income tax
liability, if any, if the Non-U.S.&nbsp;Holder provides the
required information to the IRS on a timely basis.
Non-U.S.&nbsp;Holders should consult their own tax advisors
regarding the filing of a U.S.&nbsp;tax return for claiming a
refund of such backup withholding.
</DIV>

<P align="center" style="font-size: 10pt;">99

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<DIV align="left" style="font-size: 10pt;">
<A name='118'></A>
</DIV>

<!-- link1 "UNDERWRITING" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNDERWRITING</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to the terms and conditions set forth in an underwriting
among us and the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters has agreed, severally
and not jointly, to purchase from us, the number of shares of
Class&nbsp;A common stock set forth opposite its name below.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Underwriter</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to the terms and conditions set forth in the
underwriting agreement, the underwriters have agreed, severally
and not jointly, to purchase all of the shares of our
Class&nbsp;A common stock sold under the underwriting agreement
if any of these shares are purchased. If an underwriter
defaults, the underwriting agreement provides that the purchase
commitments of the non-defaulting underwriters may be increased
or the underwriting agreement may be terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters are offering the shares of Class&nbsp;A common
stock, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of legal matters by their
counsel, including the validity of the shares, and other
conditions contained in the underwriting agreement, such as the
receipt by the underwriters of officers&#146; certificates and
legal opinions. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in
whole or in part.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Commissions and Discounts</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The representatives have advised us that they propose initially
to offer the shares our Class&nbsp;A common stock to the public
at the initial public offering price set forth on the cover page
of this prospectus and to dealers at that price less a
concession not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. The
information assumes either no exercise or full exercise by the
underwriters of their option to purchase additional shares.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Without Option</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>With Option</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Public offering price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Underwriting discount</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to our company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The expenses of the offering, not including the underwriting
discount, are estimated at approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
are payable by us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Option to Purchase Additional Shares</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have granted an option to the underwriters to purchase up
to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares of our Class&nbsp;A common stock at the public offering
price less the underwriting discount. The underwriters may
exercise these options for 30&nbsp;days from the date of this
prospectus solely to cover overallotments. If the underwriters
exercise these options, each will be obligated, subject to
conditions contained in the purchase
</DIV>

<P align="center" style="font-size: 10pt;">100

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<DIV align="left" style="font-size: 10pt;">
agreement, to purchase a number of additional shares of our
Class&nbsp;A common stock proportionate to that
underwriter&#146;s initial amount reflected in the above table.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>No Sales of Similar Securities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, our executive officers and directors, and our Parent have
agreed, subject to limited exceptions, not to sell or transfer
any common stock or securities convertible into or exchangeable
or exercisable for or repayable with common stock, for
180&nbsp;days after the date of this prospectus without first
obtaining the written consent of the representatives of the
underwriters. Specifically, we and these other persons have
agreed not to directly or indirectly:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    offer, pledge, sell or contract to sell any common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    sell any option or contract to purchase any common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    purchase any option or contract to sell any common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    grant any option, right or warrant for the sale of any common
    stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    lend or otherwise dispose of or transfer any common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    request or demand that we file a registration statement related
    to the common stock;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    enter into any swap or other agreement that transfers, in whole
    or in part, the economic consequence of ownership of any common
    stock whether any such swap or transaction is to be settled by
    delivery of shares or other securities, in cash or otherwise.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable
with common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Quotation on The Nasdaq National Market</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to apply to have our Class&nbsp;A common stock quoted
on The Nasdaq National Market under the symbol &#147;WBMD.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Before this offering, there has been no public market for our
Class&nbsp;A common stock. The initial public offering price
will be determined through negotiations among us and the
representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public
offering price are:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the valuation multiples of publicly traded companies that the
    representatives believe to be comparable to us;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our financial information;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the history of, and the prospects for our company and the
    industry in which we compete;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an assessment of our management, its past and present
    operations, and the prospects for and timing of, our future
    revenues;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the present state of our development;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the above factors in relation to market values and various
    valuation measures of other companies engaged in activities
    similar to ours.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An active trading market for the shares of our Class&nbsp;A
common stock may not develop. It is also possible that after the
offering, the shares of our Class&nbsp;A common stock will not
trade in the public market at or above the initial public
offering price. The underwriters do not expect to sell more than
five percent in the aggregate of the shares of our Class&nbsp;A
common stock being offered in this offering to accounts over
which they exercise discretionary authority.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Price Stabilization, Short Positions and Penalty Bids</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Until the distribution of the shares of our Class&nbsp;A common
stock is completed, SEC rules may limit underwriters and selling
group members from bidding for and purchasing our Class&nbsp;A
common stock. However, the underwriters may engage in
transactions that stabilize the price of the Class&nbsp;A common
stock, such as bids or purchases to peg, fix or maintain that
price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the underwriters create a short position in the Class&nbsp;A
common stock in connection with the offering, i.e., if they sell
more shares than are listed on the cover of this prospectus, the
underwriters may reduce that short position by purchasing shares
of the Class&nbsp;A common stock in the open market. The
underwriters may also elect to reduce any short position by
exercising all or part of the option to purchase additional
shares described above. Purchases of the Class&nbsp;A common
stock to stabilize its price or to reduce a short position may
cause the price of the Class&nbsp;A common stock to be higher
than it might be in the absence of such purchases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters may also impose a penalty bid on underwriters
and selling group members. This means that if the underwriters
purchase shares of the Class&nbsp;A common stock in the open
market to reduce the underwriter&#146;s short position or to
stabilize the price of such shares, they may reclaim the amount
of the selling concession from the underwriters and selling
group members who sold those shares. The imposition of a penalty
bid may also affect the price of the shares in that it
discourages resales of those shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the Class&nbsp;A common stock. In addition, neither we nor any
of the underwriters makes any representation that the
underwriters will engage in these transactions or that these
transactions, once commenced, will not be discontinued without
notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stamp Taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If you purchase shares of our Class&nbsp;A common stock offered
in this prospectus, you may be required to pay stamp taxes and
other charges under the laws and practices of the country of
purchase, in addition to this offering price listed on the cover
page of this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Relationships</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The representatives and some of the underwriters or their
affiliates have performed some investment banking and advisory
services for us, our Parent and our affiliates from time to time
for which they have received customary fees and expenses. The
representatives and underwriters may, from time to time, engage
in transactions with and perform services for us, our Parent and
our affiliates in the ordinary course of their business.
</DIV>

<P align="center" style="font-size: 10pt;">102

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<DIV align="left" style="font-size: 10pt;">
<A name='119'></A>
</DIV>

<!-- link1 "LEGAL MATTERS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>LEGAL MATTERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shearman&nbsp;&#38; Sterling LLP, New York, New York, will pass
upon certain legal matters for us in connection with this
offering. The underwriters will be represented by Cravath,
Swaine&nbsp;&#38; Moore LLP in connection with this offering.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='120'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>EXPERTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Ernst&nbsp;&#38; Young LLP, independent registered public
accounting firm, has audited our combined consolidated financial
statements and schedule at December&nbsp;31, 2004 and 2003, and
for each of the three years in the period ended
December&nbsp;31, 2004, as set forth in their report. We have
included our financial statements and schedule in the prospectus
and elsewhere in the registration statement in reliance on
Ernst&nbsp;&#38; Young LLP&#146;s report, given on their
authority as experts in accounting and auditing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
J.H. Cohn LLP, independent registered public accounting firm,
has audited the financial statements of MedicineNet, Inc. as of
and for the year ended March&nbsp;31, 2004 and the financial
statements of HealthShare Technology, Inc. as of and for the
year ended June&nbsp;30, 2004, as set forth in their reports. We
have included these financial statements in the prospectus and
elsewhere in the registration statement in reliance on J.H. Cohn
LLP&#146;s report, given on their authority as experts in
accounting and auditing.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='121'></A>
</DIV>

<!-- link1 "WHERE YOU CAN FIND ADDITIONAL INFORMATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WHERE YOU CAN FIND ADDITIONAL INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have filed with the SEC a registration statement on
Form&nbsp;S-1 under the Securities Act relating to the common
stock we are offering. This prospectus, which constitutes part
of the registration statement, does not contain all the
information that is in the registration statement and its
exhibits and schedules. Certain portions of the registration
statement have been omitted as allowed by the rules and
regulations of the SEC. Statements in this prospectus which
summarize documents are not necessarily complete, and in each
case you should refer to the copy of the document filed as an
exhibit to the registration statement. You may read and copy the
registration statement, including exhibits and schedules filed
with it, and reports or other information we may file with the
SEC at the public reference facilities of the SEC at
450&nbsp;Fifth Street, N.W., Room&nbsp;1024,
Washington,&nbsp;D.C. 20549. You may call the SEC at
1-800-SEC-0330 for further information on the operation of the
public reference rooms. In addition, the registration statement
and other public filings can be obtained from the SEC&#146;s
Internet site at http://www.sec.gov.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon completion of this offering, we will become subject to
information and periodic reporting requirements of the Exchange
Act, and we will file annual, quarterly and current reports,
proxy statements and other information with the SEC. We intend
to furnish our stockholders written annual reports containing
financial statements audited by our independent auditors, and
make available to our stockholders quarterly reports for the
first three quarters of each year containing unaudited interim
financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">103
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INDEX TO FINANCIAL STATEMENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Page</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>WebMD Health Holdings, Inc.</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Report of Independent Registered Public Accounting Firm</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Combined Consolidated Balance Sheets as of December&nbsp;31,
    2003 and 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Combined Consolidated Statements of Operations for the Years
    Ended December&nbsp;31, 2002, 2003 and 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Combined Consolidated Statements of Owner&#146;s Net Investment
    for the Years Ended December&nbsp;31, 2002, 2003 and 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Combined Consolidated Statements of Cash Flows for the Years
    Ended December&nbsp;31, 2002, 2003 and 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Notes to Combined Consolidated Financial Statements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>MedicineNet, Inc.</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Report of Independent Registered Public Accounting Firm</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance Sheets as of March&nbsp;31, 2004 and September&nbsp;30,
    2004 (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Statements of Operations for the Year Ended March&nbsp;31, 2004
    and for the Six Months Ended September&nbsp;30, 2003 and 2004
    (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Statements of Shareholders&#146; Equity for the Year Ended
    March&nbsp;31, 2004 and for the Six Months Ended
    September&nbsp;30, 2004 (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Statements of Cash Flows for the Year Ended March&nbsp;31, 2004
    and for the Six Months Ended September&nbsp;30, 2003 and 2004
    (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-31</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Notes to Financial Statements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-32</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>HealthShare Technology, Inc.</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Report of Independent Registered Public Accounting Firm</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance Sheets as of June&nbsp;30, 2004 and December&nbsp;31,
    2004 (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Statements of Operations for the Year Ended June&nbsp;30, 2004
    and for the Six Months Ended December&nbsp;31, 2003 and 2004
    (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-42</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Statements of Redeemable Convertible Preferred Stock and
    Stockholders&#146; Deficit for the Year Ended June&nbsp;30, 2004
    and for the Six Months Ended December&nbsp;31, 2004 (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-43</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Statements of Cash Flows for the Year Ended June&nbsp;30, 2004
    and for the Six Months Ended December&nbsp;31, 2003 and 2004
    (Unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-44</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Notes to Financial Statements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-45</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Unaudited Pro Forma Condensed Combined Consolidated Financial
    Statements</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unaudited Pro Forma Condensed Combined Consolidated Balance
    Sheet as of December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-54</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unaudited Pro Forma Condensed Combined Consolidated Statement of
    Operations for the Year Ended December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-55</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Notes to the Unaudited Pro Forma Condensed Combined Consolidated
    Financial Statements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-56</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Supplemental Financial Data:</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>


<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Schedule II&nbsp;&#151; Valuation and Qualifying Accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>S-1</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    All other schedules not listed above have been omitted as not
    applicable or because the required information is included in
    the Combined Consolidated Financial Statements or in the notes
    thereto. Columns omitted from the schedule filed have been
    omitted because the information is not applicable.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The Board of Directors
</DIV>

<DIV align="left" style="font-size: 10pt;">
WebMD Health Holdings, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have audited the accompanying combined consolidated balance
sheets of WebMD Health Holdings, Inc. as of December&nbsp;31,
2004 and 2003, and the related combined consolidated statements
of operations, owner&#146;s net investment, and cash flows for
each of the three years in the period ended December&nbsp;31,
2004. Our audits also included the financial statement schedule
listed in the Index on page&nbsp;F-1. These financial statements
and schedule are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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. We were not engaged to perform an
audit of the Company&#146;s internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company&#146;s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined
consolidated financial position of WebMD Health Holdings, Inc.
at December&nbsp;31, 2004 and 2003, and the combined
consolidated results of its operations and its cash flows for
each of the three years in the period ended December&nbsp;31,
2004, in conformity with U.S.&nbsp;generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT style="font-variant:SMALL-CAPS">Ernst&nbsp;&#38; Young LLP
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
MetroPark, New Jersey
</DIV>

<DIV align="left" style="font-size: 10pt;">
May&nbsp;10, 2005, except for
</DIV>

<DIV align="left" style="font-size: 10pt;">
Note&nbsp;1 as to which the date is
</DIV>

<DIV align="left" style="font-size: 10pt;">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The foregoing report is in the form that will be signed upon the
completion of the contribution and transfer described in
Note&nbsp;1 to the combined consolidated financial statements.
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    /s/<FONT style="font-variant:SMALL-CAPS"> Ernst&nbsp;&#38; Young
    LLP
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
MetroPark, New Jersey
</DIV>

<DIV align="left" style="font-size: 10pt;">
May&nbsp;10, 2005
</DIV>

<P align="center" style="font-size: 10pt;">F-2
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Combined Consolidated Balance Sheets</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable, net of allowance for doubtful accounts of
    $921 in 2003 and $798 in 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,453</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current portion of prepaid advertising</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,350</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,619</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,878</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,316</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid advertising</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,047</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,614</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,065</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>576</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,496</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>LIABILITIES AND OWNER&#146;S NET INVESTMENT</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,874</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,885</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,759</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitments and contingencies</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Owner&#146;s net investment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and owner&#146;s net investment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,496</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Combined Consolidated Statements of Operations</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands, except per share data)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>110,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>134,148</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Costs and expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,879</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,701</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,277</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,620</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring and integration benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,850</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,221</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,242</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,671</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma income per common share (unaudited):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma weighted-average common shares outstanding (unaudited):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-4
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='104'></A>
</DIV>

<!-- link1 "Combined Consolidated Statements of Owner&#146;s Net Investment (In thousands)" -->

<DIV align="center" style="font-size: 10pt;">
<B>Combined Consolidated Statements of Owner&#146;s Net
Investment</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="83%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at January&nbsp;1, 2002</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>92,045</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net transfers from Parent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,742</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2002</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,426</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net transfers from Parent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,526</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2003</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,527</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net transfers from Parent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2004</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='105'></A>
</DIV>

<!-- link1 "Combined Consolidated Statements of Cash Flows (In thousands)" -->

<DIV align="center" style="font-size: 10pt;">
<B>Combined Consolidated Statements of Cash Flows</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash flows from operating activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income (loss) to net cash (used in)
    provided by operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,620</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash advertising and distribution</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,147</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash stock-based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in operating assets and liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,726</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,452</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,125</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,663</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,874</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,815</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,952</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,756</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,878</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash (used in) provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,054</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,138</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash flows from investing activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property and equipment, net of disposals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,181</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,518</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,321</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid in business combinations, net of cash acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,763</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,926</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,944</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,444</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,742</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Cash flows from financing activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash transfers from Parent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,702</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,702</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net (decrease) increase in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(371</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,098</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>358</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-6

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='106'></A>
</DIV>

<!-- link1 "Notes to Combined Consolidated Financial Statements" -->

<DIV align="center" style="font-size: 10pt;">
<B>Notes to Combined Consolidated Financial Statements</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands, except share and per share data)</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>1.</B></TD>
    <TD>
    <B>Background and Basis of Presentation</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Background</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
WebMD Health Holdings, Inc. (the &#147;Company&#148; or
&#147;WebMD Health&#148;) is a wholly owned subsidiary of WebMD
Corporation (&#147;Parent&#148;) formed to conduct an initial
public offering (the &#147;Offering&#148;) of equity in the
business of Parent&#146;s WebMD Health segment. The Company
expects to offer approximately 10%-14% of its outstanding common
stock in the Offering. Prior to completion of the Offering,
Parent will contribute and transfer to the Company the
subsidiaries that comprise Parent&#146;s WebMD Health segment
and certain related assets and liabilities (collectively, the
&#147;Contributed Companies&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is a Delaware corporation that was incorporated on
May&nbsp;3, 2005. On that date, 3,000&nbsp;shares of the
Company&#146;s common stock, par value $0.01&nbsp;per share,
were authorized, issued and outstanding. Prior to the completion
of the Offering, there will be a recapitalization of the
Company, the extent of which is currently unknown.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company intends to change its corporate name, prior to
completion of the Offering, to a new name that has not yet been
chosen, but that will include &#147;WebMD,&#148; which will also
continue to be the primary brand name for the Company&#146;s
products and services. Parent intends to take the steps, over
the next several months, needed to change its corporate name to
one that does not include &#147;WebMD&#148; and to cease using
&#147;WebMD&#148; as a brand name for the products and services
of its other segments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides health information services to consumers,
physicians and healthcare professionals through the
Company&#146;s public and private online portals and specialized
publications. The Company&#146;s two operating segments are:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Online Services.</I> The Company provides both public and
    private online portals. The Company&#146;s public portals enable
    consumers to become more informed about healthcare choices and
    assist them in playing an active role in managing their health
    and enable physicians and healthcare professionals to improve
    their clinical knowledge and practice of medicine, as well as
    their communication with patients. The Company&#146;s private
    portals for employers and health plans provide information and
    services that enable their employers and members to make more
    informed benefit, provider and treatment decisions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Publishing Services.</I> The Company publishes medical
    reference textbooks, <I>The Little Blue Book</I>, a physician
    directory and beginning in 2005, <I>WebMD the Magazine,</I> a
    consumer magazine distributed to physician office waiting rooms.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Basis of Presentation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The combined consolidated financial statements have been derived
from the consolidated financial statements and accounting
records of Parent, principally representing the WebMD Health
segment, using the historical results of operations, and
historical basis of assets and liabilities of the WebMD Health
related businesses. Management believes the assumptions
underlying the combined consolidated financial statements are
reasonable. However, the combined consolidated financial
statements included herein may not necessarily reflect the
Company&#146;s results of operations, financial position and
cash flows in the future or what its results of operations,
financial position and cash flows would have been had the
Company been a stand-alone company during the periods presented.
Parent&#146;s net investment in the Company, including
intercompany debt, is shown as owner&#146;s net investment in
lieu of stockholders&#146; equity in the combined consolidated
financial statements, because a direct ownership relationship
did not exist among all the various entities comprising the
Company during all periods presented. Transactions between the
Company
</DIV>

<P align="center" style="font-size: 10pt;">F-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
and Parent have been identified in the combined consolidated
statements as transactions with Parent (see Note&nbsp;3).
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>2.</B></TD>
    <TD>
    <B>Summary of Significant Accounting Policies</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Principles of Combination and Consolidation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accompanying combined consolidated financial statements
include the accounts of the Contributed Companies, which are not
currently owned by the Company but will be transferred from
Parent prior to completion of the Offering, and have been
prepared in conformity with U.S. generally accepted accounting
principles. The results of operations for companies acquired are
included in the combined consolidated financial statements from
the effective date of acquisition. All material intercompany
accounts and transactions have been eliminated in the combined
consolidated financial statements.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Accounting Estimates</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of financial statements in conformity with
U.S.&nbsp;generally accepted accounting principles requires
management to make certain estimates and assumptions that affect
the amounts reported in the combined consolidated financial
statements and accompanying notes. The Company is subject to
uncertainties such as the impact of future events, economic,
environmental and political factors and changes in the
Company&#146;s business environment; therefore, actual results
could differ from these estimates. Accordingly, the accounting
estimates used in the preparation of the Company&#146;s
financial statements will change as new events occur, as more
experience is acquired, as additional information is obtained
and as the Company&#146;s operating environment changes. Changes
in estimates are made when circumstances warrant. Such changes
in estimates and refinements in estimation methodologies are
reflected in reported results of operations; if material, the
effects of changes in estimates are disclosed in the notes to
the combined consolidated financial statements. Significant
estimates and assumptions by management affect: revenue
recognition, the allowance for doubtful accounts, the carrying
value of prepaid advertising, the carrying value of long-lived
assets (including goodwill and intangible assets), the
amortization period of long-lived assets (excluding goodwill),
the carrying value, capitalization and amortization of software
development costs, the provision for income taxes and related
deferred tax accounts, certain accrued expenses and
contingencies, the value attributed to warrants issued for
services and transactions with Parent.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Cash and Cash Equivalents</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Parent uses a centralized approach to cash management, in which
cash accounts are swept on a regular basis. The financing of its
operations and all related activity between the Company and
Parent are reflected as transactions in owner&#146;s net
investment in the Company&#146;s combined consolidated balance
sheets. The cash and cash equivalents reflected in the
Company&#146;s combined consolidated balance sheets represent
cash held directly by the Company. The Company considers all
highly liquid investments with an original maturity from the
date of purchase of three months or less to be cash equivalents.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Allowance for Doubtful Accounts</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The allowance for doubtful accounts receivable reflects the
Company&#146;s best estimate of probable losses inherent in the
Company&#146;s receivables portfolio determined on the basis of
historical experience, specific allowances for known troubled
accounts and other currently available evidence.
</DIV>

<P align="center" style="font-size: 10pt;">F-8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Internal Use Software</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for internal use software development costs
in accordance with Statement of Position (&#147;SOP&#148;)
No.&nbsp;98-1, &#147;Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use&#148;
(&#147;SOP&nbsp;98-1&#148;). Software development costs that are
incurred in the preliminary project stage are expensed as
incurred. Once certain criteria of SOP&nbsp;98-1 have been met,
internal and external direct costs incurred in developing or
obtaining computer software are capitalized. Training and data
conversion costs are expensed as incurred. Capitalized software
costs are amortized over a three-year period.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Web Site Development Costs</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with Emerging Issues Task Force (&#147;EITF&#148;)
Issue No.&nbsp;00-2 &#147;Accounting for Web Site Development
Costs,&#148; costs related to the planning and post
implementation phases of the Company&#146;s Web site development
efforts, as well as minor enhancements and maintenance, are
expensed as incurred. Direct costs incurred in the development
phase are capitalized. Amounts capitalized for Web site
development costs were not material during the years ended
December&nbsp;31, 2002, 2003 or 2004 as the Company&#146;s
principal Web sites have been obtained through acquisitions.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Long-Lived Assets</I></B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Property and Equipment</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets.
The useful lives are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computer equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>3 to 5&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office equipment, furniture and fixtures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>4 to 7&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>3&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>Shorter of useful life or lease term</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Expenditures for maintenance, repair and renewals of minor items
are expensed as incurred. Major betterments are capitalized.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Goodwill and Intangible Assets</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Goodwill and intangible assets result from acquisitions
accounted for under the purchase method. Intangible assets with
definite lives are amortized on a straight-line basis over the
estimated useful lives of the related asset as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Content</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>3 to 5&nbsp; years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer lists</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>2 to 5&nbsp; years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Technology and patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>3&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade names</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>3 to 7&nbsp; years</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Recoverability</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;142, &#147;Goodwill and Other
Intangible Assets&#148; (&#147;SFAS&nbsp;No.&nbsp;142&#148;),
the Company reviews the carrying value of goodwill annually and
whenever indicators of impairment are present. The Company
measures impairment losses by comparing the carrying value of
its reporting units to the fair value of its reporting units
determined using an income approach valuation. The
Company&#146;s reporting units are determined in accordance with
</DIV>

<P align="center" style="font-size: 10pt;">F-9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
SFAS&nbsp;No.&nbsp;142, which defines a reporting unit as an
operating segment or one level below an operating segment.
Goodwill is assigned to individual reporting units based on
their relative fair values.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with SFAS&nbsp;No.&nbsp;144, &#147;Accounting for
the Impairment or Disposal of Long-Lived Assets,&#148;
long-lived assets used in operations are reviewed for impairment
whenever events or changes in circumstances indicate that
carrying amounts may not be recoverable. For long-lived assets
to be held and used, the Company recognizes an impairment loss
only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based
on the difference between the carrying amount and fair value.
Long-lived assets held for sale are reported at the lower of
cost or fair value less costs to sell.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Revenue Recognition</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenue is derived from the Company&#146;s Online Services and
Publishing Services segments:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Online Services.</I> The Company generates revenue from its
    public portals through the sale of advertising and sponsorship
    products, such as CME. The Company also derives a small portion
    of its public portal revenue through subscriptions to premium
    content services. The Company generates revenue from private
    portals through the licensing of its content and technology to
    employers and payers. The Company also distributes its online
    content and services to other entities and generates revenue
    from these arrangements from the sale of advertising and
    sponsorship products and from content syndication fees.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Publishing Services.</I> The Company generates revenue from
    sales of subscriptions to the medical reference publications,
    from sales of <I>The Little Blue Book </I>physician directory
    and from sales of advertisements in those directories.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenue from advertising is recognized as advertisements are
delivered or as publications are distributed. Revenues from
sponsorship arrangements, content syndication and distribution
arrangements, and licenses of healthcare management tools and
private portals are recognized ratably over the term of the
applicable agreement. Revenue from the sponsorship of CME is
recognized over the period the Company satisfies the minimum
distribution requirements. Subscription revenue is recognized
over the subscription period. When contractual arrangements
contain multiple elements, revenue is allocated to the elements
based on their relative fair values, determined using prices
charged when elements are sold separately.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Accounting for Stock-Based Compensation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As discussed more fully in Note&nbsp;11, the Company accounts
for employee options to purchase Parent stock, restricted stock
and for employee participation in the Parent employee stock
purchase plan using the intrinsic value method under the
recognition and measurement principles of APB Opinion
No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees&#148; (&#147;APB No.&nbsp;25&#148;), and related
interpretations. No stock-based employee compensation cost is
reflected in net income (loss) with respect to options granted
with an exercise price equal to the market value of the
underlying common stock on the date of grant. Stock-based awards
to non-employees are accounted for based on provisions of
SFAS&nbsp;No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; (&#147;SFAS&nbsp;No.&nbsp;123&#148;), and
EITF&nbsp;96-18, &#147;Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.&#148; After the
effective date of the Offering unvested stock options and
restricted stock outstanding under Parent&#146;s stock-based
compensation plans that are held by the Company&#146;s employees
will continue to vest in accordance with the original terms of
those awards. The following table illustrates the effect on net
</DIV>

<P align="center" style="font-size: 10pt;">F-10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
income (loss) and pro forma income (loss) per common share if
the Company had applied the fair value recognition provisions of
SFAS&nbsp;No.&nbsp;123 to stock-based employee compensation:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: Stock-based employee compensation expense included in
    reported net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,692</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,477</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,608</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(39,388</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(17,305</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,398</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted pro forma income (loss) per common share
    (unaudited):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The pro forma results above are not intended to be indicative of
or a projection of future results. Refer to Note&nbsp;11 for
assumptions used in computing the fair value amounts above.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Advertising</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Advertising costs are generally expensed as incurred and
included in sales and marketing expense in the accompanying
combined consolidated statements of operations. Advertising
expense totaled $22,349, $17,380 and $15,877 in 2002, 2003 and
2004, respectively. Included in these amounts are non-cash
advertising costs of $11,920, $10,378 and $9,302 in 2002, 2003
and 2004, respectively, related to the advertising services
received from News Corporation.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Pro Forma Income Per Share (Unaudited)</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to the completion of the Offering, the Company anticipates
that it will have
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of common stock outstanding. The Company has presented
pro forma basic and diluted income per share amounts for the
year ended December&nbsp;31, 2004 as if the recapitalization
described above had occurred on January&nbsp;1, 2004. The
Company calculated its pro forma income per share in accordance
with SFAS&nbsp;No.&nbsp;128, &#147;Earnings per Share.&#148;
There is no difference between pro forma basic and diluted
income per share since there will be no outstanding options to
purchase shares of the Company&#146;s common stock or other
potentially dilutive securities outstanding prior to the
Offering. In connection with the Offering, certain employees
will be awarded initial stock option grants to purchase shares
of the Company or other equity-based awards.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Concentration of Credit Risk</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2002 and 2003, two customers accounted for more than 10%
of the Company&#146;s revenues. As of December&nbsp;31, 2003,
one customer accounted for more than 10% of the Company&#146;s
accounts receivable.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="56%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>% of Revenue</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Years Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>% of Accounts Receivable</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer A</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22.2%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.3%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer B</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14.3%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.9%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>n/a</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-11
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of the customers identified above relate to the Online
Services operating segment. None of the Company&#146;s customers
individually accounted for more than 10% of the Company&#146;s
revenues in 2004 or more than 10% of the Company&#146;s accounts
receivable as of December&nbsp;31, 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Recent Accounting Pronouncements</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued SFAS&nbsp;No.&nbsp;123, &#147;(Revised
2004): Share-Based Payment&#148; (&#147;SFAS&nbsp;123R&#148;),
which replaces SFAS&nbsp;No.&nbsp;123, &#147;Accounting for
Stock-Based Compensation,&#148; and supersedes APB Opinion
No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees.&#148; SFAS&nbsp;123R requires all share-based
payments to employees, including grants of Parent and Company
stock options to Company employees, to be recognized in the
financial statements based on their fair values. The pro forma
disclosures previously permitted under SFAS&nbsp;123 no longer
will be an alternative to financial statement recognition. The
Company anticipates adopting SFAS&nbsp;123R in the first quarter
of 2006. Under SFAS&nbsp;123R, the Company must determine the
appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The transition
methods include prospective and retroactive adoption options.
Under the retroactive option, prior periods may be restated
either as of the beginning of the year of adoption or for all
periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options
and restricted stock at the beginning of the first quarter of
adoption of SFAS&nbsp;123R. The Company is evaluating the
requirements of SFAS&nbsp;123R and expects that the adoption of
SFAS&nbsp;123R will have a material impact on the combined
consolidated results of operations and earnings per share. The
Company has not yet determined the method of adoption or the
effect of adopting SFAS&nbsp;123R.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>3.</B></TD>
    <TD>
    <B>Transactions with Parent</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The combined consolidated statements of operations include
expense allocations for the following:
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Charges from the Company to Parent:</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Advertising Expense:</I> The Parent utilizes the
Company&#146;s advertising services which are included in
prepaid advertising within the accompanying combined
consolidated balance sheets. The Company allocates costs to
Parent related to the utilization of this asset by the Parent.
This charge includes a proportional allocation based on the
number of Parent operating segments identified in each
advertisement and an allocation of cost to the Parent relating
to promotion of the WebMD brand. The Company&#146;s portion of
the advertising services utilized is reflected in sales and
marketing expense and is reported net of what is charged to
Parent.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Charges from Parent to the Company:</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Corporate Services:</I> The Company is charged a services fee
for costs related to corporate services provided by the Parent.
These expenses include accounting, tax, treasury, legal, human
resources, certain information technology functions and other
services. The services fee is based on Parent&#146;s incurred
costs of such services utilized by the Company. The
determination of the services fee was based upon specific
identification where appropriate or an allocation based upon
total employees of both the Company and Parent or other
reasonable measures of allocation. These amounts are reflected
in general and administrative expenses within the accompanying
combined consolidated statements of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Healthcare Expense:</I> The Company is charged for healthcare
expense for its employees&#146; participation in the
Parent&#146;s healthcare plans. Healthcare expense is charged
based on the number of total employees of the Company and
reflect the Parent&#146;s average cost of these benefits per
employee. Healthcare expense is
</DIV>

<P align="center" style="font-size: 10pt;">F-12
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
reflected in the accompanying combined consolidated statements
of operations in the same expense captions as the related salary
costs of those employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Compensation Expense:</I> Stock compensation expense is
related to restricted stock awards in the Parent&#146;s common
stock that have been granted to certain employees of the Company
and stock options assumed or issued in connection with certain
acquisitions with exercise prices less than the fair market
value of the Parent&#146;s stock on the date of grant. Stock
compensation expenses are allocated on a specific employee
identification basis. Stock compensation is reflected in general
and administrative expense in the accompanying combined
consolidated statements of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the expense allocations reflected
in the Company&#146;s combined consolidated financial statements:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Charges from the Company to Parent:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Advertising expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,702</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Charges from Parent to the Company:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,591</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Healthcare expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,357</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,749</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company and Parent consider the allocations of advertising
expense, the Corporate services fee, healthcare expense and
stock compensation expense to be a reasonable estimate of the
utilization of services. The Company&#146;s costs and benefits
received as a stand-alone company would likely be different than
the amounts reflected in the combined consolidated statements of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Parent uses a centralized approach to cash management and the
financing of its operations with all related activity between
the Company and Parent reflected as transactions in owner&#146;s
net investment in the Company&#146;s combined consolidated
balance sheets. Types of intercompany transactions between the
Company and Parent include (i)&nbsp;cash deposits from the
Company&#146;s businesses which are transferred to Parent&#146;s
bank account on a regular basis, (ii)&nbsp;cash borrowings from
Parent used to fund operations, capital expenditures, or
acquisitions, and (iii)&nbsp;costs and benefits to and from the
Parent identified above. Certain intercompany transactions
between Parent and the Company are non-cash in nature.
Accordingly, these non-cash transactions are included within the
change in owner&#146;s net investment but do not affect the net
cash transfers from Parent amounts included in the accompanying
combined consolidated statements of cash flows. The following
table summarizes the cash and non-cash components within
owner&#146;s net investment:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transferred from Parent to the Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,702</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non Cash:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Advertising utilization charged to Parent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,550</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,807</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,702</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation expense charged to the Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase in owner&#146;s net investment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>4.</B></TD>
    <TD>
    <B>Business Combinations</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>2004 Acquisitions</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;24, 2004, the Company acquired MedicineNet,
Inc. (&#147;MedicineNet&#148;), a privately held provider of
online healthcare content for consumers. The total purchase
consideration of MedicineNet was approximately $17,034 comprised
of $16,394 in cash, net of cash acquired, $338 to be paid in
2005 and $302 of estimated acquisition costs. Additionally, the
Company agreed to pay up to $15,000 in April 2006 if certain
milestones are achieved in 2005. The acquisition was accounted
for using the purchase method of accounting and, accordingly,
the purchase price was allocated to the tangible and intangible
assets acquired and the liabilities assumed on the basis of
their respective fair values. In connection with the preliminary
allocation of the purchase price and intangible asset valuation,
goodwill of $8,929 and intangible assets subject to amortization
of $7,200 were recorded. The Company does not expect that the
goodwill or intangible asset recorded will be deductible for tax
purposes. The intangible assets are comprised of $5,600 relating
to content with estimated useful lives of three years, $900
relating to customer relationships with estimated useful lives
of two years and $700 relating to acquired technology with an
estimated useful life of three years. The results of operations
of MedicineNet will be included in the Online Services segment.
The results of operations of MedicineNet from the closing date
of the acquisition through December&nbsp;31, 2004 were not
material.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On October&nbsp;1, 2004, the Company acquired RxList, LLC
(&#147;RxList&#148;), a privately held operator of an online
drug directory for consumers and healthcare professionals. The
total purchase consideration was approximately $5,455 comprised
of $4,500 in cash, $500 to be paid in 2006 and $455 of estimated
acquisition costs. Additionally, the Company agreed to pay up to
an additional $5,000 beginning in February 2006 if certain
milestones are achieved in 2005 and 2006. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the preliminary allocation of the purchase price and intangible
asset valuation, goodwill of $4,458 and an intangible asset
subject to amortization of $1,016 were recorded. The Company
expects that substantially all of the goodwill and intangible
asset recorded will be deductible for tax purposes. The
intangible asset is content with an estimated useful life of
five years. The results of operations of RxList have been
included in the financial statements of the Company from
October&nbsp;1, 2004, the closing date of the acquisition, and
are included in the Online Services segment. The results of
operations of RxList during the period from the closing date of
the acquisition through December&nbsp;31, 2004 were not material.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>2003 Acquisitions</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On May&nbsp;29, 2003, the Company acquired <I>The Little Blue
Book</I> (&#147;LBB&#148;), a company that maintains a database
containing practice information for physicians, and publishes a
pocket-sized reference book containing physician practice and
contact information. The total purchase consideration for LBB
was approximately $10,061, comprised of $9,926 in cash, net of
the cash acquired, and acquisition costs of $135. Additionally,
the Company paid an additional $1,500 in April 2004 and an
additional $1,000 in April 2005 as a result of LBB achieving
certain financial milestones during the years ending
December&nbsp;31, 2003 and 2004. These payments resulted in
increases to goodwill. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the purchase
price was allocated to the tangible and intangible assets
acquired and the liabilities assumed on the basis of their
respective fair values. In connection with the initial
allocation of the purchase price, goodwill of $8,545 and
intangible assets subject to amortization of $2,815 were
recorded. The Company expects that substantially all of the
goodwill and intangible assets recorded will be deductible for
tax purposes. The intangible assets are comprised of $1,787
relating to a trade name with an estimated useful life of seven
years, $761 relating to customer relationships with estimated
useful lives of five years and $267 relating to acquired
technology with an
</DIV>

<P align="center" style="font-size: 10pt;">F-14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
estimated useful life of three years. The results of operations
of LBB have been included in the financial statements of the
Company from May&nbsp;29, 2003, the closing date of the
acquisition, and are included in the Publishing Services segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;30, 2003, the Company acquired the assets and
assumed certain liabilities of Optate, Inc.
(&#147;Optate&#148;), a provider of healthcare benefit
decision-support tools and solutions to its clients through
online technology. The total purchase consideration for this
acquisition was approximately $4,052, comprised of $4,000 in
cash and acquisition costs of $52. The acquisition was accounted
for using the purchase method of accounting and, accordingly,
the purchase price was allocated to the tangible and intangible
assets acquired and the liabilities assumed on the basis of
their respective fair values. In connection with the allocation
of the purchase price, goodwill of $4,070 and an intangible
asset subject to amortization of $710 were recorded. The Company
expects that substantially all of the goodwill recorded will be
deductible for tax purposes. The intangible asset represents the
fair value of customer relationships with estimated useful lives
of five years. The results of operations of the acquired
business have been included in the financial statements of the
Company from April&nbsp;30, 2003, the closing date of the
acquisition, and are included in the Online Services segment.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>2002 Acquisition</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On October&nbsp;31, 2002, the Company acquired WellMed, Inc.
(&#147;WellMed&#148;), a provider of healthcare information
technology applications, including online healthcare
decision-support and health management tools for use by
consumers. The total purchase consideration for WellMed was
approximately $19,013, comprised of $18,763 in cash, net of cash
acquired, and acquisition costs of $250. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the allocation of the purchase price, goodwill of $18,380 and an
intangible asset subject to amortization of $2,700 were
recorded. The Company expects that substantially all of the
goodwill recorded will be deductible for tax purposes. The
intangible asset represents the fair value of acquired
unpatented technology and has a useful life of three years. The
results of operations of WellMed have been included in the
financial statements of the Company from October&nbsp;31, 2002,
the closing date of the acquisition. WellMed&#146;s results of
operations are included in the Online Services segment.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Unaudited Pro Forma Information</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following unaudited pro forma financial information for the
years ended December&nbsp;31, 2003 and 2004 gives effect to the
acquisitions of Optate, LBB, RxList and MedicineNet, including
the amortization of intangible assets, as if they had occurred
as of the beginning of the earliest period presented. The
information is provided for illustrative purposes only and is
not necessarily indicative of the operating results that would
have occurred if the transactions had been consummated at the
dates indicated, nor is it necessarily indicative of future
operating results of the combined companies, and should not be
construed as representative of these results for any future
period.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>114,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>137,589</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(11,848</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,352</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma basic and diluted income per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>5.</B></TD>
    <TD>
    <B>Significant Transactions</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>America Online, Inc.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In May 2001, Parent entered into an agreement for a strategic
alliance with Time Warner, Inc. (&#147;Time Warner&#148;). Under
the agreement, the Company is the primary provider of healthcare
content, tools and services for use on certain America Online
(&#147;AOL&#148;) properties. The Company and AOL share certain
revenue from advertising, commerce and programming on the health
channels of the AOL properties and on a co-branded service
created for AOL by the Company, with the Company receiving 80%
of revenues up to an agreed-upon annual threshold and 60%
thereafter. In connection with the strategic alliance, Parent
issued to Time Warner a warrant to
purchase&nbsp;2,408,908&nbsp;shares of Parent&#146;s common
stock at an exercise price of $9.25&nbsp;per share. The warrant
was valued at approximately $17,500 using the Black-Scholes
option pricing model and was amortized through May 2004, the
original term of the agreement, as a non-cash distribution
expense included in sales and marketing expense. At
December&nbsp;31, 2003, the unamortized portion of the warrant
was $1,944 and was included in other current assets in the
accompanying combined consolidated balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The original term of the agreement was for three years expiring
May 2004. The Company had the right to extend the original
agreement for an additional three-year term if certain
thresholds were not achieved during the original three-year
term. These thresholds were not achieved and the Company
exercised its right to extend the contract term until May 2007.
Under the terms of the extension, the Company&#146;s revenue
share will be subject to a minimum annual guarantee. Included in
the accompanying combined consolidated statements of operations
for the years ended December&nbsp;31, 2002, 2003 and 2004 is
revenue of $4,159, $5,087 and $10,996, of which $3,754 during
2004 related to the guarantee discussed above.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>News Corporation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with a strategic relationship with News
Corporation that Parent entered into in 2000 and amended in
2001, the Company received advertising services from News
Corporation to be used over ten years expiring in 2010 in
exchange for equity securities issued by Parent. The amount of
advertising services received in any contract year is based on
the current market rates in effect at the time the advertisement
is placed. Additionally, the amount of advertising services that
can be used in any contract year is subject to contractual
limitations. The advertising services were recorded at fair
value determined using a discounted cash flow methodology. The
remaining portion of these advertising services is included in
prepaid advertising in the accompanying combined consolidated
balance sheets. Also, as part of the same agreement the Company
licensed its content to News Corporation for use across News
Corporation&#146;s media properties for four years, ending in
January 2005, for cash payments totaling $12,000&nbsp;per
contract year.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>6.</B></TD>
    <TD>
    <B>Restructuring and Integration Benefit</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2000 and 2001, Parent initiated two restructuring and
integration plans, with the objective of eliminating duplication
and redundancies that resulted from prior acquisitions and to
restructure certain strategic relationships Parent had with
third parties. During 2002, the Company recorded a benefit of
$5,850 related to the 2000 and 2001 restructuring activity
resulting from the favorable settlements of certain of these
restructured arrangements. With the exception of the $5,850
benefit, substantially all activity with respect to the
restructuring plans was completed as of December&nbsp;31, 2001.
</DIV>

<P align="center" style="font-size: 10pt;">F-16
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>7.</B></TD>
    <TD>
    <B>Segment Information</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s reportable segments have been determined
based on the nature of the products offered to customers and, as
described in Note&nbsp;1, consist of Online Services and
Publishing Services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The performance of the Company&#146;s business is monitored
based on income or loss before restructuring, taxes, non-cash
and other items. Non-cash and other items include depreciation
and amortization, other income, non-cash advertising and
distribution expenses related to services acquired in exchange
for Parent&#146;s equity securities and strategic alliances, and
stock compensation expense. Corporate and other overhead
functions are allocated to segments on a specifically
identifiable basis or other reasonable method of allocation. The
Company considers these allocations to be a reasonable
reflection of the utilization of costs incurred. The Company
does not disaggregate assets for internal management reporting
and, therefore, such information is not presented. There are no
inter-segment revenue transactions and, therefore, revenues are
only to external customers. The Company&#146;s revenues are
principally generated in the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Summarized financial information for each of the Company&#146;s
operating segments and a reconciliation to net income (loss) are
presented below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Revenues</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Online Services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Advertising and promotion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>61,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>71,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>83,828</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Licensing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,841</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Content syndication and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,618</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Online Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>79,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120,287</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Publishing Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,861</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>110,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>134,148</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Income (loss) before restructuring, taxes, non-cash and other
    items</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Online Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,086</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24,902</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Publishing Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(848</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,285</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,934</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,187</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Restructuring, taxes, non-cash and other items</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,486</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,463</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,620</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash advertising and distribution</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,809</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,968</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,147</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,665</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,597</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,749</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring and integration benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(140</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(183</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(210</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(24,361</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,425</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-17

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>8.</B></TD>
    <TD>
    <B>Long-Lived Assets</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Property and Equipment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment consist of the following:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computer equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,398</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office equipment, furniture and fixtures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,219</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,306</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,252</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Construction in process</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>650</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,825</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less: accumulated depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,331</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,509</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,316</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Depreciation expense was $1,745, $2,588 and $3,440 in 2002, 2003
and 2004, respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Goodwill and Intangible Assets</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
SFAS&nbsp;No.&nbsp;142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for
impairment at least annually or when indicators of impairment
are present. SFAS&nbsp;No.&nbsp;142 also requires that
intangible assets with definite useful lives be amortized over
their respective estimated useful lives and reviewed for
impairment in accordance with SFAS&nbsp;No.&nbsp;144. Based on
the Company&#146;s analysis, there was no impairment of goodwill
in connection with the annual impairment tests that were
performed during the years ended December&nbsp;31, 2002, 2003
and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The changes in the carrying amount of goodwill during the years
ended December&nbsp;31, 2003 and 2004 are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Online</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Publishing</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Services</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Services</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance as of January&nbsp;1, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,704</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisitions during the period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,731</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to finalize purchase price allocations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>408</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance as of January&nbsp;1, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,843</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisitions during the period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,387</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contingent consideration payments for prior period
    acquisitions(a)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to finalize purchase price allocations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(116</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(116</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance as of December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>41,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>52,614</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(a)&nbsp;</TD>
    <TD align="left">
    During the year ended December&nbsp;31, 2004, the Company
    accrued for contingent consideration of $1,000 for a Publishing
    Services 2003 Acquisition. This payment was made in the second
    quarter of 2005.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-18

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
Intangible assets subject to amortization consist of the
following:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>December&nbsp;31, 2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>December&nbsp;31, 2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Carrying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Carrying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Content</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(51</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,565</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer lists</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(832</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,450</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,541</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Technology and patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,102</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,576</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade names</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(682</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,204</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,383</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,616</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,796</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,065</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amortization expense was $741, $1,875 and $2,180 in 2002, 2003
and 2004, respectively. Aggregate amortization expense for
intangible assets is estimated to be:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="89%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ending December&nbsp;31,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,466</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,664</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,852</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>569</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>408</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>106</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>9.</B></TD>
    <TD>
    <B>Accrued Expenses</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accrued expenses consist of the following:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,402</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued outside services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,245</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued marketing and distribution</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,671</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,556</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,874</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>10.</B></TD>
    <TD>
    <B>Commitments and Contingencies</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Legal Proceedings</I></B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Merrill Lynch Fundamental Growth Fund, Inc. et al. v.
    McKesson HBOC, Inc., et al.</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Parent was named as a defendant in the action <I>Merrill Lynch
Fundamental Growth Fund, Inc., et al. v. McKesson HBOC, Inc., et
al.</I>, Case No.&nbsp;405792, in the San Francisco Superior
Court. The original complaint in this matter alleged that
McKesson HBOC (now known as McKesson Corp.), HBO and Company
(which we refer to as HBOC), certain officers and directors of
those firms, Arthur Andersen LLP, and Bear Stearns &#38; Co.
engaged in a number of practices whereby HBOC and later McKesson
HBOC improperly recognized revenues. When these practices were
discovered, McKesson HBOC eliminated more than $327,000 in
revenues that HBOC had recognized over the prior three years.
Plaintiffs claim to have lost more than $150,000 as a result of
the decline in McKesson HBOC&#146;s share value after the
accounting practices came to light in April 1999.
</DIV>

<P align="center" style="font-size: 10pt;">F-19

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On September&nbsp;4, 2003, the plaintiffs filed a fourth amended
complaint, naming Parent and two other defendants, General
Electric Capital Corporation, Inc. and Computer Associates
International, Inc., for the first time. The complaint alleged
that Parent aided and abetted alleged fraud by certain
defendants and conspired with those defendants in relation to
HBOC&#146;s and McKesson HBOC&#146;s alleged improper
recognition of approximately $14,000 in revenue on two software
transactions. Plaintiffs also alleged that Parent made certain
negligent misrepresentations with respect to these transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Plaintiffs alleged that Parent, through its participation in
certain transactions with HBOC and McKesson HBOC, learned that
officers of HBOC and/or McKesson HBOC, HBOC and McKesson HBOC
were breaching duties owed to McKesson HBOC shareholders by
making material misstatements and suppressing or omitting facts
with respect to HBOC&#146;s and McKesson HBOC&#146;s financial
results for the periods ending December&nbsp;31, 1998 and
March&nbsp;31, 1999 and that Parent aided and abetted and
conspired with these defendants. The complaint was based on
alleged conduct by WebMD, Inc., a Georgia corporation that was
then a separate private company and will be one of the
Company&#146;s subsidiaries. One of the HBOC officers allegedly
involved became an officer of WebMD, Inc. on December&nbsp;1,
1998, after having served as HBOC&#146;s representative on the
Board of Directors of WebMD, Inc. and was dismissed by WebMD,
Inc. after the accounting fraud at HBOC was disclosed. The other
HBOC officer allegedly involved served as HBOC&#146;s
representative on the Board of Directors of WebMD, Inc. and
ceased to be a director of WebMD, Inc. upon dismissal by
McKesson HBOC. Plaintiffs seek unspecified damages against
Parent. The complaint alleges numerous instances of improper
accounting by HBOC unrelated to the transactions between WebMD,
Inc. and HBOC and/or McKesson HBOC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;16, 2003, Parent filed a demurrer, seeking
dismissal of the plaintiffs&#146; two claims against it. On
July&nbsp;22, 2004, the Court sustained that demurrer, finding
that the plaintiffs&#146; claims were time barred. On
October&nbsp;8, 2004, the Court dismissed plaintiffs&#146;
Fourth Amended Complaint with prejudice as to California, but
without prejudice with respect to filing in another
jurisdiction. On November&nbsp;17, 2004, plaintiffs filed a
notice of appeal of the Court&#146;s order in favor of Parent.
On November&nbsp;30, 2004, Parent filed a cross-appeal for the
purpose of challenging the form of the order. Those appeals are
in the process of being briefed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 2004, McKesson Corp. filed cross-complaints against
General Electric Capital Corporation, Inc., Computer Associates
International, Inc., and Parent for declaratory relief and
indemnification, alleging that each of these cross-defendants is
obligated to indemnify McKesson if McKesson is compelled to pay
any sum as the result of any damages, judgment or other awards
recovered by the plaintiffs against McKesson. McKesson sought
judicial determinations of the comparative fault of McKesson and
each cross-defendant for damages claimed by the plaintiffs, if
any such damages are found to exist, and declarations of the
amount that each cross-defendant is obligated to indemnify
McKesson if McKesson is compelled to pay any sum as the result
of any damages, judgment or other awards recovered by the
plaintiffs against McKesson. The cross-complaints against
General Electric and Computer Associates have since been
dismissed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On June&nbsp;8, 2004, Parent filed a demurrer, seeking dismissal
of McKesson&#146;s claims. On September&nbsp;10, 2004, the Court
sustained the demurrer to McKesson&#146;s claims against Parent.
On December&nbsp;7, 2004, the Court dismissed McKesson&#146;s
cross-complaint with prejudice and ordered entry of judgment in
favor of Parent. On January&nbsp;27, 2005, McKesson filed a
notice of appeal of the Court&#146;s order in favor of Parent.
That appeal has not yet been briefed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;12, 2004, the original plaintiffs in the
California lawsuit, Merrill Lynch Fundamental Growth Fund, Inc.
and Merrill Lynch Global Value Fund, Inc., filed a separate
lawsuit in Superior Court in New Jersey, Middlesex County,
alleging substantially the same issues and claims against Parent
as they did in the California lawsuit. In response to
Parent&#146;s motion to dismiss, plaintiffs filed a First
Amended Complaint on January&nbsp;4, 2005, dropping claims
against Parent, but asserting the same claims against
</DIV>

<P align="center" style="font-size: 10pt;">F-20

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
WebMD, Inc., the company that engaged in the two software
transactions. On February&nbsp;4, 2005, the New Jersey court
dismissed Parent from the action without prejudice, and stayed
the New Jersey action until the California action is resolved,
subject to Parent&#146;s entering into a tolling agreement with
plaintiffs, which Parent has done.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Parent intends to vigorously defend against the plaintiffs&#146;
and McKesson&#146;s claims against Parent and WebMD, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the normal course of business, the Company is involved in
various other claims and legal proceedings. While the ultimate
resolution of these matters, and those discussed above, has yet
to be determined, the Company does not believe that their
outcomes will have a material adverse effect on the
Company&#146;s combined consolidated financial position, results
of operations or liquidity.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Leases</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases its offices under operating lease agreements
that expire at various dates through 2015. Total rent expense
for all operating leases was approximately $2,772, $2,702 and
$2,818 in 2002, 2003 and 2004, respectively. Future minimum
lease commitments under non-cancelable lease agreements at
December&nbsp;31, 2004 were as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Year Ending December&nbsp;31,</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,351</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,689</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,345</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,202</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,845</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,957</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total minimum lease payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>35,389</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
Contingencies</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides certain indemnification provisions within
its license agreements to protect the other party from any
liabilities or damages resulting from a claim of
misappropriation or infringement by third parties relating to
its products and services. The Company has not incurred a
liability relating to any of these indemnification provisions in
the past and management believes that the likelihood of any
future payment relating to these provisions is unlikely.
Therefore, the Company has not recorded a liability during any
period for these indemnification provisions.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>11.</B></TD>
    <TD>
    <B>Stock-Based Compensation Plans</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certain WebMD Health employees participate in the stock-based
compensation plans of Parent. Under these plans certain WebMD
Health employees have received grants of stock options and
restricted stock. Additionally, all eligible WebMD Health
employees are provided the opportunity to participate in
Parent&#146;s employee stock purchase plan. Prior to the
effective date of the Offering, the Company will establish its
own stock-based compensation plans which are expected to be
structured similar to the stock-based compensation plans of
Parent. Additionally, all unvested stock options and restricted
stock held by the Company&#146;s employees as of the effective
date of the Offering will continue to vest under the original
terms of those awards. Following is a summary of these
stock-based compensation plans:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Options:</I> Under Parent&#146;s stock option plans,
options to acquire shares of Parent common stock have been made
available for grant to certain Company employees. Each option
granted during 2002, 2003
</DIV>

<P align="center" style="font-size: 10pt;">F-21
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
and 2004 had an exercise price equal to the market value of
Parent common stock on the date of grant, and accordingly, no
compensation expense has been recognized for these option
grants. However, the Company recorded stock-based compensation
expense of $2,448, $622 and $188 for the years ended
December&nbsp;31, 2002, 2003 and 2004, respectively, as a result
of stock options assumed in connection with certain acquisitions
in 2000 and options granted in 2000 with exercise prices less
than the fair market value of Parent&#146;s stock on the date of
the grant. The majority of the options have contractual lives of
10&nbsp;years and vest and become exercisable at 25% increments
over four years. The following table summarizes information
regarding Parent stock options held by the Company&#146;s
employees during the years ended December&nbsp;31, 2002, 2003
and 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Years Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at the beginning of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,269,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,003,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,541,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11.67</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,148,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,279,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,984,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.43</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(554,239</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,093,160</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(855,371</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.63</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cancelled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,861,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(647,727</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(999,652</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at the end of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,003,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,541,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,671,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11.21</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercisable at the end of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,597,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,161,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,160,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12.78</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes information with respect to
options outstanding and options exercisable at December&nbsp;31,
2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Outstanding</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remaining</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contractual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Exercise Prices</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Life (In Years)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $1.30-$5.60</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,698,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,394,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.81</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $5.71-$8.55</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,522,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,441,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.65</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $8.59</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,350,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $8.60-$10.89</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,191,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $11.55-$12.06</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,259,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,252,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.68</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $12.19-$17.44</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,850,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,847,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14.03</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $18.06-$25.07</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>990,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>990,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20.92</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $28.10-$94.69</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>808,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>733,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43.97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,671,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,160,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12.78</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The pro forma information presented in Note&nbsp;2 has been
determined as if employee stock options were accounted for under
the fair value method of SFAS&nbsp;No.&nbsp;123. The fair value
for these options was
</DIV>

<P align="center" style="font-size: 10pt;">F-22

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.58</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.85</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.38</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.67</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected post vesting option lives (years)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.75-3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.75-3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.75-3.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted fair value of options granted during the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.55</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Restricted Stock:</I> Restricted stock consists of shares of
Parent&#146;s common stock which have been granted to employees.
The grants are restricted such that they are subject to
substantial risk of forfeiture and to restrictions on their sale
or other transfer by the employee until they vest. Generally,
restricted stock awards vest ratably over a three to four year
period based on their individual award dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At December&nbsp;31, 2004, the amount of deferred compensation
specifically related to the Company&#146;s employees reflected
in owner&#146;s net investment in the combined consolidated
balance sheets was $1,894. The Company recorded stock
compensation expense related to restricted stock awards of $217,
$975 and $1,561 for the years ended December&nbsp;31, 2002, 2003
and 2004, respectively, based on the graded vesting method over
the respective vesting periods of the awards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2002, 400,159 restricted stock awards were granted to
Company employees, with a weighted average fair value of
$6.31&nbsp;per share. There were no restricted stock awards
granted to the Company&#146;s employees during 2003. During
2004, 355,800 restricted stock awards were granted to the
Company&#146;s employees, with a weighted average fair value of
$8.57&nbsp;per share. Approximately 96,000 and 71,000 restricted
stock awards vested during 2003 and 2004, respectively.
Approximately 2,000, 87,000 and 9,000 restricted stock awards
were cancelled during 2002, 2003 and 2004, respectively. There
were 491,109 restricted stock awards that were unvested as of
December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Employee Stock Purchase Plan:</I> Parent&#146;s employee
stock purchase plan (&#147;ESPP&#148;) allows eligible employees
the opportunity to purchase shares of Parent&#146;s common stock
through payroll deductions, up to 15% of a participant&#146;s
annual compensation with a maximum of 5,000&nbsp;shares
available per participant during each purchase period. Prior to
an amendment to the ESPP on November&nbsp;1, 2002, the purchase
price of the stock was 85% of the lesser of the fair market
value on the first and last day of each purchase period.
Effective with the November&nbsp;1, 2002 amendment, the purchase
price of the stock is 85% of the fair market value on the last
day of each purchase period. A total of 43,422, 27,160 and
37,876&nbsp;shares were issued to the Company&#146;s employees
under Parent&#146;s ESPP during 2002, 2003 and 2004,
respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>12.</B></TD>
    <TD>
    <B>Income Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s results of operations have been included in
Parent&#146;s consolidated U.S.&nbsp;federal and state income
tax returns. The provision for income taxes included in the
accompanying combined consolidated financial statements has been
determined on a separate return basis using the liability method
in accordance with SFAS No.&nbsp;109, &#147;Accounting for
Income Taxes.&#148; Under this method, deferred income taxes are
recognized for the future tax consequence of differences between
the tax and financial reporting basis of assets and liabilities
at each reporting period. The Company is required to assess its
deferred tax assets and the need for a valuation allowance on a
separate return basis, and exclude from that assessment the
utilization of all or a portion of those losses by Parent under
the separate return method. This assessment requires
considerable judgment on the part of management with respect to
benefits that could be realized from future taxable income, as
well as other positive and negative factors.
</DIV>

<P align="center" style="font-size: 10pt;">F-23

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company&#146;s deferred tax assets were as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating loss carryforwards</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>239,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>242,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development tax credits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,576</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,285</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for doubtful accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>319</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,387</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,278</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,376</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,283</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>271,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>271,214</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(271,985</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(271,214</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United States federal statutory rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34.0</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34.0</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State income taxes (net of federal benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance released in lieu of equity deductions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5.0</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(47.5</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32.6</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Losses benefited to (from)&nbsp;Parent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4.4</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.9</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.9</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effective income tax rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A valuation allowance equal to 100% of the deferred tax assets
has been established because of the uncertainty of realization
of the deferred tax assets due to the lack of earnings history.
The valuation allowance for deferred tax assets decreased by
$267 and $771 in 2003 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At December&nbsp;31, 2004, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$606,776, which expire in 2005 through 2024, and federal tax
credits of approximately $1,576, which expire in 2011 through
2024.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Approximately $184,465 and $7,244 of these net operating loss
carryforwards were recorded through owner&#146;s net investment
and goodwill, respectively. Therefore, if in the future the
Company believes that it is more likely than not that these tax
benefits will be realized, this portion of the valuation
allowance will be reversed against owner&#146;s net investment
and goodwill, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A portion of net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding
their utilization against taxable income in future periods due
to the &#147;change of ownership&#148; provisions of the
Internal Revenue Code and similar state provisions. A portion of
these carryforwards may expire before becoming available to
reduce future income tax liabilities.
</DIV>

<P align="center" style="font-size: 10pt;">F-24

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Some of the Company&#146;s operating companies are profitable in
certain states in which the Company does not have net operating
losses to offset that income. Accordingly, the Company provided
for taxes of $140, $183 and $210 related to state and other
jurisdictions during 2002, 2003 and 2004, respectively.
</DIV>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>13.</B></TD>
    <TD>
    <B>Related Party Transaction</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 2004, the Company entered into an agreement with Fidelity
Human Resources Services Company LLC (&#147;FHRS&#148;) to
integrate the Company&#146;s employer product into the services
FHRS provides to its clients. FHRS provides human resources
administration and benefit administration services to employers.
The Company recorded $817 in revenue in 2004 and $984 was
included in accounts receivable as of December&nbsp;31, 2004
related to the FHRS agreement. FHRS is an affiliate of FMR Corp,
which reported beneficial ownership of approximately 10.8% of
Parent&#146;s common stock at December&nbsp;31, 2004.
</DIV>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>14.</B></TD>
    <TD>
    <B>Quarterly Financial Data (Unaudited)</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the quarterly financial data for
2004 and 2003.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>First</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Second</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Third</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fourth</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>39,097</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,496</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,833</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,837</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,925</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,858</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,709</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>576</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,985</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,753</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,927</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>First</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Second</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Third</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fourth</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Quarter</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>22,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,655</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,977</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,797</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,547</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,203</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,259</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,598</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(516</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(869</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,304</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,644</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(562</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(915</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>15.</B></TD>
    <TD>
    <B>Subsequent Events</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><I>HealthShare Technology
Acquisition</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;14, 2005, the Company acquired HealthShare
Technology, Inc. (&#147;HealthShare&#148;). The purchase price
paid at closing was approximately $31,000. In addition, the
Company has agreed to pay up to an additional $5,000 if certain
milestones are achieved for calendar year 2005. HealthShare
provides health plans and employers, and their members and
employees, with online decision-support tools that
</DIV>

<P align="center" style="font-size: 10pt;">F-25
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<DIV align="center" style="font-size: 10pt;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Notes to Combined Consolidated Financial
Statements&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
evaluate both the cost and quality of hospital care. The results
of operations of HealthShare will be included in the
Company&#146;s Online Services segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B><I>Management Changes</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company recruited a new co-CEO and accepted the resignation
of its former CEO in April 2005. The Company expects to report a
charge related to the recruitment of the new co-CEO and the
resignation of its former CEO during the second quarter of 2005
in an amount of approximately $2,200.
</DIV>

<P align="center" style="font-size: 10pt;">F-26
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
To the Board of Directors
</DIV>

<DIV align="left" style="font-size: 10pt;">
MedicineNet, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have audited the accompanying balance sheet of MedicineNet,
Inc. as of March&nbsp;31, 2004 and the related statements of
operations, shareholders&#146; equity and cash flows for the
year then ended. These financial statements are the
responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (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 audit provides a
reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of MedicineNet, Inc. as of March&nbsp;31, 2004, and the results
of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
San&nbsp;Diego, California
</DIV>

<DIV align="left" style="font-size: 10pt;">
April&nbsp;13, 2005
</DIV>

<P align="center" style="font-size: 10pt;">F-27

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BALANCE SHEETS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="12" align="center" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>904,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>980,740</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable, less allowance for doubtful accounts of
    $11,796 as of March&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>495,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>676,081</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>67,515</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,435,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,724,336</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment in joint venture</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net of accumulated depreciation and
    amortization of $191,194 at March&nbsp;31, 2004 and $205,464 at
    September&nbsp;30, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,039</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,188</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,999,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,287,563</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="12" align="center" valign="top">
    <B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable and accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>150,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>161,975</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,826</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>159,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>196,801</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitments and Contingencies</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="12">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shareholders&#146; equity:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock, par value $.0001&nbsp;par share,
    20,000,000&nbsp;shares authorized;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;A, 2,666,663&nbsp;shares issued and outstanding
    (liquidation preference of $1.50&nbsp;per share)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,999,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,999,995</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;B, 5,000,000&nbsp;shares issued and outstanding
    (liquidation preference of $1.00&nbsp;per share)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, par value $.0001&nbsp;per share,
    40,000,000&nbsp;shares authorized;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;A, 4,481,102&nbsp;shares issued and outstanding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;B, 1,152,180&nbsp;shares issued and outstanding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,362,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,362,759</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,567</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,019</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,516,775</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,268,536</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total shareholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,839,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,090,762</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and shareholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,999,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,287,563</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-28

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>STATEMENTS OF OPERATIONS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Advertising</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,605,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,149,401</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Content licensing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72,209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,393</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,769</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,738,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>779,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,404,563</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>313,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>108,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>178,877</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,425,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>670,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,225,686</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,349,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>743,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>803,088</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>256,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total operating expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,606,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>835,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>982,288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(180,957</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(164,759</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>243,398</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expense):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,841</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss from investment in joint venture</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(165,340</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(107,930</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(336,323</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(267,423</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>248,239</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-29

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>STATEMENTS OF SHAREHOLDERS&#146; EQUITY</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Series&nbsp;A</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Series&nbsp;B</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Series&nbsp;A</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Series&nbsp;B</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Preferred Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Preferred Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Additional</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Paid-In</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deferred</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shareholders&#146;</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Capital</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deficit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Equity</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at April&nbsp;1, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,666,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,999,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,481,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,152,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,357,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(20,195</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,180,452</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,157,701</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of common stock options for services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,969</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(336,323</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(336,323</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at March&nbsp;31, 2004</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,666,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,999,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,481,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,152,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,362,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,567</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,516,775</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,839,975</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation expense (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,548</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>248,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>248,239</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at September&nbsp;30, 2004 (unaudited)</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,666,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,999,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,481,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,152,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,362,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,019</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,268,536</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,090,762</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-30

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>STATEMENTS OF CASH FLOWS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Operating activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(336,323</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(267,423</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>248,239</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,181</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on investment in joint venture</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>165,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>107,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on disposal of equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>323</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for doubtful accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>417</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,548</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in operating assets and liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(245,647</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(79,404</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(180,503</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,119</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32,915</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deposits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,352</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable and accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,786</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,053</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,021</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,951</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(310,355</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(210,966</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>92,294</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Investing activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase of equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,642</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,332</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sale of short-term investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>487,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,332</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase (decrease) in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>177,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(218,298</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,110</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents, beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>727,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>727,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>904,630</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents, end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>904,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>509,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>980,740</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Supplemental disclosure of noncash financing activity:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of common stock options for service</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-31

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>1.</B></TD>
    <TD>
    <B>Organization and Summary of Significant Accounting
    Policies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Information Network, Inc. was incorporated in the State of
Nevada on December&nbsp;8, 1995. On March&nbsp;7, 1997, the same
shareholders of Information Network, Inc. formed MedicineNet,
Inc. a California corporation. Upon the formation of
MedicineNet, Inc., all stock issued and stock options related to
Information Network, Inc. were transferred to MedicineNet, Inc.
on a share for share basis. Pursuant to an Agreement of Merger
effective March&nbsp;31, 1999, Information Network, Inc. merged
(the &#147;Merger&#148;) with and into MedicineNet, Inc. and
MedicineNet, Inc. (the &#147;Company&#148;) became the surviving
entity. MedicineNet, Inc. and Information Network, Inc. have
been under common ownership since the inception of MedicineNet,
Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to the Merger, Information Network, Inc. had
1,500,000&nbsp;shares of common stock issued and outstanding and
MedicineNet, Inc. had 3,500,000&nbsp;shares of common stock
issued and outstanding. Pursuant to the Agreement of Merger, all
the shares of common stock of Information Network, Inc. were
cancelled. The shares of common stock of MedicineNet, Inc.
issued and outstanding prior to the Merger were unaffected by
the Merger. The combination of Information Network, Inc. and
MedicineNet, Inc. was accounted for as a combination of
affiliated entities under common control in a manner similar to
a pooling-of-interests (&#147;as-if-pooling&#148;). Under this
method, the assets, liabilities and shareholders&#146; equity of
Information Network, inc. and MedicineNet, Inc. were combined at
their historical book values and their operations have been
recorded on a combined historical basis subsequent to achieving
common control. The combination did not require any material
adjustments to conform the accounting policies of the separate
entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Nature of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is an online healthcare destination for proprietary
doctor-produced health and medical information. The
Company&#146;s network of board-certified physician writers and
scientists provides online medical information for consumers,
including a comprehensive range of medical conditions,
procedures, tests, medications, medical terms, news, and health
facts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Joint Venture</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Investment in joint venture is accounted for under the equity
method (see Note&nbsp;4).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Revenue Recognition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Publishing and advertising revenues are recognized during the
period the publications and advertising are displayed. Content
licensing revenues are recognized over the term of the contract,
generally one year. The Company&#146;s revenue recognition
policy is in accordance with the Securities and Exchange
Commission&#146;s Staff Accounting Bulletin
(SAB)&nbsp;Nos.&nbsp;101 and 104, <I>Revenue Recognition</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Cash and Cash Equivalents</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company considers all highly-liquid financial investments
with maturity of three months or less when purchased to be cash
equivalents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Property and equipment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment is stated at cost. Depreciation of
property and equipment is provided on a straight-line basis over
the estimated useful lives of the assets which range from two to
five years. Amortization of leasehold improvements is computed
over the shorter of the estimated useful lives of the assets or
the term of the related lease.
</DIV>

<P align="center" style="font-size: 10pt;">F-32

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Capitalized Software Costs</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Statement of Financial Accounting Standards No.&nbsp;86
(SFAS&nbsp;No.&nbsp;86), <I>Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed</I>, provides
for the capitalization of certain software development costs
once technological feasibility is established. The capitalized
costs are amortized on a straight-line basis over the estimated
product life, or the ratio of current revenues to total
projected product revenues, whichever is greater. No costs to
date have been capitalized as the total capitalizable costs for
all periods presented are immaterial.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The American Institute of Certified Public Accountants
(AICPA)&nbsp;Statement of Position (SOP)&nbsp;98-1,
<I>Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.</I> SOP&nbsp;98-1 requires the
capitalization of certain costs incurred in the acquisition or
development of internal-use software. No internal-use software
or website development costs to date have been capitalized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Income Taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Income taxes are accounted for under the asset and liability
method in accordance with SFAS&nbsp;No.&nbsp;109, <I>Accounting
for Income Taxes.</I> 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 and tax credit 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 recovered 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. A valuation allowance is established to
reduce deferred tax assets to the amounts expected to be
realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Accounting for stock compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board
(APB)&nbsp;Opinion No.&nbsp;25, <I>Accounting for Stock Issued
to Employees</I>, and related interpretations including FASB
Interpretation No.&nbsp;44, <I>Accounting for Certain
Transactions Involving Stock Compensation an Interpretation of
APB Opinion No.&nbsp;25 </I>(issued in March 2000), to account
for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. SFAS&nbsp;No.&nbsp;123, <I>Accounting for
Stock-Based Compensation</I>, established accounting and
disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As
allowed by SFAS&nbsp;No.&nbsp;123, the Company has elected to
continue to apply the intrinsic value-based method of accounting
described above and has adopted the disclosure requirements of
SFAS&nbsp;Nos.&nbsp;123 and 148.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has adopted Emerging Issues Task Force
(EITF)&nbsp;96-18, <I>Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction
with Selling Goods or Services.</I> Equity instruments issued to
non-employees are measured using the fair value of the equity
instrument using the stock price and other measurement
assumptions as of the earlier of the date at which a performance
commitment to earn the equity instruments is reached or the date
at which the performance is complete, which usually will
coincide with the date on which the equity instruments vest and
no longer are forfeitable.
</DIV>

<P align="center" style="font-size: 10pt;">F-33

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the Company had elected to recognize compensation cost based
on the fair value of employee options at the date of grant,
consistent with the method as prescribed by
SFAS&nbsp;No.&nbsp;123, net income (loss) would have changed to
the pro forma amounts indicated below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(336,323</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(267,423</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>248,239</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: Total stock-based employee compensation expense
    determined under fair value based method</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,901</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,253</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,714</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(343,224</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(272,676</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>245,525</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Long-Lived Assets</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for long-lived assets in accordance with
the provisions of SFAS&nbsp;No.&nbsp;144, <I>Accounting for the
Impairment or Disposal of Long-Lived Assets.</I> This statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. There has
been no permanent impairment of long-lived assets as of
March&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Use of Estimates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management of the Company has made estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosures of contingent assets and liabilities to prepare
these financial statements in conformity with accounting
principles generally accepted in the United States. Actual
results could differ from those estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Research and Development</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Research and development costs are expensed as incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Interim Financial Statements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The unaudited financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of
management, the accompanying unaudited financial statements
reflect all adjustments necessary to present fairly the
financial position as of September&nbsp;30, 2004 and the results
of operations and cash flows for the six months ended
September&nbsp;30, 2003 and 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>2.</B></TD>
    <TD>
    <B>Concentrations of Credit Risk</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents. The Company maintains its cash and cash
equivalents with a high credit quality financial institution. At
March&nbsp;31, 2004, the Company had cash and cash equivalent
balances in excess of Federally insured limits in the amount of
approximately $771,000.
</DIV>

<P align="center" style="font-size: 10pt;">F-34

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>3.</B></TD>
    <TD>
    <B>Shareholders&#146; Equity</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is authorized to issue two classes of stock,
$.0001&nbsp;par value, designated &#147;Common Stock,&#148; and
&#147;Preferred Stock.&#148; The Common Stock and Preferred
Stock were issued in two series each, designated as
&#147;Series&nbsp;A&#148; and &#147;Series&nbsp;B&#148; Common
Stock, and &#147;Series&nbsp;A&#148; and
&#147;Series&nbsp;B&#148; Preferred Stock. The total number of
shares that the Company is authorized to issue is 60,000,000, of
which 35,000,000 are designated as Series&nbsp;A Common Stock,
5,000,000 is designated as Series&nbsp;B Common Stock and
20,000,000 is designated as Preferred Stock. The attributes of
Series&nbsp;A Common Stock and Series&nbsp;B Common Stock are
identical, except that Series&nbsp;B Common Stock does not have
voting rights except as required by law. The holders of
Series&nbsp;A Common Stock are entitled to one vote per share.
The Preferred Stock may be divided into such number of series as
the Board of Directors may determine necessary. As of
March&nbsp;31, 2004, 5,333,334&nbsp;shares have been designated
Series&nbsp;A Preferred Stock and 7,500,000&nbsp;shares have
been designated Series&nbsp;B Preferred Stock. The rights,
preferences and privileges of the Series&nbsp;A Preferred Stock
and Series&nbsp;B Preferred Stock are listed below:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Conversion Rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each share of the Series&nbsp;A Preferred Stock and
Series&nbsp;B Preferred Stock outstanding is convertible at the
option of the holder into such shares of Common Stock as
determined by dividing the original issue price by the
conversion price. The conversion price is subject to certain
adjustments for stock splits, combinations, or other dilutive
issuances. Conversion will occur automatically upon the closing
of a registered public offering of the Company&#146;s Common
Stock that yields aggregate proceeds to the Company of at least
$20,000,000 or upon written consent or agreement of a majority
of the holders of Series&nbsp;A Preferred Stock and
Series&nbsp;B Preferred Stock, voting separately.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Redemption&nbsp;Rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Preferred Stock is not redeemable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dividend Rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Preferred Stockholders are entitled to receive noncumulative
dividends at the rate of $.12&nbsp;per share of Series&nbsp;A
Preferred Stock and $.08&nbsp;per share of Series&nbsp;B
Preferred Stock, per annum, payable quarterly when, as and if
declared by the Board of Directors. No dividends will be
declared or paid to any holders of shares of the Common Stock of
the Company unless full dividends for the Preferred Stock have
first been declared and paid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Liquidation Preference</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the event of a liquidation, dissolution or winding up of the
Company, the holders of Preferred Stock are entitled, sharing
pro rata, to receive a liquidation preference of up to
$1.50&nbsp;per share of Series&nbsp;A Preferred Stock and
$1.00&nbsp;per share of Series&nbsp;B Preferred Stock, plus any
accrued but unpaid dividends. Any remaining proceeds are to be
shared pro rata by the holders of the Common Stock on a pro rata
basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Voting rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Holders of Preferred Stock are generally entitled to vote
together with holders of Series&nbsp;A Common Stock on matters
presented for stockholder action at a voting percentage equal to
the number if such preferred shares were converted to
Series&nbsp;A Common Stock.
</DIV>

<P align="center" style="font-size: 10pt;">F-35

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>4.</B></TD>
    <TD>
    <B>Investment in Joint Venture</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Investment in joint venture as of March&nbsp;31, 2004 consists
of a 50% ownership interest in Wearnes Biotech and Medicals
(1998)&nbsp;Pte Ltd. formed for the purposes of hosting an
&#147;Asian MedicineNet.com&#148; website (see Note&nbsp;8). The
investment is accounted for using the equity method. The
Company&#146;s share of losses from this investment was $165,340
for the year ended March&nbsp;31, 2004, and was reflected in
other income (expense).
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>5.</B></TD>
    <TD>
    <B>Income Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s provision for income taxes primarily differs
from the expected tax benefit amount computed by applying the
statutory federal income tax rate to the loss before income
taxes, as a result of an increase in the valuation allowance
that fully reserves for the deferred tax effect of the net
operating loss carryforwards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At March&nbsp;31, 2004, the Company had gross deferred tax
assets aggregating approximately $8,072,000, primarily
consisting of net operating loss carryforwards, with a full
valuation allowance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers projected future taxable income in making
this assessment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of March&nbsp;31, 2004, the Company has net operating loss
carryforwards for federal and state income tax purposes of
approximately $7,244,000 and $6,998,000 respectively, and will
commence expiration in 2018 and 2007, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with Internal Revenue Code Section&nbsp;382, the
annual utilization of net operating loss carryforwards and
credits existing prior to a change in control in the Company may
be limited. A portion of these carryforwards may expire before
becoming available to reduce future income tax liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United States federal statutory rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34.0</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34.0</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State income taxes (net of federal benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5.8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5.8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40.0</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effective income tax rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>6.</B></TD>
    <TD>
    <B>Short-term Investments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of SFAS&nbsp;No.&nbsp;107, &#147;Disclosures about
Fair Value of Financial Instruments.&#148; The estimated fair
values have been determined using available market information.
However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that the Company could realize in
</DIV>

<P align="center" style="font-size: 10pt;">F-36

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of March&nbsp;31, 2004, the cost of the Company&#146;s cash
equivalents equaled fair value.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>7.</B></TD>
    <TD>
    <B>Property and equipment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment consists of the following at
March&nbsp;31, 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="85%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computer equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>173,691</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Furniture and fixtures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>67,333</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,528</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less accumulated depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(191,194</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,358</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>8.</B></TD>
    <TD>
    <B>Related Party Transactions</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Investment in Joint Venture</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the Series&nbsp;B Preferred Stock issuance,
the Company entered into a shareholder&#146;s agreement with
Wearnes Investment Pte Ltd. (WINV)&nbsp;and Wearnes Technology
(Private) Limited (WTPL), whereby the Company has invested
$1,000,000 in Wearnes Biotech and Medicals (1998)&nbsp;Pte Ltd.
and acquired a 50% ownership interest therein for the purposes
of hosting an &#147;AsianMedicineNet.com&#148; website (see
Note&nbsp;4). This shareholder&#146;s agreement was subject to
Wearnes buying $4,000,000 of the Company&#146;s Series&nbsp;B
Preferred Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>First Interstate Alliance</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company shares office space and equipment with First
Interstate Alliance (&#147;FIA&#148;), a wholly-owned subsidiary
of WBL Corporation Ltd. Proportionate amounts of rental expense,
office supplies and equipment depreciation are allocated to FIA
on a monthly basis based on FIA and the Company&#146;s employee
headcount. The amount due from FIA as of March&nbsp;31, 2004 was
$20,384.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>9.</B></TD>
    <TD>
    <B>Stock Options</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to June 1999, all nonstatutory stock options (not pursuant
to a plan) granted by the Company were to board members and
consultants for services rendered. These stock options expire
ten years from the date of grant and vest over the service
period. At March&nbsp;31, 2004, all the outstanding options (not
pursuant to a plan) were fully vested and exercisable, 138,000
were exercisable at $.25&nbsp;per share and 750,000 were
exercisable at $.01&nbsp;per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Board of Directors approved the 1999 Stock
Option Plan (the Plan) in June 1999, which provides for grants
of incentive or nonstatutory stock options to both employees and
non-employees. Under the Plan, options may be granted from time
to time for an aggregate of no more than 3,200,000&nbsp;shares
of Series&nbsp;A Common Stock as determined by the Board of
Directors. All options have ten&nbsp;year terms and vest and
become exercisable ratably each year for the first three years
from the grant date. At March&nbsp;31, 2004, 537,000&nbsp;shares
of common stock were available for grant under the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2003, the Company granted 118,000 stock options to
employees under the Plan. The Company did not grant any stock
options to employees during 2004.
</DIV>

<P align="center" style="font-size: 10pt;">F-37

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following represents the estimated fair value of options
granted to employees during 2003 as determined using the
Black-Scholes pricing model and the assumptions used for the
calculations:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average estimated fair value per option at grant date</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average exercise price per option granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.03</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Option term (years)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the Plan, the Company granted stock options for
30,000&nbsp;shares to non-employees during 2004. No options were
granted to non-employees in 2003. The fair value based method
prescribed by SFAS&nbsp;No.&nbsp;123 and EITF&nbsp;96-18 was
used to determine the fair value of the options granted during
2004 of $4,969 as determined by using the Black-Scholes option
pricing model. Compensation expense of $18,597 was recorded for
the year ended March&nbsp;31, 2004, related to options granted
to non-employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following represents the estimated fair value of options
granted to non-employees during 2004 using the Black-Scholes
pricing model and the assumptions used for the calculations:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average estimated fair value per option at grant date</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average exercise price per option granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Option term (years)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of all stock option activity for the
year ended March&nbsp;31, 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at April&nbsp;1, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,551,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cancelled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(30,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at March&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,551,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercisable at March&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,456,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes information regarding options
outstanding and options exercisable at March&nbsp;31, 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Options Outstanding</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Options Exercisable</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted-</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted-</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Outstanding at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remaining</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Range of Exercise Prices</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contractual Life</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.01</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.47 yrs.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.01</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.25</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,801,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.75 yrs.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,706,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,551,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.27 yrs.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,456,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-38

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>MEDICINENET, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>10.</B></TD>
    <TD>
    <B>Simple IRA Plan</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company maintains a simple IRA plan which allows eligible
employees to voluntarily make pre-tax deferred salary
contributions. The Company makes matching contributions up to 3%
of the employee&#146;s deferrals. The Company made matching
contributions of $8,832 in 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>11.</B></TD>
    <TD>
    <B>Commitments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases facilities and office equipment under
noncancelable operating leases that expire on various dates
throughout 2009. Future minimum lease payments under these
leases are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Year Ending March&nbsp;31,</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>114,603</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>147,746</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,971</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,465</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,616</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>349,401</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Rental expense was $99,856 for the year ended March&nbsp;31,
2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On November&nbsp;1, 2004, FIA entered into a sublease agreement
with the Company for monthly rent of approximately $4,000. The
sublease will expire in November 2006.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>12.</B></TD>
    <TD>
    <B>Subsequent Events</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;24, 2004, the Company was acquired by WebMD
Corporation (&#147;WebMD&#148;). The purchase price paid at
closing was $17,000,000 in cash. In addition, WebMD has agreed
to pay up to an additional $15,000,000 beginning in 2006 if
certain milestones are achieved. WebMD is a leader in providing
services that help physicians, consumers, providers and health
plans navigate the complexity of the healthcare system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a condition to consummating the acquisition of the Company by
WebMD, the Company sold its investment in Wearnes
Biotech&nbsp;&#38; Medicals (1998)&nbsp;Pte Ltd., for a total of
$500,000 to PolyTek Trading Ptc. Ltd. and Wearnes Walden N.V.
</DIV>

<P align="center" style="font-size: 10pt;">F-39

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
To the Board of Directors and Stockholders
</DIV>

<DIV align="left" style="font-size: 10pt;">
HealthShare Technology, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have audited the balance sheet of HealthShare Technology,
Inc. as of June&nbsp;30, 2004 and the related statements of
operations, redeemable convertible preferred stock and
stockholders&#146; deficit and cash flows for the year then
ended. These financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (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 audit provides a
reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of HealthShare Technology, Inc. as of June&nbsp;30, 2004, and
its results of operations and cash flows for the year then
ended, in conformity with accounting principles generally
accepted in the United States of America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Jericho, New York
</DIV>

<DIV align="left" style="font-size: 10pt;">
February&nbsp;10, 2005, except for the matter
</DIV>

<DIV align="left" style="font-size: 10pt;">
discussed in Note&nbsp;9 as to which the date is
</DIV>

<DIV align="left" style="font-size: 10pt;">
March&nbsp;14, 2005
</DIV>

<P align="center" style="font-size: 10pt;">F-40

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BALANCE SHEETS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,357,155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,660,607</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable, net of allowance for doubtful accounts of
    $224,116 at June&nbsp;30, 2004 and $276,616 at December&nbsp;31,
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,613,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,683,776</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>176,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>176,358</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid and other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>117,100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,220,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,637,841</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>796,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>796,665</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Furniture and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>451,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>391,424</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capitalized software development costs, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>599,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>585,540</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,437</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,083,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,425,907</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND<BR>
    STOCKHOLDERS&#146; DEFICIT</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>56,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>56,345</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,212,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,378,070</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,037,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,268,544</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current portion of capital lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,763</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redeemable convertible preferred stock:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;A redeemable convertible preferred stock,
    $0.01&nbsp;par value; 1,125,000&nbsp;shares authorized,
    1,120,454&nbsp;shares issued and outstanding (liquidation
    preference of $1,506,717 and $1,596,040 as of June&nbsp;30, 2004
    and December&nbsp;31, 2004)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>839,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>839,737</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;B redeemable convertible preferred stock,
    $0.01&nbsp;par value; 500,000&nbsp;shares authorized, issued and
    outstanding (liquidation preference of $846,082 and $866,667 as
    of June&nbsp;30, 2004 and December&nbsp;31, 2004)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>499,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>499,511</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Series&nbsp;C redeemable convertible preferred stock,
    $0.01&nbsp;par value; 1,000,000 shares authorized, 925,833 and
    921,666&nbsp;shares issued and outstanding as of June&nbsp;30,
    2004 and December&nbsp;31, 2004 (liquidation preference of
    $4,213,686 and $4,320,306 as of June&nbsp;30, 2004 and
    December&nbsp;31, 2004)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,773,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,762,770</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,424,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,807,740</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital lease obligations, net of current portion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,287</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,439,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,823,027</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; deficit:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, $0.001&nbsp;par value; 4,000,000 and
    4,400,000&nbsp;shares authorized as of June&nbsp;30, 2004 and
    December&nbsp;31, 2004, 843,312 and 866,062&nbsp;shares issued
    and outstanding as of June&nbsp;30, 2004 and December&nbsp;31,
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,344</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>550,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,649,377</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(374,187</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,140,653</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,533,457</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(907,188</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,356,575</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(397,120</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities, redeemable convertible preferred stock and
    stockholders&#146; deficit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,083,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,425,907</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-41

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>STATEMENTS OF OPERATIONS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Software subscription</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,580,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,029,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,119,786</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>290,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,871,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,078,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,329,786</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,496,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>756,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>870,363</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,375,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,321,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,459,423</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and development</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>251,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>363,468</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,523,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>677,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>740,707</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,287,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>886,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,321,802</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total operating expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,312,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,815,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,425,977</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income from operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,062,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>506,309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,033,446</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expense):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,156</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,509</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,910</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,464</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,692</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,080,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>512,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,051,138</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>436,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>207,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>422,424</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>643,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>305,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>628,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-42

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>STOCKHOLDERS&#146; DEFICIT</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 7pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Series&nbsp;A</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Series&nbsp;B</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Series&nbsp;C</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Redeemable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Redeemable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Redeemable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Convertible</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Convertible</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Convertible</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Preferred Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Preferred Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Preferred Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Additional</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Paid-In</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deferred</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Stockholders&#146;</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Capital</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deficit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deficit</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at June&nbsp;30, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,120,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>837,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>497,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,989,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>830,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>49,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,167,927</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,117,174</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise of stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,400</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion of preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,519</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,519</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemption of shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(74,167</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(222,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>498,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(374,187</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>124,729</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>643,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>643,989</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at June&nbsp;30, 2004</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,120,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>839,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>499,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>925,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,773,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>843,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>550,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(374,187</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,533,457</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,356,575</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise of stock options (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,559</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion of preferred stock (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,445</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,445</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemption of shares (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,167</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,090,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,766,466</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>323,627</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>628,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>628,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2004 (unaudited)</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,120,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>839,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>499,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>921,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,762,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>866,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,649,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,140,653</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(907,188</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(397,120</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-43

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>STATEMENTS OF CASH FLOWS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Operating activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>643,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>305,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>628,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income to net cash provided by
    operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for bad debts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>190,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>262,244</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>431,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash stock-based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>124,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>323,627</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in operating assets and liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(404,829</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,246,152</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,122,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid and other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(47,673</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,080</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(43,302</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable and accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>546,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>182,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>165,288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>772,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>864,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,230,780</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,535,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>430,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,497,086</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Investing activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of furniture and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(263,711</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(118,683</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(28,293</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capitalized software development costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(316,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(158,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(159,678</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(579,711</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(276,683</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(187,971</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Financing activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercise of stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,559</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemption of Series&nbsp;C Preferred Stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(222,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,501</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on capital lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,902</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,903</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,721</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(227,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,428</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,663</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,728,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,303,452</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,628,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,628,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,357,155</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,357,155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,781,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,660,607</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Supplemental disclosure of cash flow information:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,464</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>493</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Supplemental disclosure of noncash investing and financing
    activities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion of preferred stock to redemption value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,445</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred compensation related to grant of options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>374,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>442,435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,090,093</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes.
</DIV>

<P align="center" style="font-size: 10pt;">F-44

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>1.</B></TD>
    <TD>
    <B>Organization</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
HealthShare Technology, Inc. (the Company) (formerly known as
Healthcare Decision Technology, Inc.) was incorporated in the
State of Delaware in 1992 and maintains its corporate offices in
Acton, Massachusetts. The Company is a provider of interactive
analytical tools to focus and direct the healthcare
decision-making process for quality, cost, profitability and
business operations. Using publicly available or a
customer&#146;s internal data, the Company&#146;s products
convert data into on-demand, detailed management reports for
hospitals, health plans and other healthcare organizations
located throughout the United States.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>2.</B></TD>
    <TD>
    <B>Significant Accounting Policies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Use of Estimates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Cash Equivalents</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company considers highly-liquid investment instruments with
an original maturity when purchased of three months or less to
be cash equivalents. At June&nbsp;30, 2004 cash equivalents
principally consist of money market investments. The fair value
of the investments approximates cost due to the short-term
nature of such instruments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Concentrations of Credit Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Financial instruments that potentially subject the Company to
concentrations of credit risk principally consist of cash, cash
equivalents and accounts receivable. As of June&nbsp;30, 2004,
the Company&#146;s cash and cash equivalents are deposited with
various domestic financial institutions. With respect to
accounts receivable, the Company routinely grants credit to its
customers and generally does not require collateral. Periodic
evaluations of customers&#146; financial condition are
performed, and an allowance is maintained to accommodate
potential credit losses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Furniture and Equipment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Furniture and equipment are stated at cost. Major replacements
and improvements are capitalized, while general repairs and
maintenance are charged to expense as incurred. Depreciation and
amortization are computed by use of the straight-line method
over the following estimated useful lives:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office furniture and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    5-10&nbsp;years</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computer software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    3&nbsp;years</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equipment under capital leases</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Lesser of estimated useful life or life of lease</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Income Taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides for income taxes under Statement of
Financial Accounting Standards (SFAS)&nbsp;No.&nbsp;109,
<I>Accounting for Income Taxes.</I> Under
SFAS&nbsp;No.&nbsp;109, the liability method is used in
accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. A
</DIV>

<P align="center" style="font-size: 10pt;">F-45

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
valuation allowance is provided when it is more likely than not
that some or all of a deferred asset will not be realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stock-Based Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for stock-based compensation in accordance
with Accounting Principles Board Opinion No.&nbsp;25,
<I>Accounting for Stock Issued to Employees </I>(APB&nbsp;25),
and related interpretations. Accordingly, compensation expense
is recorded for stock options awarded to employees and directors
to the extent that the option exercise prices are less than the
common stock&#146;s fair market value on the date of grant,
where the number of shares and exercise price are fixed. The
difference between the fair value of the Company&#146;s common
stock and the exercise price of the stock option, if any, is
recorded as deferred compensation and is amortized to
compensation expense over the vesting period of the underlying
stock option. The Company follows the disclosure requirements of
SFAS&nbsp;No.&nbsp;123, <I>Accounting for Stock-based
Compensation</I>, as amended by SFAS&nbsp;No.&nbsp;148,
<I>Accounting for Stock-based Compensation&nbsp;&#151;
Transition and Disclosure.&#148;</I> All stock-based awards to
non-employees are accounted for using the fair value method in
accordance with SFAS&nbsp;No.&nbsp;123.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table illustrates the effect on net income if the
Company had applied the fair value recognition provisions of
SFAS&nbsp;No.&nbsp;123 to stock-based employee compensation.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>643,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>305,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>628,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: Stock-based employee compensation expense included in
    reported net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>124,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>323,627</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: Stock-based employee compensation expense determined
    under fair value based method</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(121,583</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(107,818</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(315,461</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>647,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>307,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>636,880</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company recorded compensation expense on options granted to
employees with exercise prices below the fair value of each
share under option. The fair value used in recording
compensation was the price per share paid by WebMD Corporation
(see note&nbsp;9) to the Company. Accordingly, the pro forma net
income approximates the net income reported because the fair
value per share used in computing the minimum value method
approximates the value paid to the Company by WebMD Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As permitted by SFAS&nbsp;No.&nbsp;123, the Company used the
&#147;minimum value&#148; method of option pricing using the
following weighted-average assumptions:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected life (in years)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Revenue Recognition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company recognizes revenue in accordance with Statement of
Position No.&nbsp;97-2 (SOP&nbsp;97-2), <I>Software Revenue
Recognition</I>, and related amendments. Pursuant to
SOP&nbsp;97-2, revenues from software subscriptions are
recognized ratably over the term of the agreement, generally one
to three years. The Company begins revenue recognition upon
meeting all of the following criteria: (i)&nbsp;execution of a
written
</DIV>

<P align="center" style="font-size: 10pt;">F-46

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
license agreement; (ii)&nbsp;delivery of software or software
license authorization code; (iii)&nbsp;the license fee is fixed
or determinable; and (iv)&nbsp;collectibility is reasonably
assured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Professional services revenues comprise training and consulting
services, and are recognized when the services are performed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Customer payments in excess of revenue recognized are recorded
as deferred revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Research and Development Costs</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has evaluated the establishment of technological
feasibility of its products in accordance with
SFAS&nbsp;No.&nbsp;86, <I>Accounting for the Costs of Computer
Software To Be Sold, Leased or Otherwise Marketed.</I> The
Company defines technological feasibility as the completion of a
working model. The Company capitalized $316,000 in the fiscal
year ended June&nbsp;30, 2004 related to the development of new
versions of its Select Quality Care and HealthShare software
products. Amortization expense of $288,519 was recorded for the
year ended June&nbsp;30, 2004 based on a three-year life. All
other research and development costs are expensed as incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>New Accounting Pronouncements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A summary of the impact of certain new accounting pronouncements
on the Company&#146;s business follows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the FASB issued SFAS&nbsp;No.&nbsp;123(R),
<I>Share-Based Payment.</I> SFAS&nbsp;No.&nbsp;123(R) revises
SFAS&nbsp;No.&nbsp;123 and supersedes APB&nbsp;25 and its
related implementation guidance. SFAS&nbsp;No.&nbsp;123(R) will
require compensation costs related to share-based payment
transactions to be recognized in the financial statements (with
limited exceptions). The amount of compensation cost will be
measured based on the grant-date fair value of the equity or
liability instruments issued. Compensation cost will be
recognized over the period that an employee provides service in
exchange for the award. The Company is evaluating its
requirements under SFAS&nbsp;No.&nbsp;123(R).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Interim Financial Statements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The unaudited consolidated financial statements included herein
have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to
present fairly the financial position as of December&nbsp;31,
2004 and the results of operations and cash flows for the six
months ended December&nbsp;31, 2003 and 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>3.</B></TD>
    <TD>
    <B>Furniture and Equipment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Furniture and equipment consisted of the following as of
June&nbsp;30, 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office furniture and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,105,364</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computer software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>348,166</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equipment under capital lease</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,866</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,480,396</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less: accumulated depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,028,487</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>451,909</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-47

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(CONTINUED)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>4.</B></TD>
    <TD>
    <B>Leases</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases its present facility under an operating lease
expiring in September 2007. The lease contains escalating lease
rates and cost of living adjustments. Rent expense for the year
ended June&nbsp;30, 2004 was $197,425.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Minimum lease payments through the expiration of the leases are
as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Year Ending June&nbsp;30,</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>191,625</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>192,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>198,188</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,875</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases office equipment under a capital lease
expiring June&nbsp;30, 2007. The following is a schedule, by
year, of future minimum lease payments under the capital lease,
together with the present value of net minimum lease payments,
as of June&nbsp;30, 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Year Ending June&nbsp;30,</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,376</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,376</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,772</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total minimum lease payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,524</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less amount representing interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,753</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Present value of net minimum lease payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,771</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less amounts currently due</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,484</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term capital lease obligation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,287</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>5.</B></TD>
    <TD>
    <B>Employee Benefit Plan</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company maintains a defined contribution plan in accordance
with Section&nbsp;401(k) of the Internal Revenue Code (the
401(k) Plan) covering substantially all employees. The 401(k)
Plan allows employees to elect to contribute up to 15% of their
gross salary, subject to IRS limitations. At the discretion of
the Board of Directors, the Company may elect to make matching
contributions to the 401(k) Plan. The Company made discretionary
contributions to the 401(k) Plan of $92,626 in the fiscal year
ended June&nbsp;30, 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>6.</B></TD>
    <TD>
    <B>Income Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At June&nbsp;30, 2004, the Company has federal and state net
operating loss carryforwards of $1,789,807, that will expire
through 2024, available to offset future taxable income. Net
operating loss carryforwards are subject to review and possible
adjustments by the IRS. In addition, under the provisions of the
Internal Revenue Code, the occurrence of certain events,
including significant changes in ownership interests, may limit
the amount of the net operating loss carryforwards available to
be used in any given year. The Company is not aware of the
occurrence of any such events.
</DIV>

<P align="center" style="font-size: 10pt;">F-48

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The components of the deferred tax assets and liabilities as
June&nbsp;30, 2004 are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>715,923</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89,646</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Postretirement and other benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>112,792</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued liabilities and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,712</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,005,073</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax over book depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,050</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,050</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>973,023</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal income tax expense at statutory rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State income taxes, net of federal tax benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.1</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.3</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effective tax rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The components of the income tax provision for the fiscal year
ended June&nbsp;30, 2004 are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>366,998</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,912</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>436,910</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>436,910</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, pursuant to procedures set forth by the IRS, the
Company has changed its income tax reporting method of
accounting for advanced payments received.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>7.</B></TD>
    <TD>
    <B>Stockholders&#146; Deficit</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At June&nbsp;30, 2004, the Company has reserved the following
shares of common stock for issuance upon the conversion of
preferred stock and upon issuance under the 2003 and 1993 Stock
Plans:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="85%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of Series&nbsp;A redeemable convertible preferred
    stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,125,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of Series&nbsp;B redeemable convertible preferred
    stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Conversion of Series&nbsp;C redeemable convertible preferred
    stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance under the 2003 and 1993 Stock Plans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>620,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,245,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-49

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Redeemable Convertible Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Board of Directors has authorized
2,625,000&nbsp;shares of preferred stock and designated
1,125,000, 500,000 and 1,000,000 such shares as Series&nbsp;A,
Series&nbsp;B and Series&nbsp;C redeemable convertible preferred
stock, respectively. The rights, preferences and privileges of
Series&nbsp;A, Series&nbsp;B and Series&nbsp;C preferred stock,
as amended, are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Redemption</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is required to redeem up to an aggregate of 25%,
50%, 75% and 100% of the combined Series&nbsp;A, Series&nbsp;B
and Series&nbsp;C preferred stock outstanding on October&nbsp;2,
2003, 2004, 2005 and 2006, respectively; provided, however, that
any preferred stockholder may waive such redemption by written
notice not later than 30&nbsp;days prior to such redemption
date. The redemption prices for the Series&nbsp;A, Series&nbsp;B
and Series&nbsp;C preferred stock are $0.75, $1.00 and $3.00,
respectively, plus any declared but unpaid dividends. During the
year ended June&nbsp;30, 2004, there were two redemptions of the
Series&nbsp;C preferred stock. A total of 74,167&nbsp;shares
were redeemed at a redemption price of $3.00&nbsp;per share, for
a total distribution of $222,501.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Conversion</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each share of preferred stock is initially convertible at the
option of the holder into one share of voting common stock. The
conversion ratio is subject to adjustment upon the occurrence of
certain dilutive events, such as, but not limited to, stock
splits, dividends, issuances of other securities and change in
conversion price. Upon the consummation of a qualified public
offering, all shares of preferred stock are subject to mandatory
conversion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Right of First Refusal</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Series&nbsp;A, Series&nbsp;B and Series&nbsp;C preferred
stockholders have the right of first refusal to purchase any new
securities offered by the Company. The right of first refusal
terminates upon the firm commitment of an underwritten initial
public offering of the Company&#146;s common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dividends</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The holders of the Series&nbsp;A, Series&nbsp;B and
Series&nbsp;C preferred stock are entitled to receive, when and
if declared by the Board of Directors, quarterly dividends at
the per annum rate of $0.06&nbsp;per share, $0.08&nbsp;per share
and $0.27&nbsp;per share, respectively. Dividends accrue,
whether or not declared or paid, and are cumulative for
liquidation purposes. Cumulative unpaid and undeclared dividends
included in the preferred stock liquidation values at
June&nbsp;30, 2004 total $2,563,320.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Liquidation, Dissolution and Winding-Up</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of
Series&nbsp;A, Series&nbsp;B and Series&nbsp;C preferred stock
are entitled to be paid out of the assets available for
distribution, the redemption price of the respective shares,
plus unpaid dividends (declared or undeclared). If the assets of
the Company are insufficient to pay the full preferential
amounts to the Series&nbsp;A, Series&nbsp;B and Series&nbsp;C
preferred stockholders, the assets will be distributed ratably
among the Series&nbsp;A, Series&nbsp;B and Series&nbsp;C
preferred stockholders in proportion to their aggregate
liquidation preference amounts.
</DIV>

<P align="center" style="font-size: 10pt;">F-50

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Voting Rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The holders of Series&nbsp;A, Series&nbsp;B and Series&nbsp;C
preferred stock are entitled to the number of votes equal to the
number of shares of common stock into which they are
convertible. The Series&nbsp;A, Series&nbsp;B and Series&nbsp;C
preferred stockholders vote with the common stockholders as a
single class. The Company is required to obtain approval of at
least 72% of Series&nbsp;A, Series&nbsp;B and Series&nbsp;C
preferred stockholders before the Company liquidates, dissolves,
winds-up or sells substantially all of the assets of the
Company, or merges or consolidates with another entity, as
defined.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Registration Rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At any time more than six months after the closing of any
registration statement covering a nonqualified public offering,
as defined, by the Company, Series&nbsp;A, Series&nbsp;B and
Series&nbsp;C preferred stockholders holding in aggregate at
least 40% of the preferred shares then outstanding may request
the Company to register the shares, provided that the shares for
which registration has been requested constitute at least 20% of
the total preferred shares originally issued, as defined.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stock Options</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Board of Directors maintains the HealthShare
Technology, Inc. 1993 and 2003 Stock Plans (the Plans) for which
620,000 shares of common stock have been reserved as of
June&nbsp;30, 2004. Under the terms of the Plans, the Company
may grant nonqualified stock and incentive stock options, make
awards of stock or authorize stock purchase by officers, key
employees, directors and consultants of the Company. The
exercise price, numbers of shares and grant date are determined
at the discretion of the Company&#146;s Board of Directors. The
maximum term of the options is ten years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s stock option activity for the year ended
June&nbsp;30, 2004 is summarized below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted-</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>449,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expired or canceled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,938</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,750</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.11</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>495,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercisable at end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>353,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted-average fair value of options granted during the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-51

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>HEALTHSHARE TECHNOLOGY, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO FINANCIAL STATEMENTS&nbsp;&#151;&nbsp;(CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table presents weighted-average price and life
information about significant option groups outstanding at
June&nbsp;30, 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="8" align="center" nowrap><B>Options Outstanding</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="8" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Options Exercisable</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted-</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted-</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Range of Exercise Prices</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Outstanding</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Life</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.10</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    2.9&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $0.30</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>468,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    5.9&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>326,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>495,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>353,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>8.</B></TD>
    <TD>
    <B>Subsequent Events</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Increase in Amount of Common Shares Authorized</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On July&nbsp;15, 2004, the Company&#146;s Board of Directors
approved an increase in the authorized shares of common stock of
400,000 to be reserved for issuance under the 2003 Stock Option
Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Redemption of Convertible Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On November&nbsp;2, 2004, the Company redeemed 4,167&nbsp;shares
of preferred stock for a preferred stockholder at a total
redemption price of $12,501. All other preferred stockholders
waived their rights to redemption through written notification
to the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Payment of Preferred Stock Dividend</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On January&nbsp;15, 2005, the Company paid all accrued preferred
stock dividends through that date to the preferred stockholders.
The total preferred dividend paid was $2,692,515.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>9.</B></TD>
    <TD>
    <B>Acquisition</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;14, 2005, the Company was acquired by WebMD
Corporation (&#147;WebMD&#148;). The purchase price paid was
$31&nbsp;million in cash. In addition, WebMD has agreed to pay
up to an additional $5&nbsp;million beginning in 2006 if certain
milestones are achieved. WebMD is a leader in providing services
that help physicians, consumers, providers and health plans
navigate the complexity of the healthcare system.
</DIV>

<P align="center" style="font-size: 10pt;">F-52

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
WebMD Health Holdings, Inc. (the &#147;Company&#148; or
&#147;WebMD Health&#148;) is a wholly owned subsidiary of WebMD
Corporation (&#147;Parent&#148;) and was formed to conduct an
initial public offering of equity in the business of
Parent&#146;s WebMD Health segment. On December&nbsp;24, 2004
and March&nbsp;14, 2005, Parent&#146;s WebMD Health segment
acquired MedicineNet, Inc. (&#147;MedicineNet&#148;) and
HealthShare Technology, Inc. (&#147;HealthShare&#148;),
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet at December&nbsp;31, 2004 combines the historical balance
sheets of the Company and HealthShare, giving effect to the
acquisition as if it had occurred on December&nbsp;31, 2004. The
Unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations for the year ended December&nbsp;31, 2004 combine the
historical statements of operations of the Company, MedicineNet
and HealthShare, giving effect to the acquisitions as if they
had occurred on January&nbsp;1, 2004. We have adjusted the
historical financial statements to give effect to pro forma
events that are (1)&nbsp;directly attributable to the
acquisitions, (2)&nbsp;factually supportable, and (3)&nbsp;with
respect to the statement of operations, expected to have a
continuing impact on the combined consolidated results. You
should read this information in conjunction with:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the accompanying notes to the unaudited pro forma condensed
    combined consolidated financial statements;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    MedicineNet&#146;s separate historical unaudited financial
    statements as of September&nbsp;30, 2004 and for the six months
    ended September&nbsp;30, 2003 and 2004 included elsewhere in
    this filing;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    HealthShare&#146;s separate historical unaudited financial
    statements as of December&nbsp;31, 2004 and for the six months
    ended December&nbsp;31, 2003 and 2004 included elsewhere in this
    filing;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    WebMD Health&#146;s separate historical combined consolidated
    financial statements as of December&nbsp;31, 2004 and for the
    years ended December&nbsp;31, 2003 and 2004 included elsewhere
    in this filing;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    MedicineNet&#146;s separate historical financial statements as
    of and for the year ended March&nbsp;31, 2004 included elsewhere
    in this filing;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    HealthShare&#146;s separate historical financial statements as
    of and for the year ended June&nbsp;30, 2004 included elsewhere
    in this filing.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The unaudited pro forma condensed combined consolidated
financial statements have been prepared for informational
purposes only. The unaudited pro forma condensed combined
consolidated financial statements are not necessarily indicative
of what the financial position or results of operations actually
would have been had the acquisitions been completed at the dates
indicated. In addition, the unaudited pro forma condensed
combined consolidated financial statements do not purport to
project the future financial position or results of operations
of the combined companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The unaudited pro forma condensed combined consolidated
financial statements have been prepared using the purchase
method of accounting. Accordingly, WebMD Health&#146;s costs to
acquire MedicineNet and HealthShare have been allocated to the
acquired assets, liabilities and commitments based upon their
estimated fair values at the dates indicated. The allocation of
the purchase prices are preliminary and are dependent upon
certain valuations that have not progressed to a stage where
there is sufficient information to make a definitive allocation.
Accordingly, the final purchase accounting adjustments may be
materially different from the unaudited pro forma adjustments
presented herein.
</DIV>

<P align="center" style="font-size: 10pt;">F-53
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>WITH HEALTHSHARE TECHNOLOGIES, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BALANCE SHEET</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>AS OF DECEMBER&nbsp;31, 2004</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Historical</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Pro forma</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>WebMD</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Health</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>HealthShare</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Adjustments</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Combined</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>(In thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,117</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,137</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current portion of prepaid advertising</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,350</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(176</TD>
    <TD align="left" valign="bottom" nowrap>)(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,736</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(176</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62,340</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,707</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid advertising</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,047</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,518</TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,132</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,000</TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,065</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>576</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(797</TD>
    <TD align="left" valign="bottom" nowrap>)(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,176</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>183,467</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,452</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>250</TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,576</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,154</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redeemable convertible preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,102</TD>
    <TD align="left" valign="bottom" nowrap>)(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,852</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,730</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Owner&#146;s net investment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(397</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>397</TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>131,737</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,000</TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total liabilities and owner&#146;s net investment</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>183,467</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accompanying notes to the unaudited pro forma condensed
combined consolidated
</DIV>

<DIV align="center" style="font-size: 10pt;">
financial statements are an integral part of this balance sheet.
</DIV>

<P align="center" style="font-size: 10pt;">F-54

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WebMD Health Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>WITH MEDICINENET, INC. AND HEALTHSHARE, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>STATEMENT OF OPERATIONS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>FOR THE YEAR ENDED DECEMBER&nbsp;31, 2004</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Historical</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Pro Forma</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>WebMD</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Health</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>MedicineNet</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>HealthShare</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Adjustments</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Combined</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(In thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>134,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>144,637</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost and expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,829</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,587</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,071</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,599</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,550</TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;(f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,016</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,333</TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;(g)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other (income) expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(29</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,883</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,587</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax provision</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(465</TD>
    <TD align="left" valign="bottom" nowrap>)(h)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>397</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,418</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,190</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes to the unaudited pro forma condensed
combined consolidated
</DIV>

<DIV align="center" style="font-size: 10pt;">
financial statements are an integral part of this statement.
</DIV>

<P align="center" style="font-size: 10pt;">F-55

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE UNAUDITED PRO FORMA CONDENSED</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>COMBINED CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;1&nbsp;&#151;</B></TD>
    <TD>
    <B>Basis of Pro Forma Presentation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
WebMD Health Holdings, Inc. (the &#147;Company&#148; or
&#147;WebMD Health&#148;) is a wholly owned subsidiary of WebMD
Corporation (&#147;Parent&#148;) and was formed to conduct an
initial public offering of equity in the business of
Parent&#146;s WebMD Health segment. On December&nbsp;24, 2004
and March&nbsp;14, 2005, Parent&#146;s WebMD Health segment
acquired MedicineNet, Inc. (&#147;MedicineNet&#148;) and
HealthShare Technology, Inc. (&#147;HealthShare&#148;),
respectively. These acquisitions are being accounted for as
purchase business combinations under U.S.&nbsp;generally
accepted accounting principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet as of December&nbsp;31, 2004 reflects the acquisition of
HealthShare as if it had occurred on December&nbsp;31, 2004. The
Unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations for the year ended December&nbsp;31, 2004 reflects
the acquisitions of MedicineNet and HealthShare as if they had
occurred on January&nbsp;1, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The pro forma condensed combined consolidated financial
statements presented herein are not necessarily indicative of
the results of operations or the financial position that would
have resulted had the acquisition been completed at the dates
indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of
the combined companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The unaudited pro forma adjustments represent management&#146;s
estimates based on information available at this time.
Additionally, the total estimated purchase prices of the
acquisitions of MedicineNet and HealthShare have been allocated
on a preliminary basis to assets and liabilities based on
management&#146;s current estimate of their fair values. These
allocations are subject to change pending the completion of the
final analyses of the purchase prices and fair values of assets
acquired and liabilities assumed. Also, the total purchase
prices are subject to customary closing conditions which have
not been finalized as of the date of this filing. Accordingly,
the final purchase accounting adjustments may be materially
different from the unaudited pro forma adjustments presented
herein. In connection with the preliminary allocation of the
purchase price and intangible asset valuation, intangible assets
subject to amortization were recorded as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Useful Lives</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    MedicineNet</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Content</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Technology</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer Lists</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    HealthShare</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Content</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certain amounts in the historical financial statements of
MedicineNet and HealthShare have been reclassified to conform to
the Company&#146;s financial statement presentation.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;2&nbsp;&#151;</B></TD>
    <TD>
    <B>Pro Forma Adjustments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following pro forma adjustments result from the allocation
of the purchase prices for the acquisitions based on the fair
value of the assets, liabilities and commitments acquired from
MedicineNet and HealthShare.
</DIV>

<P align="center" style="font-size: 10pt;">F-56

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE UNAUDITED PRO FORMA CONDENSED</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>COMBINED CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The pro forma adjustments for HealthShare related to the
Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet as of December&nbsp;31, 2004 assume the acquisition took
place on December&nbsp;31, 2004 and are as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>a)&nbsp;</TD>
    <TD align="left">
    To eliminate deferred tax accounts, reflecting consolidation
    within Parent&#146;s consolidated tax return.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>b)&nbsp;</TD>
    <TD align="left">
    To record the estimated goodwill and estimated intangible assets
    resulting from the acquisition.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    c)&nbsp;To record the liability for WebMD Health&#146;s
    estimated expenses related to the acquisition.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    d)&nbsp;To eliminate the historical equity accounts and
    preferred stock of HealthShare.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>e)&nbsp;</TD>
    <TD align="left">
    To record the $31,000&nbsp;purchase price of HealthShare which
    was paid by the Parent.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The pro forma adjustments for MedicineNet and HealthShare
related to the Unaudited Pro Forma Condensed Combined
Consolidated Statement of Operations for the year ended
December&nbsp;31, 2004 assume the acquisitions took place on
January&nbsp;1, 2004 and are as follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>f)&nbsp;</TD>
    <TD align="left">
    To reflect the estimated amortization of intangible assets
    resulting from the acquisition of MedicineNet.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="3%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>g)&nbsp;</TD>
    <TD align="left">
    To reflect the estimated amortization of intangible assets
    resulting from the acquisition of HealthShare.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>h)&nbsp;</TD>
    <TD align="left">
    To eliminate federal tax expense due to the inclusion of
    HealthShare&#146;s results within the consolidated tax return of
    Parent.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-57

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Schedule&nbsp;II.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Valuation and
Qualifying Accounts</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Years Ended December 31, 2002, 2003 and 2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Charged to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="15">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Beginning</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Costs and</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expenses</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Acquired</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Write-offs</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Other*</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>End of Year</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    December&nbsp;31, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for Doubtful Accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>884</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(205</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>836</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation Allowance for Deferred Tax Assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>272,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,494</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>272,252</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    December&nbsp;31, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for Doubtful Accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(90</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>921</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation Allowance for Deferred Tax Assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>272,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,528</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(62</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>271,985</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for Doubtful Accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(325</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>798</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation Allowance for Deferred Tax Assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>271,985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,105</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>271,214</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    Represents valuation allowance created through equity as a
    result of stock option and warrant exercises.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">S-1
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 2pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 3pt;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005 (25&nbsp;days after the commencement of the offering), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer&#146;s obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
WebMD Health Holdings, Inc.
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Common Stock
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 30%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
PROSPECTUS
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 30%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 11pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 4pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PART&nbsp;II</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INFORMATION NOT REQUIRED IN THE PROSPECTUS</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;13.</B></TD>
    <TD>
    <B><I>Other Expenses of Issuance and Distribution</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following are the estimated expenses to be incurred in
connection with the issuance and distribution of the securities
registered under this Registration Statement, other than
underwriting discounts and commissions. All amounts shown are
estimates, except the SEC registration fee and the National
Association of Securities Dealers, Inc. filing fee. The
following expenses will be borne solely by the Registrant.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    SEC Registration Fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,885</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    National Association of Securities Dealers, Inc. Filing Fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nasdaq Listing Fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Printing and Engraving Expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Legal Fees and Expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounting Fees and Expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transfer Agent and Registrar Fees and Expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Miscellaneous</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be provided by amendment.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Item&nbsp;14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Indemnification
of Directors and Officers</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section&nbsp;145 of Delaware law authorizes a court to award, or
a corporation&#146;s Board of Directors to grant,
indemnification to directors and officers in terms sufficiently
broad to permit indemnification under specified circumstances
for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act. Our bylaws provide for the
mandatory indemnification of our directors, officers, employees
and other agents to the maximum extent permitted by Delaware
law, and we have entered into agreements with our officers,
directors and some key employees implementing this
indemnification.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;15.</B></TD>
    <TD>
    <B><I>Recent Sales of Unregistered Securities</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have not sold any unregistered securities within the past
three years.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;16.</B></TD>
    <TD>
    <B><I>Exhibits and Financial Statement Schedules</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The exhibits to this Registration Statement are listed on the
Exhibit&nbsp;Index to this Registration Statement, which is
hereby incorporated by reference.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;17.</B></TD>
    <TD>
    <B><I>Undertakings</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue
</DIV>

<P align="center" style="font-size: 10pt;">II-1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;The undersigned Registrant undertakes that:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    i.&nbsp;For purposes of determining any liability under the
    Securities Act of 1933, the information omitted from the form of
    prospectus filed as part of this Registration Statement in
    reliance upon Rule&nbsp;430A and contained in the form of
    prospectus filed by the Registrant pursuant to
    Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities
    Act shall be deemed to be part of this Registration Statement as
    of the time it was declared effective;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    ii.&nbsp;For the purpose of determining any liability under the
    Securities Act of 1933, each post-effective amendment that
    contains a form of prospectus shall be deemed to be a new
    Registration Statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial <I>bona fide </I>offering thereof.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(c)&nbsp;The undersigned Registrant undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
</DIV>

<P align="center" style="font-size: 10pt;">II-2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SIGNATURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, New York, on
May&nbsp;11, 2005.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    WEBMD HEALTH HOLDINGS, INC.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 48pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>By:&nbsp;</TD>
    <TD align="center">
    /s/ <FONT style="font-variant:SMALL-CAPS">Wayne T. Gattinella
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 3pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Wayne T. Gattinella</TD>
</TR>

<TR valign="top"  style="font-size: 10pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Chief Executive Officer and President</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>POWER OF ATTORNEY AND SIGNATURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, the undersigned officers and directors of WebMD Health
Holdings, Inc., hereby severally constitute and appoint Douglas
W. Wamsley and Lewis H. Leicher and each of them singly, our
true and lawful attorneys with full power to them, and each of
them singly, with full powers of substitution and
resubstitution, to sign for us and in our names in the
capacities indicated below, the Registration Statement on
Form&nbsp;S-1 filed herewith and any and all pre-effective and
post-effective amendments to said Registration Statement on
Form&nbsp;S-1 filed herewith and any and all pre-effective and
post-effective amendment to said Registration Statement, and any
subsequent Registration Statement for the same offering which
may be filed under Rule&nbsp;462(b), and generally to do all
such things in our names and on our behalf in our capacities as
officers and directors to enable WebMD Health Holdings, Inc. to
comply with the provision of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as
they may be signed by our said attorney, or any of them, or
their substitute or substitutes, to said Registration Statement
and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed
under Rule&nbsp;462(b).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Date</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Wayne T. Gattinella<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Wayne
    T. Gattinella</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Chief Executive Officer,<BR>
    President and Director<BR>
     <I>(Principal Executive Officer)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    May&nbsp;11, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Martin J. Wygod<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Martin
    J. Wygod</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    May&nbsp;11, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Anthony Vuolo<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Anthony
    Vuolo</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Chief Financial Officer<BR>
     <I>(Principal Financial and<BR>
    Accounting Officer)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    May&nbsp;11, 2005</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-3
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='122'></A>
</DIV>

<!-- link1 "EXHIBIT INDEX" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>EXHIBIT INDEX</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated Certificate of Incorporation of the
    Registrant</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Bylaws of Registrant</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Specimen Certificate evidencing shares of the Registrant&#146;s
    Class&nbsp;A common stock</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Specimen Certificate evidencing shares of the Registrant&#146;s
    Class&nbsp;B common stock</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Registration Rights Agreement between WebMD Corporation
    and the Registrant</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Opinion of Shearman&nbsp;&#38; Sterling LLP</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Tax Sharing Agreement between WebMD Corporation and the
    Registrant</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Services Agreement between WebMD Corporation and the
    Registrant</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Release and Indemnity between WebMD Corporation and the
    Registrant</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.4*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Registration Rights Agreement between WebMD Corporation
    and the Registrant</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement, dated as of October&nbsp;8, 2001, between
    WebMD Corporation and Martin J. Wygod (incorporated by reference
    to Exhibit&nbsp;10.55 to WebMD Corporation&#146;s Form&nbsp;10-K
    to Annual Report on Form&nbsp;10-K for the year ended
    December&nbsp;31, 2001)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement, dated as of April&nbsp;28, 2005, between
    WebMD, Inc. and Wayne T. Gattinella (incorporated by reference
    to Exhibit&nbsp;99.1 to WebMD Corporation&#146;s Current Report
    on Form&nbsp;8-K filed with the Securities and Exchange
    Commission on May&nbsp;3, 2005)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement, dated as of April&nbsp;28, 2005, between
    WebMD, Inc. and David Gang (incorporated by reference to
    Exhibit&nbsp;99.2 to WebMD Corporation&#146;s Current Report on
    Form&nbsp;8-K filed with the Securities and Exchange Commission
    on May&nbsp;3, 2005)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated as of July&nbsp;1, 2000 between WebMD
    Corporation (as successor to Medical Manager Corporation) and
    Anthony Vuolo, as amended (incorporated by reference to
    Exhibit&nbsp;10.52 to WebMD Corporation&#146;s Annual Report on
    Form&nbsp;10-K for the year ended December&nbsp;31, 2001, as
    amended by Amendment No.&nbsp;1 on Form&nbsp;10-K/ A)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.9*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement between WebMD Health Holdings, Inc. and
    Douglas W. Wamsley</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated as of October&nbsp;23, 2002 between
    WebMD Corporation and Roger C. Holstein (incorporated by
    reference to Exhibit&nbsp;10.14 to WebMD Corporation&#146;s
    Annual Report on Form&nbsp;10-K for the year ended
    December&nbsp;31, 2002)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Letter Agreement, dated as of April&nbsp;27, 2005, between WebMD
    Corporation and Roger C. Holstein (incorporated by reference to
    Exhibit&nbsp;99.3 to WebMD Corporation&#146;s Current Report on
    Form&nbsp;8-K filed with the Securities and Exchange Commission
    on May&nbsp;3, 2005)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.12</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Stock Option Agreement dated
    August&nbsp;21, 2000 between WebMD Corporation (as successor to
    Medical Manager Corporation) and Martin J. Wygod (incorporated
    by reference to Exhibit&nbsp;10.21 to WebMD Corporation&#146;s
    Annual Report on Form&nbsp;10-K for the year ended
    December&nbsp;31, 2000, as amended by Amendment No.&nbsp;1 on
    Form&nbsp;10-K/ A)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stock Option Agreement between WebMD Corporation and Wayne
    Gattinella dated August&nbsp;20, 2001 (incorporated by reference
    to Exhibit&nbsp;4.8 to WebMD Corporation&#146;s Registration
    Statement on Form&nbsp;S-8 (No.&nbsp;333-888420) filed
    May&nbsp;16, 2002)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated Stock Option Agreement dated
    August&nbsp;21, 2000, between WebMD Corporation (as successor to
    Medical Manager Corporation) and Anthony Vuolo (incorporated by
    reference to Exhibit&nbsp;10.54 to WebMD Corporation&#146;s
    Annual Report on Form&nbsp;10-K for the year ended
    December&nbsp;31, 2001, as amended by Amendment No.&nbsp;1 on
    Form&nbsp;10-K/ A)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Healtheon Corporation 1996 Stock Plan and Form of Stock Option
    Agreement (incorporated by reference to Exhibit&nbsp;10.2 to
    Amendment No.&nbsp;2 to WebMD Corporation&#146;s Registration
    Statement on Form&nbsp;S-1 (No.&nbsp;333-70553) filed
    February&nbsp;10, 1999)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    WebMD Corporation Amended and Restated 1998 Employee Stock
    Purchase Plan (incorporated by reference to Exhibit&nbsp;99.27
    to WebMD Corporation&#146;s Registration Statement on
    Form&nbsp;S-8 (No.&nbsp;333-47250) filed October&nbsp;4, 2000)</TD>
</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.17</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    WebMD Corporation 2000 Long-Term Incentive Plan (incorporated by
    reference to Annex&nbsp;G to the Proxy Statement/ Prospectus,
    filed on August&nbsp;7, 2000, and included in WebMD
    Corporation&#146;s Registration Statement on Form&nbsp;S-4 (No.
    333-39592)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.18</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated 1989 Class&nbsp;A Non-Qualified Stock
    Option Plan of Synetic, Inc. (incorporated by reference to
    Exhibit&nbsp;10.1 to Synetic, Inc.&#146;s Registration Statement
    on Form&nbsp;S-1 (No.&nbsp;333-28654) filed May&nbsp;18, 1989)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.19</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated 1989 Class&nbsp;B Non-Qualified Stock
    Option Plan of Synetic, Inc. (incorporated by reference to
    Exhibit&nbsp;10.2 to Synetic, Inc.&#146;s Registration Statement
    on Form&nbsp;S-1 (No.&nbsp;333-28654) filed May&nbsp;18, 1989)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    1991&nbsp;Director Stock Option Plan of Synetic, Inc.
    (incorporated by reference to Exhibit&nbsp;4.2 to Synetic,
    Inc.&#146;s Registration Statement on Form&nbsp;S-8 (No.
    333-46640) filed March&nbsp;24, 1992)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    CareInsite, Inc. 1999 Officer Stock Option Plan (incorporated by
    reference to Exhibit&nbsp;10.18 to Amendment No.&nbsp;6 to
    CareInsite, Inc.&#146;s Registration Statement on Form&nbsp;S-1
    (No.&nbsp;333-75071) filed June&nbsp;11, 1999)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.22</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    CareInsite, Inc. 1999 Employee Stock Option Plan (incorporated
    by reference to Exhibit&nbsp;10.17 to Amendment No.&nbsp;6 to
    CareInsite, Inc.&#146;s Registration Statement on Form&nbsp;S-1
    (No.&nbsp;333-75071) filed June&nbsp;11, 1999)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.23</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    WebMD Corporation 2001 Employee Non-Qualified Stock Option Plan,
    as amended (incorporated by reference to Exhibit&nbsp;10.46 to
    WebMD Corporation&#146;s Form&nbsp;10-K for the year ended
    December&nbsp;31, 2001, as amended by Amendment No.&nbsp;1 on
    Form&nbsp;&nbsp;10-K/ A)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.24</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated 1991 Special Non-Qualified Stock Option
    Plan of Synetic, Inc. (incorporated by reference to
    Exhibit&nbsp;4.3 to Synetic, Inc.&#146;s Registration Statement
    on Form&nbsp;S-8 (No.&nbsp;333-36041) filed September&nbsp;19,
    1997)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.25</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment to the Company Stock Option Plans of Medical Manager
    Corporation and CareInsite, Inc. (incorporated by reference to
    Exhibit&nbsp;99.28 to WebMD Corporation&#146;s Registration
    Statement on Form&nbsp;S-8 (No.&nbsp;333-47250) filed
    October&nbsp;4, 2000)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>21</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Subsidiaries of WebMD Health Holdings, Inc.</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Ernst&nbsp;&#38; Young LLP</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of J.H. Cohn LLP</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.3*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Shearman&nbsp;&#38; Sterling LLP (included in
    Exhibit&nbsp;5.1)</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>24</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Powers of Attorney (included on signature page)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be filed by amendment.</TD>
</TR>

</TABLE>
</BODY>
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FORM S-1
Table of Contents
As filed with the Securities and Exchange Commission on
May 12, 2005
Registration
No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WEBMD HEALTH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
7375
20-2783228
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(IRS Employer
Identification Number)
224 West 30th Street
New York, New York 10001
(Address, including zip code, and telephone number, including
area code, of
registrant's principal executive offices)
Douglas W. Wamsley
Executive Vice President
General Counsel and Secretary
224 West 30th Street
New York, New York 10001
(212) 624-3700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Stephen T. Giove, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 848-4000
Facsimile: (212) 848-7179
Marc Rosenberg, Esq.
Andrew J. Pitts, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 8th Avenue
New York, New York 10019
Telephone: (212) 474-1000
Facsimile: (212) 474-3700
Approximate date of commencement of proposed sale of the
securities to the public:
As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box.
o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Amount of
Title of Each Class of
Aggregate Offering
Registration
Securities to be Registered
Price(1)(2)
Fee
Class A Common Stock, $.01 par value per share
$50,000,000
$5,885
(1)
Estimated solely for the purpose of calculating the registration
    fee pursuant to Rule 457(o).
(2)
Including shares of common stock that may be purchased by the
    underwriters to cover overallotments, if any.
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to such Section 8(a), may
determine.
Table of Contents
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
SUBJECT TO
COMPLETION DATED MAY 11, 2005
PROSPECTUS
Shares
WEBMD HEALTH HOLDINGS,
INC.
Class A Common
Stock
This is our initial public offering of our Class A common
stock. We are selling all of the Class A common stock in
this offering.
We are a wholly owned subsidiary of WebMD Corporation, which we
refer to in this prospectus as our Parent. We intend to change
our corporate name, prior to completion of this offering, to a
new name that has not yet been chosen, but that will include
"WebMD," which will also continue to be the primary
brand name for our products and services. Our Parent intends to
take the steps, over the next several months, needed to change
its corporate name to one that does not include
"WebMD" and to cease using "WebMD" as a
brand name for the products and services of its other business
segments.
We have two classes of authorized common stock —
Class A common stock, which is offered hereby, and
Class B common stock, all of which will be owned by our
Parent. Holders of our Class A common stock generally will
have identical rights to holders of our Class B common
stock, except that holders of our Class A common stock will
be entitled to one vote per share on all matters to be voted on
by stockholders, while holders of our Class B common stock
will be entitled to ten votes per share on all matters to be
voted on by stockholders. The holders of our Class A common
stock and Class B common stock generally will vote together
as a single class. Upon the completion of this offering, without
giving effect to any exercise of the underwriters' option
to purchase additional shares, our Parent will own all of our
outstanding Class B common stock, which will represent
approximately           %
of our outstanding common stock, and
approximately           %
of the combined voting power of our outstanding common stock. As
a result, after this offering, our Parent will continue to
control us.
We expect the public offering price of our Class A common
stock to be between
$          and
$           per
share. Currently, no public market exists for our shares. We
intend to apply to have our Class A common stock quoted on
The Nasdaq National Market under the symbol "WBMD."
Investing in our Class A common stock involves risks
that are described in the "Risk Factors" section
beginning on page 9.
Per Share
Total
Public offering price
$
$
Underwriting discount
$
$
Proceeds, before expenses, to our company
$
$
The underwriters may also purchase up to an
additional                      shares
of our Class A common stock from us, at the public offering
price, less the underwriting discount, within 30 days from
the date of this prospectus to cover overallotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The shares of Class A common stock will be ready for
delivery on or
about                     ,
2005.
The date of this prospectus
is                     ,
2005.
TABLE OF CONTENTS
Summary
1
Risk Factors
9
Forward-Looking Statements
26
Use of Proceeds
27
Dividend Policy
27
Capitalization
28
Dilution
29
Selected Financial Information
30
Management's Discussion and Analysis
    of Financial Condition and Results of Operations
31
Business
43
Government Regulation
64
Management
71
Certain Relationships and Related Party
    Transactions
87
Principal Shareholders
89
Description of Capital Stock
90
Shares Eligible For Future Sale
95
Certain U.S. Federal Income and Estate
    Tax Considerations for Non-U.S. Holders
97
Underwriting
100
Legal Matters
103
Experts
103
Where You Can Find Additional
    Information
103
Index to Combined Consolidated Financial
    Statements
F-1
EX-23.1: CONSENT OF ERNST & YOUNG LLP
EX-23.2: CONSENT OF J.H. COHN LLP
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus is accurate only as of the date on the front
cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that
date.
MARKET AND INDUSTRY DATA
This prospectus contains market and industry data and forecasts
that we obtained from third-party industry publications and
research firms, including Manhattan Research LLC, a leading
Internet marketing research firm. Unless we indicate otherwise,
all Manhattan Research studies referred to in this prospectus
were initiated and paid for by us. We refer to each of those
studies initiated by Manhattan Research, without our
participation, as a "subscription study," since these
studies are available to the public on a subscription basis.
Industry publications and studies generally state that the
information contained therein has been obtained from sources
believed to be reliable, but there can be no assurance as to the
accuracy and completeness of such information. We have not
independently verified any of the publications or studies
prepared by third parties. The information contained in such
publications or studies may prove to be inaccurate because of
the way they were prepared and other limitations and
uncertainties inherent in data gathering processes. As a result,
you should be aware that market, ranking and other similar
information included in this prospectus, and estimates and
beliefs based on such information, may be incorrect. Neither we
nor the underwriters can guarantee the accuracy of such
information contained in this prospectus.
All Web site references in this prospectus are intended to be
inactive textual references only. The content of such Web sites
are not incorporated by reference in this prospectus.
WebMD®, WebMD Health®, Medscape®, CME
Circle®, Medpulse®, The Little Blue Book™,
MedicineNet®, RxList®, Select Quality Care® are
among our trademarks.
Table of Contents
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary sets forth the material terms of
this offering, but does not contain all of the information that
you should consider before investing in our Class A common
stock. You should read the entire prospectus carefully before
making an investment decision, especially the risks of investing
in our Class A common stock discussed under "Risk
Factors." Unless the context otherwise requires, the terms
"we," "us," "our," "our
company" and "WebMD" refer to WebMD Health
Holdings, Inc. and its consolidated subsidiaries following the
contribution and transfer to us of the subsidiaries and certain
related assets and liabilities that comprise our Parent's
WebMD Health business segment. Unless the context otherwise
requires, the term "Parent" refers to our parent
company, currently known as WebMD Corporation, and its other
consolidated subsidiaries. We expect to retain the WebMD brand.
References in this prospectus to "common stock"
include both our Class A common stock, par value
$.01 per share, and our Class B common stock, par
value $.01 per share. Unless otherwise indicated, industry
data are derived from publicly available sources, which we have
not independently verified.
Our Business
Introduction
We are a leading provider of health information services to
consumers, physicians and healthcare professionals through our
public and private online portals. The online healthcare
information, decision-support applications and communications
services that we provide:
•
enable consumers to obtain detailed information on a particular
    disease or condition, analyze symptoms, locate physicians, store
    individual healthcare information, receive periodic
    e-newsletters on topics of individual interest, enroll in
    interactive courses and participate in online communities with
    peers and experts;
•
make it easier for physicians and healthcare professionals to
    access clinical reference sources, stay abreast of the latest
    clinical information, learn about new treatment options, earn
    continuing medical education credits and communicate with
    peers; and
•
enable employers and health plans to provide their employees and
    plan members with access to personalized health and benefit
    information and decision-support technology that helps them make
    more informed benefit, provider and treatment choices.
Our publicly available online services, which we refer to as
The WebMD Health Network
, include
WebMD Health,
our primary public portal for consumers, and
Medscape from
WebMD,
our public portal for physicians and healthcare
professionals.
WebMD Health
and our other consumer portals help
consumers take an active role in managing their health by
providing objective and trusted healthcare and lifestyle
information.
WebMD Health
's content offerings
include access to high quality health and wellness news articles
and features, and its decision-support services help consumers
make better informed decisions about healthcare providers,
health risks and treatment options.
Medscape from WebMD
helps physicians and healthcare professionals improve their
clinical knowledge and practice of medicine. Its original
content, including daily medical news, commentary, conference
coverage, expert columns and continuing medical education, or
CME, activities are written by authors from widely respected
academic institutions and edited and managed by our in-house
editorial staff.
The WebMD Health Network
had an average of approximately
23 million aggregate unique users per month and generated
approximately 588 million aggregate page views in the first
quarter of 2005. We believe our focus on creating and organizing
high quality content and offering innovative interactive
services has made
The WebMD Health Network
the leading
online health destination and has made the WebMD brand among the
most recognized and trusted in healthcare. According to recent
studies conducted by Manhattan Research, a leading Internet
market research firm, WebMD is the information
1
Table of Contents
source most frequently recommended by physicians to their
patients for healthcare information and
Medscape from
WebMD
is the information source most recommended by
physicians to their peers.
Our public portals generate revenue primarily through the sale
of advertising and sponsorship products, including CME services.
We do not charge user fees for access to our public portals.
The WebMD Health Network
provides an efficient and
effective means for sponsors to reach, educate and inform target
audiences of health-involved consumers and clinically-active
physicians within the trusted environment of WebMD. We work
closely with our sponsors to develop programs for specific
groups of consumers, physicians and healthcare professionals and
give them placement on the most relevant areas on our portals.
Our advertisers and sponsors consist primarily of
pharmaceutical, biotechnology and medical device companies. We
are also increasingly attracting advertising sponsorships from
consumer products companies whose products relate to health,
wellness, diet, fitness, lifestyle, safety and illness
prevention.
Our private portals enable employees and health plan members to
make more informed benefit, provider and treatment decisions. We
provide a personalized user experience by integrating individual
user data (including personal health information), plan-specific
data from our employer or health plan clients and much of the
content, decision-support technology and personal communication
services that we make available through our public portals. We
generate revenue from private portals through the licensing of
our content and technology to employers, such as American
Airlines, Inc., Microsoft Corporation and PepsiCo, Inc., and to
health plans, such as Blue Cross Blue Shield of Massachusetts,
Cigna and Empire Blue Cross and Blue Shield.
In addition to our online presence, we also have a publishing
segment that provides complementary offline health content to
our user community. Our publications increase awareness of our
brand among consumers, physicians and healthcare professionals.
These publications include
The Little Blue Book,
a
physician directory, and
WebMD the Magazine,
a consumer
publication launched in early 2005 that we distribute free of
charge to physician office waiting rooms.
Our revenues have increased to $134.1 million in 2004 from
$84.2 million in 2002, an increase of $49.9 million.
Our net income for 2004 was $6.5 million compared to a net
loss of $24.4 million in 2002, an improvement of
$30.9 million. We cannot assure you that our revenues or
net income will continue to increase; however, to the extent
that our revenues increase in the future, we expect that our net
income as a percentage of our revenues will continue to increase.
Our Strengths
Our goal is to provide an efficient and effective means for
advertisers and sponsors to reach, educate and influence
health-involved consumers and clinically-active physicians
within the trusted environment of WebMD. We believe that we are
able to fulfill the needs of our clients with a differentiated
offering based on our following strengths:
•
Our brand is widely recognized and viewed as a trusted source of
    health and wellness information.
•
The WebMD Health Network
is the leading online health
    destination today. We had an average of approximately
    23 million aggregate unique users per month and generated
    approximately 588 million page views in the first quarter
    of 2005.
•
Medscape from WebMD
is the leading online provider of CME
    programs, with approximately 63% of the online market for CME
    services in 2003.
•
We are able to offer advertisers and sponsors programs that
    deliver their message to either our entire audience or to more
    targeted audiences of consumers, physicians and other healthcare
    professionals based upon their interests or specialties.
•
We are able to offer advertisers and sponsors programs to reach
    both health-involved consumers and clinically-active physicians.
2
Table of Contents
•
We have good working relationships with our advertising and
    sponsorship clients and a track record of providing them with a
    more efficient use of their marketing expenditures compared to
    traditional media.
•
We have the ability to offer employers and health plans a
    platform that provides a personalized user experience for
    employees and health plan members, which includes access to
    individual user data, specific health plan benefit data,
    relevant health-oriented content, treatment decision-support
    applications, personal communication services, and integrated
    third party applications and data.
•
Our senior management's experience in and understanding of
    the healthcare industry allows us to respond quickly to
    developing industry trends with new products and services based
    on our existing content, infrastructure and capabilities.
Industry Background
The Internet.
The Internet has emerged as a major
communications medium and has already fundamentally changed many
sectors of the economy, including the marketing and sales of
financial services, travel and entertainment, among others. The
Internet is also changing the healthcare industry, as more
consumers and physicians use it as a convenient source for
up-to-date health information and interactive decision-support
tools. Until recently, quality healthcare information was not
easily accessible. Most consumers relied on their physicians,
conversations with family and friends, their neighborhood
library and magazines when they needed answers to healthcare
questions. Physicians relied on medical societies, journals and
other publications, reference textbooks, conferences,
pharmaceutical sales representatives and industry meetings and
other physicians to keep informed. The Internet has transformed
how consumers and physicians find and utilize healthcare
information and WebMD has been a leader in enabling this
transition.
Advertising and sponsorship trends.
Internet advertising
continues to grow rapidly. According to a February 2005 report
by eMarketer, an Internet market research firm, total online
advertising spending was about $9.5 billion in 2004, is
projected to grow approximately 20% in 2005 to $11.5 billon, and
is expected to reach approximately $17.6 billion in 2008.
We believe that this market growth is driven by the benefits of
online advertising relative to traditional media, which include
interactivity, rapid and measurable user feedback and the
ability to target consumers more efficiently.
Based upon industry estimates, we believe that pharmaceutical,
biotechnology and medical device companies spent approximately
$12 billion on marketing and education activities during
2004, excluding costs of product samples. We estimate that these
companies currently spend less than 5% of their marketing and
educational budgets on online media, but are becoming
increasingly aware of the benefits of using online media,
including the ability to reach targeted audiences
cost-effectively. As a result, we expect these companies'
online marketing and educational budgets to continue to
increase. According to an April 2005 report sponsored by the
Interactive Advertising Bureau, pharmaceutical and other
healthcare advertisers accounted for 6% of total online
advertising in 2004, an increase from 4% in 2003. We believe
that we are well positioned to benefit from the trend toward
increased online spending by these companies because of our
track record in providing a more efficient use of advertising
expenditures than traditional media and our strong working
relationships with a significant number of the major
pharmaceutical, biotechnology and medical device companies.
Healthcare industry trends.
Our business is affected by
the following trends in the healthcare industry:
•
Continued increases in healthcare costs have led to
    cost-shifting by employers.
According to a report from the
    Centers for Medicare & Medicaid Services, or CMS,
    healthcare spending in the United States rose to
    $1.7 trillion in 2003, up from $1.6 trillion in 2002,
    $1.4 trillion in 2001 and $1.3 trillion in 2000. The
    CMS report indicated a growth rate in healthcare spending of
    7.7% for 2003, compared to 9.3% for 2002, and 8.5% for 2001.
    While overall healthcare costs are rising at a rapid annual
    rate, employers' costs of providing healthcare benefits to
    their employees are increasing
3
Table of Contents
at an even faster rate. In response to these cost increases,
    employers and health plans have been changing benefit plan
    designs to increase consumer out-of-pocket costs and taking
    other steps to motivate their members and employees to evaluate
    their healthcare decisions more carefully in order to be more
    cost-effective. This has led employers and health plans to
    enhance wellness programs and take steps to provide healthcare
    information and education to employees and members, including
    through the use of online services.
•
Quality initiatives.
In 1999 and 2000, a series of major
    studies suggested that the nation's healthcare system
    should be fundamentally redirected to focus on continuous
    quality improvement and anticipating healthcare needs, rather
    than controlling access to services. Since then, health plans
    have begun to recognize that encouraging the good health of
    their members not only benefits the members but also has
    financial benefits for the health plans. Healthier people need
    less care and fewer costly services. Thus, controlling costs by
    keeping people healthier and better managing chronic conditions
    has become a significant focus for America's healthcare
    system. As part of these initiatives, health plans are offering
    their members online access to health and wellness information
    and decision-support tools.
We believe that our private portals are well positioned to
benefit from these trends because they provide the tools and
information employees and plan members need to take a more
active role in their healthcare, such as helping them make more
informed decisions about healthcare provider, benefit and
treatment options. Employers and health plans can help their
employees and members make choices that reduce overall
healthcare costs by implementing our services and making the
needed information and decision-support tools available through
a convenient and easy-to-use online service. In addition, as
employers continue to implement high deductible and
consumer-directed healthcare plans, we believe we will be able
to attract more employers and health plans to use our private
online portals. Additionally, the increased financial
responsibility of consumers for their healthcare will also
benefit our public portals as we continue to expand the public
portal decision-support and personal health information
applications and as consumers and healthcare professionals
increasingly utilize the Internet for the information and tools
necessary to manage their health decisions.
Our Strategy
We have positioned our services to benefit from the trends
described above, and the other trends affecting the Internet,
online advertising and healthcare industries described in this
prospectus. Our goal is to be the leading provider of online
health information services in each of the markets in which we
participate and to use our content, technology platform and
expertise to continue to enter additional complementary markets.
To achieve our goal, we intend to:
•
Enhance our current products and services.
We intend to
    continue to invest in the resources needed to deliver high
    quality health and medical information. In addition, we intend
    to continue to build our repository of in-depth health content,
    broaden our interactive services and increase their
    functionality, improve our technology platform and add
    additional products and services. Our goal is to continue to
    increase the number of consumers, physicians and healthcare
    professionals using our Web sites, the amount of time they spend
    there and, most importantly, the trust they have in WebMD.
•
Expand awareness of the WebMD brand.
We plan to promote
    the WebMD brand through relationships with strategic partners,
    through advertising and through the breadth of products and
    services that we offer. For example, we recently introduced
WebMD the Magazine,
a consumer publication that we
    distribute free of charge to patients in physician waiting
    rooms, as a means of extending our brand into offline channels
    and attracting incremental advertising dollars.
•
Deepen our relationships with existing clients and expand our
    sponsorship base.
We intend to increase
The WebMD Health
    Network's
advertising and sponsorship revenues by
    continuing to provide an efficient and effective channel for
    sponsors to reach, educate and inform large audiences of
    health-involved consumers and clinically-active physicians
    within the trusted environment of
4
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WebMD. We believe that we are well positioned to benefit from
    the expected shift of sponsorship spending from offline to
    online media by pharmaceutical, biotechnology and medical device
    companies as they continue to see the benefits of online
    sponsorship relative to traditional offline media, including
    interactivity, rapid and measurable user feedback and the
    ability to more efficiently reach specific audiences. In
    addition, we are focused on increasing sponsorship of
The
    WebMD Health Network
by consumer products companies that
    wish to communicate health- and lifestyle-related messages for
    their products.
•
Increase market penetration of our private portals.
We
    intend to increase the market penetration of our private health
    and benefits portals for employers and health plans by
    demonstrating to prospective clients the return on investment
    and increase in employee satisfaction on the part of our
    existing clients from implementing our services. We expect
    demand for these services to increase as more employers and
    health plans seek to complement or replace their existing
    offline benefit-related services with more efficient Web-based
    decision-support tools and related online services.
•
Acquire complementary online and offline services.
We
    have a history of acquiring and successfully integrating
    complementary companies. We expect to continue to supplement our
    internal product development efforts with strategic acquisitions
    that add new capabilities or help us enter additional
    complementary markets.
•
Capitalize upon governmental initiatives relating to use of
    information technology in healthcare.
There are currently
    numerous federal, state and private initiatives seeking ways to
    increase the use of information technology in healthcare,
    including the creation of portable consumer health records. We
    believe that we are well positioned to play a role in such
    efforts, as well as efforts to establish the adoption of
    electronic medical records among physicians and to provide
    channels for the exchange of information among patients,
    providers and payers.
Our principal executive offices are located at 224 West 30th
Street, New York, New York 10001 and our telephone number at
that address is (212) 624-3700.
5
Table of Contents
Our Corporate Structure
The businesses that comprise our company include acquisitions
made by our Parent beginning in 1999. Our operations were, until
2001, commingled with other operations of our Parent. In 2001,
our businesses were organized as a separate segment of our
Parent, which is currently called "WebMD Health."
WebMD Health Holdings, Inc., the registrant whose name appears
on the cover of the registration statement of which this
prospectus is a part, was incorporated in Delaware on
May 3, 2005 to be a holding company for our Parent's
WebMD Health business segment in order to conduct this offering.
Prior to the completion of this offering, our Parent will
contribute and transfer to us the subsidiaries and certain
related assets and liabilities that comprise our Parent's
WebMD Health business segment. We intend to change our corporate
name, prior to completion of this offering, to a new name that
has not yet been chosen, but that will include
"WebMD," which will also continue to be the primary
brand name for our products and services. Our Parent intends to
take the steps, over the next several months, needed to change
its corporate name to one that does not include
"WebMD" and to cease using "WebMD" as a
brand name for the products and services of its other segments.
Prior to the completion of this offering, the certificate of
incorporation of WebMD Health Holdings, Inc. will be amended and
restated to, among other things:
•
create two classes of common stock — Class A
    common stock and Class B common stock;
•
establish the voting rights associated with each such class of
    our common stock, pursuant to which holders of our Class A
    common stock will be entitled to one vote per share on all
    matters to be voted on by stockholders and holders of our
    Class B common stock will be entitled to ten votes per
    share on all matters to be voted on by stockholders; and
•
provide for the conversion of the Class B common stock into
    Class A common stock upon the terms and subject to the
    conditions set forth therein.
Immediately following this offering, holders of our Class A
common stock will own
approximately                %
of our outstanding common stock
and           %
of the combined voting power of our outstanding common stock
(approximately           %
of our outstanding common stock
and           %
of the combined voting power of our outstanding common stock if
the underwriters exercise in full their option to purchase
additional shares).
Immediately following this offering, our Parent, which will hold
100% of our Class B common stock, will own
approximately           %
of our outstanding common stock
and           %
of the combined voting power of our outstanding common stock
(approximately           %
of our outstanding common stock
and           %
of the combined voting power of our outstanding common stock if
the underwriters exercise in full their option to purchase
additional shares).
As a result, our Parent will continue to control us following
the completion of this offering, and will be able to exercise
control over all matters requiring shareholder approval,
including the election of our directors and approval of
significant corporate transactions. In addition, our
Parent's controlling interest may discourage a change of
control that the holders of our Class A common stock may
favor.
As of the date of this prospectus, our Parent has indicated that
it has no current intention to sell or otherwise dispose of its
Class B common stock. However, our Parent is not subject to
any contractual obligation to retain any of its Class B
common stock, except that it has agreed not to sell or otherwise
dispose of any of our common stock for a period of 180 days
after the date of this prospectus without the prior written
consent of the representatives of the underwriters, as described
in "Underwriting."
We expect to enter into a number of agreements with our Parent
governing our separation from and our future relationship with
our Parent, including a services agreement. Under the services
agreement, we expect that our Parent will provide us with
administrative services, including payroll, accounting, tax,
employee benefit plan, employee insurance, intellectual
property, legal and information processing services. We
anticipate that the services agreement will provide for an
initial term of five years. We will, as a result, initially be
dependent on our relationship with our Parent for shared
services following this offering. It is also possible that some
or all of these services would be provided for longer periods
than the initial term. See "Certain Relationships and
Related Party Transactions — Agreements Between Us and
Our Parent."
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The Offering
Class A common stock offered
by us
shares
Common stock outstanding after the offering:
Class A common stock
shares
Class B common stock
shares
Use of proceeds
We estimate that our net proceeds from this offering will be
    approximately
    $           million
    ($           million
    if the underwriters exercise in full their option to purchase
    additional shares). We intend to use these net proceeds for
    working capital and general corporate purposes, including
    capital expenditures and acquisitions.
Voting rights
Each share of our Class A common stock will entitle its
    holder to one vote on all matters to be voted on by stockholders
    generally. The holders of our Class B common stock
    generally will have rights identical to holders of our
    Class A common stock, except that each share of
    Class B common stock will entitle its holder to ten votes
    on all matters to be voted on by stockholders generally. Holders
    of our Class A common stock and Class B common stock
    will generally vote together as a single class.
Conversion rights
Upon the completion of this offering, we expect our certificate
    of incorporation to provide that, under certain circumstances,
    our Class B common stock may be converted into our
    Class A common stock at the option of the holder or
    automatically.
Risk factors
See "Risk Factors" and other information included in
    this prospectus for a discussion of factors you should carefully
    consider before deciding to invest in shares of our common stock.
Proposed Nasdaq National Market symbol
"WBMD."
Unless we specifically state otherwise, all information in this
prospectus:
•
assumes that the underwriters do not exercise their option to
    purchase additional shares; and
•
excludes                     shares
    of our Class A common stock reserved for grants under our
    incentive compensation plans after the pricing of this
    offering,                     of
    which                     will
    be in the form of options to purchase shares of our Class A
    common stock with an exercise price equal to the initial public
    offering price per share,
    and                     of
    which will be in the form of restricted Class A common
    stock.
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Summary Financial Data
You should read the following summary combined consolidated
financial data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," our combined consolidated financial statements
and notes thereto and the unaudited pro forma financial
statements and related notes, all included elsewhere in this
prospectus. The "Pro Forma" combined consolidated
statement of operations data below is adjusted to reflect our
acquisitions of MedicineNet, Inc. and HealthShare Technology,
Inc., as though those acquisitions occurred as of
January 1, 2004. The "Pro Forma" combined
consolidated balance sheet data reflects the acquisition of
HealthShare Technology, Inc. as though the acquisition occurred
on December 31, 2004. The pro forma information is provided
for illustrative purposes only and is not necessarily indicative
of the operating results that would have occurred if the
transactions had been consummated as of January 1, 2004,
nor is it indicative of future operating results. In addition,
the "Pro Forma As Adjusted" combined consolidated
balance sheet data below is further adjusted to reflect the sale
of the shares of our Class A common stock offered hereby
and the receipt of the estimated net proceeds after deducting
underwriting discounts and commissions and the estimated
offering expenses.
Years Ended December 31,
2002
2003
2004
Pro Forma
Actual
(unaudited)
(in thousands)
Combined Consolidated Statements of Operations Data:
Revenue
$
84,203
$
110,152
$
134,148
$
144,637
Costs and expenses:
Cost of operations
47,420
46,552
51,879
54,829
Sales and marketing
47,814
47,369
48,701
50,587
General and administrative
17,377
19,010
21,277
24,599
Depreciation and amortization
2,486
4,463
5,620
12,016
Restructuring and integration benefit
(5,850
)
—
—
—
Other (income) expense
(823
)
—
—
19
Income (loss) before income tax provision
(24,221
)
(7,242
)
6,671
2,587
Income tax provision
140
183
210
397
Net income (loss)
$
(24,361
)
$
(7,425
)
$
6,461
$
2,190
At December 31, 2004
Pro Forma
December 31,
Pro Forma
As Adjusted(1)
2003
Actual
(unaudited)
(unaudited)
(in thousands)
Combined Consolidated Balance Sheet Data:
Working capital
$
3,384
$
9,119
$
10,610
Total assets
120,630
146,496
183,467
Owner's net investment/Stockholders' equity
85,527
100,737
131,737
(1)
Reflects (a) the sale of the shares of our Class A common
    stock in this offering after deducting underwriting discounts
    and commissions and estimated offering expenses and (b) the
    reclassification of Owner's net investment to
    Stockholders' equity, reflecting the contribution to
    capital of net amounts due to our Parent and the related
    issuance of shares of our Class B common stock to our
    Parent.
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RISK FACTORS
Any investment in our Class A common stock involves a
high degree of risk. This section describes circumstances or
events that could have a negative effect on our business. You
should consider carefully the following information about these
risks, together with the other information contained in this
prospectus, before you decide whether to buy our Class A
common stock. The occurrence of one or more of the circumstances
or events described below could have a material adverse effect
on our financial condition, results of operations and cash flows
or on the trading prices of our Class A common stock, and
you could lose all or part of your investment. The risks and
uncertainties described below are not exhaustive, and additional
risks and uncertainties that are not currently known to us or
that we currently believe are immaterial may also adversely
affect our business and operations. Our Risk Factors are
organized into the following broad categories: "Risks
Related to Our Operations and Financial Performance,"
"Risks Related to Our Relationships with Clients,"
"Risks Related to Our Technological Infrastructure,"
"Risks Related to the Legal and Regulatory Environment in
Which We Operate," "Risks Related to Our Relationship
With Our Parent" and "Risks Related to Ownership of
the Class A Common Stock and this Offering."
Risks Related to Our Operations and Financial Performance
Our online businesses are difficult to evaluate because they
have a limited operating history
Our online businesses have a limited operating history and
participate in relatively new and rapidly evolving markets. As a
result, our primary businesses have undergone significant
changes during their short history and are continuing to change
as a result of acquisitions, investments and market conditions.
We cannot assure you that our current business strategy will be
successful in the long term.
Many companies with business plans based on providing healthcare
information through the Internet have failed to be profitable
and some have filed for bankruptcy and/or ceased operations.
Even if demand from users exists, we cannot assure you that our
business will continue to be profitable.
The timing of our advertising and sponsorship revenues may
vary significantly, which could have adverse effects on our
operating results
Our advertising and sponsorship revenues may vary significantly
from quarter to quarter due to a number of factors, not all of
which are in our control, and any of which may be difficult to
forecast accurately. The majority of our sponsorship contracts
are for terms of approximately four to 12 months. We have
relatively few longer term contracts. We cannot assure you that
our current sponsors will continue to participate in our
existing programs beyond the terms of their existing contracts
or that they will enter into any additional contracts for new
programs that we offer.
In addition, the time between the date of initial contact with a
potential advertiser or sponsor regarding a specific program and
the execution of a contract with the advertiser or sponsor for
that program may be lengthy, especially for larger contracts,
and may be subject to delays over which we have little or no
control, including as a result of budgetary constraints of the
advertiser or sponsor or their need for internal approvals.
Factors that could affect the timing of our revenues from
advertisers and sponsors include:
•
the timing of FDA approval for new products or for new approved
    uses for existing products;
•
seasonal factors relating to the prevalence of specific health
    conditions and other seasonal factors that may affect the timing
    of promotional campaigns for specific products; and
•
the scheduling of conferences for physicians and other
    healthcare professionals.
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Lengthy sales and implementation cycles for our private
online portals make it difficult to forecast our revenues from
these applications and, as a result, may have an adverse impact
on our business
The period from our initial contact with a potential client for
a private online portal and the first purchase of our solution
by the client is difficult to predict. In the past, it has
generally ranged from six to 12 months, but in some cases
has extended much longer. These sales may be subject to delays
due to a clients' internal procedures for approving large
expenditures and other factors beyond our control. The time it
takes to implement a private online portal is also difficult to
predict and has lasted as long as six months from contract
execution to the commencement of live operation. Implementation
may be subject to delays based on the availability of the
internal resources of the client that are needed and other
factors outside of our control. As a result, we have limited
ability to forecast the timing of revenue from new clients.
This, in turn, makes it more difficult to predict our financial
performance from quarter to quarter.
During the sales cycle and the implementation period, we may
expend substantial time, effort and money preparing contract
proposals, negotiating contracts and implementing the private
online portal without receiving any related revenue. In
addition, many of the expenses related to providing private
online portals are relatively fixed in the short term, including
personnel costs and technology and infrastructure costs. Even if
our revenue is lower than expected, we may not be able to reduce
our short-term spending in response. Any shortfall in revenue
would have a direct impact on our results of operations.
As a result, we may be unable to adjust spending quickly enough
to offset any unexpected revenue shortfall or delay, in which
case our results of operations would suffer. In addition, in an
attempt to enhance our long-term competitive position, we may
from time to time make decisions regarding pricing, marketing,
services and technology that could have a near-term adverse
effect on our operating results.
Usage of our public portals depends on our ability to provide
high quality content, tools and services
Interest in our public portals for consumers, physicians and
healthcare professionals is based upon our ability to make
available high quality health content, decision-support tools
and other services that meet the needs of our users. Our ability
to do so depends, in turn, on:
•
our ability to hire and retain qualified authors, journalists
    and independent writers;
•
our ability to license quality content from third
    parties; and
•
our ability to monitor and respond to increases and decreases in
    user interest in specific topics.
We cannot assure you that we will be able to continue to get
needed content at a reasonable cost. If we are unable to provide
content that attracts and retains users at a level that is
attractive to advertisers and sponsors, our revenues will be
reduced. In addition, our ability to deploy new interactive
tools and other features will require us to continue to improve
the technology underlying our Web sites. The required changes
may be significant and expensive, and we cannot assure you that
we will be able to execute them quickly and efficiently.
We face significant competition for our products and
services
The markets in which we operate are intensely competitive,
continually evolving and, in some cases, subject to rapid
change. Our competitors include:
•
traditional media companies;
•
general purpose consumer online services and portals and other
    high-traffic Web sites that provide access to healthcare-related
    content; and
•
companies that focus on providing online and/or offline
    healthcare-related content, including some that are
    not-for-profit.
Many of our competitors have greater financial, technical,
product development, marketing and other resources than we do.
These organizations may be better known than we are and have
more customers or
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users than we do. We cannot provide assurance that we will be
able to compete successfully against these organizations or any
alliances they have formed or may form.
Governmental and private initiatives to support the adoption
of healthcare information technology may encourage additional
companies or governmental agencies to compete with us
There are currently numerous federal, state and private
initiatives and studies seeking ways to increase the use of
information technology in healthcare as a means of improving
care and reducing costs. For example, the Department of Health
and Human Services issued a report in 2004 entitled "The
Decade of Health Information Technology: Delivering
Consumer-centric and Information-rich Health Care." These
initiatives may encourage more companies to develop applications
and services that compete with us, especially with our private
online portals. The effect that these initiatives may have on
our business is difficult to predict and we cannot assure you
that we will adequately address the risks created by these
initiatives or that we will be able to take advantage of any
resulting opportunities.
We have not been operated as an entity separate from our
Parent, and, as a result, our historical and pro forma financial
information may not be indicative of our historical financial
results or future financial performance
Our combined consolidated financial information included in this
prospectus assumes that, for the periods presented, we had
existed as a separate legal entity, and has been derived from
the consolidated financial statements of our Parent. Some costs
have been reflected in the combined consolidated financial
statements that are not necessarily indicative of the costs that
we would have incurred had we operated as an independent,
stand-alone entity for all periods presented. These costs
include allocated portions of our Parent's corporate
overhead, interest expense and income taxes. Our combined
consolidated financial information included in this prospectus
may not be indicative of our future financial performance,
because these statements do not necessarily reflect our
historical financial condition, results of operations and cash
flows as they would have been had we been operated during the
periods presented as a separate, stand-alone entity.
We expect that accounting for employee stock options using
the fair value method will have a material impact on our
combined consolidated results of operations and earnings per
share
In December 2004, FASB issued SFAS 123R, which requires all
share-based payments to employees, including grants of stock
options by us and our Parent to our employees, to be recognized
in the financial statements based on their fair values,
beginning with the fiscal year that begins after June 15,
2005. As permitted by SFAS No. 123, we currently
account for share-based payments to employees using the
intrinsic value method prescribed in APB Opinion No. 25.
Accordingly, the adoption of SFAS No. 123R's fair
value method will have a material impact on the combined
consolidated results of operations and earnings per share. We
cannot predict what effect the reduction in our net income may
have on our stock price.
We will incur increased costs as a result of being a
separately traded public company
As a separately traded public company, we will incur legal,
accounting and other expenses that we did not incur as a wholly
owned subsidiary of our Parent, including costs associated with
the periodic reporting requirements applicable to a company
whose securities are registered under the Securities Exchange
Act of 1934, or the Exchange Act, recently adopted corporate
governance requirements, including requirements under the
Sarbanes-Oxley Act of 2002, and other rules implemented
relatively recently by the Securities and Exchange Commission,
or the SEC, and The Nasdaq National Market. We expect these
rules and regulations to increase substantially our legal and
financial compliance costs and to make some activities more
time-consuming and costly. We also expect that these rules and
regulations will make it more difficult and more expensive for
us to obtain directors and officers' liability insurance.
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Investors could lose confidence in our financial reports, and
our stock price may be adversely affected, if our or our
Parent's internal controls over financial reporting are
found not to be effective by management or by an independent
registered public accounting firm or if we or our Parent make
disclosure of existing or potential significant deficiencies or
material weaknesses in those controls
Beginning with our Annual Report for the year ending
December 31, 2006, Section 404 of the Sarbanes-Oxley
Act of 2002 will require us to include an internal control
report with our Annual Report on Form 10-K. That report
must include management's assessment of the effectiveness
of our internal control over financial reporting as of the end
of the fiscal year. Additionally, our independent registered
public accounting firm will be required to issue a report on
management's assessment of our internal control over
financial reporting and a report on their evaluation of the
operating effectiveness of our internal control over financial
reporting. Our Parent is an "accelerated filer" and
was required to include an internal control report in its most
recent and in its future Annual Reports on Form 10-K.
We continue to evaluate our existing internal controls over
financial reporting against the standards adopted by the Public
Company Accounting Oversight Board (PCAOB). During the course of
our ongoing evaluation of the internal controls, we may identify
areas requiring improvement, and may have to design enhanced
processes and controls to address issues identified through this
review. Remedying any deficiencies, significant deficiencies or
material weaknesses that we or our independent registered public
accounting firm may identify, may require us to incur
significant costs and expend significant time and management
resources. We cannot assure you that any of the measures we
implement to remedy any such deficiencies will effectively
mitigate or remedy such deficiencies. In addition, we cannot
assure you that we will be able to complete the work necessary
for our management to issue its management report in a timely
manner, or that we will be able to complete any work required
for our management to be able to conclude that our internal
control over financial reporting is operating effectively. If we
are not able to complete the assessment under Section 404
in a timely manner, we and our independent registered public
accounting firm would be unable to conclude that our internal
control over financial reporting is effective as of
December 31, 2006. Investors could lose confidence in our
financial reports, and our stock price may be adversely
affected, if our internal controls over financial reporting are
found not to be effective by management or by an independent
registered public accounting firm or if we make disclosure of
existing or potential significant deficiencies or material
weaknesses in those controls.
A determination that there is a significant deficiency or
material weakness in the effectiveness of our internal controls
over financial reporting could also reduce our ability to obtain
financing or could increase the cost of any financing we obtain
and require additional expenditures to comply with applicable
requirements.
In addition, investors could lose confidence in our financial
reports, if our Parent's internal controls over financial
reporting are found not to be effective by management or by an
independent registered public accounting firm or if our Parent
makes disclosure of existing or potential significant
deficiencies or material weaknesses in those controls,
particularly if the reasons are relevant or related to our
internal controls.
Acquisitions, business combinations and other transactions
may be difficult to complete and, if completed, may have
negative consequences for our business and our
securityholders
We have been built, in part, through a series of acquisitions.
We intend to continue to seek to acquire or to engage in
business combinations with companies engaged in complementary
businesses. In addition, we may enter into joint ventures,
strategic alliances or similar arrangements with third parties.
These transactions may result in changes in the nature and scope
of our operations and changes in our financial condition. Our
success in completing these types of transactions will depend
on, among other things, our ability to locate suitable
candidates, negotiate mutually acceptable terms with them and to
obtain adequate financing. Significant competition for these
opportunities exists, which may increase the cost of and
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decrease the opportunities for these types of transactions.
Financing for these transactions may come from several sources,
including:
•
cash and cash equivalents on hand and marketable securities;
•
proceeds from the incurrence of indebtedness; and
•
proceeds from the issuance of additional common stock, preferred
    stock, convertible debt or other securities.
The issuance of additional equity or debt securities could:
•
cause substantial dilution of the percentage ownership of our
    stockholders at the time of the issuance;
•
cause substantial dilution of our earnings per share;
•
subject us to the risks associated with increased leverage,
    including a reduction in our ability to obtain financing or an
    increase in the cost of any financing we obtain;
•
may subject us to restrictive covenants that could limit our
    flexibility in conducting future business activities; and
•
adversely affect the prevailing market price for our outstanding
    securities.
We do not intend to seek securityholder approval for any such
acquisition or security issuance unless required by applicable
law, regulation or by the terms of then existing securities.
Our business will suffer if we fail to successfully integrate
acquired businesses and technologies or to assess the risks in
particular transactions
We have in the past acquired, and may in the future acquire,
businesses, technologies, services, product lines and other
assets. The successful integration of the acquired businesses
and assets into our operations, on a cost-effective basis, can
be critical to our future performance. The amount and timing of
the expected benefits of any acquisition, including potential
synergies between our company and the acquired business, are
subject to significant risks and uncertainties. These risks and
uncertainties include, but are not limited to, those relating to:
•
our ability to maintain relationships with the customers of the
    acquired business;
•
our ability to retain or replace key personnel;
•
potential conflicts in sponsor or advertising relationships;
•
our ability to coordinate organizations that are geographically
    diverse and may have different business cultures; and
•
compliance with regulatory requirements.
We cannot guarantee that any acquired businesses will be
successfully integrated with our operations in a timely or
cost-effective manner, or at all. Failure to successfully
integrate acquired businesses or to achieve anticipated
operating synergies, revenue enhancements or cost savings could
have a material adverse effect on our business, financial
condition and results of operations.
Although our management attempts to evaluate the risks inherent
in each transaction and to value acquisition candidates
appropriately, we cannot assure you that we will properly
ascertain all such risks or that acquired businesses and assets
will perform as we expect or enhance the value of our company as
a whole. In addition, acquired companies or businesses may have
larger than expected liabilities that are not covered by the
indemnification, if any, we are able to obtain from the sellers.
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Our success depends in part on our attracting and retaining
qualified executives and employees
Our success depends largely on the skills, experience and
performance of key members of our senior management team. Roger
C. Holstein, who served as our chief executive officer since
October 2004, resigned, effective April 27, 2005, from all
his positions with our Parent and its subsidiaries. Wayne
Gattinella, who has served as President of our Parent's
WebMD Health segment since August 2001, will become our
President and Co-Chief Executive Officer, and David Gang, who
previously served as Executive Vice President of AOL Products at
America Online, Inc., will be joining us as Co-Chief Executive
Officer and Chief Operating Officer prior to the consummation of
this offering. We cannot assure you that the transition in
leadership will occur without disruption to our businesses.
We also depend, in part, on our ability to attract and retain
qualified writers and editors, software developers and other
technical personnel and sales and marketing personnel. We
anticipate the need to hire and retain qualified employees in
these areas from time to time. We cannot assure you that we will
be able to hire or retain a sufficient number of qualified
personnel to meet our requirements, or that we will be able to
do so at the salary and benefit costs that are acceptable to us.
Failure to do so may have an adverse effect on our business.
Risks Related to Our Relationships with Clients
Developments in the healthcare industry could adversely
affect our business
Most of our revenue is derived from the healthcare industry and
could be affected by changes affecting healthcare spending.
General reductions in expenditures by healthcare industry
participants could result from, among other things:
•
government regulation or private initiatives that affect the
    manner in which healthcare providers interact with patients,
    payers or other healthcare industry participants, including
    changes in pricing or means of delivery of healthcare products
    and services;
•
consolidation of healthcare industry participants;
•
reductions in governmental funding for healthcare; and
•
adverse changes in business or economic conditions affecting
    healthcare payers or providers, pharmaceutical, biotechnology or
    medical device companies or other healthcare industry
    participants.
We are particularly dependent on pharmaceutical, biotechnology
and medical device companies for our advertising and sponsorship
revenues. Our business will be adversely impacted if business or
economic conditions result in the reduction of purchases by our
customers if they decide not to renew their commitments or
decide to renew their commitments at lower levels. Even if
general expenditures by industry participants remain the same or
increase, developments in the healthcare industry may result in
reduced spending in some or all of the specific segments of that
market we serve or are planning to serve. For example, use of
our products and services could be affected by:
•
changes in the design of health insurance plans;
•
a decrease in the number of new drugs or medical devices coming
    to market; and
•
decreases in marketing expenditures by pharmaceutical companies
    or consumer product companies, including as a result of
    governmental regulation or private initiatives that discourage
    or prohibit promotional activities by pharmaceutical or medical
    device companies.
In addition, our customers' expectations regarding pending
or potential industry developments may also affect their
budgeting processes and spending plans with respect to products
and services of the types we provide.
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The healthcare industry has changed significantly in recent
years and we expect that significant changes will continue to
occur. However, the timing and impact of developments in the
healthcare industry are difficult to predict. We cannot assure
you that the markets for our products and services will continue
to exist at current levels or that we will have adequate
technical, financial and marketing resources to react to changes
in those markets.
Our ability to maintain or increase our advertising and
sponsorship revenues depends on our ability to retain or
increase usage of our online offerings by consumers, physicians
and healthcare professionals
We cannot assure you that we will be able to attract a large
audience of health-involved consumers and clinically-active
healthcare professionals to our Web sites. Since users of our
public portals may be attracted to our Web sites as a result of
a specific condition or for a specific purpose, it is difficult
for us to predict the rate at which users will return to the
public portals or become members. Further, users of our Web
sites have numerous other online and offline sources of
healthcare information services. In addition, some of our
traffic and new members come to us through relationships with
third parties and, as a result, our traffic may vary based on
the amount of traffic to Web sites of these third parties and
other factors outside our control.
Because we generate revenues by, among other things, selling
sponsorships of specific pages, sections or events on our Web
sites for healthcare providers and consumers and related
e-newsletters, a decline in user traffic levels or a reduction
in the number of pages viewed by users could cause our revenues
to decrease and could have a material adverse effect on our
results of operations.
We may be unsuccessful in our efforts to increase advertising
and sponsorship revenue from consumer products companies
Most of our advertising and sponsorship revenues have, in the
past, come from pharmaceutical, biotechnology and medical device
companies. During the past year, we have begun to focus on
increasing sponsorship revenue from consumer products companies
that are interested in communicating health-related or
safety-related information about their products to our audience.
However, while a number of consumer products companies have
indicated an intent to increase the portion of their promotional
spending used on the Internet, we cannot assure you that these
advertisers and sponsors will find our consumer Web site to be
as effective as other Web sites or traditional media for
promoting their products and services. If we encounter
difficulties in competing with the other alternatives available
to consumer products companies, this portion of our business may
develop more slowly than we expect or may fail to develop.
Risks Related to Our Technological Infrastructure
Our users depend on Internet service providers, online
service providers and other Web site operators to access our
online services
Users of our Web-based services depend on Internet service
providers, online service providers and other Web site operators
for access to our Web sites. Many of these providers have
experienced significant outages in the past and could experience
outages, delays and other difficulties in the future due to
system failures unrelated to our systems. Any significant
interruptions in our services or increases in response time
could result in a loss of potential or existing users of and
advertisers and sponsors on our Web site and, if sustained or
repeated, could reduce the attractiveness of our Web-based
services.
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Delivery of our online services requires uninterrupted
communications and computer service from third party service
providers and our own systems
Our online services are designed to operate 24 hours a day,
seven days a week, without interruption. To do so, we rely on
internal systems as well as communications and hosting services
provided by third parties. We do not maintain redundant systems
or facilities for some of these services. To operate without
interruption, both we and our service providers must guard
against:
•
damage from fire, power loss and other natural disasters;
•
communications failures;
•
software and hardware errors, failures or crashes;
•
security breaches, computer viruses and similar disruptive
    problems; and
•
other potential interruptions.
We have experienced periodic system interruptions in the past,
and we cannot guarantee that they will not occur again. In
addition, some of our online services may, at times, be required
to accommodate higher than expected volumes of traffic. At those
times, we may experience slower response times or system
failures. Any sustained or repeated interruptions or disruptions
in these systems or increase in response times could damage our
relationships with clients. Although we maintain insurance for
our business, we cannot guarantee that our insurance will be
adequate to compensate us for all losses that may occur.
Implementation of changes in hardware and software platforms
used to deliver our online services may result in performance
problems
From time to time, we implement changes to the hardware and
software platforms we use for providing our online services.
During and after the implementation of those changes, a platform
may not perform as expected, which could result in interruptions
in operations, an increase in response time or an inability to
track performance metrics. Any significant interruption in our
ability to operate any of our online services could have an
adverse effect on our relationship with users and clients and,
as a result, on our financial results.
If the systems we use to provide online portals experience
security breaches or are otherwise perceived to be insecure, our
business could suffer
We retain and transmit confidential information, including
personal health records, in the processing centers and other
facilities we use to provide online services. It is critical
that these facilities and infrastructure remain secure and be
perceived by the marketplace as secure. A security breach could
damage our reputation or result in liability. We may be required
to expend significant capital and other resources to protect
against security breaches and hackers or to alleviate problems
caused by breaches. Despite the implementation of security
measures, this infrastructure or other systems that we interface
with, including the Internet and related systems, may be
vulnerable to physical break-ins, hackers, improper employee or
contractor access, computer viruses, programming errors, attacks
by third parties or similar disruptive problems. Any compromise
of our security, whether as a result of our own systems or the
systems that they interface with, could reduce demand for our
services, and could subject us to legal claims from our clients
and users, including for breach of contract or breach of
warranty.
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Risks Related to the Legal and Regulatory Environment in
Which We Operate
Government regulation of the Internet could adversely affect
our business
The Internet and its associated technologies are subject to
government regulation. Our failure, or the failure of our
business partners or third party providers, to accurately
anticipate the application of laws and regulations affecting our
products and services and the manner in which we deliver them,
or any other failure to comply, could create liability for us,
result in adverse publicity, or negatively affect our business.
In addition, new laws and regulations, or new interpretations of
existing laws and regulations, may be adopted with respect to
the Internet or other online services covering user privacy,
patient confidentiality, consumer protection and other issues,
including pricing, content, copyrights and patents, distribution
and characteristics and quality of products and services. We
cannot predict whether these laws or regulations will change or
how such changes will affect our business.
Government regulation of healthcare creates risks and
challenges with respect to our compliance efforts and our
business strategies
The healthcare industry is highly regulated and is subject to
changing political, legislative, regulatory and other
influences. Existing and new laws and regulations affecting the
healthcare industry could create unexpected liabilities for us,
cause us to incur additional costs and restrict our operations.
Many healthcare laws are complex and their application to
specific products and services may not be clear. In particular,
many existing healthcare laws and regulations, when enacted, did
not anticipate the healthcare information services that we
provide. However, these laws and regulations may nonetheless be
applied to our products and services. Our failure to accurately
anticipate the application of these laws and regulations, or
other failure to comply, could create liability for us, result
in adverse publicity and negatively affect our businesses. Some
of the risks we face from healthcare regulation are as follows:
•
because our business involves advertising and promotion of
    prescription and over-the-counter drugs and medical devices, any
    increase in regulation of these areas by the Federal Drug
    Administration or the Federal Trade Commission could make it
    more difficult for us to contract for sponsorships and
    advertising;
•
our practices must comply with federal and state anti-kickback
    laws;
•
because we are in the business of applying information
    technology to healthcare, various aspects of HIPAA have affected
    and are expected to continue to affect our business; and
•
in providing health information to consumers, we must not engage
    in activities that could be deemed to be the practice of
    medicine and a violation of applicable laws.
Changes in industry guidelines or government regulation could
adversely affect our online Medscape offerings
Our CME activities are planned and implemented in accordance
with the Essential Areas and Policies of the Accreditation
Council for Continuing Medical Education, or ACCME, which
oversees providers of CME credit, and other applicable
accreditation standards. In September 2004, ACCME revised its
standards for commercial support of CME. The revised standards
are intended to ensure, among other things, that CME activities
of ACCME-accredited providers are independent of providers of
healthcare goods and services that fund the development of CME.
ACCME expects accredited providers to implement these standards
by May 2005. Implementation has required additional disclosures
to CME participants about those in a position to influence
content and other adjustments to the management and operations
of our CME programs. We believe we have modified our procedures
as appropriate to meet the revised standards. However, we cannot
be certain whether these adjustments will ensure that we meet
the new standards or predict whether ACCME may impose additional
requirements.
CME activities may also subject to government regulation by the
Food and Drug Administration, or FDA, the Office of Inspector
General, or OIG, of the United States Department of Health and
Human
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Services, a federal agency responsible for interpreting certain
federal laws relating to healthcare and state regulatory
agencies.
During the past several years, educational programs, including
CME, directed toward physicians have been subject to increased
scrutiny to ensure that sponsors do not influence or control the
content of the program. In response to governmental and industry
initiatives, pharmaceutical companies and medical device
companies have been developing and implementing internal
controls and procedures that promote adherence to applicable
regulations and requirements. In implementing these controls and
procedures, different clients may interpret the regulations and
requirements differently and may implement procedures or
requirements that vary from client to client. These controls and
procedures:
•
may discourage pharmaceutical companies from engaging in
    educational activities;
•
may slow their internal approval for such programs;
•
may reduce the volume of sponsored educational programs
    implemented through our Medscape Web site to levels that are
    lower than in the past; and
•
may require us to make changes to how we offer or provide
    educational programs, including CME.
In addition, future changes to existing regulations or
accreditation standards, or to the internal compliance programs
of potential clients, may further discourage or prohibit
potential clients from engaging in educational activities with
us, or may require us to make further changes in the way we
offer or provide educational programs.
We face potential liability related to the privacy and
security of personal information we collect from consumer and
healthcare professionals through our Web sites
Internet user privacy has become a major issue both in the
United States and abroad. We have privacy policies posted on our
Web sites that we believe comply with applicable laws requiring
notice to users about our information collection, use and
disclosure practices. However, whether and how existing privacy
and consumer protection laws in various jurisdictions apply to
the Internet is still uncertain and may take years to resolve.
Any legislation or regulation in the area of privacy of personal
information could affect the way we operate our Web sites and
could harm our business. Further, we cannot assure you that the
privacy policies and other statements on our Web sites or our
practices will be found sufficient to protect us from liability
or adverse publicity relating to the privacy and security of
personal information.
Under HIPAA, Congress established a set of basic national
privacy standards for the protection by health plans, healthcare
clearinghouses, healthcare providers and their business
associates of individually identifiable health information. We
cannot assure you that we will adequately address the risks
created by these privacy rules and we are unable to predict what
changes to HIPAA might be made in the future or how those
changes could affect our business.
In addition to HIPAA, numerous other state and federal laws
govern the collection, dissemination, use, access to and
confidentiality of patient health information. In addition, some
states are considering new laws and regulations that further
protect the confidentiality of medical records or medical
information. In many cases, these state laws are not preempted
by the HIPAA Privacy Standard and may be subject to
interpretation by various courts and other governmental
authorities, thus creating potentially complex compliance issues
for us and our customers and strategic partners. These privacy
laws at a state or federal level, or new interpretations of
these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business.
We may not be successful in protecting our intellectual
property and proprietary rights
Our intellectual property is important to our businesses. We
rely on a combination of trade secret, patent and other
intellectual property laws and confidentiality procedures and
non-disclosure contractual provisions to protect our
intellectual property. We believe that our non-patented
proprietary technologies
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and business processes are protected under trade secret,
contractual and other intellectual property rights. However,
those rights do not afford the statutory exclusivity provided by
patented processes. In addition, the steps that we take to
protect our intellectual property, proprietary information and
trade secrets may prove to be inadequate and, whether or not
adequate, may be expensive.
We cannot assure you that we will be able to detect potential or
actual misappropriation or infringement of our intellectual
property, proprietary information or trade secrets. Even if we
detect misappropriation or infringement by a third party, we
cannot assure you that we will be able to enforce our rights at
a reasonable cost, or at all. In addition, our rights to
intellectual property, proprietary information and trade secrets
may not prevent independent third-party development and
commercialization of competing products or services.
Third parties may claim that we are infringing their
intellectual property, and we could suffer significant
litigation or licensing expenses or be prevented from providing
certain services, and which may otherwise harm our business
We could be subject to claims that we are misappropriating or
infringing intellectual property or other proprietary rights of
others. These claims, even if not meritorious, could be
expensive to defend and divert management's attention from
our operations. If we become liable to third parties for
infringing these rights, we could be required to pay a
substantial damage award and to develop non-infringing
technology, obtain a license or cease selling the products or
services that use or contain the infringing intellectual
property. We may be unable to develop non-infringing products or
services or obtain a license on commercially reasonable terms,
or at all. We may also be required to indemnify our customers if
they become subject to third party claims relating to
intellectual property that we license or otherwise provide to
them, which could be costly.
We may be subject to claims brought against us as a result of
content we provide
Consumers access health-related information through our online
services, including information regarding particular medical
conditions and possible adverse reactions or side effects from
medications. If our content, or content we obtain from third
parties, contains inaccuracies, it is possible that consumers,
employees, health plan members or others may sue us for various
causes of action. Although our Web sites contain terms and
conditions, including disclaimers of liability, that are
intended to reduce or eliminate our liability, the law governing
the validity and enforceability of online agreements and other
electronic transactions is evolving. We could be subject to
claims by third parties that our online agreements with
consumers and physicians that provide the terms and conditions
for use of our public or private portals are unenforceable. A
finding by a court that these agreements are invalid and that we
are subject to liability could harm our business and require
costly changes to our business.
We have editorial procedures in place to provide quality control
of the information that we publish or provide. However, we
cannot assure you that our editorial and other quality control
procedures will be sufficient to ensure that there are no errors
or omissions in particular content. Even if potential claims do
not result in liability to us, investigating and defending
against these claims could be expensive and time consuming and
could divert management's attention away from our
operations. In addition, our business is based on establishing
the reputation of our portals as trustworthy and dependable
sources of healthcare information. Allegations of impropriety or
inaccuracy, even if unfounded, could therefore harm our
reputation and business.
We could be subject to breach of warranty or other claims by
clients of our online portals, or if the software and systems we
use to provide them, contain errors or experience failures
Errors in the software and systems we use could cause serious
problems for clients of our online portals. We may fail to meet
contractual performance standards or fail to meet expectations
that our clients have for them. Clients of our online portals
may seek compensation from us or may seek to terminate their
agreements with us, withhold payments due to us, seek refunds
from us of part or all of the
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fees charged under those agreements or initiate litigation or
other dispute resolution procedures. In addition, we could face
breach of warranty or other claims by clients or additional
development costs. Our software and systems are inherently
complex and, despite testing and quality control, we cannot be
certain that they are error free.
We attempt to limit, by contract, our liability to our clients
for damages arising from our negligence, errors or mistakes.
However, contractual limitations on liability may not be
enforceable in certain circumstances or may otherwise not
provide sufficient protection to us from liability for damages.
We maintain liability insurance coverage, including coverage for
errors and omissions. However, it is possible that claims could
exceed the amount of our applicable insurance coverage, if any,
or that this coverage may not continue to be available on
acceptable terms or in sufficient amounts. Even if these claims
do not result in liability to us, investigating and defending
against them could be expensive and time consuming and could
divert management's attention away from our operations. In
addition, negative publicity caused by these events may delay or
hinder market acceptance of our services, including unrelated
services.
The ongoing Department of Justice investigation of our Parent
could have an adverse impact on our company
On September 3, 2003, our Parent first learned that the
U.S. Attorney for the District of South Carolina, with the
assistance of the Federal Bureau of Investigation and the
Internal Revenue Service, was conducting an investigation of our
Parent relating to activities which may have been engaged in
before and after Medical Manager Corporation (now part of
Parent's WebMD Practice Services business segment) merged
in 1999 with a predecessor of Parent, as well as after the
merged entity became a subsidiary of our Parent in 2000. Our
Parent believes that the investigation relates principally to
issues of financial accounting improprieties relating to Medical
Manager, including activities that artificially inflated
revenues and earnings of Medical Manager. Our Parent understands
that the SEC is also conducting a formal investigation into this
matter. In 2005, certain former employees of Medical Manager
agreed to plead guilty to mail fraud and tax evasion as a result
of the foregoing investigation.
While our Parent is not sure of the investigation's exact
scope, it does not believe that the investigation relates to the
business of our company. However, documents filed by the
U.S. Attorney in connection with the plea agreements
entered into by the former Medical Manager employees state that
these employees engaged in their fraudulent conduct "in
concert with senior management," and "at the direction
of senior Medical Manager officers." In its statement, the
U.S. Attorney stated that "the senior management and
officers referred to in the Court documents were members of
senior management of the Medical Manager subsidiary during the
relevant time period." Based on the information it has
obtained to date, our Parent does not believe that any member of
its senior management whose duties were not primarily related to
the operations of Medical Manager engaged in the alleged
improprieties. Our Parent understands, however, that in light of
the nature of the allegations involved, the
U.S. Attorney's Office has been investigating all
levels of our Parent's management. Some members of our
company's senior management are also serving or have served
as members of senior management of our Parent. In the event
members of senior management were to be implicated in any
wrongdoing, it could have an adverse impact on our company.
Our Parent has been cooperating and intends to continue to
cooperate fully with the U.S. Attorney's Office. Our
Parent's Board of Directors has formed a Special Committee
consisting solely of independent directors to oversee this
matter, with the sole authority to direct our Parent's
response to the allegations that have been raised. The Special
Committee has retained independent legal counsel to advise it.
Our Parent has retained counsel to advise it in connection with
the investigation, and such counsel reports directly to the
Special Committee.
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Risks Related to Our Relationship With Our Parent
Our Parent controls the direction of our business. The
concentrated ownership of our common stock and certain corporate
governance arrangements will prevent you and other stockholders
from influencing significant corporate decisions
We have two classes of common stock:
•
Class A common stock, which entitles the holder to one vote
    per share; and
•
Class B common stock, which entitles the holder to ten
    votes per share,
on all matters submitted to our stockholders. Following
completion of this offering, our Parent will own 100% of our
Class B common stock, which will represent
approximately           %
of our outstanding common stock after this offering, or
approximately           %
if the underwriters exercise in full their option to purchase
additional shares. These shares collectively will
represent           %
of the combined voting power of our outstanding common stock
(or           %
if the underwriters exercise their in full option to purchase
additional shares). Given its ownership interest, our Parent
will be able to control the outcome of all matters submitted to
our shareholders for approval, including the election of
directors, mergers or other business combinations and
acquisitions, dispositions of assets, future issuances of our
common stock or other securities, the incurrence of debt by us,
the payment of dividends on our common stock (including the
frequency and the amount of dividends that would be payable on
our common stock, a substantial majority of which our parent
owns) and amendments to our certificate of incorporation and
bylaws. In addition, our Parent's controlling interest may
discourage a change of control that the holders of our
Class A common stock may favor. Any of these provisions
could be used by our Parent for its own advantage to the
detriment of our other stockholders and our company. This in
turn may have an adverse affect on the market price of our
Class A common stock.
The interests of our Parent may conflict with the interests
of our other stockholders
We cannot assure you that the interests of our Parent will
coincide with the interests of the other holders of our common
stock. For example, our Parent could cause us to make
acquisitions that increase the amount of our indebtedness or
outstanding shares of common stock or sell revenue-generating
assets. Also, after this offering, our Parent or its directors
and officers, may allocate corporate opportunities to itself or
direct them to other affiliates, which, prior to this offering,
could have been directed to us. So long as our Parent continues
to own shares of our common stock with significant voting power
our Parent will continue to be able to strongly influence or
effectively control our decisions.
Some of our directors and officers may also serve as
directors or officers of our Parent, and may have conflicts of
interest because they may own our Parent's stock or options
to purchase our Parent's stock, or they may receive cash or
equity based awards based on the performance of our Parent
Some of our directors and officers may also serve as directors
or officers of our Parent, and may own our Parent's stock
or options to purchase our Parent's stock, or they may be
entitled to participate in our Parent's benefit plans,
which provide cash- and equity-based compensation to employees
based on our Parent's performance. For example, Martin J.
Wygod, who currently serves as the Chairman of our Parent's
Board of Directors, will also serve as the Chairman of our Board
of Directors. These arrangements and ownership interests or
cash-or equity-based awards could create, or appear to create,
potential conflicts of interest when directors or officers who
own our Parent's stock or stock options or who participate
in our Parent's benefit plans are faced with decisions that
could have different implications for our Parent than they do
for us. We anticipate that our certificate of incorporation will
include provisions addressing potential conflicts of interest
between us and our Parent and its non-WebMD Health-related
subsidiaries and other similar entities. In addition, we
anticipate that our certificate of incorporation will include
provisions regulating and defining our conduct as it may involve
us and our Parent and our and its subsidiaries, directors and
officers. We cannot assure you, however, that the provisions in
our certificate of
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incorporation will adequately address potential conflicts of
interest or that potential conflicts of interest will be
resolved in our favor.
Following this offering, we will no longer receive capital
contributions from our Parent or have access to its assets or
borrowing power. We may not be able to raise additional funds
when needed for our business or to exploit opportunities
To date, our primary sources of financing have been from our
Parent. We will receive all of the net proceeds of this
offering. Following completion of this offering, our Parent will
have no obligation to provide any additional financing to us and
we will no longer have access to the borrowing capacity, cash
flow or assets of our Parent. Our future liquidity and capital
requirements will depend upon numerous factors, some of which
are outside our control, including the future development of the
markets we participate in. We may need to raise additional funds
to support expansion, develop new or enhanced services, respond
to competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities.
If our capital resources are not sufficient to satisfy our
liquidity needs, we may seek to sell additional equity or debt
securities or obtain other debt financing. The sale of
additional equity or convertible debt securities would result in
additional dilution to our stockholders. The sale of debt would
result in increased expenses and could result in covenants that
would restrict our operations. We have not made arrangements to
obtain additional financing. We may not be able to obtain
additional financing, if required, in amounts or on terms
acceptable to us, or at all. As discussed below, we may also be
limited for tax reasons in our ability to sell equity or
convertible debt securities.
Following this offering, we will continue to be dependent on
our Parent to provide us with many key services for our
business
We have not been operated as a stand-alone company. We have been
operated as a wholly owned subsidiary of our Parent, and many
key services required by us for the operation of our business
are currently provided to us by our Parent and its subsidiaries.
Prior to the completion of this offering, we will enter into
agreements with our Parent relating to certain intercompany
transactions between us and our Parent, including, among others,
a services agreement, a registration rights agreement, a release
and indemnification agreement and a tax sharing agreement. Under
the services agreement, our Parent will provide us with
administrative services, including payroll, accounting, tax,
employee benefit plan, employee insurance, intellectual
property, legal and information processing services. We
anticipate that our services agreement with our Parent will be
for an initial term of five years. We believe that it will be
necessary for our Parent to provide these services for us under
the services agreement to facilitate the efficient operation of
our business as we transition to becoming a public company. We
will, as a result, initially be dependent on our relationship
with our Parent for shared services following this offering.
Once the transition periods specified in the services agreement
expires and if the services agreement is not renewed, or if our
Parent does not or is unable to perform its obligations under
the services agreement, we will be required to provide these
services ourselves or to obtain substitute arrangements with
third parties. We may be unable to provide these services
because of financial or other constraints or be unable to timely
implement substitute arrangements on terms that are favorable to
us, or at all, which would have an adverse effect on our
business, financial condition and results of operations.
We may be prevented from issuing stock to raise capital, to
effectuate acquisitions or to provide equity incentives to
members of our management and Board of Directors
Beneficial ownership of at least 80% of the total voting power
and value of our capital stock is required in order for our
Parent to continue to include us in its consolidated group for
federal income tax purposes, and beneficial ownership of at
least 80% of the total voting power of our capital stock and 80%
of each class of any non-voting capital stock that we may issue
is required in order for our Parent to effect a tax-free
split-off, spin-off or other similar transaction. As of the date
of this prospectus, our Parent does not intend or plan to
undertake a split-off or spin-off of our capital stock to our
Parent's shareholders or to deconsolidate us from our
Parent's consolidated group. Under the terms of the tax
sharing agreement that
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we anticipate entering into with our Parent, however, we have
agreed that we will not knowingly take or fail to take any
action that could reasonably be expected to preclude our
Parent's ability to undertake a tax-free split-off or
spin-off. This may prevent us from issuing additional equity
securities to raise capital, to effectuate acquisitions or to
provide management or director equity incentives.
The new agreements we are entering into with our Parent in
connection with this offering could restrict our operations and
adversely affect our financial condition
We expect to enter into a number of agreements with our Parent
governing our separation from and our future relationship with
our Parent, including a services agreement, a registration
rights agreement, a release and indemnity agreement and a tax
sharing agreement, each of which will become effective upon
consummation of this offering. The terms and provisions of these
agreements may be less favorable to us than terms and provisions
we could have obtained in arm's length negotiations with
unaffiliated third parties.
Our prior and continuing relationship with our Parent exposes
us to risks attributable to our Parent's businesses
We expect to enter into a release and indemnification agreement
with our Parent, to be effective upon completion of this
offering. Under the terms of this agreement, our Parent is
obligated to indemnify us for losses that a party may seek to
impose upon us or our subsidiaries for liabilities relating to
our Parent's business that are incurred through a breach of
any agreement to which our Parent is a party, if such losses are
attributable to our Parent or are not otherwise expressly
assumed by us under any such agreement. Immediately following
this offering, any claims made against us that are properly
attributable to our Parent would require us to exercise our
rights under the release and indemnification agreement that we
expect to enter into with our Parent to obtain payment from our
Parent. We are exposed to the risk that, in these circumstances,
our Parent cannot or will not make the required payment. If this
were to occur, our business and financial performance could be
adversely affected.
We will be included in our Parent's consolidated group
for federal income tax purposes and, as a result, may be liable
for any shortfall in our Parent's federal income tax
payments
For so long as our Parent continues to own 80% of the total
voting power and value of our capital stock, we will be included
in our Parent's consolidated group for federal income tax
purposes. By virtue of its controlling ownership and the tax
sharing agreement that we anticipate entering into with our
Parent, our Parent will effectively control all our tax
decisions. Moreover, notwithstanding the tax sharing agreement,
federal tax law provides that each member of a consolidated
group is jointly and severally liable for the group's
entire federal income tax obligation. Thus, to the extent our
Parent or other members of the group fail to make any federal
income tax payments required of them by law, we would be liable
for the shortfall. Similar principles generally apply for state
income tax purposes in many states.
Risks Related to Ownership of the Class A Common Stock
and this Offering
The price of our Class A common stock may be subject to
wide fluctuations and may trade below the initial public
offering price
Before this offering, there has not been a public market for our
Class A common stock. The initial public offering price of
our Class A common stock will be determined by negotiations
between our Parent, us and representatives of the underwriters,
based on numerous factors, including those that we discuss under
"Underwriting." This price may not be indicative of
the market price of our Class A common stock after this
offering. We cannot assure you that an active public market for
our Class A common stock will develop or be sustained after
this offering. The market price of our common stock also could
be subject to significant fluctuations. As a result, you may not
be able to sell your shares of our Class A common stock
quickly or at prices equal to or greater than the price you paid
in this offering.
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Among the factors that could affect our Class A common
stock price are the risks described in this section and other
factors, including:
•
quarterly variations in our operating results compared to market
    expectations;
•
changes in expectations as to our future financial performance,
    including financial estimates or reports by securities analysts;
•
changes in market valuations of similar companies;
•
liquidity and activity in the market for our common stock;
•
sales of our common stock by our Parent or other stockholders;
•
strategic moves by us or our competitors, such as acquisitions
    or restructurings;
•
general market conditions; and
•
domestic and international economic, legal and regulatory
    factors unrelated to our performance.
Stock markets in general have experienced extreme volatility
that has often been unrelated to the operating performance of a
particular company. These broad market fluctuations may
adversely affect the trading price of our common stock,
regardless of our operating performance.
Sales of substantial amounts of our common stock in the
public markets, including by our Parent, or the perception that
they might occur could reduce the price our Class A common
stock might otherwise obtain and may dilute your voting power
and your ownership interest in us
After the completion of this offering, we will
have                     outstanding
shares of Class A common stock
(                     shares
of Class A common stock if the underwriters exercise in
full their option to purchase additional shares). This number is
comprised of all the shares of our Class A common stock
that we are selling in this offering, which may be resold
immediately in the public market.
In addition, our Parent will
own                     shares
of our Class B common stock. It is anticipated that our
directors, executive officers and our Parent will agree, with
limited exceptions, that we and they will not directly or
indirectly, without the prior written consent of the
underwriters, offer to sell, sell or otherwise dispose of any of
our common stock for a period of 180 days after the date of
this prospectus. Subject to the selling restrictions described
under "Shares Eligible for Future Sale" and
"Underwriting," our Parent could, from time to time,
convert their Class B common stock into Class A common
stock and sell any or all of those shares. Further, following
the consummation of this offering, pursuant to the terms of a
registration rights agreement that we expect to enter into with
our Parent, our Parent and its permitted transferees will have
the right to require us to register their common stock under the
Securities Act of 1933, or the Securities Act, for sale into the
public markets. Upon the effectiveness of any such registration
statement, all shares covered by the registration statement will
be freely transferable. Following the consummation of this
offering, we also intend to file a registration statement on
Form S-8 under the Securities Act to register an aggregate
of                     shares
of Class A common stock reserved for issuance under our
Long-Term Incentive Plan. Subject to the exercise of issued and
outstanding options, shares registered under the registration
statement on Form S-8 will be available for sale into the
public markets after the expiration of the 180-day lock-up
agreements.
We cannot predict what effect, if any, future sales of our
common stock, or the availability of common stock for future
sale, will have on the market price of our Class A common
stock. Sales of substantial amounts of our common stock in the
public market following our initial public offering, or the
perception that such sales could occur, could adversely affect
the market price of our Class A common stock and may make
it more difficult for you to sell your Class A common stock
at a time and price which you deem appropriate. The sale by our
Parent of additional shares of Class A common stock in the
public market, the perception that such sales might occur, or
the conversion of shares of Class B common stock into
Class A common stock, could dilute your voting power and
your ownership interest us, and
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could reduce the price that our Class A common stock might
otherwise obtain or could impair our ability to obtain capital
through an offering of equity securities.
Our management has broad discretion as to the use of the net
proceeds from this offering and may not use those proceeds in
ways that will enhance our market value
Our management has broad discretion as to the use of the net
proceeds that we will receive from this offering. In the event
management does not apply these funds effectively, your
investment in our common stock may not result in a favorable
return.
We do not expect to pay dividends in the foreseeable
future
We currently anticipate that we will retain all of our future
earnings, if any, to fund the operation and expansion of our
business and to use as working capital and for other general
corporate purposes. Our Board of Directors will have sole
discretion to determine the dividend amount, if any, to be paid.
Our Board of Directors will consider a number of factors,
including applicable provisions of Delaware corporate law, our
financial condition, capital requirements, funds generated from
operations, future business prospects, applicable contractual
restrictions and any other factors our board may deem relevant.
Our Parent's ownership of our Class B common stock
and the provisions of Delaware law and of our charter and
by-laws may discourage a change of control that our stockholders
may favor, which could negatively affect our stock price
Following completion of this offering, our Parent will own 100%
of our Class B common stock, which will represent
approximately           %
of our outstanding common stock after this offering, or
approximately           %
if the underwriters exercise in full their option to purchase
additional shares. These shares collectively will
represent           %
of the combined voting power of our outstanding common stock
(or           %
if the underwriters exercise in full their option to purchase
additional shares). Given its ownership interest, our Parent
will be able to control the outcome of all matters submitted to
our shareholders for approval, and will be able to prevent a
change in control of our company that our stockholders may
otherwise favor.
Further, provisions in our certificate of incorporation and
by-laws and in the Delaware General Corporation Law may make it
difficult and expensive for a third party to pursue a tender
offer, change in control or takeover attempt that our management
and Board of Directors oppose. Public stockholders that might
desire to participate in one of these transactions may not have
an opportunity to do so. Such anti-takeover provisions could
substantially impede the ability of public stockholders to
benefit from a change in control or to change our management and
Board of Directors.
Investors purchasing Class A common stock in this
offering will experience immediate and substantial dilution
The assumed initial public offering price of our Class A
common stock is substantially higher than the net tangible book
value per outstanding share of our common stock immediately
after this offering. As a result, you will pay a price per share
that substantially exceeds the book value of our assets after
subtracting our liabilities. Purchasers of our Class A
common stock in this offering will incur immediate and
substantial dilution of
$           per
share in the net tangible book value of our common stock from
the assumed initial public offering price of
$           per
share, which is the mid-point of the estimated range set forth
on the cover of this prospectus. If the underwriters exercise
their in full their option to purchase additional shares, there
will be an additional dilution of
$           per
share in the net tangible book value of our common stock,
assuming the same public offering price.
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FORWARD-LOOKING STATEMENTS
This prospectus contains both historical and forward-looking
statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements.
For example, statements concerning projections, predictions,
expectations, estimates or forecasts and statements that
describe our objectives, plans or goals are or may be
forward-looking statements. These forward-looking statements
reflect management's current expectations concerning future
results and events and generally can be identified by use of
expressions such as "may," "will,"
"should," "could," "would,"
"predict," "potential,"
"continue," "expect,"
"anticipate," "future," "intend,"
"plan," "foresee," "believe,"
"estimate," and similar expressions, as well as
statements in future tense.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual
results, performance or achievements to be different from any
future results, performance and achievements expressed or
implied by these statements. General economic, business or
regulatory conditions affecting the healthcare, information
technology and Internet industries being less favorable than
expected and the other risks and uncertainties described under
the headings "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and "Government
Regulation," could affect our future results, causing those
results to differ materially from those expressed in our
forward-looking statements. In addition, other unknown or
unpredictable factors could also have material adverse effects
on our future results.
The forward-looking statements included in this prospectus are
made only as of the date of this prospectus. We expressly
disclaim any intent or obligation to update any forward-looking
statements to reflect subsequent events or circumstances.
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USE OF PROCEEDS
The net proceeds from the sale of the shares of the Class A
common stock offered by us will be approximately
$           million,
based on an estimated initial public offering price of
$           per
share (the mid-point of the range set forth on the cover page of
this prospectus), after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us.
The primary purposes of the offering are to create a public
market for our common stock and to obtain additional capital. We
will be retaining all of the net proceeds of the offering and
expect to use those proceeds for working capital and general
corporate purposes, including capital expenditures and
acquisitions. We have no present commitments with respect to any
future acquisitions. Management will have broad discretion as to
the use of the net proceeds from this offering.
The amounts actually expended for each purpose and the timing of
such expenditures will depend on a number of factors, including
our realization of the different elements of our growth strategy
and the amount of cash generated by our operations. Pending
their use, the proceeds of the offering will be invested in
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock.
Following consummation of this offering, we do not intend to pay
any cash dividends on our common stock in the foreseeable
future. Instead, we currently anticipate that we will retain all
of our future earnings, if any, to fund the operation and
expansion of our business and to use as working capital and for
other general corporate purposes. Our Board of Directors will
have sole discretion to determine whether to pay dividends in
the future based on conditions then existing, including our
earnings, financial condition and capital requirements, the
availability of third-party financing and any economic and other
conditions that our Board of Directors may deem relevant.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of December 31, 2004:
•
on an actual basis;
•
on a pro forma basis to give effect to our acquisition of
    HealthShare Technology, Inc. as though the acquisition occurred
    on December 31, 2004; and
•
on a pro forma as adjusted basis to give effect to (1) the
    sale of the shares of our Class A common stock in this
    offering and the receipt of the estimated net proceeds after
    deducting underwriting discounts and commissions and the
    estimated offering expenses and (2) the reclassification of
    Owner's net investment to Stockholder's equity,
    reflecting the contribution of capital of net amounts due to our
    Parent and the related issuance of shares of our Class B
    common stock to our Parent.
You should read this table together with the "Use of
Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations,"
"Description of Capital Stock," our combined
consolidated financial statements, our pro forma financial
statements and the individual financial statements of certain
acquired businesses, along with the notes thereto, included
elsewhere in this prospectus.
As of December 31, 2004
Pro Forma
Pro Forma
As Adjusted
Actual
(unaudited)
(unaudited)
(in thousands)
Cash and cash equivalents
$
3,456
$
8,117
$
Stockholders' equity(1):
Class A common stock, $.01 par value per share, shares
    authorized (actual and pro forma as adjusted); shares issued and
    outstanding
    (actual);            shares
    issued and outstanding (pro forma as adjusted)
Class B common stock, $.01 par value per share, shares
    authorized (actual, pro forma and pro forma as adjusted); shares
    issued and outstanding
    (actual);            shares
    issued and outstanding (pro forma as adjusted)
Additional paid-in capital
Accumulated deficit
Owner's net investment
100,737
131,737
Total stockholders' equity
100,737
131,737
Total capitalization
$
100,737
$
131,737
$
(1)
Excludes                  shares
    of our Class A common stock reserved for grants under our
    incentive compensation plans expected to be granted after the
    pricing of this offering, of
    which                  will
    be in the form of options to purchase shares of our Class A
    common stock with an exercise price equal to the initial public
    offering price per share,
    and                  of
    which will be in the form of restricted Class A common
    stock.
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DILUTION
If you invest in our Class A common stock, your interest
will be diluted to the extent of the difference between the
initial public offering price per share of our Class A
common stock and the pro forma net tangible book value per share
of our common stock after the offering. Dilution results from
the fact that the per share offering price of the common stock
is substantially in excess of the net tangible book value per
share attributable to the existing stockholders for the
presently outstanding stock.
Our pro forma net tangible book value at December 31, 2004,
after giving effect to our formation as a Delaware corporation
and assuming that our Parent converted all outstanding shares of
our Class B common stock
into                      shares
of Class A common stock, was
$           million,
or
$           per
share of common stock. Pro forma net tangible book value per
share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Class A
common stock outstanding.
After giving effect to our sale
of                      shares
of our Class A common stock offered by this prospectus at
an estimated initial public offering price of
$           per
share (the mid-point of the range set forth on the cover of this
prospectus) and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us, our
pro forma net tangible book value as of December 31, 2004,
after giving effect to our formation as a Delaware corporation
and assuming that our Parent converted all outstanding shares of
our Class B common stock
into                      shares
of Class A common stock, would have been
$           million,
or
$           per
share of common stock. This represents an immediate increase in
pro forma net tangible book value of
$           per
share to our Parent, currently our sole stockholder, and an
immediate dilution of
$           per
share to new investors purchasing the Class A common stock
in this offering. The following table illustrates this per share
dilution:
Assumed initial public offering price per share of Class A
    common stock
$
Pro forma net tangible book value per share of Class A
    common stock at December 31, 2004
Increase in pro forma net tangible book value per share of
    Class A common attributable to new investors purchasing
    Class A common stock in this offering
Pro forma net tangible book value per share of common stock
    after this offering(1)
Pro forma dilution per share of common stock to new investors
$
(1)
If the underwriters' option to purchased additional shares
    is exercised in full, the dilution per share to new investors
    will be
    $         per share.
The following table summarizes, on a pro forma basis as of
December 31, 2004, the differences between our Parent
(currently our sole stockholder) and new investors with respect
to the number of shares of Class A common stock purchased
from us, the total consideration paid and the average price per
share paid before deducting the underwriting discounts and
commissions and our estimated offering expenses, assuming an
initial public offering price of
$           per
share and assuming that our Parent converted all outstanding
shares of our Class B common stock
into                      shares
of Class A common stock as of the date of this offering.
Shares Purchased
Total Consideration
Average
Price per
Number
Percent
Amount
Percent
Share
(Dollars in thousands, except per share amount)
Our Parent
$
$
Investors purchasing common stock in the offering
$
$
Total
100%
$
100%
$
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SELECTED FINANCIAL INFORMATION
We present below our selected combined consolidated financial
data. The selected combined consolidated statement of operations
for each of the years in the three-year period ended
December 31, 2004 and the selected combined consolidated
balance sheet data as of December 31, 2003 and 2004 have
been derived from the audited financial statements of WebMD
Health Holdings, Inc. included elsewhere in this prospectus. The
selected historical combined consolidated statement of
operations data for the year ended December 31, 2001 and
the combined consolidated balance sheet data as of
December 31, 2001 and 2002 have been derived from our
unaudited combined consolidated financial statements. Our
unaudited financial information was prepared on a basis
consistent with that used in preparing our audited combined
consolidated financial statements and includes all adjustments,
consisting of normal and recurring items, that we consider
necessary for a fair presentation of the financial position and
results of operations for the unaudited periods.
You should read the following selected combined consolidated
financial data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," the combined consolidated financial statements
and notes thereto and the unaudited pro forma financial
statements and related notes, all included elsewhere in this
prospectus.
Years Ended December 31,
2001
2002
2003
2004
(unaudited)
(in thousands)
Combined Consolidated Statements of Operations Data(1):
Revenue
$
74,626
$
84,203
$
110,152
$
134,148
Costs and expenses:
Cost of operations
75,946
47,420
46,552
51,879
Sales and marketing
83,316
47,814
47,369
48,701
General and administrative
30,359
17,377
19,010
21,277
Depreciation and amortization
883,923
2,486
4,463
5,620
Impairment of long-lived and other assets
1,415,888
—
—
—
Restructuring and integration charge (benefit)
114,918
(5,850
)
—
—
Other income
—
(823
)
—
—
Income (loss) before income tax provision
(2,529,724
)
(24,221
)
(7,242
)
6,671
Income tax provision
104
140
183
210
Net income (loss)
$
(2,529,828
)
$
(24,361
)
$
(7,425
)
$
6,461
As of December 31,
2001
2002
2003
2004
(unaudited)
(unaudited)
(in thousands)
Combined Consolidated Balance Sheets Data(1):
Cash and cash equivalents
$
520
$
149
$
358
$
3,456
Working capital (deficit)
(3,642
)
(547
)
3,384
9,119
Total assets
132,522
127,529
120,630
146,496
Owner's net investment
92,045
86,426
85,527
100,737
(1)
Our combined consolidated results of operations and balance
    sheet data as of and for the year ended December 31, 2000
    are not available. Our Parent managed its operations as a single
    business segment from its inception in 1995 until 2001 when, as
    a result of a restructuring plan, it segregated its business
    into multiple segments. As a result of this restructuring plan,
    as of January 1, 2001, our operations were identified and
    managed as a separate segment of our Parent. The Internet
    operations that were unrelated to our Parent's other
    segments were identified and established as the WebMD Health
    segment, which now comprises our company. It is impracticable to
    identify our results of operations for our company for periods
    prior to 2001 because our business was commingled with other
    operations of our Parent.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management's discussion and analysis of financial
condition and results of operations contains forward-looking
statements that involve risks and uncertainties. Please see
"Forward-Looking Statements" for a discussion of the
uncertainties, risks and assumptions associated with these
statements. The results of operations for the periods reflected
herein are not necessarily indicative of results that may be
expected for future periods, and our actual results may differ
materially from those discussed in the forward-looking
statements as a result of various factors, including but not
limited to those listed under "Risk Factors" and
included elsewhere in this prospectus. In this management's
discussion and analysis of financial condition and results of
operations, or MD&A, dollar amounts are in thousands.
Overview
MD&A is a supplement to our combined consolidated financial
statements and notes thereto included elsewhere in this
prospectus to provide an understanding of our results of
operations, financial condition, and changes in financial
condition. Our MD&A is organized as follows:
•
Introduction.
This section provides a general description
    of our company and operating segments, key trends affecting our
    business, a description of the basis of presentation of our
    financial statements, and a summary of the acquisitions we
    completed during the current year and the last three years.
•
Critical Accounting Policies and Estimates.
This section
    discusses those accounting policies that both are considered
    important to our financial condition and results of operations,
    and require us to exercise subjective or complex judgments in
    their application. In addition, all of our significant
    accounting policies, including our critical accounting policies,
    are summarized in Note 2 to the combined consolidated
    financial statements included in this Registration Statement.
•
Results of Operations and Results of Operations by Operating
    Segment.
These sections provide our analysis and outlook for
    the significant line items on our combined consolidated
    statements of operations, on both a company-wide and a
    segment-by-segment basis.
•
Liquidity and Capital Resources.
This section provides an
    analysis of our liquidity and cash flows, as well as a
    discussion of our commitments that existed as of
    December 31, 2004.
•
Recent Accounting Pronouncements.
This section provides a
    summary of the most recent authoritative accounting standards
    and guidance that have either been recently adopted by our
    company or may be adopted in the future.
Introduction
Our Company
We are a leading provider of health information services to
consumers, physicians and healthcare professionals. We have
aligned our business into two operating segments as follows:
•
Online Services.
We provide both public and private
    online portals. Our public portals generate revenue primarily
    through the sale of advertising and sponsorship products,
    including CME services. Our sponsors and advertisers include
    pharmaceutical, biotechnology, medical device and consumer
    products companies. Our private portals for employers and health
    plans provide information and services that enable their
    employees and members to make more informed benefit, provider
    and treatment decisions. We generate revenue from private
    portals through the licensing of our private portals to
    employers and health plans. We also distribute our online
    content and services to other entities and generate revenue from
    these arrangements through the sale of advertising and
    sponsorship products and content syndication fees.
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•
Publishing Services.
We publish:
ACP Medicine
and
ACS Surgery: Principles of Practice
, our medical
    reference textbooks;
The Little Blue Book,
a physician
    directory; and
WebMD the Magazine,
a consumer publication
    launched in early 2005 that we distribute free of charge to
    physician office waiting rooms. We generate revenue from sales
    of subscriptions to our medical reference publications, from
    sales of
The Little Blue Book
directories and from
    advertisements in those directories, as well as from sales of
    advertisements in
WebMD the Magazine.
Our publishing
    business is a complementary business to our Online Services and
    extends the reach of our brand and our influence with
    health-involved consumers and clinically-active physicians.
Key Trends Affecting Our Business
Our business is affected by the continuing evolution of the
Internet and by trends affecting the healthcare industry,
including changes in healthcare regulation. The key trends that
are influencing our current strategies and investments are:
•
Consumers, Physicians and Healthcare Professionals Are
    Increasingly Turning to the Internet.
The Internet is
    transforming the way health and medical information is accessed
    by consumers, physicians and healthcare professionals. The
    Internet allows consumers to have immediate access to searchable
    information and dynamic interactive content. Consumers have an
    increased interest in educating themselves about health and
    wellness issues, motivated in part by the continued availability
    of new treatment options and in part by the larger share of
    their healthcare expenditures they are being asked to bear due
    to changes in the design of health benefits being offered by
    health plans and employers. The Internet has also become a
    primary source of information for physicians and healthcare
    professionals and is growing relative to traditional information
    sources, such as conferences, meetings and offline journals.
    According to the Accreditation Council for Continuing Medical
    Education (ACCME), the Internet is an efficient way to educate
    physicians and healthcare professionals and to promulgate
    adherence to clinical guidelines in order to reduce the variance
    in treatment patterns and raise the quality of care management.
    Over the past several years, usage of our online services by
    consumers, physicians and healthcare professionals has grown
    significantly. While we cannot provide assurance that usage will
    grow as quickly as it has during the past several years, we
    intend to make the necessary investments to continue to provide
    high quality and timely content and interactive services and to
    continue to increase awareness of our brand.
•
Increased Online Marketing and Education Spending for
    Healthcare Products.
Pharmaceutical, biotechnology and
    medical device companies spend large amounts each year marketing
    their products and educating consumers and physicians about
    them, only a small portion of which is currently spent for
    online services. We believe that these companies are becoming
    increasingly aware of the effectiveness of the Internet relative
    to traditional media in providing appropriate health and
    clinical information to inform consumers and physicians about
    their products. We believe the increasing awareness of the value
    of the Internet is likely to result in continued increases in
    demand for our services from those advertisers and sponsors.
•
Continued Rapid Increases in Healthcare Costs.
According
    to a report from CMS, healthcare spending in the United States
    rose to $1.7 trillion in 2003, up from $1.6 trillion in 2002,
    $1.4 trillion in 2001 and $1.3 trillion in 2000. The CMS report
    indicated a growth rate in healthcare spending of 7.7% for 2003,
    compared to 9.3% for 2002, and 8.5% for 2001. While overall
    healthcare costs are rising at a rapid annual rate,
    employers' costs of providing healthcare benefits to their
    employees are increasing at an even faster rate. In response,
    employers and health plans have been changing benefit plan
    designs to increase consumer out-of-pocket costs and have taken
    other steps to motivate their members and employees to evaluate
    their healthcare decisions more carefully in order to be more
    cost effective. This has led employers and health plans to
    enhance wellness programs and to take steps to provide
    healthcare information and education to employees and members,
    including through the use of online services of the types we
    provide through our private portals. By implementing our
    services and making the needed information and decision-
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support tools available through a convenient and easy-to-use
    online service, employers and health plans can help their
    employees and members make choices that reduce overall
    healthcare costs. We expect the efforts to control healthcare
    costs to continue and to create opportunities for additional
    revenue from providing existing and new products and services
    through our private portals and our public portals.
In addition, there are other trends that we believe may become
more important over the next several years, including the
increasing focus at various levels of government on the
potential benefits of increased use of healthcare information
technology and related services.
Basis of Presentation
Our Parent managed its operations as a single segment from its
inception in 1995 until 2001 when, as a result of a
restructuring plan, it segregated its business into multiple
segments. As a result of this restructuring plan, as of
January 1, 2001, our operations were identified and managed
as a separate segment of our Parent. The Internet operations
that were unrelated to our Parent's other segments were
identified and established as the WebMD Health business segment,
which now comprises our company.
Our combined consolidated financial statements have been derived
from the consolidated financial statements and accounting
records of our Parent, principally representing the WebMD Health
segment, using the historical results of operations, and
historical basis of assets and liabilities of the WebMD Health
related businesses. Management believes the assumptions
underlying the combined consolidated financial statements are
reasonable. However, the combined consolidated financial
statements included herein may not necessarily reflect our
results of operations, financial position and cash flows in the
future or what our results of operations, financial position and
cash flows would have been had we been a stand-alone company
during the periods presented.
Acquisitions
On March 14, 2005, we acquired HealthShare Technology,
Inc., which we refer to as "HealthShare". The purchase
price paid at closing was approximately $31,000 in cash. In
addition, we have agreed to pay up to an additional $5,000
during 2006 if certain milestones are achieved. HealthShare
provides health plans and employers, and their members and
employees, with online decision-support tools that evaluate both
the cost and quality of hospital care. HealthShare also provides
professional decision-support tools used by health plan
executives to develop provider networks, identify centers of
excellence, and evaluate comparative hospital quality.
HealthShare tools are also used by hospitals to provide online
decision-support to help enhance quality of care, manage costs
and profitability, and better understand market position. The
results of operations of HealthShare will be included in our
Online Services segment beginning March 14, 2005, the
closing date of the acquisition.
In 2004, we acquired two companies, MedicineNet, Inc. and
RxList, LLC, which we refer to as the "2004
Acquisitions", for a total purchase consideration of
approximately $22,489, comprised of $20,894 in cash, net of cash
acquired, $838 to be paid during the next two years and $757 of
estimated acquisition costs. In connection with the preliminary
allocation of the purchase prices, we recorded goodwill of
$13,387 and intangible assets of $8,216, with estimated useful
lives ranging from two to five years. Additionally, we agreed to
pay in 2006 and 2007 up to an additional aggregate amount of
$20,000 if certain milestones are achieved for these
acquisitions. The 2004 Acquisitions are included in our Online
Services segment.
In 2003, we acquired
The Little Blue Book
and Optate,
Inc., which we refer to as the "2003 Acquisitions" for
a total purchase consideration of approximately $14,113,
comprised of $13,926 in cash, net of cash acquired, and $187 of
acquisition costs. We agreed to pay up to an additional $2,500
if certain milestones are achieved. In connection with the
initial allocation of the purchase prices, we recorded goodwill
of $12,615 and intangible assets of $3,525, with estimated
useful lives of three to seven years. In addition, we paid an
additional purchase price of $1,500 and $1,000 in April 2004 and
2005, respectively, as a result of achieving the milestones
noted above, with such payments being recorded as increases to
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goodwill.
The Little Blue Book
is included in our
Publishing Services segment and Optate is included in our Online
Services segment.
In 2002, we acquired one company, WellMed, Inc., which we refer
to as the "2002 Acquisition" for a total purchase
consideration of approximately $19,013, comprised of $18,763 in
cash and $250 of acquisition costs. In connection with the
allocation of the purchase price, we recorded goodwill of
$18,380 and an intangible asset of $2,700, with an estimated
useful life of three years. The 2002 Acquisition is included in
our Online Services segment.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our combined consolidated
financial statements and notes to combined consolidated
financial statements, which were prepared in conformity with
U.S. generally accepted accounting principles. The
preparation of the combined consolidated financial statements
requires us to make estimates and assumptions that affect the
amounts reported in the combined consolidated financial
statements and accompanying notes. We base our estimates on
historical experience, current business factors, and various
other assumptions that we believe are necessary to form a basis
for making judgments about the carrying values of assets and
liabilities and disclosure of contingent assets and liabilities.
We are subject to uncertainties such as the impact of future
events, economic, environmental and political factors, and
changes in our business environment; therefore, actual results
could differ from these estimates. Accordingly, the accounting
estimates used in preparation of our financial statements will
change as new events occur, as more experience is acquired, as
additional information is obtained and as our operating
environment changes. Changes in estimates are made when
circumstances warrant. Such changes in estimates and refinements
in estimation methodologies are reflected in reported results of
operations; if material, the effects of changes in estimates are
disclosed in the notes to our combined consolidated financial
statements.
We evaluate our estimates on an ongoing basis, including those
related to revenue recognition, the allowance for doubtful
accounts, the carrying value of prepaid advertising, the
carrying value of long-lived assets (including goodwill and
intangible assets), the amortization period of long-lived assets
(other than goodwill), the carrying value, capitalization and
amortization of software development costs, the provision for
income taxes and related deferred tax accounts, certain accrued
expenses and contingencies, transactions with Parent and the
value attributed to warrants issued for services.
We believe the following reflects our critical accounting
policies and our more significant judgments and estimates used
in the preparation of our combined consolidated financial
statements:
•
Revenue Recognition
— Revenues from advertising
    are recognized as advertisements are delivered or as
    publications are distributed. Revenues from sponsorship
    arrangements, content syndication and distribution arrangements
    and licenses of our healthcare management tools and private
    online portals are recognized ratably over the term of the
    applicable agreement. Revenue from the sponsorship of CME is
    recognized over the period we satisfy the minimum distribution
    requirements. Subscription revenue is recognized over the
    subscription period. When contractual arrangements contain
    multiple elements, revenue is allocated to the elements based on
    their relative fair values, determined using prices charged when
    elements are sold separately.
•
Long-Lived Assets
— Our long-lived assets
    consist of property and equipment, goodwill and other intangible
    assets. Goodwill and other intangible assets arise from the
    acquisitions we have made. The amount assigned to intangible
    assets is subjective and based on our estimates of the future
    benefit of the intangible assets using accepted valuation
    techniques, such as discounted cash flow and replacement cost
    models. Our long-lived assets, other than goodwill, are
    amortized over their estimated useful lives, which we determined
    based on the consideration of several factors including the
    period of time the asset is expected to remain in service. We
    evaluate the carrying value and remaining useful lives of
    long-lived assets, other than goodwill, whenever indicators of
    impairment are present. We evaluate the carrying value of
    goodwill annually, and whenever indicators of impairment are
    present. We use a discounted cash flow approach to determine the
    fair value of
34
Table of Contents
goodwill. There was no impairment of goodwill noted as a result
    of our impairment testing in 2002, 2003 or 2004.
•
Deferred Tax Assets
— Our deferred tax assets
    are comprised primarily of net operating loss carryforwards. At
    December 31, 2004, we had net operating loss carryforwards
    of approximately $607,000. Subject to certain limitations, these
    loss carryforwards may be used to offset taxable income in
    future periods, reducing the amount of taxes we might otherwise
    be required to pay. Due to a lack of a history of generating
    taxable income, we record a valuation allowance equal to 100% of
    our net deferred tax assets. In the event that we are able to
    generate taxable earnings in the future and determine it is more
    likely than not that we can realize our deferred tax assets, an
    adjustment to the valuation allowance would be made which may
    increase income in the period that such determination is made,
    and may decrease income in subsequent periods.
•
Transactions with Parent
— Our expenses reflect
    a services fee for costs related to corporate services provided
    by our Parent for accounting, tax, treasury, legal, human
    resources, certain information technology functions and other
    services. The services fee is based on an estimate of the cost
    of such services utilized by us and is determined based on a
    specific identification basis where appropriate or an allocation
    based upon total employees of both us and our Parent or other
    reasonable measures of allocation. Our expenses also reflect
    healthcare expenses related to the cost of our Parent's
    healthcare plans and stock compensation expense related to
    restricted stock awards and deferred stock compensation. Our
    sales and marketing expense reflects an allocation to our Parent
    for the utilization of our advertising services available to us
    from News Corporation. We and our Parent consider the services
    fee, healthcare expenses and stock compensation, as well as the
    allocation of advertising services to our Parent, to be a
    reasonable estimate of the utilization of the services. Our cost
    and benefit received as a stand-alone company would likely be
    different than the amounts reflected in the combined
    consolidated statements of operations. After the completion of
    this initial public offering, our expenses related to these
    items will be governed by a services agreement that we expect to
    enter into with our Parent.
Results of Operations
The following table sets forth our combined consolidated
statements of operations data and expresses that data as a
percentage of revenue for the periods presented (amounts in
thousands):
Years Ended December 31,
2002
2003
2004
Revenue
$
84,203
100.0
%
$
110,152
100.0
%
$
134,148
100.0
%
Costs and expenses:
Cost of operations
47,420
56.3
46,552
42.3
51,879
38.7
Sales and marketing
47,814
56.8
47,369
43.0
48,701
36.3
General and administrative
17,377
20.6
19,010
17.3
21,277
15.9
Depreciation and amortization
2,486
3.0
4,463
4.0
5,620
4.1
Restructuring and integration benefit
(5,850
)
(6.9
)
—
—
—
—
Other income
(823
)
(1.0
)
—
—
—
—
Income (loss) before income tax provision
(24,221
)
(28.8
)
(7,242
)
(6.6
)
6,671
5.0
Income tax provision
140
0.1
183
0.1
210
0.2
Net income (loss)
$
(24,361
)
(28.9
)%
$
(7,425
)
(6.7
)%
$
6,461
4.8
%
Revenue is derived from our two business segments: Online
Services and Publishing Services. Online Services include
advertising, sponsorship, including online CME services, content
syndication and distribution, and licenses of private online
portals to employers and healthcare payers. Publishing Services
35
Table of Contents
include sales of, and advertising in, physician directories,
subscriptions to professional medical reference textbooks,
broadcast fax services, and advertisements in our consumer
publication distributed to physician waiting rooms. Our
customers include pharmaceutical, biotechnology, medical device
and consumer products companies, as well as employers and health
plans.
Cost of operations consists of costs related to services and
products we provide to customers and costs associated with the
operation and maintenance of our public and private portals.
These costs include editorial and production, Web site
operations and development, and costs related to the production
and distribution of our publications. These costs consist of
expenses related to compensation, creating and licensing
content, telecommunication, leased personnel, printing and
distribution, and non-cash advertising expenses related to the
sale of offline advertising through our media partners.
Sales and marketing expense consists primarily of advertising,
product and brand promotion, salaries and related expenses.
These expenses include items related to salaries and related
expenses of account executives, account management and marketing
personnel, costs and expenses for marketing programs, and fees
for professional marketing and advertising services. Also
included are non-cash expenses related to advertising services
acquired in exchange for equity securities of our Parent.
Advertising services consist of advertising, promotion and
distribution services incurred under our arrangements with News
Corporation, America Online, Inc. (AOL) and other partners.
General and administrative expense consists primarily of
salaries and related expenses of administrative, finance, legal,
information technology, human resources and executive personnel.
These expenses include costs of general insurance and costs of
accounting and internal control systems to support our
operations, a services fee for our portion of certain expenses
shared across all segments of Parent, as well as facilities
expense. Also included are non-cash expenses related to stock
compensation resulting from restricted stock awards in our
Parent's common stock that have been granted to certain of
our employees and stock options assumed or issued in connection
with certain acquisitions with exercise prices less than the
fair market value of our Parent's stock on the date of
grant.
Our revenues have increased to $134,148 in 2004 from $84,203 in
2002, an increase of $49,945. Our net income for 2004 was $6,461
compared to a net loss of $24,361 in 2002, an improvement of
$30,822. We cannot assure you that our revenues or net income
will continue to increase; however, to the extent that our
revenues increase in the future, we expect that our net income
as a percentage of our revenues will continue to increase.
2004 and 2003
The following discussion is a comparison of our results of
operations on a combined consolidated basis for the year ended
December 31, 2004 to the year ended December 31, 2003.
Revenue
Our total revenues increased 21.8% to $134,148 in 2004 from
$110,152 in 2003. Online Services and Publishing Services
accounted for $20,136 or 83.9% and $3,860 or 16.1%, of the
revenue increase, respectively. The increase in Publishing
Services revenue was primarily due to the full year impact of
the 2003 acquisition of
The Little Blue Book
. Our
revenues from customers acquired through our acquisitions in
2004 were not a significant portion of our 2004 revenues because
these acquisitions occurred late in 2004. Included in our 2004
and 2003 revenues are $12,000 per year relating to our content
syndication agreement with News Corporation, which expired in
January 2005.
Costs and Expenses
Our company achieved a significant increase in combined
consolidated revenues without incurring a proportionate increase
in expenses. This resulted in an improvement in cost of
operations, sales and marketing and general and administrative
expenses as a percentage of revenue when comparing 2004 to 2003.
36
Table of Contents
Cost of Operations.
Cost of operations increased to
$51,879 in 2004 from $46,552 in 2003. Our cost of operations
represented 38.7% of revenues in 2004, compared to 42.3% of
revenue in 2003. Included in cost of operations were non-cash
advertising costs of $901 and $2,757 for 2004 and 2003,
respectively, which reflects lower sales of offline advertising
in 2004. Excluding the non-cash advertising costs, cost of
operations increased to $50,978 in 2004 or 38.0% of revenue from
$43,795 in 2003 or 39.8% of revenue. The $7,183 increase was
attributable to increased spending on information technology
and, to a lesser extent the full year impact in 2004 of printing
and distribution costs as a result of the 2003 acquisition of
The Little Blue Book.
Sales and Marketing.
Sales and marketing expense
increased to $48,701 in 2004, from $47,369 in 2003, which
represents an increase of $1,332. Included in sales and
marketing expense were non-cash expenses related to advertising
and distribution services of $11,246 in 2004, a decrease from
$16,211 in 2003. This decrease was primarily due to a decline in
the expense related to our distribution arrangement with AOL
which was fully amortized in May 2004. Sales and marketing
expense excluding these non-cash expenses was $37,455, or 27.9%
of revenue in 2004, compared to $31,158, or 28.3% of revenue in
2003. The $6,297 increase is due to compensation related costs
due to a combination of increased commissions and increased
staffing, and the full year impact in 2004 of the acquisition of
The Little Blue Book.
General and Administrative.
General and administrative
expense increased to $21,277 in 2004 from $19,010 in 2003.
Included in general and administrative expense are non-cash
expenses of $1,749 and $1,597 in 2004 and 2003, related to stock
compensation expense, which was higher in 2004 compared to 2003
primarily due to additional compensation expense related to
restricted stock issued to certain employees in early 2004.
General and administrative expense excluding these non-cash
expenses was $19,528 or 14.6% of revenue in 2004, compared to
$17,413 or 15.8% of revenue in 2003. The $2,115 increase is due
to increases in personnel related expenses resulting from an
increase in the number of our staff, and the full year impact in
2004 of the 2003 acquisition of
The Little Blue Book
. We
expect to report a charge related to the recruitment of our
co-CEO and the resignation of our former CEO during the second
quarter of 2005 in an amount of approximately $2.2 million.
Depreciation and Amortization.
Depreciation and
amortization expense increased to $5,620 in 2004 from $4,463 in
2003. The increase was primarily due to intangible assets
relating to the 2004 Acquisitions and 2003 Acquisitions.
Income Tax Provision.
Income tax provision in 2004 and
2003 primarily represents taxes from profitable operations in
certain jurisdictions in which we do not have net operating
losses to offset that income. Accordingly, we provided for taxes
of $210 and $183 related to state and other jurisdictions during
2004 and 2003, respectively.
2003 and 2002
The following discussion is a comparison of our results of
operations on a combined consolidated basis for the year ended
December 31, 2003 to the year ended December 31, 2002.
Revenue
Our total revenues increased 30.8% to $110,152 in 2003 from
$84,203 in 2002. Online Services and Publishing Services
accounted for $20,702 or 79.8% and $5,247 or 20.2%, of the
revenue increase, respectively. The increase is primarily
related to increased sales of our Online Services products and,
to a lesser extent, Publishing Services products. Revenue from
customers acquired through the 2003 Acquisitions and 2002
Acquisition contributed $9,579 to the overall increase in
revenue for 2003. We integrate acquisitions as quickly as
practicable, and only revenue recognized during the first twelve
months following the quarter in which the acquisitions close is
considered to be revenue from acquired customers. Included in
2003 and 2002 revenues are $12,000 per year relating to our
content syndication agreement with News Corporation, which
expired in January 2005.
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Table of Contents
Costs and Expenses
Our company achieved a significant increase in combined
consolidated revenues without incurring a proportional increase
in expenses. This resulted in an improvement in cost of
operations, sales and marketing and general and administrative
expenses as a percentage of revenue when comparing 2003 to 2002.
Cost of Operations.
Cost of operations decreased to
$46,552 in 2003 from $47,420 in 2002. Our cost of operations
represented 42.3% of revenues in 2003, compared to 56.3% of
revenue in 2002. Included in cost of operations were non-cash
advertising costs of $2,757 and $3,945 for 2003 and 2002,
respectively, which reflects lower sales of offline advertising
in 2003. Cost of operations excluding these non-cash advertising
expenses was $43,795 in 2003 compared to $43,475 in 2002. The
$320 increase is due to the full year impact of the 2002
Acquisition and the partial year impact of increased printing
and distribution costs as a result of the 2003 acquisition of
The Little Blue Book,
offset by the full year impact of
reduced compensation related expense as a result of the
consolidation of Web site development and operations effected
during 2002.
Sales and Marketing.
Sales and marketing expense
decreased to $47,369 in 2003, compared to $47,814 in 2002.
Included in sales and marketing expense are non-cash expenses
related to advertising and distribution services of $16,211 in
2003, compared to $18,864 in 2002. Sales and marketing expense
excluding the non-cash expenses previously discussed was
$31,158, or 28.3% of revenue in 2003, compared to $28,950, or
34.4% of revenue in 2002. The $2,208 increase was due to a
significant increase in membership acquisition costs in 2003,
primarily related to the acquisition of a membership database,
increased staffing as a result of the full year impact of the
2002 Acquisition and the partial year impact of the 2003
acquisition of
The Little Blue Book,
offset by a
reduction in fees for marketing and advertising services.
General and Administrative.
General and administrative
expense increased to $19,010 in 2003 from $17,377 in 2002.
Included in general and administrative expense are non-cash
expenses related to stock compensation of $1,597 in 2003,
compared to $2,665 in 2002. The decrease in non-cash stock
compensation was primarily related to the vesting schedules of
options issued and assumed in connection with our 2000
acquisitions. General and administrative expense excluding these
non-cash expenses was $17,413, or 15.8% of revenue in 2003,
compared to $14,712, or 17.5% of revenue in 2002. The $2,701
increase is due to the full year impact of the 2002 Acquisition
and the partial year impact of the 2003 acquisition of
The
Little Blue Book
.
Depreciation and Amortization.
Depreciation and
amortization expense increased to $4,463 in 2003 from $2,486 in
2002. The increase was primarily due to amortization of
intangible assets relating to certain 2003 Acquisitions and a
2002 Acquisition.
Restructuring and Integration Benefit.
During 2000 and
2001, our Parent initiated a restructuring, during which many
business relationships were exited or restructured in an effort
to reduce operating losses. During 2002, we recorded a benefit
of $5,850 related to the 2000 and 2001 restructuring activity
resulting from the favorable settlements of certain of these
restructured arrangements.
Income Tax Provision.
Income tax provision in 2003 and
2002 primarily represents taxes from profitable operations in
certain states in which we do not have net operating losses to
offset that income. Accordingly, we provided for taxes of $183
and $140 related to state and other jurisdictions during 2003
and 2002, respectively.
Results of Operations by Operating Segment
We monitor the performance of our business based on income or
loss before restructuring, taxes, non-cash and other items.
Non-cash and other items include depreciation and amortization,
other income, non-cash advertising and distribution expenses
related to services acquired in exchange for our Parent's
equity securities in acquisitions and strategic alliances, and
stock compensation expense. Corporate and other overhead
functions are allocated to segments on a specifically
identifiable basis or other reasonable method
38
Table of Contents
of allocation. We consider these allocations to be a reasonable
reflection of the utilization of costs incurred. We do not
disaggregate assets for internal management reporting and,
therefore, such information is not presented. There are no
inter-segment revenue transactions and, therefore, revenues are
only to external customers.
The following table presents the results of our operations for
each of our operating segments and a reconciliation to net
income (loss):
Years Ended December 31,
2002
2003
2004
(in thousands)
Revenues
Online Services:
Advertising and promotion
$
61,611
$
71,618
$
83,828
Licensing
830
8,923
15,841
Content syndication and other
17,008
19,610
20,618
Total Online Services
79,449
100,151
120,287
Publishing Services
4,754
10,001
13,861
$
84,203
$
110,152
$
134,148
Income (loss) before restructuring, taxes, non-cash and other
    items
Online Services
$
(2,086
)
$
16,145
$
24,902
Publishing Services
(848
)
1,641
1,285
(2,934
)
17,786
26,187
Restructuring, taxes, non-cash and other items
Depreciation and amortization
(2,486
)
(4,463
)
(5,620
)
Non-cash advertising and distribution
(22,809
)
(18,968
)
(12,147
)
Non-cash stock compensation
(2,665
)
(1,597
)
(1,749
)
Restructuring and integration benefit
5,850
—
—
Other income
823
—
—
Income tax provision
(140
)
(183
)
(210
)
Net income (loss)
$
(24,361
)
$
(7,425
)
$
6,461
2004 and 2003
The following discussion is a comparison of the results of
operations for each of our operating segments for the year ended
December 31, 2004 to the year ended December 31, 2003.
Online Services.
Revenues were $120,287 in 2004, an
increase of $20,136 or 20.1% from 2003. The increase was related
to increased advertising and sponsorship revenue related to our
public portals and licensing revenues from our private online
portals. The revenue increase is primarily due to increased
demand for our public and private portals. Included in content
syndication and other revenues for 2004 and 2003 are
$12,000 per year related to our content syndication
agreement with News Corporation which expired in January 2005.
Income before restructuring, taxes, non-cash and other items was
$24,902 in 2004, an increase of $8,757 or 54.2% from 2003. As a
percentage of revenue, income before restructuring, taxes,
non-cash and other items was 20.7% in 2004, compared to 16.1% in
2003. The growth in earnings and margins is due to our ability
to deliver the increased revenues without incurring a
proportionate share of variable expenses.
39
Table of Contents
Publishing Services.
Revenues were $13,861 in 2004,
compared to $10,001 for 2003. The increase was attributable to
the full year impact of the 2003 acquisition of
The Little
Blue Book.
Income before restructuring, taxes, non-cash and
other items was $1,285 in 2004, a decrease of $356 from 2003.
Our Publishing Services segment is seasonal, where approximately
70% of our revenues were generated during the second and third
quarter of 2004 when the majority of our physician directories
are delivered. Due to the full year impact of
The Little Blue
Book
acquisition on 2004 fixed expenses, as a percentage of
revenue, income before restructuring, taxes, non-cash and other
items declined to 9.3% in 2004, compared to 16.4% in 2003.
2003 and 2002
The following discussion is a comparison of the results of
operations for each of our operating segments for the year ended
December 31, 2003 to the year ended December 31, 2002.
Online Services.
Revenues were $100,151 in 2003, an
increase of $20,702 or 26.1% from 2002. Revenues from customers
acquired through the 2003 Acquisitions contributed $5,853 to the
increase in revenue. The remaining increase of $14,849 for 2003
was primarily the result of increased sales related to
advertising and sponsorship on our public portals and licensing
revenues from our private online portals. Included in content
syndication and other revenue for 2003 and 2002 is
$12,000 per year related to our content syndication
agreement with News Corporation which expired in January 2005.
Income (loss) before restructuring, taxes, non-cash and other
items was $16,145 in 2003, an increase of $18,231 from a 2002
loss of $2,086. As a percentage of revenue, income (loss) before
restructuring, taxes, non-cash and other items was 16.1% in
2003, compared to (2.6%) in 2002. The growth in earnings and
margins is due our ability to deliver the increased revenues
without incurring a proportionate share of variable expenses.
Publishing Services.
Revenues were $10,001 in 2003,
compared to $4,754 for 2002. Revenues from customers acquired
through the 2003 Acquisitions contributed $3,726 to the increase
in revenue. The remaining increase of $1,521 for 2003 was
attributable to growth in advertising revenues for
The Little
Blue Book.
Income (loss) before restructuring, taxes,
non-cash and other items was $1,641 in 2003, an increase of
$2,489 from a loss in 2002 of $848. As a percentage of revenue,
income before restructuring, taxes, non-cash and other items was
16.4% in 2003, compared to (17.8)% in 2002. The improvement is
due primarily to the acquisition of
The Little Blue Book.
Liquidity and Capital Resources
Our primary source of financing has been net cash amounts
received from our Parent. Our Parent will continue to finance
our operations until this offering is completed. We will be
receiving the net proceeds of this offering and following
completion of this offering, Parent will have no obligation to
provide any additional financing. We plan to continue to enhance
the relevance of our online services to our audience and
sponsors and will continue to invest in acquisitions, strategic
relationships, infrastructure and product development. We intend
to grow each of our existing businesses and enter into
complementary ones through both internal investments and
acquisitions.
Cash provided by operating activities was $18,138 in 2004,
compared to cash provided by operating activities of $2,917 in
2003. The cash provided by operating activities in 2004 was
attributable to net income of $6,461 and non-cash charges of
$19,516, partially offset by net changes in operating assets and
liabilities of $7,839. The impact of changes in operating assets
and liabilities may change in future periods, depending on the
timing of each period end in relation to items such as internal
payroll and billing cycles, payments from customers and payments
to vendors. The cash provided by operating activities in 2003
was attributable to a net loss of $7,425 and net changes in
operating assets and liabilities of $14,686, offset by non-cash
charges of $25,028. The non-cash charges consist of depreciation
and amortization, non-cash expenses related to advertising and
distribution and stock compensation.
Cash used in investing activities was $26,742 in 2004, compared
to cash used in investing activities of $15,444 in 2003. Cash
paid for business acquisitions, net of cash acquired, was
$22,421 in 2004 and
40
Table of Contents
primarily related to the 2004 Acquisitions. The 2003
Acquisitions consumed cash of $13,926 net of cash acquired.
Investments in property and equipment were $4,321 in 2004,
compared to $1,518 in 2003.
Cash provided by financing activities was $11,702 in 2004,
compared to cash provided by financing activities of $12,736 in
2003. Cash provided by financing activities for 2004 and 2003
related to net cash amounts received from our Parent.
Our principal commitments at December 31, 2004 consisted
primarily of our obligations under operating leases and
contingent consideration payments of up to an aggregate of
$20,000 related to certain acquisitions achieving certain
milestones. Additionally, in connection with the March 2005
acquisition of HealthShare, we committed to pay up to an
additional $5,000 during 2006 if certain milestones are achieved.
The following table summarizes our principal commitments as of
December 31, 2004, as well as management's estimates
of the timing of the cash flows associated with these
commitments. Management's estimates of the timing of future
cash flows are largely based on historical experience, and
accordingly, actual timing of cash flows may vary from these
estimates. The contingent consideration payments of up to an
aggregate of $25,000, have not been included in the table below
as it is impracticable to estimate the timing or amount of any
payments related to these commitments.
Less Than
More Than
Total
1 Year
1-3 Years
4-5 Years
5 Years
(in thousands)
Leases(1)
$
35,389
$
2,351
$
7,034
$
6,047
$
19,957
Purchase obligations(2)
19
19
—
—
—
Strategic relationships(3)
1,379
754
625
—
—
Total
$
36,787
$
3,124
$
7,659
$
6,047
$
19,957
(1)
The lease amounts are net of sublease income.
(2)
Purchase obligations include amounts committed under legally
    enforceable contracts or purchase orders for goods and services
    with defined terms as to price, quantity and delivery.
(3)
The strategic relationships represent commitments in connection
    with content and distribution services obtained for use on our
    Web site and certain distribution arrangements.
We believe that the net proceeds from this offering, together
with our available cash resources and future cash flow from
operations, will provide sufficient cash resources to meet the
commitments described above and our currently anticipated
working capital and capital expenditure requirements for the
foreseeable future, including the capital requirements of
approximately $20 million in 2005 primarily related to the
roll-out of new or updated products and services and the
relocation of our offices. Our future liquidity and capital
requirements will depend upon numerous factors, including
retention of customers at current volume and revenue levels, our
existing and new application and service offerings, competing
technological and market developments, and potential future
acquisitions. In addition, our ability to generate cash flow is
subject to numerous factors beyond our control, including
general economic, regulatory and other matters affecting us and
our customers. We may need to raise additional funds to support
expansion, develop new or enhanced applications and services,
respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated
opportunities. If required, we may raise such additional funds
through public or private debt or equity financing, strategic
relationships or other arrangements. We cannot assure you that
such financing will be available on acceptable terms, if at all,
or that such financing will not be dilutive to our stockholders.
Future indebtedness may impose various restrictions and
covenants on us that could limit our ability to respond to
market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.
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Table of Contents
Qualitative and Quantitative Disclosures About Market Risk
We have had no exposure to interest rate sensitivity or exchange
rate sensitivity. We have no investments as of December 31,
2004 and we do not conduct business in foreign currencies. We
may have future risk related to interest rate sensitivity if we
invest the net proceeds from the sale of our Class A common
stock in certain types of interest bearing obligations.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123, "(Revised
2004): Share-Based Payment" ("SFAS 123R"),
which replaces SFAS No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") and
supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees." SFAS 123R requires all
share-based payments to employees, including grants of stock
options by us and our Parent to our employees, to be recognized
in the financial statements based on their fair values. The pro
forma disclosures previously permitted under SFAS 123 no
longer will be an alternative to financial statement
recognition. We anticipate adopting SFAS 123R in the first
quarter of 2006. Under SFAS 123R, we must determine the
appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The transition
methods include prospective and retroactive adoption options.
Under the retroactive option, prior periods may be restated
either as of the beginning of the year of adoption or for all
periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options
and restricted stock at the beginning of the first quarter of
adoption of SFAS 123R. We are evaluating the requirements
of SFAS 123R and expect that the adoption of SFAS 123R
will have a material impact on the combined consolidated results
of operations and earnings per share. We have not yet determined
the method of adoption or the effect of adopting SFAS 123R.
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Table of Contents
BUSINESS
Overview
We are a leading provider of health information services to
consumers, physicians and healthcare professionals through our
public and private online portals. The online healthcare
information, decision-support applications and communications
services that we provide:
•
enable consumers to obtain detailed information on a particular
    disease or condition, analyze symptoms, locate physicians, store
    individual healthcare information, receive periodic
    e-newsletters on topics of individual interest, enroll in
    interactive courses and participate in online communities with
    peers and experts;
•
make it easier for physicians and healthcare professionals to
    access clinical reference sources, stay abreast of the latest
    clinical information, learn about new treatment options, earn
    CME credits and communicate with peers; and
•
enable employers and health plans to provide their employees and
    plan members with access to personalized health and benefit
    information and decision-support technology that helps them make
    more informed benefit, provider and treatment choices.
We believe that we are well positioned to meet both consumer and
physician demand for timely, reliable and comprehensive health
information. We provide online services through several branded
public portals, including
WebMD Health,
our primary
public portal for consumers, and
Medscape from WebMD,
our
public portal for physicians and healthcare professionals.
WebMD Health
and our other consumer portals provide
timely and credible healthcare and lifestyle information and
assist consumers in taking an active role in managing their
health.
The WebMD Health Network
had an average of approximately
23 million aggregate unique users per month and generated
approximately 588 million aggregate page views in the first
quarter of 2005. We believe our focus on creating and organizing
high quality content and offering innovative interactive
services has made
The WebMD Health Network
the leading
online health destination and has made the WebMD brand among the
most recognized and trusted in healthcare. According to recent
studies conducted by Manhattan Research, WebMD is the
information source most frequently recommended by physicians to
their patients for healthcare information and
Medscape from
WebMD
is the information source most recommended by
physicians to their peers.
Our public portals generate revenue primarily through the sale
of advertising and sponsorship products, including CME services.
We do not charge user fees for access to our public portals.
The WebMD Health Network
provides an efficient and
effective means for sponsors to reach, educate and inform target
audiences of health-involved consumers and clinically-active
physicians within the trusted environment of WebMD. We work
closely with our sponsors to develop programs for specific
groups of consumers, physicians and healthcare professionals and
give them placement on the most relevant areas on our portals.
Our advertisers and sponsors consist primarily of
pharmaceutical, biotechnology and medical device companies. We
are also increasingly attracting advertising sponsorships from
consumer products companies whose products relate to health,
wellness, diet, fitness, lifestyle, safety and illness
prevention.
Our private portals enable employees and health plan members to
make more informed benefit, provider and treatment decisions. We
provide a personalized user experience by integrating individual
user data (including personal health information), plan-specific
data from our employer or health plan clients and much of the
content, decision-support technology and personal communication
services that we make available through our public portals. We
generate revenue from private portals through the licensing of
our content and technology to employers, such as American
Airlines, Inc., Microsoft Corporation and PepsiCo, Inc., and to
health plans, such as Blue Cross Blue Shield of Massachusetts,
Cigna and Empire Blue Cross and Blue Shield.
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In addition to our online presence, we also have a publishing
segment that provides complementary offline health content to
our user community. Our publications increase awareness of our
brand with consumers, physicians and healthcare professionals.
These publications include
The Little Blue Book,
a
physician directory, and
WebMD the Magazine,
a consumer
publication launched in early 2005 that we distribute free of
charge to physician office waiting rooms.
Our Strengths
Our goal is to provide an efficient and effective means for
advertisers and sponsors to reach, educate and influence
health-involved consumers and clinically-active physicians
within the trusted environment of WebMD. We believe that we are
able to fulfill the needs of our clients with a differentiated
offering based on our following strengths:
•
Our brand is widely recognized and viewed as a trusted source of
    health and wellness information.
•
The WebMD Health Network
is the leading online health
    destination today. We had an average of approximately
    23 million aggregate unique users per month and generated
    approximately 588 million page views in the first quarter
    of 2005.
•
Medscape from WebMD
is the leading online provider of CME
    programs, with approximately 63% of the online market for CME
    services in 2003.
•
We are able to offer advertisers and sponsors programs that
    deliver their message to either our entire audience or to more
    targeted audiences of consumers, physicians and other healthcare
    professionals based upon their interests our specialties.
•
We are able to offer advertisers and sponsors programs to reach
    both health-involved consumers and clinically-active physicians.
•
We have good working relationships with our advertising and
    sponsorship clients and a track record of providing them with a
    more efficient use of their marketing expenditures compared to
    traditional media.
•
We have the ability to offer employers and health plans a
    platform that provides a personalized user experience for
    employees and health plan members, including access to
    individual user data, specific health plan benefit data,
    relevant health-oriented content, treatment decision-support
    applications, personal communication services, and integrated
    third party applications and data.
•
Our senior management's experience in and understanding of
    the healthcare industry allows us to respond quickly to
    developing industry trends with new products and services based
    on our existing content, infrastructure and capabilities.
Industry Background
The Internet
General.
The Internet has emerged as a major
communications medium, enabling millions of users to obtain and
share information and to interact and conduct business on a
real-time basis. According to industry sources, approximately
120 million American adults use the Internet on a monthly
or more frequent basis, with an estimated 90 million users
now accessing the Internet as an integral part of their every
day routine. Despite its short history, studies show that users
now devote more hours of the day to the Internet than to any
other medium. A 2004 Manhattan Research study showed that
consumers rely on the Internet as a convenient, trusted source
of healthcare information, decision-support and communication,
and that their satisfaction with general health information on
the Internet is greater than traditional sources, such as their
neighborhood library and magazines, and second only to
physicians. Rising healthcare costs and the greater financial
responsibility consumers will have for their healthcare will
increase consumers' reliance on the Internet to help inform
their choices. The Internet allows consumers to have immediate
access to searchable and dynamic interactive content to check
symptoms, assess risks, understand diseases, find providers and
evaluate treatment options.
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Effect on Healthcare.
The Internet has already
fundamentally changed many sectors of the economy, including the
marketing and sales of financial services, travel, and
entertainment, among others. The Internet is also changing the
healthcare industry, as more consumers and physicians use it as
a convenient source for up-to-date health information and
interactive decision-support tools. Until recently, quality
healthcare information was not easily accessible. Most consumers
relied on their physicians, conversations with family and
friends, their neighborhood library and magazines when they
needed answers to healthcare questions. Physicians relied on
other physicians, medical societies, journals and other
publications, reference textbooks, conferences, pharmaceutical
sales representatives and industry meetings to keep informed.
Now, consumers and physicians are able to easily access
information online. According to Manhattan Research, of those
consumers who seek additional information as the result of an
offline advertisement, more than half will use the Internet. A
Manhattan Research subscription study in early 2004 cites that
approximately 63% of physicians read e-journals and
approximately 46% complete online CME programs on at least a
monthly basis. The Internet has transformed how consumers and
physicians find and utilize healthcare information and WebMD has
been a leader in enabling this transition.
Physicians Are Turning to the Internet to Improve Clinical
Practice.
The Internet has become a primary source of
information for physicians and is growing relative to
traditional information sources, such as conferences, meetings
and offline journals. According to Manhattan Research,
approximately 97% of physicians are Internet users and physician
satisfaction with online sources of clinical information is
nearly equal to traditional offline sources. According to the
Accreditation Council for Continuing Medical Education, the
Internet has become an efficient way to educate physicians and
to promote adherence to clinical guidelines, crucial steps
towards reducing the variance in treatment patterns and raising
the quality of care.
Advertising and Sponsorship Trends
General.
The U.S. market for advertising, broadly
defined, is made up of multiple, well-established channels,
principally consisting of print, television and radio media.
Total advertising expenditure for 2004 was estimated by
eMarketer in February 2005 to have been approximately
$264 billion, an increase of 7.6% compared to 2003, and is
projected by eMarketer to increase 5.4% in 2005.
Online Market.
Internet advertising continues to grow
rapidly and, as a result, online spending is growing faster than
offline spending. According to a February 2005 report by
eMarketer, total online advertising spending was about
$9.5 billion in 2004, is projected to grow approximately
20% in 2005 to $11.5 billon, and is expected to reach
approximately $17.6 billion in 2008. We believe this market
growth is driven by several factors, including consumers
shifting their buying and media preferences to online and the
benefits of online advertising relative to traditional media,
which includes interactivity, rapid and measurable user feedback
and the ability to target consumers more efficiently.
Online Healthcare and Health-Related Market. The WebMD Health
Network
competes in the market for online healthcare and
health-related advertising, sponsorship and education services
targeted to consumers and physicians. According to a 2005
Jupiter Research study, online spending for healthcare related
advertising is projected to grow an average of 19.7% annually
through 2009. We believe that the two primary sources for this
spending are pharmaceutical companies and consumer products
companies whose goods or services relate to health, wellness,
diet, fitness, lifestyle, safety and prevention.
Based upon industry estimates, we believe that pharmaceutical,
biotechnology and medical device companies spent approximately
$12 billion on marketing and education activities during
2004, excluding costs of product samples. We estimate that these
companies currently spend less than 5% of their marketing and
educational budgets on online media, but that they are becoming
increasingly aware of the benefits of using online media,
including the ability to cost-effectively reach targeted
audiences. As a result, we expect these companies' online
marketing and educational budgets to continue to increase.
According to an April 2005 report sponsored by the Interactive
Advertising Bureau, pharmaceutical and other healthcare
advertisers accounted for 6% of total online advertising in
2004, an increase from 4% in 2003. We believe that we are well
positioned to benefit from the trend toward increased online
spending by
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these companies because of our track record in providing a more
efficient use of advertising expenditures than traditional media
and our strong working relationships with a significant number
of the leading pharmaceutical, biotechnology and medical device
companies.
According to industry sources, we estimate that consumer
packaged goods companies spend in excess of $10 billion on
advertising for products and services that relate to health,
wellness, diet, fitness, safety and prevention. Similar to
pharmaceutical and other healthcare advertisers, we estimate
that only a small percentage of their spending was for online
media. We believe that these firms will continue to direct a
growing share of their spending online during the next several
years because of the enhanced ability to reach targeted
consumers efficiently and cost-effectively.
Healthcare industry trends.
Our business is affected by
the following trends in the healthcare industry:
•
Continued increases in healthcare costs have led to
    cost-shifting by employers.
According to a report from CMS,
    healthcare spending in the United States rose to
    $1.7 trillion in 2003, up from $1.6 trillion in 2002,
    $1.4 trillion in 2001 and $1.3 trillion in 2000. The
    CMS report indicated a growth rate in healthcare spending of
    7.7% for 2003, compared to 9.3% for 2002, and 8.5% for 2001.
    While overall healthcare costs are rising at a rapid annual
    rate, employers' costs of providing healthcare benefits to
    their employees are increasing at an even faster rate. In
    response to these cost increases, employers and health plans
    have been changing benefit plan designs to increase consumer
    out-of-pocket costs and taking other steps to motivate their
    members and employees to evaluate their healthcare decisions
    more carefully in order to be more cost-effective. This has also
    led employers and health plans to enhance wellness programs and
    take steps to provide healthcare information and education to
    employees and members, including through online services.
•
Quality initiatives.
In 1999 and 2000, a series of major
    studies suggested that the nation's healthcare system
    should be fundamentally redirected to focus on continuous
    quality improvement and anticipating healthcare needs, rather
    than controlling access to services. Since then, health plans
    have begun to recognize that encouraging the good health of
    their members not only benefits the members but also has
    financial benefits for the health plans. Healthier people need
    less care and fewer costly services. Thus, controlling costs by
    keeping people healthier and better managing chronic conditions
    has become a significant focus for America's healthcare
    system. As part of these initiatives, health plans are offering
    their members online access to health and wellness information
    and decision-support tools.
We believe that our private portals are well positioned to
benefit from these trends because they provide the information
and decision-support tools employees and plan members need to
take a more active role in their healthcare, such as helping
them make more informed decisions about healthcare provider,
benefit and treatment options. Employers and health plans can
help their employees and members make choices that reduce
overall healthcare costs by implementing our services and making
the needed information and decision-support tools available
through a convenient and easy-to-use online service. In
addition, as employers continue to implement high deductible and
consumer-directed healthcare plans, we believe we will be able
to attract more employers and health plans to use our private
online portals. Additionally, the increased financial
responsibility of consumers for their healthcare will also
benefit our public portals as we continue to expand the public
portal decision-support and personal health information
applications and as consumers and healthcare professionals
increasingly utilize the Internet for the information and tools
necessary to manage their health decisions.
Our Strategy
We have positioned our services to benefit from the trends
described above, and the other trends affecting the Internet,
online advertising and healthcare industries described in this
prospectus. Our goal is to be the leading provider of online
health information services in each of the markets in which we
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participate and to use our content, technology platform and
expertise to continue to enter additional complementary markets.
To achieve our goal, we intend to:
•
Enhance our current products and services.
We intend to
    continue to invest in the resources needed to deliver high
    quality health and medical information. In addition, we intend
    to continue to build our repository of in-depth health content,
    broaden our interactive services and increase their
    functionality, improve our technology platform and add
    additional products and services. Our goal is to continue to
    increase the number of consumers, physicians and healthcare
    professionals using our Web sites, the amount of time they spend
    there and, most importantly, the trust they have in WebMD.
•
Expand awareness of the WebMD brand.
We plan to promote
    the WebMD brand through relationships with strategic partners,
    through advertising and through the breadth of products and
    services that we offer. For example, we recently introduced
WebMD the Magazine,
as a means of extending our brand
    into offline channels and attracting incremental advertising
    dollars.
•
Deepen our relationships with existing clients and expand our
    sponsorship base.
We intend to increase
The WebMD Health
    Network's
advertising and sponsorship revenues by
    continuing to provide an efficient and effective channel for
    sponsors to reach, educate and inform large audiences of
    health-involved consumers and clinically-active physicians
    within the trusted environment of WebMD. We believe that we are
    well positioned to benefit from the expected shift of
    sponsorship spending from offline to online media by
    pharmaceutical, biotechnology and medical device companies as
    they continue to see the benefits of online sponsorship relative
    to traditional media, including interactivity, rapid and
    measurable user feedback and the ability to more efficiently
    reach specific audiences. In addition, we are focused on
    increasing sponsorship of
The WebMD Health Network
by
    consumer products companies that wish to communicate health- and
    lifestyle-related messages for their products.
•
Increase market penetration of our private portals.
We
    intend to increase the market penetration of our private health
    and benefits portals for employers and health plans by
    demonstrating to prospective clients the return on investment
    and increase in employee satisfaction on the part of our
    existing clients from implementing our services. We expect
    demand for these services to increase as more employers and
    health plans seek to complement or replace their existing
    offline benefit-related services with more efficient Web-based
    decision-support tools and related online services.
•
Acquire complementary online and offline services.
We
    have a history of acquiring and successfully integrating
    complementary companies. We expect to continue to supplement our
    internal product development efforts with strategic acquisitions
    that add new capabilities or help us enter additional
    complementary markets.
•
Capitalize upon governmental initiatives relating to use of
    information technology in healthcare.
There are currently
    numerous federal, state and private initiatives seeking ways to
    increase the use of information technology in healthcare,
    including the creation of portable consumer health records. We
    believe that we are well positioned to play a role in such
    efforts, as well as efforts to establish the adoption of
    electronic medical records among physicians and to provide
    channels for the exchange of information among patients,
    providers and payers.
Our Online Services
Public Portals
Our high quality content and services have made our public
portals the leading online health destinations for consumers,
physicians and healthcare professionals.
The WebMD Health
Network
consists of public portals that we own and
third-party portals through which we provide our branded health
and wellness content, tools and services.
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Owned Web Sites.
A substantial majority of the visitors
to
The WebMD Health Network
and of the page views
generated on
The WebMD Health Network
are from Web sites
that we own. The following provides a brief description of each
of our owned public portals:
Portal Site
Description
www.webmd.com
WebMD Health
, our flagship consumer portal.
www.medicinenet.com
A health information site for consumers that is produced and
    written by practicing physicians, including an online medical
    dictionary with more than 16,000 medical terms.
www.rxlist.com
An online drug directory with over 1,400 drug monographs, which
    are comprehensive descriptions of pharmaceutical products
    (including chemical name, brand names, molecular structure,
    clinical pharmacology, directions and dosage, side effects, drug
    interactions and precautions).
www.medscape.com
Our Web site for physicians and healthcare professionals.
www.medgenmed.com
The world's first online-only, primary source,
    peer-reviewed medical journal.
Other Sites.
The third party portals that we support
include AOL Health with WebMD, the health channels of other AOL
properties and the online Fox News Health channel with WebMD.
Consumer Portals
Introduction.
Healthcare consumers increasingly seek to
educate themselves online about their healthcare related issues,
motivated in part by the continued availability of new treatment
options and in part by the larger share of healthcare
expenditures they are being asked to bear due to changes in the
benefit designs being offered by health plans and employers. The
Internet has fundamentally changed the way consumers obtain
information, enabling them to have immediate access to
searchable information and dynamic interactive content. A 2004
study by Manhattan Research indicated that general health Web
sites are the primary source for healthcare information for
consumers. Manhattan Research also indicated that consumer
satisfaction with the Internet for healthcare information is
greater than for alternative sources such as health magazines,
television, news and advertisements.
Overview of Content and Service Offerings.
Our goal is to
provide consumers with an objective and trusted source of
information that helps them play an active role in managing
their health.
WebMD Health
and the other consumer portals
on
The WebMD Health Network
provide our users with health
and wellness related information, tools and applications in a
variety of content formats. These content offerings include
access to high quality health and wellness news articles and
features, which are written, edited and published by our
90-person in-house staff, which includes professional writers,
editors, designers and board-certified physicians. Our in-house
staff is supplemented by medical advisors and authors from
widely respected academic institutions. The news stories and
other original content and reporting presented on
The WebMD
Health Network
are based on our editors' selections of
the most important and relevant health events occurring on any
given day, obtained from an array of sources, including
peer-reviewed medical journals, medical conferences, federal or
state government actions and materials derived from interviews
with medical experts. We offer searchable access to the full
contents of our Web sites, including licensed content and
referenced-based content.
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WebMD Health
includes the following features:
Feature
Description
WebMD News Center
Offers daily health news articles that are reviewed by our
    professional staff and written by health journalists. Content
    focuses on "news you can use" and topics for stories
    reflect national news stories of interest in the popular media
    that day with original perspective from health and medical
    experts. The News Center also features letters and feedback from
    users. Ten to 15 stories are generated per day.
WebMD Editorial Features
Our content asset focusing on a comprehensive look at a major
    health issues that are in the news or otherwise contemporary,
    with emphasis on health trends and national health issues. We
    generate four to five editorial features per week.
Our features on National Health Observances contain special
    reports based upon public health initiatives, such as Breast
    Cancer Awareness Month or Heart Month, as well as seasonal
    holidays and other seasonal health-related issues, such as
    4th of July Safety, Super Bowl Weight Gain, Back to School,
    Getting Ready for Camp or College and Valentine's Day
    Chocolate Guide for Health.
General Medical Information
Our medical library allows consumers to research current
    information relating to diseases and common health conditions by
    providing searchable access to easy-to-read content, including:
— self–care articles
— drug and supplement references from leading
    publications, including
First Data Bank
®
— clinical trials and research study information
— a patient's guide to medical tests
— health topics A-Z, an alphabetical listing of
    articles on specific health conditions and concerns
— interactive, illustrated presentations that visually
    explain common health conditions and diseases
— step by step in-depth interactive condition guides
    on 35 major conditions
— medical dictionary on 16,000 terms
— doctors' views on important health topics
Health and Wellness Centers
Centralized locations for content and services for both WebMD
    editorial offerings and sponsor/advertiser offerings that are
    specific to prevention and wellness topics. Each topic is
    showcased in its own "Resource Center." There are 15
    major centers, including Women's Health, Men's Health,
    Nutrition, Fitness, Healthy Aging, Skin and Beauty and Dental
    Health.
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Feature
Description
Disease and Condition Centers
Centralized locations for content and services for both WebMD
    editorial offerings and sponsor/advertiser offerings that are
    specific to disease and condition topics. Each topic is
    showcased in its own "Resource Center." Each separate
    topic center is designed to guide users through all aspects of
    diagnosis, description of disease, treatment options and
    management, as well as staying current on the latest research.
    There are 50 major centers, including Allergy, Asthma,
    Cholesterol, Diabetes, Epilepsy, GI Disorders and Hypertension.
Newly Diagnosed
Articles and features that provide information specifically for
    users affected by a condition as to which they or a loved one
    have been newly diagnosed.
Decision-Support Services.
Our decision-support services
help consumers make better-informed decisions about healthcare
providers, health risks and treatment options, and assists
consumers in their management and monitoring of specific
conditions or treatment regimens on an ongoing basis.
Feature
Description
Personalized Self Assessment
Clinical, algorithm-based self assessments for major conditions
    yielding personalized risk score based upon individual
    characteristics (for example, gender, age, behavioral risks,
    heredity), along with customized recommendations for further
    education, treatment alternatives and a doctor report to share
    with the individual's physician.
Symptom Checker
An interface that allows users to select male or female body and
    area on the body where symptoms may be occurring to lead user to
    relevant educational information.
Health-E-Tools
Provides access to over 80 interactive calculators, quizzes and
    slide shows to assess or demonstrate health topics, including a
    target health rate calculator, body mass index calculator,
    pregnancy calculator and ovulation calendar.
Find a Physician or Practice
Allows consumers to search by physician or practice name, by
    specialty sought, as well as by zip code and mileage.
Managing Healthcare & Benefits
Offerings that educate users on issues surrounding choosing and
    using health plans and managing their healthcare from a
    financial and quality perspective. Other coverage topics such as
    Medicare are addressed and resources and tools are made
    available to users.
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Feature
Description
WebMD Health Manager
WebMD Health Manager is an online direct-to- consumer
    subscription service featuring a personal health record (an
    application that assists consumers in gathering, storing, and
    sharing essential health data), secure message center, personal
    health risk assessments for overall health as well as 15
    condition- specific assessments, doctor reports, medication
    summaries, health calendar with reminders and alerts, printable
    health emergency card, family member health record keeping,
    weight loss, fitness and smoking cessation programs, and fully
    personalized e-newsletter.
Membership; Online Communities.
We also provide
interactive communication services to our registered members.
For example, members can opt-in to receive e-newsletters on
health-related topics or specific conditions and to access
topic-specific events and online communities. Our online
communities allow our members to participate in real-time
discussions in chat rooms or on message boards, and allow
members to share experiences and exchange information with
others who share common health conditions or concerns.
Feature
Description
WebMD Live Events
Offers scheduled live chat events, including audio and video
    Webcasts, with healthcare experts and celebrity guests
    discussing relevant health issues, with archives from each event
    added to our searchable database.
Member Communities
Provides access to over 50 online support communities allowing
    consumers to share experiences and exchange information with
    other members with their health condition or concern. Users may
    access moderated chat rooms, message boards and posted member
    columns focused on chronic health conditions and relevant health
    topics.
WebMD University
Topic-driven, interactive courses intended to help users
    understand and manage specific health matters, such as diabetes,
    nutrition, care giving and cancer, as well as gain insight from
    other course participants.
E-Newsletters
Allows consumers to receive personalized e-mail newsletters on
    general health-related subjects and topics targeted to their
    health concerns. In 2004, we offered newsletters, clinical
    alerts and e-mail reports covering approximately 30 topic areas,
    which we delivered to approximately ten million registered
    members.
"Ask the Experts"
A forum within which users can post their health questions for
    experts. Provides over five new events each week and contains an
    archive of approximately 800 transcripts.
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There are no membership fees and no general usage charges for
access to our online communities or to receive our
e-newsletters. However, we do offer a limited number of consumer
paid subscription services in the areas of diet and fertility
and paid membership in
WebMD Health Manager
.
Professional Portals
Introduction.
The Internet has become a primary source of
information for physicians and other healthcare professionals,
and is growing relative to other sources, such as conferences,
meetings and offline journals. According to a study done by
Manhattan Research in 2003, approximately 97% of physicians are
Internet users. Approximately 63% of physicians read e-journals
and approximately 46% complete online CME programs at least on a
monthly basis. Another study by Manhattan Research completed in
July 2004 concluded that physician satisfaction with online
sources of clinical information was nearly equal to traditional
offline sources. We believe that
Medscape from WebMD,
our
Web site for physicians and other healthcare professionals,
located at
www.medscape.com,
reaches more physicians than
any other professional Web site and is well positioned to
increase usage by its existing members and to gain additional
membership and usage.
Medscape from WebMD,
enables
physicians and other healthcare professionals to stay abreast of
the latest clinical information through access to resources that
include:
•
timely medical news and coverage of professional conferences;
•
CME activities; and
•
full-text medical journal articles and drug and medical
    literature databases.
Content.
Original content from
Medscape from WebMD
includes daily medical news, commentary, conference
coverage, expert columns and CME activities are written by
authors from widely respected academic institutions and edited
and managed by our in-house editorial staff. We regularly
produce in-depth interviews with medical experts and newsmakers,
and provide alerts on critical clinical issues, including
pharmaceutical recalls and product advisories.
Medscape from
WebMD
also provides access to wire service stories and other
news-related content, and our CME programs include original
programs and online multimedia adaptations of live events.
We also publish an original electronic-only journal,
Medscape
General Medicine
(
MedGenMed
), indexed in the National
Library of Medicine's MEDLINE reference database.
MedGenMed,
the world's first online-only, primary
source, peer-reviewed medical journal, was established in April
1999. Visitors to
www.medgenmed.com
also can access
specialty sections, such as HIV-AIDS, Gastroenterology,
Hematology-Oncology, Pulmonary Medicine, OB-Gyn and Women's
Health, Orthopedics and Sports Medicine and Psychiatry/Mental
Health.
Membership.
Users must register to access the content and
features of
Medscape from WebMD.
Registration by users
enables us to deliver targeted medical content based on our
members' registration profiles. The site is organized by
specialty and profession, including sites for nurses,
pharmacists, medical students, and members interested in medical
policy and business of medicine topics. The registration process
enables professional members to choose a
Medscape
home
page tailored to their medical specialty or interest. We offer
more than 30 specialty areas for
Medscape
users. For
example, a member registered as a cardiologist is automatically
directed to
Medscape
Cardiology rather than a more
generic home page. However, every member, regardless of medical
specialty or professional status, has access to
Medscape'
s full suite of original and licensed
content through a uniform, easy-to-use interface. There are no
membership fees and no general usage charges for the site.
Members receive
MedPulse
®, our weekly e-mail
newsletter, which is published in more than 30
specialty-specific editions and highlights new information and
CME activities on the
Medscape
site. We also provide
"Special Reports" e-newsletters, which contain
information on specific conditions and treatments.
Continuing Medical Education (CME).
Medscape
is a
leading distributor of online CME to physicians and other
healthcare professionals, offering a wide selection of free,
regularly updated online CME activities designed to educate
healthcare professionals about important diagnostic and
therapeutic issues. Our CME programs include original programs
and online multimedia adaptations of live events. In
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addition, our CME Live offerings provide real-time Webcasts of
continuing education programs on key topics and conditions.
These live Webcasts combine streaming audio and slide
presentations and allow participants to interact with faculty.
In 2004 over 927,000 physicians and healthcare professional
participants earned over 827,000 CME credits at
Medscape,
an increase of 59% and 31%, respectively, over 2003. In the
first quarter of 2005, physicians and healthcare professionals
completed approximately 277,700 CME courses, an increase of 33%
compared to the same period in 2004. We also provide to our
users a service that automatically tracks CME credits
accumulated through our site.
We have organized the operations of our professional portals to
provide for appropriate separation of our education and
promotion programs from an editorial perspective. Our
educational activities for healthcare professionals are managed
within Medscape, LLC, our professional education subsidiary.
Individuals who work on educational matters within Medscape,
LLC, are not involved with promotional programs.
Our CME activities are planned and implemented in accordance
with the Essential Areas and Policies of the Accreditation
Council for Continuing Medical Education, or ACCME, which
oversees providers of CME credit, and other applicable
accreditation standards. In addition, some of our programs have
been produced in collaboration with other ACCME-accredited CME
providers.
Medscape
received provisional ACCME
accreditation as a CME provider in July 2002 and full
accreditation, for the maximum six-year period, beginning in
July 2004. Such accreditation allows
Medscape
to continue
to certify online CME activities. In September 2004, ACCME
revised its standards for commercial support of CME. The revised
standards are intended to ensure that CME activities of
ACCME-accredited providers are independent of providers of
healthcare goods and services that fund the development of CME.
ACCME expects accredited providers to implement these standards
by May 2005. We believe that we have modified our procedures as
appropriate to meet the revised standards. For more information
relating to ACCME's new CME standards, see "Risk
Factors — Risks Related to the Legal and Regulatory
Environment in Which We Operate — Changes in industry
guidelines or government regulation could adversely affect our
online CME offerings" and "Government
Regulation — Regulation of Drug and Medical Device
Advertising and Promotion."
Private Portals
Introduction.
According to a Hewitt Associates study
(
Healthcare Expectations: Future Strategy and
Direction 2005
), large U.S. employers anticipate a
12% increase in the cost of providing healthcare coverage in
2005, which would represent an approximately 76% increase over
the last five years for healthcare premiums. In response to
increasing healthcare costs, employers and payers have been
enhancing wellness programs, educating employees, changing
benefit plan designs to increase consumer out of pocket costs
and taking other steps to motivate their members and employees
to use healthcare in a cost-effective manner. The new plan
designs include high deductible health plans that increase
consumer responsibility for healthcare costs and healthcare
decision-making. These are often referred to as
consumer-directed health plans. Consumer-directed health plans
generally combine high-deductible health insurance with a cash
account, such as a health reimbursement arrangement
(HRA) or a health savings account (HSA), containing pre-tax
funds that employees can spend on covered healthcare expenses.
The high-deductible insurance provides coverage for significant
health events. Consumer-directed healthcare plans put employees
in control of the first dollars they spend on healthcare each
year. The goal is to give consumers control of those dollars,
together with pertinent information about healthcare costs and
quality, so that they are able to make financially responsible
and informed healthcare purchasing decisions. In its 2005 study,
Hewitt Associates estimates that nearly one-quarter of larger
U.S. employers will be offering consumer-directed plans in
2005.
In implementing consumer-directed health plans, employers and
health plans generally also make available health and benefits
information and decision-support tools to help their employees
make informed decisions about healthcare providers and treatment
options. We believe that our WebMD Health and Benefits Manager
private portals provide the tools and information employees and
plan members need to take a more active role in their
healthcare. Our cost-effective, online solutions complement the
employer's
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or payer's existing benefit-related services and offline
educational efforts and can be a key component of a
consumer-directed health plan. Our WebMD Health and Benefits
Manager portals also educate and encourage employees and plan
members to lower their health risks. By making the needed
information and decision-support tools available through a
convenient and easy-to-use online service, employers and payers
can help their employees and members make choices that reduce
overall costs. A 2005 study commissioned by the Blue Cross and
Blue Shield Association and conducted by the RAND Corporation
concluded that Web-based treatment decision-support tools can
play an important role in assisting in consumer treatment
decisions to foster improved outcomes. For example, RAND cited
studies that showed consumers who use decision-support tools are
less likely to choose elective surgery in favor of less invasive
procedures and are more likely to get preventive care.
We believe that increasing consumer enrollment in high
deductible consumer directed health plans will be a significant
driver for the growth of our private portals during the next
several years. In addition, as described in more detail below,
we believe that there are benefits to employers and health
plans, regardless of health plan design considerations, in
making the WebMD Health and Benefits Manager services available
to their employees and members, including reduced benefits
administration costs.
The WebMD Health and Benefits Manager.
We provide
proprietary health and benefit management services through
private online portals that we host for employer and health plan
sponsors. Our WebMD Health and Benefits Manager private portals
provide a personalized user experience by integrating individual
user data (including personal health information) and
plan-specific data from our employer or health plan client, with
much of the content, decision-support technology and personal
communication services we make available through our public
portals. We typically integrate our applications into the
client's web site or intranet and provide secure access for
employees and plan members. We also offer a software platform
that allows us to integrate third party applications and data.
The portal is presented to each employee or health plan member
as a personal home page, with direct access to relevant content,
tools and other resources specific to the individual's
eligibility, coverage and health profile. The WebMD Health and
Benefits Manager provides a user-friendly experience that
enables the employee or member to access and manage the
individually tailored health and benefits information and
decision-support technology in one place, with a common look and
feel, and with a single sign on. The components of the WebMD
Health and Benefits Manager include:
•
WebMD Personal Health Manager.
WebMD Personal Health
    Manager includes health risk assessment tools, an electronic
    personal health record and a suite of treatment decision-support
    tools. These services enable members to understand their risks
    with regard to specific conditions and store this information as
    well as other medical data, including medication and treatment
    history, in an electronic health record. Our services enable
    members to receive targeted information, programs or messages
    specific to the individual employee's needs, based upon the
    information they store in their master profile.
•
WebMD Benefit Manager.
WebMD Benefit Manager is a set of
    benefit decision-support applications that explain and provide
    comparisons of health plan benefit choices, facilitating
    informed selection and use of the employee's benefit
    options. For example, CostCompare allows an employee to forecast
    and model individual premium and out-of-pocket costs for the
    different types of benefit programs the plan sponsor may offer.
•
WebMD Integration Services.
WebMD offers a set of
    sophisticated integration services that facilitates seamless
    access from the WebMD Health and Benefits Manager to third party
    sites. This functionality allows health plans to present their
    benefit programs within a single, unified interface, enabling
    end-users to access third party sites without leaving our secure
    portals. Users of our application integration services are able
    to, among other things, view medical claims at their health plan
    sites, re-order medication from a pharmacy site and import
    medical, pharmacy and lab claims data.
•
WebMD Provider Decision-Support.
As a result of our
    acquisition of HealthShare Technology, Inc.
    ("HealthShare") in March 2005, our decision-support
    suite now provides the capability for
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employees and health plan members to compare relative cost and
    quality measures of hospitals in order to select the hospital
    they believe is most suited to their individual needs. These
    comparisons are based on evidence-based measures, such as volume
    of patients treated for particular illnesses or procedures,
    mortality rates, unfavorable outcomes for specific problems,
    average number of days patients stayed in hospitals and average
    hospital charges for procedures or illnesses.
•
WebMD Site Manager.
WebMD Site Manager is our online
    service and administrative suite of applications that enables
    our clients to manage many of the WebMD Health and Benefits
    Manager functions locally without assistance from WebMD staff.
    With Site Manager, employers and health plans are able to
    analyze aggregate health data, address population health risks
    more effectively and proactively implement preventive programs.
    Site Manager's messaging capabilities also allow employers
    to streamline their communication with their employees.
We believe that our services provide the following potential
benefits to an employer or health plan:
•
reduced benefits administration, communication, and customer
    service costs;
•
increased tax savings through increased participation in
    Flexible Spending Accounts;
•
reduced hospital, physician and drug costs through more informed
    utilization of the benefit plan;
•
increased member satisfaction with the employer and the benefit
    plan; and
•
improved health outcomes based upon increased conformance with
    benefit plan and clinical protocols.
In addition, we believe that our services provide the following
potential benefits to employees or plan members:
•
increased tax savings through increased participation in
    Flexible Spending Accounts;
•
reduced benefit costs through more informed use of the benefit
    plan;
•
improved health outcomes through more informed choice of
    providers and treatment choices; and
•
improved understanding of health conditions through access to
    support tools and educational information.
Membership.
Membership for each of our private portals is
limited to the employees and members of the respective employer
and health plan clients. Each member must initially register on
the private portal provided to them, at which point they are
given a unique user identification name and passcode that they
must utilize to achieve a secure sign-on each time they enter
the private portal.
Advertising and Sponsorship
The WebMD Health Network.
We believe that
The WebMD
Health Network
offers an efficient means for advertisers and
sponsors to reach a large audience of health-involved consumers,
clinically-active physicians and other healthcare professionals.
The WebMD Health Network
enables advertisers and sponsors
to reach either our entire audience or specific groups of
consumers, physicians and other healthcare professionals based
on their interests or specialties. Currently, the majority of
our sponsors and advertisers include pharmaceutical,
biotechnology, and medical device firms. In 2004, more than 65
pharmaceutical, biotechnology and medical device companies
purchased advertising and sponsorships for over 250 of their
brands on our network. As described above under
"— Industry Background," these companies
currently spend only a very small portion of their marketing and
educational budgets on online media. However, we expect their
online spending to increase as a result of increased recognition
of its potential advantages over offline marketing and
educational activities. We believe that we are well positioned
to benefit from the trend toward increased online spending by
these companies because of our track record in providing a more
efficient use of advertising expenditures than traditional media
and our excellent working relationships with many of the
relevant decision-makers at these companies. Our
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sponsors also include numerous consumer packaged goods companies
that provide health-related products, and we are actively
pursuing additional opportunities in that market.
Key benefits that
The WebMD Health Network
offers
healthcare advertisers and other sponsors include:
•
our reach of over 23 million aggregate unique users per
    month in the first quarter of 2005, which we believe is much
    larger than the number of unique users of any other sponsor
    supported health-oriented Web portal;
•
our ability to help advertisers and sponsors reach specific
    groups of consumers and physicians by specialty, product,
    disease, condition or wellness topic, which typically produces a
    more efficient and productive marketing campaign;
•
our ability to provide advertisers and other sponsors with
    objective measures of the effectiveness of their online
    marketing; and
•
the broad reach of Medscape's educational related
    activities, as evidenced by the 927,000 physician and healthcare
    professional participants earning over 827,000 CME credits in
    2004.
We provide healthcare advertisers and other sponsors with the
means to communicate with targeted groups of consumers and
physicians by offering placements and programs in the most
relevant locations on our portals. The following are some of the
types of placements and programs we offer to advertisers and
sponsors:
•
Media Solutions.
These are traditional online advertising
    solutions, such as banners, used to reach health-involved
    consumers. In addition, clients can sponsor a variety of
    condition-specific or specialty-specific e-newsletters, keyword
    searches and specific educational programs.
•
Sponsored Content Solutions.
These are customized
    collections of articles, topics, and decision-support tools and
    applications, sponsored by clients and distributed within WebMD
    Health.
•
Patient Education Centers.
Patient education centers are
    sponsored destinations on
Medscape
for physicians to
    access patient education materials on a particular topic or
    condition.
We do not place advertising or accept sponsorship on private
portals we develop and host for employers and health plans for
use by their employees and members.
Sponsored Grant-Based Programs.
We receive revenue for
the distribution of CME and other educational programs sponsored
by pharmaceutical and medical device companies, as well as
foundations and government agencies. The following are some of
the CME products for which we receive funding:
•
Conference Coverage. Medscape
provides coverage of major
    medical conferences.
•
CME Circle.
CME Circle provides online multimedia
    extensions of sponsor-supported CME activities, including
    symposia, monographs and CD-ROMs, which we distribute online
    through
Medscape
.
•
CME Live.
These are original
Medscape
online
    events featuring live streaming video, audio and synchronized
    visual presentation by experts.
•
CME Cases.
These are original CME activities presented by
    healthcare professionals in a patient case format.
•
Resource Centers.
Resource centers are grant-based
    sponsored disease or condition-specific areas for conditions
    such as congestive heart failure or breast cancers. These
    centers include news, expert columns, guidelines and reference
    material.
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Publishing Services
Our offline publications for consumers, physicians and
healthcare professionals include:
The Little Blue Book.
In 2003, we acquired
The Little
Blue Book. The Little Blue Book
is a physician directory
published annually in 146 distinct geographic editions, and
contains practice information on an aggregate of approximately
400,000 physicians. In 2004 we sold, both directly and through
pharmaceutical company sponsorships, approximately 350,000
copies of
The Little Blue Book.
We also use the
information used to produce
The Little Blue Book
to
generate both online and offline directory and information
products. Physicians utilize
The Little Blue Book
for
local and up-to-date physician, pharmacy and hospital contact
information. Physicians are listed free of charge in their local
area edition, along with their specialties, HMO affiliations,
office addresses and telephone numbers.
Reference Publications.
We publish medical reference
publications, including the reference texts
ACP Medicine
and
ACS Surgery: Principles and Practice. ACP Medicine
and
ACS Surgery
are official publications of the
American College of Physicians and the American College of
Surgeons, respectively, although we wholly own the rights. They
are available for sale by subscription to individual physicians
and to institutions in multiple formats (print, CD-ROM and
Online).
ACP Medicine
has been a comprehensive and
regularly updated internal medicine reference for over
25 years.
WebMD the Magazine.
We launched
WebMD the Magazine
in April 2005 with an initial distribution of 1,000,000
copies.
WebMD the Magazine
is a full size, consumer
publication delivered free of charge to approximately 85% of
physicians' offices in the United States. The editorial
format of
WebMD the Magazine
is specifically designed for
the doctor's waiting room. Its editorial features and
highly interactive format of assessments, quizzes and questions
are designed to inform consumers about important health and
wellness topics. Its distribution allows sponsors to extend
their advertising's reach and to deliver their message when
consumers are actively engaged in the healthcare process.
User Privacy and Trust
General.
We have adopted internal policies and practices
relating to, among other things, content standards and user
privacy, designed to foster our relationships with our users.
Some of those policies are described below. In addition, we
participate in the following external, independent verification
programs:
•
URAC.
We were awarded e-Health accreditation from URAC,
    an independent accrediting body that has reviewed and approved
    the WebMD.com site and our private portal deployment of
WebMD
    Health Personal Manager
for compliance with its more than 50
    quality and ethics standards.
•
TRUSTe.
We are a licensee of the TRUSTe Privacy Program.
    TRUSTe is an independent, non-profit organization whose goal is
    to build users' trust and confidence in the Internet. In
    January 2005, a panel of privacy experts, sponsored by TRUSTe,
    ranked us among the ten most trusted companies in America for
    privacy.
•
Health on the Net Foundation.
Our WebMD.com and
    MedicineNet.com sites comply with the principles of the HON Code
    of Conduct established by the Health on the Net Foundation.
Privacy Policies.
We understand how important the privacy
of personal information is to our users. Our Privacy Policies
are posted on our Web sites and tell users what information we
collect about them and about their use of our portals and our
services. Our Privacy Policies also explain the choices users
have about how their personal information is used and how we
protect that information.
Advertising and Promotion Policies.
All advertisements,
sponsorships and promotions that appear on our Web sites are
displayed in compliance with our advertising and promotions
policies. Among other things, as a matter of policy, we have
sole discretion for determining the types of advertising that we
accept, and under no circumstances would accept advertising
that, in our opinion, is not factually accurate or is not
undertaken in good taste. We also recognize and maintain a
distinct separation between advertising content that appears on
our Web site and editorial content that we publish. We take
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meaningful steps to ensure that our users can easily distinguish
between sponsored content and our news reporting and other
editorial content.
Sales and Marketing
Our Sales, Marketing and Account Management Teams.
Our sales, marketing and account management personnel work with
pharmaceutical, medical device, biotechnology and consumer
products companies to place their advertisements and other
sponsored products on our public portals and in some of our
publications. These individuals work closely with clients and
potential clients to develop innovative means of bringing their
companies and their products and services to the attention of
targeted groups of consumers and healthcare professionals, and
to create channels of communication with these audiences.
Our Consumer Web sites.
We seek to attract traffic and
new members to our consumer Web sites through a variety of
methods to increase the awareness of our brand. We have an
agreement with News Corporation, which runs through August 2010.
Under the agreement, we receive advertising services,
principally on the News Corporation television and cable
properties. Approximately $30 million of advertising
services have been available for the 12 months ending
August 2005 and $12 million of advertising will be
available each of the next five years thereafter ending August
2010. We use this advertising for the purpose of building brand
awareness and as a complement to our online programs.
Medscape from WebMD.
We seek to attract new members to
Medscape from WebMD
through a variety of methods,
including advertising on other Internet sites and in medical
journals, pharmaceutical and other healthcare publications and
other targeted publications. We also promote
Medscape from
WebMD
at industry conferences, trade shows and medical
meetings and by using direct mail.
Our Private Online Portals.
We market our private online
portals to employers and health plans through a dedicated sales,
marketing and account management team and through relationships
with employee benefits consultants and other companies that
assist employers in purchasing or managing employee benefits,
including Fidelity Human Resources Services Company LLC.
Our Publishing Services.
We market
The Little Blue
Book
through a team of third party marketers, as well as
WebMD Health sales persons. In addition, we also market
WebMD
the Magazine
through a team of third-party marketers.
Seasonality
The timing of revenues from our clients are affected by seasonal
factors, primarily relating to the annual budget approval
process of the advertising and sponsorship clients of our public
portals, the timing of annual benefit enrollment periods of our
private portal clients and the annual distribution schedule of
The Little Blue Book
.
Technological Infrastructure
Our Internet-based services are delivered through Web sites
designed to address the healthcare information needs of
consumers and healthcare professionals with easy-to-use
interfaces, search functions and navigation capabilities. We use
customized content management and publishing technology to
develop, edit, publish, manage, and organize the content for our
Web sites. We use ad-serving technology to store, manage and
serve online advertisements in a contextually relevant manner to
the extent possible. We also use specialized software for
delivering personalized content through the WebMD Health and
Benefits Manager and, for registered members, through our public
Web sites. We have invested and intend to continue to invest in
software and systems that allow us to meets the demands of our
users and sponsors.
Continued development of our technological infrastructure is
critical to our success. Our development teams work closely with
marketing and account management employees to create content
management capabilities, interactive tools and other
applications for use across all of our portals. The goal of our
current and planned investments is to further develop our
content and technology platform serving various
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end-users, including consumers and physicians, and to create
innovative services that provide value for healthcare
advertisers, employers, payers, and other sponsors.
Strategic Relationships
AOL Relationship.
In May 2001, we entered into an
agreement for a strategic alliance with the AOL division of Time
Warner, Inc. ("AOL"). The original term of the
agreement was three years expiring May 9, 2004, and we have
exercised our right to extend the original agreement for an
additional three-year renewal term ending May 8, 2007.
Under the agreement, we are the primary provider of healthcare
content, tools and services on certain AOL properties and we
distribute a co-branded interactive site to certain AOL
properties. We share with AOL certain revenues from advertising,
commerce and programming on the health channels of the AOL
properties and on the co-branded service created by us for AOL.
We receive 80% of revenues up to an agreed-upon annual threshold
and 60% thereafter. AOL has guaranteed that we will receive a
minimum of $12 million during each year of the renewal term
for its share of advertising revenues. In the event of a change
of control resulting in WebMD being controlled by a competitor
of AOL, AOL has the right to terminate the agreement during the
sixty (60) day period following such change of control.
Fidelity Human Resources Services Company LLC.
In
February 2004, we entered into a strategic relationship with
Fidelity Human Resources Services Company LLC
("FHRS"), a provider of human resources and benefits
outsourcing administration services. Pursuant to the agreement,
FHRS serves as a distributor of our online personal health
management products, and in connection therewith, FHRS
integrates our products with FHRS's products to offer
employer customers of FHRS an integrated solution through
FHRS' NetBenefits® Web site. FHRS's integrated
solutions provide employees with employer-provided health plan
information and our personal health management tools allow
employees to access a personalized view of their health care
options so that they can make more informed healthcare
decisions. Pursuant to the FHRS agreement, we have agreed with
FHRS to cooperate in marketing and selling the NetBenefits site
to FHRS clients. The initial term of the agreement runs through
August 31, 2007, and FHRS has the right to renew the
agreement for additional terms of one year after the initial
term (not to exceed four (4) one-year renewal terms). FHRS
has agreed to certain minimum level of employees to be covered
under the agreement. FHRS is an affiliate of FMR, Corp, which
reported beneficial ownership of approximately 10.8% of the
stock of our Parent at December 31, 2004.
Competition
The markets we participate in are intensely competitive,
continually evolving and, in some cases, subject to rapid change.
Public Portals.
Our public portals face competition from
numerous other companies, both in attracting users and in
generating revenue from advertisers and sponsors. Since there
are no substantial barriers to entry into the markets in which
we participate, we expect that additional competitors will
continue to enter these markets.
We compete with online services and Web sites that provide
health-related information, including both commercial sites and
not-for-profit sites. Our competitors that provide online
services, tools and applications for healthcare consumers
include iVillage.com, DrKoop.com, drugs.com and
healthcentral.com. Our competitors that provide services, tools
and applications to physicians include merkmedicus.com,
eMedicine.com, uptodate.com and mdconsult.com. We also face
competition from non-profit sites, such as NIH.com and
medline.com.
Other competitors for advertising and sponsorship revenue
include:
•
general purpose consumer online services and portals and other
    high-traffic Web sites that include healthcare-related and non
    healthcare-related content and services, including yahoo.com and
    msn.com;
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•
publishers and distributors of traditional offline media,
    including television and magazines targeted to consumers, as
    well as print journals and other specialized media targeted to
    healthcare professionals, many of which have established or may
    establish their own Web sites or partner with other Web sites;
•
offline medical conferences, CME programs and symposia; and
•
vendors of healthcare information, products and services
    distributed through other means, including direct sales, mail
    and fax messaging.
Competitors for the attention of healthcare professionals and
consumers include:
•
the competitors for advertisers and sponsors described above;
•
public sector, non-profit and other Web sites that provide
    healthcare information without advertising or sponsorships from
    third parties.
Private Portals.
Our private portals compete with various
providers and vendors in the licensing of content and in the
sale of decision-support services and tools. Our competitors in
this market include:
•
providers of decision-support tools, such as Hewitt Associates
    LLP and Subimo, LLC;
•
wellness and disease management vendors, including Mayo
    Foundation for Medical Education and Research and Staywell
    Productions/ MediMedia USA, Inc.;
•
suppliers of online health management applications, including
    HealthMedia, Health A-Z and Consumer Health Interactive; and
•
health information services and health management offerings of
    health plans and their affiliates, including those of Humana,
    Aetna and United Healthcare.
Company History
Introduction.
In early 2001, the primary source of
revenue for our Parent's WebMD Health segment (then known
as its Portal Services segment) was from a small number of
significant sponsorship and advertising relationships with
pharmaceutical, biotechnology and medical device companies. We
have expanded our sponsorship base and our sponsors and
advertisers now include a significant number of pharmaceutical,
biotechnology and medical device companies as well as numerous
consumer products companies, none of which contributed more than
10% of our revenue in 2004.
Since 2001, our business has evolved and entered additional
markets as a result of acquisitions and internal investment as
follows:
Professional Portals.
In 2001, we acquired
Medscape,
the leading source of online clinical
information for physicians. Since our acquisition of
Medscape,
we have emerged as the leading commercial
portal for healthcare professionals and the leading provider of
online CME for physicians. Our acquisition of
Medscape
also increased our ability to originate healthcare content
for physicians. In late 2003, we purchased the membership
database and other assets of Physicians Online, LLC, another
leading medical information portal for physicians, and, in early
2004, we combined its membership and resources with
Medscape.
Consumer Portals.
We have completed several acquisitions
that strengthened our public portal offerings for consumers. In
the fourth quarter of 2004, we acquired the businesses of
RxList.com
and
MedicineNet.com.
RxList is an
online drug directory for consumers and healthcare professionals
with over 1,400 drug monographs, and MedicineNet is a health
information Web site for consumers produced and written by
practicing physicians.
Private Portals.
In 2002, we acquired WellMed, Inc. and
began to provide employers and health plans with a suite of
online healthcare information services for use by their
employees and plan members. In 2003, we acquired the assets of
Optate, Inc., which provided healthcare benefit decision-support
tools.
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Recently, we have further strengthened this area of our business
with the March 2005 acquisition of HealthShare Technology, Inc.,
a leading provider of online decision-support tools that enable
consumers, payers and hospitals to compare costs and quality
measures of hospitals.
Publishing Services.
In 2000, we began to publish
ACP
Medicine and ACS Surgery: Principles of Practice
(formerly
known as
Scientific American Medicine
© and
Scientific American Surgery
), official and
well-established medical reference publications of the American
College of Physicians and the American College of Surgeons,
which are relied upon by physicians as important clinical
reference sources. We further extended our product offerings
with the 2003 acquisition of
The Little Blue Book,
a
company that publishes a pocket sized reference book containing
physician practice and contact information.
The Little Blue
Book
is published annually in 146 distinct geographic
editions, and contains practice information on an aggregate of
approximately 400,000 physicians. Most recently, we launched
WebMD the Magazine,
a consumer publication that we
distribute to patients free of charge in physician waiting rooms
across the country.
Employees
As of December 31, 2004, we had approximately 550
employees. Following this offering, we will continue to be
dependent on our Parent to provide us with many key services for
our business pursuant to a services agreement that we expect to
enter into with our parent upon the completion of this offering.
Our current employees are not represented by a labor union and
are not the subject of a collective bargaining agreement. We
believe our employee relations to be good.
Facilities
We lease office space in New York, New York for our headquarters
and our editorial and marketing operations and in Atlanta,
Georgia and Portland, Oregon for related operations. We believe
that the offices and other facilities described are, in general,
in good operating condition and adequate for our current
operations and that additional leased space can be obtained if
needed.
Intellectual Property
We rely upon a combination of patent, trade secret, copyright
and trademark laws, license agreements, confidentiality
procedures, employee and client nondisclosure agreements and
technical measures to protect the intellectual property used in
our business.
We use trademarks, trade names and service marks for healthcare
information services and technology solutions, including
WebMD®, WebMD Health®,
Medscape
®, CME
Circle® The Little Blue
Book
tm
MedicineNet®, RxList® and Select Quality Care®.
We also use other registered and unregistered trademarks and
service marks for our various products and services. In addition
to our trademark registrations and applications, we have
registered the domain names that either are or may be relevant
to conducting our business names, including
"www.webmd.com," "my.webmd.com" and
"medscape.com." We also rely on a variety of
intellectual property rights that we license from third parties,
including our Internet server software and healthcare content
used on our Web sites.
Legal Proceedings
Merrill Lynch Fundamental Growth Fund, Inc.
    et al. v. McKesson HBOC, Inc., et al.
Our Parent was named as a defendant in the action
Merrill
Lynch Fundamental Growth Fund, Inc., et al. v.
McKesson HBOC, Inc., et al.
, Case No. 405792, in
the San Francisco Superior Court. The original complaint in
this matter alleged that McKesson HBOC (now known as McKesson
Corp.), HBO and Company (which we refer to as HBOC), certain
officers and directors of those firms, Arthur Andersen LLP, and
Bear Stearns & Co. engaged in a number of practices
whereby HBOC and later McKesson HBOC improperly recognized
revenues. When these practices were discovered, McKesson HBOC
eliminated more than $327 million in revenues that HBOC had
recognized over the prior three years. The
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plaintiffs claim to have lost more than $150 million as a
result of the decline in McKesson HBOC's share value after
the accounting practices came to light in April 1999.
On September 4, 2003, the plaintiffs filed a fourth amended
complaint, naming our Parent and two other defendants, General
Electric Capital Corporation, Inc. and Computer Associates
International, Inc., for the first time. The complaint alleged
that our Parent aided and abetted alleged fraud by certain
defendants and conspired with those defendants in relation to
HBOC's and McKesson HBOC's alleged improper
recognition of approximately $14 million in revenue on two
software transactions. The plaintiffs also alleged that our
Parent made certain negligent misrepresentations with respect to
these transactions.
The plaintiffs alleged that our Parent, through its
participation in certain transactions with HBOC and McKesson
HBOC, learned that officers of HBOC and/or McKesson HBOC, HBOC
and McKesson HBOC were breaching duties owed to McKesson HBOC
shareholders by making material misstatements and suppressing or
omitting facts with respect to HBOC's and McKesson
HBOC's financial results for the periods ending
December 31, 1998 and March 31, 1999 and that our
Parent aided and abetted and conspired with these defendants.
The complaint was based on alleged conduct by WebMD, Inc., a
Georgia corporation that was then a separate private company and
will be one of our subsidiaries. One of the HBOC officers
allegedly involved became an officer of WebMD, Inc. on
December 1, 1998, after having served as HBOC's
representative on the Board of Directors of WebMD, Inc. and was
dismissed by WebMD, Inc. after the accounting fraud at HBOC was
disclosed. The other HBOC officer allegedly involved served as
HBOC's representative on the Board of Directors of WebMD,
Inc. and ceased to be a director of WebMD, Inc. upon dismissal
by McKesson HBOC. Plaintiffs seek unspecified damages against
our Parent. The complaint alleges numerous instances of improper
accounting by HBOC unrelated to the transactions between WebMD,
Inc. and HBOC and/or McKesson HBOC.
On December 16, 2003, our Parent filed a demurrer, seeking
dismissal of the plaintiffs' two claims against it. On
July 22, 2004, the Court sustained that demurrer, finding
that the plaintiffs' claims were time barred. On
October 8, 2004, the Court dismissed plaintiffs'
Fourth Amended Complaint with prejudice as to California, but
without prejudice with respect to filing in another
jurisdiction. On November 17, 2004, plaintiffs filed a
notice of appeal of the Court's order in favor of our
Parent. On November 30, 2004, our Parent filed a
cross-appeal for the purpose of challenging the form of the
order. Those appeals are in the process of being briefed.
In March 2004, McKesson Corp. filed cross-complaints against
General Electric Capital Corporation, Inc., Computer Associates
International, Inc., and our Parent for declaratory relief and
indemnification, alleging that each of these cross-defendants is
obligated to indemnify McKesson if McKesson is compelled to pay
any sum as the result of any damages, judgment or other awards
recovered by the plaintiffs against McKesson. McKesson sought
judicial determinations of the comparative fault of McKesson and
each cross-defendant for damages claimed by the plaintiffs, if
any such damages are found to exist, and declarations of the
amount that each cross-defendant is obligated to indemnify
McKesson if McKesson is compelled to pay any sum as the result
of any damages, judgment or other awards recovered by the
plaintiffs against McKesson. The cross-complaints against
General Electric and Computer Associates have since been
dismissed.
On June 8, 2004, WebMD filed a demurrer, seeking dismissal
of McKesson's claims. On September 10, 2004, the Court
sustained the demurrer to McKesson's claims against WebMD.
On December 7, 2004, the Court dismissed McKesson's
cross-complaint with prejudice and ordered entry of judgment in
favor of WebMD. On January 27, 2005, McKesson filed a
notice of appeal of the Court's order in favor of WebMD.
That appeal has not yet been briefed.
On August 12, 2004, the original plaintiffs in the
California lawsuit, Merrill Lynch Fundamental Growth Fund, Inc.
and Merrill Lynch Global Value Fund, Inc., filed a separate
lawsuit in Superior Court in New Jersey, Middlesex County,
alleging substantially the same issues and claims against our
Parent as they did in the California lawsuit. In response to our
Parent's motion to dismiss, plaintiffs filed a First
Amended Complaint on January 4, 2005, dropping claims
against our Parent, but asserting the same claims against WebMD,
Inc., the company that engaged in the two software transactions.
On February 4,
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2005, the New Jersey court dismissed our Parent from the action
without prejudice, and stayed the New Jersey action until the
California action is resolved, subject to our Parent's
entering into a tolling agreement with plaintiffs, which our
Parent has done.
Parent intends to vigorously defend against the plaintiffs'
and McKesson's claims against our Parent and WebMD, Inc.
Other
In the normal course of business, we are involved in various
other claims and legal proceedings. While the ultimate
resolution of these matters, and those discussed above, has yet
to be determined, we do not believe that their outcome will have
a material adverse effect on our consolidated combined financial
position, results of operations or liquidity.
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GOVERNMENT REGULATION
Introduction
General.
This section of the prospectus contains a
description of laws and regulations applicable to us, either
directly or through their effect on our healthcare industry
customers. The healthcare industry is highly regulated and is
subject to changing political, regulatory and other influences.
These factors affect the purchasing practices and operations of
healthcare organizations as well as the behavior and attitudes
of consumers.
Federal and state legislatures and agencies periodically
consider programs to reform or revise the U.S. healthcare
system. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement
rates or otherwise change the environment in which healthcare
industry participants operate. We are unable to predict future
proposals with any certainty or to predict the effect they would
have on our businesses.
Existing and new laws and regulations affecting the healthcare,
information technology and Internet industries could create
unexpected liabilities for us, cause us to incur additional
costs and could restrict our operations. Many of the laws that
affect us, and particularly those applying to healthcare, are
very complex and may be subject to varying interpretations by
courts and other governmental authorities. Our failure, or the
failure of our business partners, to accurately anticipate the
application of these laws and regulations, or other failure to
comply, could create liability for us, result in adverse
publicity and negatively affect our businesses.
Healthcare Regulation.
Most of our revenue is either from
the healthcare industry or could be affected by changes
affecting healthcare spending. The healthcare industry is highly
regulated and is subject to changing political, regulatory and
other influences. These factors affect the purchasing practices
and operations of healthcare organizations as well as the
behavior and attitudes of consumers. Federal and state
legislatures and agencies periodically consider programs to
reform or revise aspects of the United States healthcare system.
These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry
participants operate. Healthcare industry participants may
respond by reducing their investments or postponing investment
decisions, including investments in our products and services.
We are unable to predict future proposals with any certainty or
to predict the effect they would have on our businesses.
Many healthcare laws are complex and their application to
specific products and services may not be clear. In particular,
many existing healthcare laws and regulations, when enacted, did
not anticipate the healthcare information services and
technology solutions that we provide. However, these laws and
regulations may nonetheless be applied to our products and
services.
Other Regulation.
This section of the prospectus also
contains a description of other laws and regulations, including
general consumer protection laws and Internet-related laws that
affect some of our businesses. Laws and regulations have been
adopted, and may be adopted in the future, that address
Internet-related issues, including online content, privacy,
online marketing, unsolicited commercial e-mail, taxation,
pricing, and quality of products and services. Some of these
laws and regulations, particularly those that relate
specifically to the Internet, were adopted relatively recently
and their scope and application may still be subject to
uncertainties. Interpretations of these laws, as well as any new
or revised law or regulation, could decrease demand for our
services, increase our cost of doing business, or otherwise
cause our business to suffer.
Regulation of Drug and Medical Device Advertising and
Promotion
The FDA and the FTC regulate the form, content and dissemination
of labeling, advertising and promotional materials prepared by,
or for, pharmaceutical or medical device companies, including
direct-to-consumer prescription drug and medical device
advertising. The FTC regulates over-the-counter drug advertising
and, in some cases, medical device advertising, as well as
general product or service
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advertising. Generally, based on FDA requirements, regulated
companies must limit advertising and promotional materials to
discussions of FDA-approved uses and claims. In limited
circumstances, regulated companies may disseminate
non-promotional scientific information regarding product uses or
claims not yet approved by the FDA.
Information that promotes the use of pharmaceutical products or
medical devices that is put on our Web sites is subject to the
full array of the FDA and FTC requirements and enforcement
actions and information regarding other products and services is
subject to FTC requirements. Areas of our Web sites that could
be the primary focus of the FDA and FTC include pages and
programs that discuss use of an FDA-regulated product or that
the regulators believe may lack editorial independence from the
influence of sponsoring pharmaceutical or medical device
companies. Television broadcast advertisements by us may also be
subject to FTC regulation and FDA regulation depending on the
content. The FDA and the FTC place the principal burden of
compliance with advertising and promotional regulations on
advertisers and sponsors to make truthful, substantiated claims.
If the FDA or the FTC finds that any information on our Web site
violates FDA or FTC regulations, they may take regulatory or
judicial action against us or the advertiser or sponsor of that
information. State attorneys general may also take similar
action based on their state's consumer protection statutes.
Drug Advertising.
The Federal Food, Drug and Cosmetic
Act, or FDC Act, requires that prescription drugs (including
biological products) be approved for a specific medical
indication by the FDA prior to marketing. It is a violation of
the FDC Act and of FDA regulations to market, advertise or
otherwise commercialize such products prior to approval. The FDA
does allow for preapproval exchange of scientific information,
provided it is nonpromotional in nature and does not draw
conclusions regarding the ultimate safety or effectiveness of
the unapproved drug. Upon approval, the FDA's regulatory
authority extends to the labeling and advertising of
prescription drugs offered in interstate commerce. Such products
may only be promoted and advertised for approved indications. In
addition, the labeling and advertising can be neither false nor
misleading, and must present all material information, including
risk information, in a balanced manner. Labeling and advertising
that violate these legal standards are subject to FDA
enforcement action.
The FDA regulates the safety, efficacy, and labeling of
over-the-counter drugs, or OTC drugs, under the FDC Act either
through specific product approvals or through regulations that
define approved claims for specific categories of such products.
The FTC regulates the advertising of OTC drugs under the section
of the Federal Trade Commission Act that prohibits unfair or
deceptive trade practices. Together, the FDA and FTC regulatory
framework requires that OTC drugs be formulated and labeled in
accordance with FDA approvals or regulations and promoted in a
manner that is truthful, adequately substantiated, and
consistent with the labeled uses. OTC drugs that do not meet
these requirements are subject to FDA or FTC enforcement action
depending on the nature of the violation. In addition, state
attorneys general can also bring enforcement actions for alleged
unfair or deceptive advertising.
There are significant administrative, civil and criminal
sanctions available to the FDA for violations of the FDC Act or
FDA regulations as they relate to labeling and advertising.
Administrative sanctions may include a written request that
violative advertising or promotion cease and/or that corrective
action be taken, such as requiring a company to provide to
healthcare providers and/or consumers information to correct
misinformation previously conveyed. In addition, the FDA may use
publicity, such as press releases, to warn the public about
false and misleading information concerning a drug or medical
device product. More serious civil sanctions include seizures
and injunctions. Such measures could prevent a company from
introducing or maintaining its product in the marketplace.
Criminal penalties for severe violations can result in a prison
term and/or substantial fines. State attorneys general have
similar investigative tools and sanctions available to them as
well. The National Association of Attorneys General has formed a
Prescription Drug Task Force that has been active in addressing
issues related to prescription drugs.
Any increase in FDA regulation of the Internet or other media
for direct-to-consumer advertisements of prescription drugs
could make it more difficult for us to obtain advertising and
sponsorship revenue. In
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the last 15 years, the FDA has gradually relaxed its
formerly restrictive policies on direct-to-consumer advertising
of prescription drugs. Companies can now advertise prescription
drugs for serious conditions to consumers in any medium if they
comply with FDA requirements. However, physician groups and
others have criticized the FDA's current policies, and have
called for restrictions on any advertising of prescription drugs
to consumers and increased FDA enforcement. These critics point
to both public health concerns and to the laws of many other
countries that make direct-to-consumer advertising of
prescription drugs a criminal offense. Scrutiny of
direct-to-consumer advertising increased after Vioxx® was
withdrawn from the market due to potential safety concerns in
September 2004. Critics have proposed postponing
direct-to-consumer advertising for a new drug until the drug has
been safely marketed commercially for one or two years. In
response to these criticisms, the FDA or the FTC may alter its
present policies on the direct-to-consumer advertising of
prescription drugs or medical devices in a way that would
materially reduce our advertising and sponsorship revenues. In
early 2004, the FDA issued three draft guidance documents
intended to improve communication of: (1) risk information
in direct-to-consumer print advertisements, (2) disease
awareness information, and (3) risk information in
direct-to-consumer advertising of restricted medical devices.
These draft guidance documents do not alter existing FDA
regulatory requirements, but may lead to future policy changes.
Physician Education Programs.
Activities and information
provided in the context of a medical or scientific educational
program, including continuing medical education or
"CME," are not regulated by the FDA if they are
non-promotional. The FDA does, however, evaluate such activities
to determine whether they are independent of the promotional
influence of the drug or medical device sponsor or whether they
are promotional activities subject to the FDA's advertising
and labeling requirements. In order to determine whether a
company's activities are sufficiently independent, the FDA
looks at a number of factors related to the planning, content,
speakers and audience selection of such activities. To the
extent that the FDA concludes that such activities are not
independent from a manufacturer, such content must fully comply
with the FDA's requirements. If the FDA or other regulatory
agency finds that an educational program violates the applicable
requirements, they may take regulatory or judicial action
against the sponsor or us.
During the past several years, educational programs, including
CME, directed toward physicians have been subject to increased
scrutiny to ensure that sponsors do not influence or control the
content of the program. In response to governmental and industry
initiatives, pharmaceutical companies have been developing and
implementing internal controls and procedures that promote
adherence to applicable regulations and requirements. In
implementing these controls and procedures, different clients
may interpret the regulations and requirements differently and
may implement procedures or requirements that vary from client
to client. These controls and procedures:
•
may discourage pharmaceutical companies from engaging in
    educational activities;
•
may slow their internal approval for such programs;
•
may reduce the volume of sponsored educational programs
    implemented through our Medscape Web site to levels that are
    lower than in the past; and
•
may require us to make changes to how we offer or provide
    educational programs, including CME.
In addition, future changes to existing regulations or
accreditation standards, or to the internal compliance programs
of potential clients, may further discourage or prohibit
potential clients from engaging in educational activities with
us, or may require us to make further changes in the way we
offer or provide educational programs.
Medical Professional Regulation
The practice of most healthcare professions requires licensing
under applicable state law. In addition, the laws in some states
prohibit business entities from practicing medicine, which is
referred to as the prohibition against the corporate practice of
medicine. We do not believe that we engage in the practice of
medicine and we have attempted to structure our Web site,
strategic relationships and other operations to
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avoid violating these state licensing and professional practice
laws. We do not believe we provide professional medical advice,
diagnosis or treatment. We employ and contract with physicians
who provide only medical information to consumers, and we have
no intention to provide medical care or advice. A state,
however, may determine that some portion of our business
violates these laws and may seek to have us discontinue those
portions or subject us to penalties or licensure requirements.
Any determination that we are a healthcare provider and acted
improperly as a healthcare provider may result in liability to
us. Many states regulate the ability of medical professionals to
advertise or maintain referral services. We do not represent
that a physician's use of our Web site will comply with
these or other state laws regulating professional practice and
we do not monitor or control the content that physicians post on
their individual practice Web sites using our Web site
application. It is possible a state or a court may determine we
are responsible for any non-compliance with these laws, which
could affect our ability to offer this service to our customers.
Anti-Kickback Laws
There are federal and state laws that govern patient referrals,
physician financial relationships and inducements to healthcare
providers and patients. The federal healthcare programs
anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. These
laws are applicable to manufacturers and distributors and,
therefore, may restrict how we and some of our customers market
products to healthcare providers. Also, in 2002, the Office of
the Inspector General, or OIG, of HHS, the federal government
agency responsible for interpreting the federal anti-kickback
law, issued an advisory opinion that concluded that the sale of
advertising and sponsorships to healthcare providers and vendors
by Web-based information services implicates the federal
anti-kickback law. However, the advisory opinion suggests that
enforcement action will not result if the fees paid represent
fair market value for the advertising/sponsorship arrangements,
the fees do not vary based on the volume or value of business
generated by the advertising and the advertising/sponsorship
relationships are clearly identified as such to users. We
carefully review our practices with regulatory experts in an
effort to ensure that we comply with all applicable laws.
However, the laws in this area are both broad and vague and it
is often difficult or impossible to determine precisely how the
laws will be applied, particularly to new services. Penalties
for violating the federal anti-kickback law include
imprisonment, fines and exclusion from participating, directly
or indirectly, in Medicare, Medicaid and other federal
healthcare programs. Any determination by a state or federal
regulatory agency that any of our practices violate any of these
laws could subject us to civil or criminal penalties and require
us to change or terminate some portions of our business and
could have an adverse effect on our business. Even an
unsuccessful challenge by regulatory authorities of our
practices could cause us adverse publicity and be costly for us
to respond to.
Privacy Standards and Security Standards Under Health
Insurance Portability and Accountability Act of 1996
Under HIPAA, Congress mandated a package of interlocking
administrative simplification rules to establish standards and
requirements for the electronic transmission of certain health
information. Two of these rules affect our business:
•
the Standards for Privacy of Individually Identifiable Health
    Information, published December 28, 2000, which we refer to
    as the Privacy Standards; and
•
the Health Insurance Reform: Security Standards, published
    February 20, 2003, which we refer to as the Security
    Standards.
These rules provide for civil and criminal liability for breach.
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Privacy Standards.
The Privacy Standards establish a set
of basic national privacy standards for the protection by health
plans, healthcare clearinghouses, healthcare providers and their
business associates of individually identifiable health
information. This rule became effective on April 14, 2001
and the compliance date for most entities was April 14,
2003. The Privacy Standards apply, through our contractual
relationships, to the portions of our business that manage
employee or plan member health information for employers or
health plans. The Privacy Standards provide for civil and
criminal liability for their breach and require us, our
customers and our partners to use health information in a highly
restricted manner, to establish policies and procedures to
safeguard the information, to obtain individual authorizations
for some activities, and to provide certain access rights to
individuals. We cannot assure you that we will adequately
address the risks created by the Privacy Standards or that we
will be able to take advantage of any resulting opportunities.
In addition, we are unable to predict what changes to the
Privacy Standards might be made in the future or how those
changes could affect our business.
Security Standards.
On February 20, 2003, HHS
published the final Security Standards. The Security Standards
establish detailed requirements for safeguarding patient
information that is electronically transmitted or electronically
stored. The rule establishes 42 implementation specifications,
20 of which are "required," meaning they must be
implemented as specified in the rule. Twenty-two are
"addressable." Complying with addressable
implementation specifications requires a business to assess
whether they constitute a reasonable and appropriate safeguard
for the particular business; if not, an alternative approach
must be designed and implemented to achieve the particular
standard. The Security Standards apply, through our contractual
relationships, to the portions of our business that manage
employee or plan member health information for employers or
health plans. Most participants in the healthcare industry were
required to be in compliance with the Security Standards by
April 21, 2005. Some of the Security Standards are
technical in nature, while others may be addressed through
policies and procedures for using information systems. We
believe that our infrastructure and processes are in compliance
with the Security Standards. However, we are unable to predict
what changes might be made to the Security Standards prior to or
after the implementation deadline or how those changes might
help or hinder our business. The effect of the Security
Standards on our business is difficult to predict and we cannot
assure you that we will adequately address the risks created by
the Security Standards and their implementation or that we will
be able to take advantage of any resulting opportunities.
Other Restrictions Regarding Confidentiality and Privacy of
Patient Information
In addition to HIPAA, numerous other state and federal laws
govern the collection, dissemination, use, access to and
confidentiality of patient health information. In addition, some
states are considering new laws and regulations that further
protect the confidentiality of medical records or medical
information. In many cases, these state laws are not preempted
by the HIPAA Privacy Standard and may be subject to
interpretation by various courts and other governmental
authorities, thus creating potentially complex compliance issues
for us and our customers and strategic partners. These privacy
laws at a state or federal level, or new interpretations of
these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business. In
addition, parties may also have contractual rights that provide
additional limits on our collection, dissemination, use, access
to and confidentiality of patient health information. Claims of
violations of privacy rights or contractual breaches, even if we
are not found liable, could be expensive and time-consuming to
defend and could result in adverse publicity that could harm our
business.
International Data Regulation
Other countries also have, or are developing, their own laws
governing the collection, use, storage and dissemination of
personal information or patient data. These laws could create
liability for us, impose additional operational requirements or
restrictions on our business, affect the manner in which we use
or transmit data and increase our cost of doing business.
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Consumer Protection Regulation
General.
Advertising and promotional activities presented
to visitors on our Web sites are subject to federal and state
consumer protection laws which regulate unfair and deceptive
practices. We are also subject to various other federal and
state consumer protection laws, including the ones described
below.
CAN-SPAM Act.
Effective January 1, 2004, the
Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or the CAN-SPAM Act, became effective.
The CAN-SPAM Act regulates commercial emails and provides a
right on the part of the recipient to request the sender to stop
sending messages, and establishes penalties for the sending of
email messages which are intended to deceive the recipient as to
source or content. Under the CAN-SPAM Act, senders of commercial
emails (and other persons who initiate those emails) are
required to make sure that those emails do not contain false or
misleading transmission information. Commercial emails are
required to include a valid return email address and other
subject heading information so that the sender and the Internet
location from which the message has been sent are accurately
identified. Recipients must be furnished with an electronic
method of informing the sender of the recipient's decision
to not receive further commercial emails. In addition, the email
must include a postal address of the sender and notice that the
email is an advertisement. The CAN-SPAM Act may apply to the
e-newsletters that our public portals distribute to members and
to some of our other commercial email communications. However,
there may be additional FTC regulations indicating that our
e-newsletters are outside the scope of CAN-SPAM. At this time,
we are applying the CAN-SPAM requirements to these email
communications, and believe that our email practices comply with
the requirements of the CAN-SPAM Act.
Regulation of Advertisements Sent by Fax.
In 2004, the
Federal Communication Commission (FCC) issued a new
interpretation of a section of the Telephone Consumer Protection
Act that affects advertisements sent to telephone facsimile
(fax) machines. Under this new interpretation, unsolicited
advertisements which advertise the commercial availability or
quality of a product or service cannot be sent to the fax
machine of a recipient unless the recipient has signed a written
statement that includes the fax number to which these
advertisements may be sent and clearly indicates the
recipient's consent to receive these advertisements by fax
from the sender. Previously, these advertisements could be sent
without permission to entities with whom a current business
relationship exists. However, the FCC has delayed the effective
date of the new interpretation until June 30, 2005. We do
not send advertisements to fax machines in any significant
portions of our business. We intend to comply with the
FCC's new interpretation effective as of the deadline.
COPPA.
The Children's Online Privacy Protection Act,
or COPPA, applies to operators of commercial Web sites and
online services directed to U.S. children under the age of
13 that collect personal information from children, and
operators of general audience sites with actual knowledge that
they are collecting information from U.S. children under
the age of 13. Our sites are not directed at children and our
general audience site, WebMD Health, states that no one under
the applicable age is entitled to use the site. In addition, we
employ a kick-out procedure whereby anyone identifying
themselves as being under the age of 13 during the registration
process is not allowed to register for the site's member
only services, such as message boards and live chat events.
COPPA, however, is a relatively new law, can be applied broadly
and is subject to interpretation by courts and other
governmental authorities. The failure to accurately anticipate
the application or interpretation of this law could create
liability for us, result in adverse publicity and negatively
affect our business.
Regulation of Contests and Sweepstakes.
We conduct
contests and sweepstakes in some of our marketing channels. The
federal Deceptive Mail Prevention and Enforcement Act and some
state prize, gift or sweepstakes statutes may apply to these
promotions. We believe that we are in compliance with any
applicable law or regulation when we run these promotions.
Other Consumer Protection Regulation.
The FTC and many
state attorneys general are applying federal and state consumer
protection laws to require that the online collection, use and
dissemination of data, and the presentation of Web site content,
comply with certain standards for notice, choice, security and
access. Courts may also adopt these developing standards. In
many cases, the specific limitations
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imposed by these standards are subject to interpretation by
courts and other governmental authorities. We believe that we
are in compliance with these consumer protection standards, but
a determination by a state or federal agency or court that any
of our practices do not meet these standards could result in
liability and adversely affect our business. New interpretations
of these standards could also require us to incur additional
costs and restrict our business operations.
In addition, several foreign governments have regulations
dealing with the collection and use of personal information
obtained from their citizens. Those governments may attempt to
apply such laws extraterritorially or through treaties or other
arrangements with U.S. governmental entities. We might
unintentionally violate such laws, such laws may be modified and
new laws may be enacted in the future. Any such developments (or
developments stemming from enactment or modification of other
laws) or the failure to accurately anticipate the application or
interpretation of these laws could create liability to us,
result in adverse publicity and negatively affect our businesses.
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MANAGEMENT
Directors and Executive Officers
We expect that the following persons will be our executive
officers and directors at the time of this offering:
Name
Age
Position
Wayne T. Gattinella
53
Co-Chief Executive Officer, President and Director
David Gang
48
Co-Chief Executive Officer and Chief Operating Officer
Martin J. Wygod
65
Chairman of the Board
Anthony Vuolo
47
Executive Vice President and Chief Financial Officer
Douglas W. Wamsley
46
Executive Vice President, General Counsel and Secretary
Prior to the completion of this offering, we expect that our
Board will appoint additional members so that our Board will
consist of a majority of independent directors under applicable
SEC rules and The Nasdaq National Market listing standards.
Wayne T. Gattinella
has served as President, since August
2001, and as Chief Executive Officer, since April 2005, of our
Parent's WebMD Health segment. He is expected to serve as
Director and Co-Chief Executive Officer and President upon
completion of this offering. Previously, Mr. Gattinella was
Executive Vice President and Chief Marketing Officer for
PeoplePC, an Internet service provider, from April 2000 to
August 2001. From February 1998 to March 2000,
Mr. Gattinella was President of North America for
MemberWorks, Inc., a marketing services company.
David Gang
is expected to join our Parent's WebMD
Health segment prior to the consummation of this offering and to
serve as our Co-Chief Executive Officer and Chief Operating
Officer upon completion of this offering. Since joining America
Online, Inc., or AOL, a subsidiary of Time Warner Corporation,
and its predecessors, in 1995, Mr. Gang has served for more
than five years in senior management positions at AOL most
recently as Executive Vice President, AOL Products, where he was
responsible for creating and implementing all AOL products
shared across various platforms including narrowband, broadband,
wireless and voice and the launch of AOL 9.0 Optimized, the
latest version of AOL.
Martin J. Wygod
is expected to serve as our Chairman of
the Board following this offering, and has served as our
Parent's Chairman of the Board since March 2001 and as a
director since September 2000. From October 2000 until May 2003,
he also served as our Parent's Chief Executive Officer.
From September 2000 until October 2000, Mr. Wygod served as
Co-Chief Executive Officer of our Parent. For more than five
years prior to its merger with our Parent in September 2000,
Mr. Wygod was Chairman of the Board and a director of
Synetic, Inc., which changed its name to Medical Manager in July
1999 when it acquired the company of that name. He also served
as Chairman of the Board of CareInsite, Inc. from 1999 until its
acquisition by our Parent in September 2000. He is also engaged
in the business of racing, boarding and breeding thoroughbred
horses, and is President of River Edge Farm, Inc. It is expected
that Mr. Wygod will continue to serve as Chairman of the
Board of our Parent following this offering.
Anthony Vuolo
is expected to serve as our Executive Vice
President and Chief Financial Officer upon the completion of
this offering. Mr. Vuolo has been Executive Vice President,
Business Development of our Parent since May 2003.
Mr. Vuolo has served in several executive positions at our
Parent and its predecessors since 1994. From September 2000 to
May 2003, Mr. Vuolo was Executive Vice President and Chief
Financial Officer of our Parent. From March 1999 until its
merger with our Parent in September 2000, Mr. Vuolo was
Senior Vice President — Business Development and
Treasurer of Synetic, Inc., which changed its name to Medical
Manager in July 1999 when it acquired the company of that name.
Prior to
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that, he was Executive Vice President — Finance and
Administration and Chief Financial Officer of Synetic from March
1998 until March 1999.
Douglas W. Wamsley
is expected to serve as our Executive
Vice President, General Counsel and Secretary upon completion of
this offering. Mr. Wamsley has served as Senior Vice
President — Legal of our company and Vice
President — Legal of our Parent from September 2001 to
the present. Prior to joining our company, Mr. Wamsley
served as Executive Vice President and General Counsel of
Medical Logistics, Inc. from February 2000 through July 2001.
Prior to joining Medical Logistics, Mr. Wamsley served in
various legal positions with Merck-Managed Care LLC (now known
as Medco-Health Solutions) from December 1986 through January
2001.
Corporate Governance
Since our Parent holds over 50% of the combined voting power of
our common stock, we are eligible for certain exceptions to the
corporate governance rules of The Nasdaq National Market for
controlled corporations, including the rules relating to the
independence of our Board. However, it is currently not our
intention to avail ourselves of those exceptions. In general, we
intend to implement corporate governance structures similar to
those used by our Parent, which is not a controlled corporation.
These structures are described in this section of the
Prospectus. We also intend to adopt a Code of Business Conduct
similar to our Parent's.
Board of Directors
Board Composition
Wayne T. Gattinella, our Co-Chief Executive Officer and
President, and Martin J. Wygod are currently the only members of
the Board of Directors of our company. Prior to the completion
of this offering, we expect that our Board will appoint
additional members so that our Board will consist of a majority
of independent directors under applicable SEC rules and The
Nasdaq National Market listing standards.
Director Classification
We anticipate that our certificate of incorporation and bylaws
will provide for our Board to be divided into classes of
directors serving staggered terms. We expect that each director
class will be as equal in number as possible, and each class
will hold office until the applicable annual stockholders'
meeting for election of directors following the most recent
election of such class. Any additional directorships resulting
from an increase in the number of directors will be distributed
among the classes so that, as nearly as possible, each class
will consist of an equal number of directors. The classification
of our Board may have the effect of delaying or preventing
changes in control or management of our company.
Committees of the Board
In connection with this offering, our Board will form standing
committees similar to the equivalent standing committees of the
Board of our Parent, as described below, and to adopt written
charters for each such committee, other than the Executive
Committee, that are generally similar to the charter for the
equivalent standing committee of the Board of our Parent. In
addition, as described below, we intend to have a standing Board
committee consisting of independent directors who are not
members of our Parent's Board with authority to review
transactions between us and our Parent to the extent such
committee determines to be appropriate. After this offering, our
Board may designate new committees, as it deems appropriate, to
assist with its responsibilities.
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Executive Committee
We expect that prior to the completion of this offering, our
Board will form an Executive Committee consisting of directors
that will have the power to exercise, to the fullest extent
permitted by law, the powers of the full Board.
Audit Committee
Our Board will form an Audit Committee, at least one of whom
will be an "audit committee financial expert" as
defined in the rules of The Nasdaq National Market. Each member
of the Audit Committee will be financially literate at the time
such member is appointed. The composition of the Audit Committee
will satisfy the independence requirements of The Nasdaq
National Market and the SEC, without relying on any of the
exceptions available to controlled companies.
We anticipate that the Audit Committee will operate under a
written charter to be adopted by our Board, generally similar to
the charter of the Audit Committee of our Parent's Board,
which will set forth the responsibilities and powers delegated
by our Board to the Audit Committee. We expect that the Audit
Committee will have the responsibility for, among other things:
•
retaining and overseeing the registered public accounting firm
    that serves as independent auditor and evaluating their
    performance and independence;
•
reviewing the annual audit plan with our management and
    registered public accounting firm;
•
pre-approving any permitted non-audit services provided by our
    registered public accounting firm;
•
approving the fees to be paid to our registered public
    accounting firm;
•
reviewing the adequacy and effectiveness of our internal
    controls with our management, internal auditors and registered
    public accounting firm;
•
reviewing and discussing the annual audited financial statements
    and the interim unaudited financial statements with our
    management and registered public accounting firm;
•
approving our internal audit plan and reviewing reports of our
    internal auditors;
•
determining whether to approve related party
    transactions; and
•
overseeing the administration of our Code of Business Conduct.
Compensation Committee
Our Board is expected to form a Compensation Committee. We
expect that each of these directors will be a non-employee
director within the meaning of Section 16 of the Exchange
Act, an outside director within the meaning of
Section 162(m) of the Internal Revenue Code and an
independent director under applicable Nasdaq National Market
listing standards.
We expect that the Compensation Committee will operate under a
written charter to be adopted by our Board, generally similar to
the charter of the Compensation Committee of our Parent's
Board, which will set forth the responsibilities and powers
delegated by our Board to the Compensation Committee. We
anticipate that the responsibilities of the Compensation
Committee will generally include:
•
oversight of our executive compensation program and our
    incentive and equity compensation plans;
•
determination of compensation levels for grants of incentive and
    equity-based awards to our executive officers; and
•
review of and making recommendations regarding other matters
    relating to our compensation practices.
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Nominating Committee
We anticipate that our Board will designate a Nominating
Committee, with each director in such committee being an
independent director under applicable Nasdaq National Market
listing standards. It is expected that the Nominating Committee
will operate under a written charter to be adopted by our Board,
generally similar to the charter of the Nominating Committee of
our Parent's Board, which will set forth the
responsibilities and powers delegated by our Board to the
Nominating Committee. We expect the responsibilities of the
Nominating Committee to generally include:
•
identifying individuals qualified to become members of our Board;
•
recommending to our Board the director nominees for each annual
    meeting of stockholders; and
•
recommending to our Board candidates for filling vacancies that
    may occur between annual meetings.
We expect that the Nominating Committee will adopt similar
procedures to those used by the Nominating Committee of our
Parent's Board, which has not adopted specific objective
requirements for Board service and, instead, considers various
factors in determining whether to recommend potential new
members, or the continued service of existing members. Those
factors would generally include:
•
the amount and type of the potential nominee's managerial
    and policy-making experience in complex organizations and
    whether any such experience is particularly relevant to us;
•
any specialized skills or experience that the potential nominee
    has and whether such skills or experience are particularly
    relevant to us;
•
in the case of non-employee directors, whether the potential
    nominee has sufficient time to devote to service on the board
    and the nature of any conflicts of interest or potential
    conflicts of interest arising from the nominee's existing
    relationships;
•
in the case of non-employee directors, whether the nominee would
    be an independent director and would be considered a
    "financial expert" or "financially literate"
    under applicable listing standards of The Nasdaq National Market
    and applicable law;
•
in the case of potential new members, whether the nominee
    assists in achieving a mix of board members that represents a
    diversity of background and experience, including with respect
    to age, gender, race, areas of expertise and skills; and
•
in the case of existing members, the nominee's
    contributions as a member of the Board during his or her prior
    service.
Governance & Compliance Committee
We expect that our Board will form a Governance &
Compliance Committee, consisting of at least two directors, each
of whom will be an independent director under applicable Nasdaq
National Market listing standards.
We anticipate that the Governance & Compliance
Committee will operate under a written charter to be adopted by
our Board, generally similar to the charter of the
Governance & Compliance Committee of our Parent's
Board, which will set forth the responsibilities and powers
delegated by our Board to the Governance & Compliance
Committee. We expect the responsibilities of the
Governance & Compliance Committee will generally
include:
•
evaluating and making recommendations to our Board regarding
    matters relating to our governance;
•
assisting our Board in coordinating the activities of our
    Board's other standing committees, including with respect
    to our compliance programs and provide additional oversight of
    those compliance programs; and
•
providing oversight of senior executive recruitment and
    management development.
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Related Parties Committee
We expect that our Board will form a Related Parties Committee,
consisting of at least two directors. Each of these directors
will be an independent director under applicable Nasdaq National
Market listing standards and will not be, or ever have been, a
member of the Board of Directors of our Parent. The
responsibilities of the Related Parties Committee will include
developing and implementing procedures for approval of
transactions between us and our Parent.
Executive Compensation
Our company was formed in May 2005 to be the holding
company for our Parent's WebMD Health segment and to
conduct this offering. We have not paid any compensation to the
persons we currently expect to be our executive officers. The
following table presents information concerning compensation for
services paid by Parent and/or its other subsidiaries to our
Co-Chief Executive Officer and the other persons currently
expected to be our executive officers who received the most
compensation from our Parent and/or its subsidiaries during the
year ended December 31, 2004. In addition, the table
includes the same information for one person who formerly served
as Chief Executive Officer of our Parent's WebMD Health
segment. The individuals listed in the table are referred to in
this prospectus as our "named executive officers." See
"— Compensation Arrangements with Named Executive
Officers" below for a description of existing compensation
arrangements for each of the named executive officers as well as
any change in those arrangements to become effective in
connection with this offering.
Summary Compensation Table
Long-Term
Compensation Awards
Securities
Annual Compensation
Parent
Underlying
Restricted Stock
Parent Options
Name & Principal Position
Year
Salary ($)
Bonus ($)
Award(s) ($)(1)
SARs (#)
Wayne T. Gattinella
2004
450,000
300,000
322,125
(2)
250,000
Co-Chief Executive Officer,
2003
450,000
125,000
—
—
President and Director
2002
410,000
165,000
—
—
Martin J. Wygod
2004
1,260,000
402,000
—
—
Chairman of the Board
2003
1,308,900
—
—
—
2002
1,400,000
475,000
—
—
Anthony Vuolo
2004
450,000
260,000
322,125
(2)
250,000
Executive Vice President and
2003
450,000
—
—
—
Chief Financial Officer
2002
450,000
200,000
—
—
Douglas W. Wamsley
2004
200,000
50,000
128,850
(3)
100,000
Executive Vice President,
2003
—
—
General Counsel and Secretary
2002
—
—
Roger C. Holstein(4)
2004
915,000
402,000
715,547
(5)
—
Former Chief Executive
2003
861,538
—
—
500,000
Officer
2002
480,000
450,000
—
1,000,000
(1)
Holders of restricted shares of our Parent common stock (which
    we refer to as Restricted Parent Stock) have voting power and
    the right to receive dividends, if any are declared on our
    Parent common stock, with respect to shares of Restricted Parent
    Stock, but their ability to sell shares of Restricted Parent
    Stock is subject to vesting requirements based on continued
    employment, as described in the footnotes below. The dollar
    value of Restricted Parent Stock listed in this column is
    calculated by multiplying the number of shares granted by the
    closing market price on the date of each grant, as described in
    the footnotes below.
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(2)
The dollar value listed in the table is based on $8.59 per
    share, the closing market price of our Parent common stock on
    March 17, 2004, the date of grant of 37,500 shares of
    Restricted Stock, of which (a) 12,500 shares vested on
    March 17, 2005, (b) 12,500 shares will vest on
    March 17, 2006 and (c) 12,500 shares will vest on
    March 17, 2007, subject to the terms of the plans and award
    agreements. As of December 31, 2004, the aggregate value of
    the 37,500 shares of Restricted Stock, all of which were
    unvested at that date, was $306,000, based on the closing market
    price of $8.16 per share of our Parent common stock on that
    date.
(3)
The dollar value listed in the table is based on $8.59 per
    share, the closing market price of our Parent common stock on
    March 17, 2004, the date of grant of 15,000 shares of
    Restricted Stock, of which (a) 5,000 shares vested on
    March 17, 2005, (b) 5,000 shares will vest on
    March 17, 2006 and (c) 5,000 shares will vest on
    March 17, 2007 subject to the terms of the plans and award
    agreements. As of December 31, 2004, the aggregate value of
    the 15,000 shares of Restricted Stock, all of which were
    unvested at that date, was $122,400, based on the closing market
    price of $8.16 per share of our Parent common stock on that date.
(4)
Mr. Holstein was Chief Executive Officer of our
    Parent's WebMD Health segment from October 2004 until his
    resignation in April 2005.
(5)
The dollar value listed in the table is based on $8.59 per
    share, the closing market price of our Parent common stock on
    March 17, 2004, the date of grant of 83,300 shares of
    Restricted Stock, of which (a) 27,766 shares vested on
    March 17, 2005, (b) 27,767 shares had a vesting
    date of March 17, 2006 and (c) 27,767 shares had
    a vesting date of March 17, 2007. As of December 31,
    2004, the aggregate value of the 83,300 shares of
    Restricted Stock, all of which were unvested at that date, was
    $679,728, based on the closing market price of $8.16 per
    share of our Parent common stock on that date. Effective as of
    April 27, 2005, the date of Mr. Holstein's
    resignation from our Parent, all unvested restricted stock held
    by Mr. Holstein was forfeited.
In accordance with SEC rules, the above table does not include
certain perquisites and other benefits received by the named
executive officers, which do not exceed the lesser of $50,000
and 10% of any officer's salary and bonus disclosed in this
table. In each of the years covered in the above table, none of
the named executive officers received more than $15,000 in
perquisites or other benefits and most of such benefits
consisted of automobile allowances.
The following table presents information concerning the options
to purchase our Parent's common stock granted during the
fiscal year ended December 31, 2004 to the named executive
officers for services rendered to our Parent and its
subsidiaries. Such options and other equity awards will continue
to be governed by the terms and conditions of our Parent's
equity plans under which they were granted.
Parent Option Grants in 2004
Individual Grants
Number of
Percent of Total
Securities
Parent Options
Underlying
Granted to
Exercise or
Parent Options
Employees in
Base Price
Expiration
Grant Date Present
Name
Granted (#)
2004(1)
($/Share)
Date
Value ($)(2)
Wayne T. Gattinella
250,000
(3)
1.3
8.59
3/17/2014
1,163,025
Martin J. Wygod
—
—
—
—
—
Anthony Vuolo
250,000
(3)
1.3
8.59
3/17/2014
1,163,025
Douglas W. Wamsley
100,000
(3)
0.5
8.59
3/17/2014
465,210
Roger C. Holstein
—
—
—
—
—
(1)
Based upon the total number of options that our Parent granted
    to its and its subsidiaries' employees during 2004.
(2)
The estimated grant date present value reflected in the above
    table was determined using the Black-Scholes model and the
    following data and assumptions: (a) the applicable option
    exercise prices, (b) the exercise of options within
    3 years of the date that they become exercisable,
    (c) a risk-free interest rate of 1.9% per annum,
    (d) volatility of 0.6 for our Parent common stock and
    (e) that no dividends are paid on our Parent common stock.
    The ultimate values of the options will depend on the future
    market price of our Parent common stock, which cannot be
    forecast with reasonable accuracy. The actual value, if any, an
    optionee will realize upon exercise of an option will depend on
    the excess of the market value of our Parent common stock over
    the exercise price on the date the option is exercised. We
    cannot predict whether the value realized by an optionee will be
    at or near the value estimated by the Black-Scholes model or any
    other model applied to value the options.
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(3)
These options vest and become exercisable with respect to 1/3 of
    the shares on each of September 17, 2005,
    September 17, 2006 and September 17, 2007.
The following table presents information with respect to the
named executive officers concerning exercises of options to
purchase our Parent common stock during 2004 and exercisable and
unexercisable options to purchase our Parent common stock that
they held as of December 31, 2004.
Aggregated Parent Option Exercises in Last Fiscal Year and
Fiscal Year-End Parent Option Values
Number of Securities
Underlying Unexercised
Value of Unexercised
Parent Options at
In-the-Money Parent Options at
Parent Shares
Value
December 31, 2004
December 31, 2004(2)
Acquired on
Realized
Name
Exercise (#)
($)(1)
Exercisable
Unexercisable
Exercisable ($)
Unexercisable ($)
Wayne T. Gattinella
—
—
450,000
400,000
1,507,000
502,500
Martin J. Wygod
1,044,000
(3)
3,382,560
3,685,000
—
—
—
Anthony Vuolo
312,500
1,438,125
2,015,500
269,500
2,365,000
—
Douglas W. Wamsley
70,000
373,367
42,500
137,500
209,100
184,500
Roger C. Holstein
—
—
3,234,000
1,000,000
3,345,000
1,470,000
(1)
The value realized is calculated based on the amount by which
    the aggregate market price, on the date of exercise, of the
    Parent shares received exceeded the aggregate exercise price
    paid, regardless of whether such shares were sold or retained by
    the option holder on that date.
(2)
The value of unexercised in-the-money Parent options is
    calculated based on the closing market price per share of our
    Parent's common stock as of December 31, 2004, which
    was $8.16, net of the applicable option exercise price per share.
(3)
Mr. Wygod has retained, through the date of this
    prospectus, ownership of the shares acquired on exercise.
Compensation Arrangements with Named Executive Officers
Arrangements with Wayne T. Gattinella
We are a party to an employment agreement with Wayne Gattinella,
who will serve as our Co-Chief Executive Officer and President.
The following is a description of Mr. Gattinella's
employment agreement:
•
Mr. Gattinella currently receives an annual base salary of
    $560,000 and will be eligible to earn a bonus of up to 100% of
    his base salary. Achievement of 50% of that bonus will be based
    upon the attainment of annual financial goals, and achievement
    of the remaining 50% will be based upon other annual performance
    goals.
•
In the event this initial public offering is consummated, we
    would recommend to our Compensation Committee that, upon
    consummation, Mr. Gattinella be granted 100,000 shares
    of our restricted class A common stock and options to
    purchase 400,000 shares of our Class A common
    stock, such numbers subject to adjustment, up or down, to the
    extent our capitalization is more or less than
    100,000,000 shares. The per share exercise price of the
    options would be the initial public offering price. The
    restricted stock and options would vest in equal installments
    over four years upon each anniversary of the grant date.
•
In the event of a "change of control" (as defined in
    Mr. Gattinella's employment agreement), the unvested
    portion of the options to purchase our Class A common stock
    would continue to vest until the later of (1) two years
    from the date of grant and (2) the next scheduled vesting
    date following the change of control. The continued vesting
    applies only if Mr. Gattinella remains employed until six
    months following such change of control or is terminated by our
    successor "without cause" or he resigns for "good
    reason" during such six-month period.
•
In the event of the termination of Mr. Gattinella's
    employment, prior to April 30, 2009, by us "without
    cause" or by Mr. Gattinella for "good
    reason" (as those terms are defined in
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Mr. Gattinella's employment agreement) he would be
    entitled to continue to receive his base salary for one year
    from the date of termination and to receive healthcare coverage
    until the earlier of one year following his termination and the
    date upon which he receives comparable coverage under another
    plan. In addition, the unvested portion of the option to
    purchase 600,000 shares of our Parent's common
    stock granted to Mr. Gattinella at the inception of his
    employment would remain outstanding and continue to vest as if
    he remained in our employ until the first anniversary of the
    date of termination. In the event that a termination of
    Mr. Gattinella's employment by us "without
    cause" or by Mr. Gattinella for "good
    reason" occurs before the fourth anniversary of the grant
    of the options to purchase our Class A common stock, 25% of
    such options would continue to vest through the next vesting
    date following the date of termination.
Mr. Gattinella is also a party to a related agreement with
WebMD, Inc. that contains confidentiality obligations that
survive indefinitely and non-solicitation and non-competition
obligations that end on the first anniversary of the date his
employment has ceased.
Arrangements with David Gang
We are party to an employment agreement with David Gang, who
will serve as our Co-Chief Executive Officer and Chief Operating
Officer. The following is a description of Mr. Gang's
employment agreement:
•
Mr. Gang will receive an annual base salary of $560,000 and
    will be eligible to earn a bonus of up to 100% of his base
    salary. Achievement of 50% of that bonus will be based upon the
    attainment of annual financial goals, and achievement of the
    remaining 50% will be based upon other annual performance goals.
•
Mr. Gang will receive a signing bonus of $500,000 and will
    be entitled to a reimbursement of relocation expenses.
•
Mr. Gang will be granted, on the first day of his
    employment, options to purchase 400,000 shares of our
    Parent's common stock. The exercise price will be the
    closing price of the common stock of our Parent on such date.
    The options will vest in equal annual installments over four
    years upon each anniversary of the grant date. In the event we
    cease to be a subsidiary of our Parent, the unvested portion of
    the options would terminate while the vested portion would
    remain outstanding in accordance with its terms. If such an
    event occurs within the first twelve months from the grant date,
    the unvested portion would continue to vest through the first
    scheduled vesting date.
•
Mr. Gang will also receive 100,000 shares of
    restricted common stock of our Parent on the first day of his
    employment. The restricted stock will vest in equal annual
    installments over four years upon each anniversary of the grant
    date. In the event we cease to be a subsidiary of our Parent,
    the restricted stock not yet vested at that time would be
    forfeited.
•
In the event this initial public offering is consummated, we
    would recommend to our Compensation Committee that, upon
    consummation, Mr. Gang be granted 100,000 shares of
    our restricted Class A common stock and options to
    purchase 400,000 shares of our Class A common
    stock, such numbers subject to adjustment, up or down, to the
    extent our capitalization is more or less than
    100,000,000 shares. The per share exercise price of the
    options would be the initial public offering price. The
    restricted stock and options would vest in equal installments
    over four years upon each anniversary of the grant date.
•
In the event of a "change of control" (as defined in
    Mr. Gang's employment agreement), the unvested portion
    of the options to purchase our Class A common stock would
    continue to vest until the later of (1) two years from the
    date of grant and (2) the next scheduled vesting date
    following the change of control. The continued vesting applies
    only if Mr. Gang remains employed until six months
    following such change of control or is terminated by our
    successor "without cause" or he resigns for "good
    reason" during such six-month period.
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•
In the event of the termination of Mr. Gang's
    employment, prior to the fourth anniversary of the start date,
    by us "without cause" or by Mr. Gang for
    "good reason" (as those terms are defined in
    Mr. Gang's letter agreement) he would be entitled to
    continue to receive his base salary for one year from the date
    of termination and to receive health coverage until the earlier
    of one year following his termination and the date upon which he
    receives comparable coverage under another plan. In the event
    that a termination of Mr. Gang's employment by us
    "without cause" or by Mr. Gang for "good
    reason" occurs before the fourth anniversary of
    Mr. Gang's start date, 25% of the options to purchase
    our Class A common stock described above described above
    would continue to vest through the next vesting date following
    the date of termination.
In connection with Mr. Gang's employment with us, he
has entered into a related agreement that contains
confidentiality obligations that survive indefinitely and
non-solicitation and non-competition obligations that end on the
first anniversary of the date employment has ceased.
Arrangements with Martin J. Wygod
In October 2001, our Parent entered into an employment agreement
with Martin J. Wygod, our Parent's Chairman of the Board,
who was then also our Parent's Chief Executive Officer. The
following is a description of Mr. Wygod's employment
agreement:
•
The agreement provides for an employment period through
    October 8, 2006.
•
In accordance with the terms of the employment agreement,
    Mr. Wygod has elected to serve solely as Chairman of the
    Board of our Parent and to perform duties commensurate with that
    position; his resignation as Chief Executive Officer did not
    result in the termination of his employment agreement or in any
    change in his compensation or the other terms of his employment,
    except that his annual base salary was reduced from $1,400,000
    to $1,260,000.
•
In the event of termination of Mr. Wygod's employment
    by our Parent without "cause" or by Mr. Wygod for
    "good reason," as those terms are defined in his
    employment agreement, Mr. Wygod would become a consultant
    for our Parent and would be entitled to receive his salary, at
    the rate then in effect, and continuation of benefits for two
    years. In addition, all options, or other forms of equity
    compensation, granted to Mr. Wygod of our Parent or any
    affiliate of our Parent (which includes our company) that have
    not vested prior to the date of termination would be vested as
    of the date of termination and, assuming there has not been a
    "change in control" (as defined in the employment
    agreement), would continue to be exercisable as long as he
    remains a consultant (or longer if the plan or agreement
    expressly provided). In the event that Mr. Wygod's
    employment is terminated due to death or disability, he or his
    estate would receive the same benefits as described above.
•
The employment agreement provides that in the event of a
    "change in control" (as defined in the employment
    agreement, which definition includes certain business
    combination transactions) of our Parent all outstanding options
    and other forms of equity compensation would become immediately
    vested on the date of the change in control and, if following
    the change in control, Mr. Wygod's employment
    terminates for any reason other than cause, they would continue
    to be exercisable until the tenth anniversary of the applicable
    date of grant. A change in control is also an event that
    constitutes "good reason" for purposes of a
    termination by Mr. Wygod.
•
The employment agreement contains confidentiality obligations
    that survive indefinitely and non-solicitation and
    non-competition obligations that continue until the second
    anniversary of the date his employment has ceased.
•
The employment agreement contains a tax gross-up provision
    relating to any excise tax that Mr. Wygod incurs by reason
    of his receipt of any payment that constitutes an excess
    parachute payment as defined in Section 280G of the
    Internal Revenue Code.
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Arrangements with Anthony Vuolo
Anthony Vuolo, who will serve as our Executive Vice President,
Chief Financial Officer, is currently party to an employment
agreement with our Parent. The following is a description of
Mr. Vuolo's employment agreement:
•
Mr. Vuolo currently receives an annual base salary of
    $450,000 and is entitled to receive a bonus in the same form and
    amount received by any other executive officer with similar
    responsibilities and compensation.
•
In the event of the termination of Mr. Vuolo's
    employment due to his death or disability, by our Parent
    "without cause" or by Mr. Vuolo for "good
    reason," as those terms are defined in
    Mr. Vuolo's employment agreement, or as a result of
    our Parent's failure to renew the agreement, he would be
    entitled to: (i) continuation of his base salary for a
    period of eighteen months following the date of termination;
    (ii) any bonuses that he would have normally been entitled
    to through July 1, 2006 (the amount of the bonus for years
    subsequent to the year in which the termination of employment
    occurs will be equal to the bonus received for the year of
    termination); and (iii) continued participation in our
    benefit plans (or comparable plans) for thirty-six months. In
    addition, all options to purchase our Parent's stock
    granted to Mr. Vuolo which have not vested prior to the
    date of termination would be vested as of the date of
    termination and all such options would remain exercisable as if
    he remained in our Parent's employ through the expiration
    date specified in each applicable stock option agreement, unless
    otherwise specifically agreed to by Mr. Vuolo and our
    Parent in writing. A change in control (as defined in the
    employment agreement) of our Parent is an event that constitutes
    good reason.
•
The employment agreement contains confidentiality obligations
    that survive indefinitely and non-solicitation and
    non-competition obligations that end on the second anniversary
    of the date employment has ceased.
•
The employment agreement contains a tax gross-up provision
    relating to any excise tax that Mr. Vuolo incurs by reason
    of his receipt of any payment that constitutes an excess
    parachute payment as defined in Section 280G of the
    Internal Revenue Code.
It is our intention to enter into an amendment to
Mr. Vuolo's agreement in connection with this offering
which will provide for his services to our company and continued
services to our Parent.
Arrangements with Douglas W. Wamsley
Mr. Wamsley is currently a party to an agreement with us
that contains confidentiality obligations that survive
indefinitely and non-solicitation and non-competition
obligations that end on the first anniversary of the date his
employment has ceased. We intend to enter into an employment
agreement with Mr. Wamsley in connection with this offering.
Letter
Agreement with Roger C. Holstein
Roger C. Holstein resigned, effective April 27, 2005, from
all his positions with our Parent and its subsidiaries. In
connection with the resignation, Mr. Holstein and our
Parent entered into a letter agreement, dated as of
April 27, 2005. Under the letter agreement, and subject to
its terms and conditions:
•
Mr. Holstein will continue to receive his annual base
    salary of $660,000 until October 27, 2007, provided that
    the base salary for the first six months will be paid to
    Mr. Holstein in a lump sum at the end of such six-month
    period in accordance with the requirements of Section 409A
    of the Internal Revenue Code of 1986, as amended, except to the
    extent any future guidance issued by the Internal Revenue
    Service under Section 409A does not subject such payments
    to Section 409A.
•
Mr. Holstein will generally continue to participate in our
    Parent's welfare benefit plans until the earlier of
    October 27, 2007 and the date upon which he receives
    comparable coverage with a subsequent employer.
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•
The options to purchase our Parent's common stock granted
    to Mr. Holstein will remain outstanding and continue to
    vest, and will otherwise be treated as if Mr. Holstein
    remained employed by our Parent through April 27, 2007.
The letter agreement contains confidentiality obligations that
survive indefinitely and non-solicitation and non-competition
obligations that end on April 27, 2007.
2005 Long-Term Incentive Plan
Prior to the completion of this offering, we intend to adopt,
and have our Parent approve, our 2005 Long-Term Incentive Plan.
Set forth below is a summary of the principal features of the
2005 Long-Term Incentive Plan, which will be subject in its
entirety to the text of the Plan.
This offering will not affect the options and other equity
awards granted to our officers, employees and directors under
our Parent's equity plans that are currently outstanding.
General
The purpose of the 2005 Long-Term Incentive Plan will be to
promote our success by linking the personal interests of our or
our Parent's employees, officers, directors and consultants
to those of our stockholders, and by providing participants with
an incentive for outstanding performance. The 2005 Long-Term
Incentive Plan will authorize the granting of awards in any of
the following forms:
•
options to purchase shares of our common stock, which may be
    incentive stock options or non-qualified stock options;
•
stock appreciation rights;
•
performance shares;
•
restricted stock;
•
restricted stock units;
•
dividend equivalents;
•
other stock-based awards;
•
any other right or interest relating to our common stock; or
•
cash.
Share Limits
An aggregate
of                      shares
of our common stock will be available for issuance under the
2005 Long-Term Incentive Plan.
The maximum number of shares of our common stock with respect to
one or more options, stock appreciation rights or combination of
options and stock appreciation rights that may be granted during
any one calendar year under the 2005 Long-Term Incentive Plan to
any one person will
be                      ,
except that that limit may be increased
by                     for
awards made in connection with a person's initial hiring.
The maximum fair market value of any awards, other than options
and stock appreciation rights, that may be received by a
participant, less any consideration paid by the participant for
such award, during any one calendar year under the 2005
Long-Term Incentive Plan will be
$          .
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Administration
The 2005 Long-Term Incentive Plan will be administered for a
period of time by our Parent's Compensation Committee and
after that by the Compensation Committee of our Board of
Directors. The Compensation Committee will have the authority to:
•
designate participants,
•
determine the type or types of awards to be granted to each
    participant and the number, terms and conditions of awards,
•
establish, adopt or revise any rules and regulations as it may
    deem advisable to administer the 2005 Long-Term Incentive
    Plan, and
•
make all other decisions and determinations that may be required
    under the 2005 Long-Term Incentive Plan.
Subject to certain limitations, the Compensation Committee will
be permitted to delegate to certain designated executive
officers some of its authority under the Long-Term Incentive
Plan with respect to awards granted to employees who are not
executive officers of our company.
Stock Options
The Compensation Committee will be authorized under the 2005
Long-Term Incentive Plan to grant options, which may be
incentive stock options or non-qualified stock options. All
options will be evidenced by a written award agreement between
us and the participant, which will include any provisions
specified by the Compensation Committee. The exercise price of
an option may not be less than the fair market value of our
common stock on the date of grant. The terms of an incentive
stock option must meet the requirements of Section 422 of
the Internal Revenue Code.
Stock Appreciation Rights
The Compensation Committee may also grant stock appreciation
rights. Upon the exercise of a stock appreciation right, the
holder will have the right to receive the excess, if any, of the
fair market value of one share of our common stock on the date
of exercise, over the grant price of the stock appreciation
right as determined by the Compensation Committee, which will
not be less than the fair market value of one share of our
common stock on the date of grant. All awards of stock
appreciation rights will be evidenced by an award agreement
reflecting the terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any
other terms and conditions of the stock appreciation right, as
determined by the Compensation Committee at the time of grant.
Performance Shares
The Compensation Committee may grant performance shares to
participants on terms and conditions as may be selected by the
Compensation Committee. The Compensation Committee will have the
complete discretion to determine the number of performance
shares granted to each participant and to set performance goals
and other terms or conditions to payment of the performance
shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of performance
shares that will be paid to the participant.
Restricted Stock Awards
The Compensation Committee may make awards of restricted stock
to participants, which will be subject to restrictions on
transferability and other restrictions as the Compensation
Committee may impose, including, without limitation, limitations
on the right to vote restricted stock or the right to receive
dividends, if any, on the restricted stock. These awards may be
subject to forfeiture upon termination of employment or upon a
failure to satisfy performance goals during the applicable
restriction period.
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Dividend Equivalents
The Compensation Committee will be authorized to grant dividend
equivalents to participants subject to terms and conditions as
may be selected by the Compensation Committee. Dividend
equivalents will entitle the participant to receive payments
equal to dividends with respect to all or a portion of the
number of shares of or common stock subject to an award.
Annual Awards to Non-Employee Directors
The 2005 Long-Term Incentive Plan will provide for an automatic
grant on January 1 of each year of options to
purchase                      shares
to each member of our Board on that date who is not an employee.
These options will have an exercise price equal to the fair
market value of our common stock on the date of grant and will
vest as to 25% of the underlying shares on the first anniversary
of the date of grant and monthly thereafter for a period of
three years. These options will expire, to the extent not
previously exercised, ten years after the date of grant.
Other Stock-Based Awards
The Compensation Committee may, subject to limitations under
applicable law, grant other awards that are payable in or valued
relative to shares of our common stock as will be deemed by the
Compensation Committee to be consistent with the purposes of the
2005 Long-Term Incentive Plan, including without limitation
shares of common stock awarded purely as a bonus and not subject
to any restrictions or conditions. The Compensation Committee
will determine the terms and conditions of any other stock-based
awards.
Performance Goals
In order to preserve full deductibility under
Section 162(m) of the Internal Revenue Code, the
Compensation Committee may determine that any award will be
determined solely on the basis of:
•
the achievement by us or our Parent or one of our subsidiaries,
    of a specified target return, or target growth in return, on
    equity or assets;
•
total stockholder return, described as our stock price
    appreciation plus reinvested dividends, relative to a defined
    comparison group or target over a specific performance period;
•
our stock price;
•
the achievement by an individual, us or a business unit, our
    Parent or one of our subsidiaries, of a specified target, or
    target growth in, revenues, net income, earnings per share, EBIT
    or EBITDA; or
•
any combination of the above.
If an award is made on this basis, the Compensation Committee
must establish goals prior to the beginning of the period for
which the performance goal relates, or by a later date as may be
permitted under applicable tax regulations, and the Compensation
Committee may for any reason reduce, but not increase, any
award, notwithstanding the achievement of a specified goal. Any
payment of an award granted with performance goals will be
conditioned on the written certification of the Compensation
Committee in each case that the performance goals and any other
material conditions were satisfied.
Limitation on Transfer and Beneficiaries
No award under the 2005 Long-Term Incentive Plan will be
assignable or transferable other than by will or the laws of
descent and distribution or, except in the case of an incentive
stock option, pursuant to a qualified domestic relations order.
However, the Compensation Committee may permit other transfers
if it deems appropriate.
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Acceleration upon Certain Events
Upon the participant's death or termination of employment
as a result of disability, all outstanding options, stock
appreciation rights, and other awards in the nature of rights
that may be exercised will become fully exercisable and all
restrictions on outstanding awards will lapse. Any options or
stock appreciation rights will thereafter continue or lapse in
accordance with the other provisions of the 2005 Long-Term
Incentive Plan and the award agreement. In addition, the
compensation committee may at any time in its discretion declare
any or all awards to be fully or partially vested and
exercisable. The Compensation Committee may discriminate among
participants or among awards in exercising such discretion.
Termination and Amendment
The Compensation Committee will have the right at any time to
amend or terminate the 2005 Long-Term Incentive Plan without
stockholder approval, but it may condition any amendment on the
approval of our stockholders if such approval will be necessary
or advisable under tax, securities, stock exchange or other
applicable laws, policies or regulations. The Compensation
Committee will have the right to amend or terminate any
outstanding award without approval of the participant, but an
amendment or termination may not, without the participant's
consent, reduce or diminish the value of the award determined as
if it had been exercised, vested, cashed in or otherwise settled
on the date of the amendment or termination, but the original
term of any option may not be extended.
Federal Income Tax Information
The following discussion is a summary of the federal income tax
consequences relating to the grant and exercise of awards under
the 2005 Long-Term Incentive Plan and the subsequent sale of
common stock that will be acquired under this Plan. The tax
effect of exercising awards may vary depending upon the
particular circumstances, and the income tax laws and
regulations change frequently.
Nonqualified Stock Options.
There will be no federal
income tax consequences to a participant or to us upon the grant
of a nonqualified stock option. When the participant exercises a
nonqualified option, however, he will realize ordinary income in
an amount equal to the excess of the fair market value of the
option shares that he receives upon exercise of the option at
the time of exercise over the exercise price, and we will be
allowed a corresponding deduction, subject to any applicable
limitations under Section 162(m) of the Internal Revenue
Code. Any gain that a participant realizes when the participant
later sells or disposes of the option shares will be short-term
or long-term capital gain, depending on how long the participant
held the shares.
Incentive Stock Options.
There typically will be no
federal income tax consequences to a participant or to us upon
the grant or exercise of an incentive stock option. If the
participant holds the option shares for the required holding
period of at least two years after the date the option was
granted or one year after exercise of the option, the difference
between the exercise price and the amount realized upon sale or
disposition of the option shares will be long-term capital gain
or loss, and we will not be entitled to a federal income tax
deduction. If the participant disposes of the option shares in a
sale, exchange, or other disqualifying disposition before the
required holding period ends, he will realize taxable ordinary
income in an amount equal to the excess of the fair market value
of the option shares at the time of exercise over the exercise
price, and we will be allowed a federal income tax deduction
equal to such amount, subject to any applicable limitations
under Section 162(m) of the Internal Revenue Code. While
the exercise of an incentive stock option does not result in
current taxable income, the excess of the fair market value of
the option shares at the time of exercise over the exercise
price will be an item of adjustment for purposes of determining
the participant's alternative minimum tax.
Stock Appreciation Rights.
The participant will not
recognize income, and we will not be allowed a tax deduction, at
the time a stock appreciation right is granted. When the
participant exercises the stock appreciation right, the fair
market value of any shares of common stock received will be
taxable as
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ordinary income, and we will be allowed a federal income tax
deduction equal to such amount, subject to any applicable
limitations under Section 162(m) of the Internal Revenue
Code.
Restricted Stock.
Unless a participant makes an election
to accelerate recognition of the income to the date of grant as
described below, the participant will not recognize income, and
we will not be allowed a tax deduction, at the time a restricted
stock award is granted. When the restrictions lapse, the
participant will recognize ordinary income equal to the fair
market value of the common stock as of that date, less any
amount he paid for the stock, and we will be allowed a
corresponding tax deduction at that time, subject to any
applicable limitations under Section 162(m) of the Internal
Revenue Code. If the participant files an election under
Section 83(b) of the Internal Revenue Code within
30 days after the date of grant of the restricted stock, he
will recognize ordinary income as of the date of grant equal to
the fair market value of the stock as of that date, less any
amount a participant paid for the stock, and we will be allowed
a corresponding tax deduction at that time, subject to any
applicable limitations under Section 162(m) of the Internal
Revenue Code. Any future appreciation in the stock will be
taxable to the participant at capital gains rates. However, if
the stock is later forfeited, such participant will not be able
to recover the tax previously paid pursuant to his
Section 83(b) election.
Performance Shares.
A participant will not recognize
income, and we will not be allowed a tax deduction, at the time
performance shares are granted. When the participant receives
payment under the performance shares, the amount of cash and the
fair market value of any shares of stock received will be
ordinary income to the participant, and we will be allowed a
corresponding tax deduction at that time, subject to any
applicable limitations under Section 162(m) of the Internal
Revenue Code.
The named executive officers have been granted options to
purchase shares of our Parent's common stock pursuant to
our Parent's stock option plans. See
"Management — Executive Compensation." Our
Parent's option plans are administered by a stock option
committee of our Parent, and contain terms and conditions, which
are substantially similar to the terms of our 2005 Long-Term
Incentive Plan. Subject to the terms and conditions of our
Parent's stock option plans, our Parent's options will
continue to vest and remain outstanding so long as the
respective named executive officer remains in the employ of our
company.
New Benefit Plan Table
Upon consummation of this offering, we will
grant                      restricted
shares of our Class A common stock and options under our
2005 Long-Term Incentive Plan to
purchase                      shares
of our Class A common stock, including the grants to
individuals listed in the table below. The exercise price of
these options will be the initial public offering price in the
offering. These options and restricted shares will vest at the
rate
of           % per
year on each of the first
through                      anniversaries
of the date of grant.
Name
Number of Options
Number of Restricted Shares
Wayne T. Gattinella
David Gang
Martin J. Wygod
Anthony Vuolo
Douglas W. Wamsley
All current executive officers as a group
All current directors who are not executive officers, as a group
All employees, including current officers, but excluding
    directors and executive officers, as a group
Compensation of Non-Employee Directors
Compensation of our non-employee directors will be determined,
from time to time, by our Board's Compensation Committee.
Based on recommendations of the Compensation Committee of our
Parent's
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Board, we expect that, initially, our non-employee directors
will each receive an annual retainer of
$          .
The following additional annual retainers are expected to be
paid to non-employee directors for service on standing
committees:
•
Audit Committee —
•
Compensation and Nominating Committees —
•
Governance & Compliance
    Committee —                     ;
    and
•
Related Parties
    Committee —                     .
The following additional annual retainers are expected to be
paid to the chairpersons of each standing committee for their
services as chairperson:
•
Compensation Committee, Nominating Committee and Related Parties
    Committee —                     ; and
•
Audit Committee and Governance & Compliance
    Committee —                     .
We expect that our non-employee directors will not receive per
meeting fees for service on the Board or any of our Board's
standing committees, but they are entitled to reimbursement for
all reasonable out-of-pocket expenses incurred in connection
with their attendance at Board and Board committee meetings.
Our non-employee directors are eligible to receive options to
purchase our common stock under our 2005 Long-Term Incentive
Plan. An initial grant
of                      stock
options, at initial public offering price per share, has been
approved by our Parent and the Compensation Committee of our
Parent's Board In addition, all non-employee directors
receive stock options pursuant to automatic annual grants of
stock options under our 2005 Long-Term Incentive Plan made
specified dates.
Stock Ownership of Directors and Executive Officers
All of our common stock is currently owned by our Parent, and
thus none of our executive officers or directors currently own
shares of our common stock. The following table sets forth the
common stock and options of our Parent to purchase common stock
of our Parent held by our directors, the named executive
officers and all of our directors and executive officers as a
group, as
of                     ,
2005. Except as otherwise noted, the individual director or
executive officer (including his or her family members) had sole
voting and investment power with respect to the common stock of
our Parent.
Amount and Nature of
Name
Percentage Owned(1)(2)
Beneficial Ownership(1)
Wayne T. Gattinella
Anthony Vuolo
Martin J. Wygod
Douglas Wamsley
Roger C. Holstein
All directors and executive officers as a group
(1)
Beneficial ownership is determined in accordance with the rules
    of the SEC and generally includes voting or investment power
    with respect to securities. Shares of common stock subject to
    options that are exercisable or will become exercisable within
    60 days
    of                 ,
    2005 into shares of the common stock of our Parent are deemed to
    be outstanding and to be beneficially owned by the person
    holding the options for the purpose of computing the percentage
    ownership of the person, but are not treated as outstanding for
    the purpose of computing the percentage ownership of any other
    person.
(2)
These numbers do not take into account any exercise of the
    underwriters' option to purchase additional shares.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our Parent as Our Controlling Stockholder
Immediately prior to this offering, our Parent will be our sole
stockholder. Upon completion of this offering, our Parent will
continue to own approximately      %
(or approximately      % if the
underwriters exercise in full their option to purchase
additional shares) of the outstanding shares of our common
stock. For as long as our Parent continues to control more than
50% of the combined voting power of our common stock, our Parent
will be able to direct the election of all the members of our
Board of Directors and exercise a controlling influence over our
business and affairs, including any determinations with respect
to mergers or other business combinations involving our company,
the acquisition or disposition of assets by our company, the
incurrence of indebtedness by our company, the issuance of any
additional common stock or other equity securities, and the
payment of dividends with respect to our common stock.
Similarly, our Parent will have the power to determine matters
submitted to a vote of our stockholders without the consent of
our other stockholders, will have the power to prevent a change
in control of our company and will have the power to take other
actions that might be favorable to our Parent.
As of the date of this prospectus, our Parent has indicated that
it has no current intention to sell or otherwise dispose of its
Class B common stock. However, our Parent is not subject to
any contractual obligation to retain its controlling interest,
except that our Parent has agreed not to sell or otherwise
dispose of any of our Class B common stock for a period of
180 days after the date of this prospectus without the
prior written consent of the representatives of the
underwriters. See "Underwriting." As a result, we
cannot assure you as to the period of time during which our
Parent will maintain its ownership of the Class B common
stock owned by it following this offering.
Agreements Between Us and Our Parent
In the ordinary course of our business, our Parent has provided
us with various services, including payroll, accounting, human
resources, business development, legal, tax, executive services
and information processing and other similar services.
This section describes the material provisions of agreements we
will enter into with our Parent relating to this offering and
our relationship with our Parent after this offering, including:
•
the services agreement;
•
the registration rights agreement;
•
the tax sharing agreement; and
•
the release and indemnity agreement.
The description of the agreements is not complete and, with
respect to each material agreement, is qualified by reference to
the terms of the agreement, each of which will be filed as an
exhibit to the registration statement of which this prospectus
is a part. We encourage you to read the full text of these
material agreements. The prices and other terms of these
agreements may be less favorable to us than those we could have
obtained in arm's-length negotiations with unaffiliated
third parties for similar services or under similar agreements.
These agreements are subject to negotiation, and their
descriptions may change as a result.
Services Agreement
We will enter into a services agreement with our Parent,
pursuant to which our Parent will provide us with certain
administrative services, which may include payroll, accounting,
human resources, business development, legal, tax, executive
services and information processing and other similar services.
Pursuant to the terms of this agreement, we anticipate paying
our Parent the costs of providing these services based upon
actual or allocated out-of-pocket costs to our Parent and an
allocated portion of our Parent's internal costs. For
example, such costs will include an allocable portion of the
compensation and other related
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expenses of employees of our Parent who serve as officers of or
provide services to our company. This agreement will be
terminable by either party
upon         days'
prior written notice and upon certain events, and within a
certain period of time to be determined after which our Parent
no longer holds at least 50% of the combined voting power of our
capital stock. We anticipate that the services agreement shall
terminate by its terms, if not previously terminated or renewed,
after an initial term of five years.
Registration Rights Agreement
As of the completion of this offering, we will enter into a
registration rights agreement with our Parent, which will
require us upon the request of our Parent to use our reasonable
best efforts to register under the applicable federal and state
securities laws any of the shares of our equity securities of or
owned by our Parent for sale in accordance with our
Parent's intended method of disposition, and will take such
other actions as may be necessary to permit the sale in other
jurisdictions, subject to specified limitations. Our Parent will
also have the right to include the shares of our equity
securities it beneficially owns in other registrations of these
equity securities we initiate. Except for our legal and
accounting fees and expenses, the registration rights agreement
will provide that our Parent will generally pay all or its pro
rata portion of out-of-pocket costs and expenses relating to
each such registration that our Parent requests or in which our
Parent participates. Subject to specified limitations, the
registration rights will be assignable by our Parent and its
assigns. The registration rights agreement will contain
indemnification and contribution provisions that are customary
in transactions similar to those contemplated by this prospectus.
Tax Sharing Agreement
We will enter into a tax sharing agreement with our Parent that
will become effective upon consummation of this offering. The
tax sharing agreement will govern the respective rights,
responsibilities, and obligations of our Parent and us with
respect to tax liabilities and benefits, tax attributes, tax
contests and other matters regarding taxes and related tax
returns. In addition, although as of the date of this prospectus
our Parent does not intend or plan to undertake a split-off,
spin-off or other similar transaction, we have agreed in the tax
sharing agreement that we will not knowingly take or fail to
take any action that could reasonably be expected to preclude
our Parent's ability to undertake a split-off or spin-off.
We also have agreed that, in the event our Parent decides to
undertake a split-off or spin-off of our capital stock to our
Parent's shareholders, we will enter into a new tax sharing
agreement with our Parent that will set forth our respective
rights, responsibilities and obligations with respect to any
such split-off or spin-off.
Beneficial ownership of at least 80% of the total voting power
and value of our capital stock is required in order for our
Parent to continue to include us in its consolidated group for
federal income tax purposes. It is the present intention of our
Parent to continue to file a single consolidated federal income
tax return with its eligible subsidiaries. Each member of the
consolidated group for federal income tax purposes will be
jointly and severally liable for the federal income tax
liability of each other member of the consolidated group.
Accordingly, although the tax sharing agreement will allocate
tax liabilities between us and our Parent during the period in
which we are included in the consolidated group of our Parent,
we could be liable for the federal income tax liability of any
other member of the consolidated group in the event any such
liability is incurred and not discharged by such other member.
The tax sharing agreement will provide, however, that our Parent
will indemnify us to the extent that, as a result of being a
member of the consolidated group of our Parent, we become liable
for the federal income tax liability of any other member of the
consolidated group, other than our subsidiaries. Similar
principles generally will apply for income tax purposes in many
states.
Release and Indemnity Agreement
As of the completion of this offering, we will enter into a
release and indemnity agreement with our Parent under which we
and our Parent will agree to indemnify each other and we and our
Parent will agree to release each other with respect to some
matters.
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In addition, the services agreement, the registration rights
agreement and the tax matters agreement referred to above will
provide for indemnification between us and our Parent relating
to the substance of such agreements.
We will generally agree to indemnify our Parent and some of its
affiliates against all liabilities arising out of any material
untrue statements and omissions in any prospectus and any
related registration statement filed with the SEC relating to
this offering. However, our indemnification of our Parent does
not apply to information relating to our Parent, excluding
information relating to us. Our Parent will agree to indemnify
us for this information. In addition, we may enter into
agreements governing other aspects of our relationship with our
Parent.
Other
Our Parent was reimbursed approximately $236,000 during 2004 and
approximately $230,000 during 2003 by Martin J. Wygod, who we
expect will serve as our Chairman of the Board, and by a
corporation that he controls, for personal use of certain of our
Parent's staff and office facilities and for the personal
portion of certain travel expenses.
Affiliates of FMR Corp. provide services to our Parent in
connection with certain of our Parent's 401(k) plans.
During 2004, the aggregate amount payable by our Parent for
these services was approximately $43,800. During 2003, the
aggregate amount payable by our Parent for these services was
approximately $64,500. In 2004, we entered into an agreement
with Fidelity Human Resources Services Company LLC (FHRS), an
affiliate of FMR Corp. FHRS provides benefits and human
resources administration, workforce effectiveness, payroll
solutions and stockplan services to employers. The agreement
provides for FHRS to integrate our employer product, Health and
Benefits Manager, into the services FHRS provides to its
clients. In addition, our Health and Benefits Manager has been
rolled out to the Fidelity employee base. We recorded
approximately $817,000 in revenue in 2004 related to the FHRS
agreement.
PRINCIPAL SHAREHOLDERS
All of our common stock outstanding prior to the completion of
this offering is beneficially owned by our Parent. Upon
completion of this offering, our Parent will beneficially own
100% of our issued and outstanding Class B common stock.
After completion of this offering, our Parent will be able,
acting alone, to elect our entire Board of Directors and to
approve any action requiring stockholder approval. Except for
our Parent, we are not aware of any person or group that will
beneficially own more than 5% of our outstanding shares of
common stock following this offering. None of our executive
officers, directors or director nominees currently owns any
shares of our common stock.
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DESCRIPTION OF CAPITAL STOCK
General
The following is a description of the material terms of our
capital stock that we expect to include in our amended and
restated certificate of incorporation and amended and restated
bylaws and is only a summary. You should refer to (1) our
amended and restated certificate of incorporation and amended
and restated bylaws as in effect upon the closing of this
offering, which are included as exhibits to the registration
statement of which this prospectus is a part and
(2) applicable law.
Our authorized capital stock will consist
of                      shares
of capital stock, of which:
•
shares
    will be designated as Class A common stock, par value
    $.01 per share;
•
shares
    will be designated as Class B common stock, par value
    $.01 per share; and
•
shares
    will be shares of our preferred stock.
Common Stock
Of
the                      shares
of common stock,  will be designated as Class A common
stock,
and                      shares,
or
about           %
of the equity value of our company, are being offered in
connection with this offering, assuming that the underwriters do
not exercise their option to purchase additional shares. Of
the                      shares
of common stock to be designated as Class B common
stock,                 shares,
or
about           %
of the equity value of our company, will be outstanding and held
by our Parent upon consummation of this offering, assuming the
underwriters do not exercise their option to purchase additional
shares. Each of the Class A common stock and the
Class B common stock constitutes a series of common stock
under the General Corporation Law of the State of Delaware.
Voting rights
Holders of Class A common stock and holders of Class B
common stock will generally have identical rights, except:
•
holders of our Class A common stock will be entitled to one
    vote per share; and
•
holders of our Class B common stock will be entitled to ten
    votes per share,
with respect to each matter presented to our stockholders on
which the holders of common stock are entitled to vote. The
holders of Class A common stock and Class B common
stock will not be entitled to cumulate their votes in the
election of directors. Generally, all matters to be voted on by
our stockholders will have to be approved by a majority of the
votes entitled to be cast by all shares of our common stock
present in person or represented by proxy, voting together as a
single class. In particular, amendments to our certificate of
incorporation will generally be approved by a majority of the
combined voting power of both classes of common stock, voting
together as a single class. However, we anticipate that our
certificate of incorporation will provide that supermajority
votes will be required to amend some provisions of our
certificate of incorporation and bylaws as described below. In
addition, we also expect that amendments to our certificate of
incorporation that would alter or change the powers, preferences
or special rights of either class of common stock so as to
affect them adversely also must be approved by a majority of the
votes entitled to be cast by the holders of the shares affected
by the amendment, voting as a separate class. We do not expect
holders of Class A common stock to be entitled to vote on
any change in the powers or other rights of the Class B
common stock that would not adversely affect the rights of
Class A common stock.
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Dividend rights
We anticipate that holders of Class A common stock and
Class B common stock will share equally in any dividend
declared by our Board of Directors, subject to any preferential
rights of any outstanding preferred stock.
Conversion
Upon completion of this offering, we expect our certificate of
incorporation to provide that, under certain circumstances, our
Class B common stock may be converted into our Class A
common stock at the option of the holder or automatically.
Liquidation rights
Upon liquidation, dissolution or winding up of our affairs, our
creditors and any holders of our preferred stock will be paid
before any distribution to holders of our common stock. The
holders of our common stock would be entitled to receive a pro
rata distribution of any excess amount.
Other matters
No shares of any class of our common stock will be subject to
redemption or have preemptive rights to purchase additional
shares of our common stock. The outstanding shares of our common
stock are, and the shares of Class A common stock being
offered to you will be, upon your payment, validly issued, fully
paid and nonassessable.
Preferred Stock
No shares of our preferred stock are outstanding as of the date
of this prospectus. However, our Board of Directors will be
empowered, without approval of our stockholders, to
cause                      shares
of our preferred stock to be issued from time to time in one or
more series, with the numbers of shares of each series and the
designations, preferences and relative, participating, optional,
dividend and other special rights of the shares of each such
series and the qualifications, limitations, restrictions,
conditions and other characteristics thereof as fixed by our
Board of Directors. Among the specific matters that may be
determined by our Board of Directors are:
•
the designation of each series;
•
the number of shares of each series;
•
the rate of dividends, if any;
•
whether dividends, if any, shall be cumulative or noncumulative;
•
the terms of redemption, if any;
•
the rights of the series in the event of any voluntary or
    involuntary liquidation, dissolution or winding-up of the
    affairs of our company;
•
rights and terms of conversion or exchange, if any;
•
restrictions on the issuance of shares of the same series or any
    other series, if any; and
•
voting rights, if any.
Our Board of Directors will be able to, without stockholder
approval, issue preferred stock with voting and other rights
that could adversely affect all of the rights of the holders of
Class A common stock and Class B common stock,
including, but without limitation, their voting power. We have
no present plans to issue any shares of preferred stock. The
ability of our Board of Directors to issue preferred stock
without stockholder approval could have the effect of delaying,
deferring or preventing a change in control of us or the removal
of our existing management.
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Anti-Takeover Effects Of Our Amended And Restated Certificate
Of Incorporation And Bylaws
Provisions of the amended and restated certificate of
incorporation and amended and restated bylaws, which provisions
will be in effect prior to the consummation of this offering and
are summarized in the following paragraphs, may be deemed to
have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that
might result in a premium over the market price for the shares
held by stockholders. The relevant portions of the amended and
restated certificate of incorporation and amended and restated
bylaws will be designed to discourage certain types of
transactions that may involve an actual or threatened change of
control of our company. These provisions are meant to encourage
persons interested in acquiring control of our company to first
consult with the Board of Directors to negotiate terms of a
potential business combination or offer. Further, these
provisions will protect against an unsolicited proposal for our
takeover that may affect the long-term value of our stock or
that may be otherwise unfair to our stockholders.
Section 203 of the Delaware General Corporation Law
In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three
years following the date the person became an interested
stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became
an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years
prior to the determination of interested stockholder status, did
own) 15% or more of a corporation's voting stock.
Board of Directors
Our Board of Directors will consist of a majority of independent
directors. We expect that any vacancy on our Board of Directors
resulting from death, resignation, disqualification, removal or
other causes with respect to any director, and any newly created
directorships resulting from any increase in the number of
directors, may be filled only by the affirmative vote of a
majority of the remaining directors. The limitation on filling
of vacancies could make it more difficult for a third party to
acquire, or discourage a third party from attempting to acquire,
control of our company.
Classified Board of Directors
We anticipate that our certificate of incorporation and bylaws
will provide for our Board of Directors to be divided into
classes of directors serving staggered terms. Each class will
hold office until the applicable annual stockholders'
meeting for election of directors following the most recent
election of such class.
Directors removed for cause only
We anticipate that our certificate of incorporation and bylaws
will provide that, on or after the time when our Parent and its
affiliates no longer own more than a majority of the combined
voting power of our outstanding common stock, which we refer to
as the "trigger date," our directors may be removed
only for cause by the affirmative vote of the holders of at
least a majority of the combined voting power of our outstanding
voting common stock. To the extent permitted by the laws of the
state of Delaware, "cause" shall be determined by our
Board of Directors. However, prior to the trigger date, our
directors may be removed with or without cause.
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Board meetings
We expect our amended and restated bylaws to provide that
special meetings of the Board of Directors may be called by the
chairman of our Board of Directors or by a majority of the then
authorized number of directors in office.
Directors' exculpation and indemnification
We will include in our amended and restated certificate of
incorporation provisions to indemnify our directors and officers
to the fullest extent permitted by Delaware law. The amended and
restated certificate of incorporation will also include
provisions to eliminate the personal liability of our directors
and officers to us and our stockholders to the fullest extent
permitted by Delaware law. Under current law, such exculpation
would extend to an officer's or director's breaches of
fiduciary duty, except for (1) breaches of such
person's duty of loyalty, (2) those instances where
such person is found not to have acted in good faith,
(3) those instances where such person received an improper
personal benefit as the result of such breach and (4) acts
in violation of Section 174 of the Delaware General
Corporation Law. Our amended and restated bylaws will provide
that we will indemnify our directors, officers and employees
against judgments, fines, amounts paid in settlement and
reasonable expenses. Insofar as the indemnification for
liabilities resulting under the Securities Act may be permitted
to our directors or officers, we have been informed that, in the
opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is unenforceable.
Stockholder Meetings
Special meetings of stockholders
Our amended and restated bylaws is expected to provide that
special meetings of the stockholders may only be called by the
chairman of our Board of Directors, by a committee that is duly
designated by our Board of Directors or by resolution adopted by
the affirmative vote of the majority of our Board of Directors.
Requirements for advance notification of stockholder
    nominations and proposals
Our amended and restated bylaws also is anticipated to provide
that stockholders seeking to bring business before an annual
meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide
timely notice of such proposed business in writing. To be
timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices, not less
than 60 days nor more than 90 days prior to the annual
meeting. The amended and restated bylaws will also specify
certain requirements as to the form and content of a
stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an
annual meeting of stockholders.
Shareholder action by written consent
Any action required to be taken at any annual or special meeting
of the stockholders, or any action that may be taken at any
annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a
consent in writing (or deemed to be in writing under applicable
law), setting forth the action so taken, is signed by
stockholders (or deemed to be signed by stockholders under
applicable law) representing not less than the minimum number of
votes that would be necessary to authorize or take such actions
at a meeting at which all shares entitled to vote thereon were
present and voted and is delivered and dated as required by law.
Cumulative voting
Our amended and restated certificate of incorporation will
provide that our stockholders will have no cumulative voting
rights.
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Amendment of certificate of incorporation and bylaws
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on
any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. The affirmative vote of the
holders of at least a majority of the issued and outstanding
common stock and any preferred stock, voting as one class, is
required to amend or repeal the amended and restated certificate
of incorporation, provided that if any amendment to our amended
certificate of incorporation would alter the rights of a
particular class of stock so as to affect them adversely, the
amendment must also be approved by a majority of the votes
entitled to be cast by the holders of the shares affected by the
amendment, voting as a separate class. Subject to the amended
and restated bylaws, the Board of Directors may from time to
time make, amend, supplement or repeal the amended and restated
bylaws by vote of a majority of the Board of Directors;
provided, however, that the stockholders may change or amend or
repeal any provision of the amended and restated bylaws by the
affirmative vote of the holders of a majority of the common
stock and any preferred stock, voting as one class. We
anticipate that a supermajority vote of stockholders will be
required to amend certain provisions of our certificate of
incorporation and bylaws on or after the time when our Parent
and its affiliates no longer own more than a majority of the
combined voting power of our outstanding common stock.
The Nasdaq National Market Trading
We intend to apply to have our Class A common stock quoted
on The Nasdaq National Market under the symbol "WBMD."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for
our Class A common stock. Future sales of substantial
amounts of our Class A common stock in the public market,
or the possibility of these sales, could adversely affect the
trading price of our Class A common stock and could impair
our future ability to raise capital through the sale of our
equity at a time and price we deem appropriate.
The                      shares
of our Class A common stock sold in this offering,
or                      shares
if the underwriters exercise in full their option to purchase
additional shares, will be freely tradable without restriction
under the Securities Act, except for any such shares which may
be acquired by an "affiliate" of ours, as that term is
defined in Rule 144 promulgated under the Securities Act,
which shares will remain subject to the resale limitations of
Rule 144.
The                      shares
of our Class B common stock that will be held by our Parent
after this offering constitute "restricted securities"
within the meaning of Rule 144, and will be eligible for
sale by our Parent in the open market after this offering,
subject to some contractual lockup provisions and the applicable
requirements of Rule 144, both of which are described
below. We have granted some registration rights to our Parent.
We refer you to "Certain Relationships and Related Party
Transactions — Agreements Between Us and our
Parent — Registration Rights Agreement."
Subject to the lock-up agreements described in
"Underwriting" and the provisions of Rules 144
and 144(k), our shares will be available for sale in the public
market as follows:
Number of Shares
Date
After the date of this prospectus.
After 180 days from the date of this prospectus.
All of these restricted securities will be eligible for sale in
the public market, subject in some cases to the volume
limitations and other restrictions of Rule 144, beginning
upon expiration of the lock-up agreements described in
"Underwriting." The numbers of shares of our
Class A common stock listed above do not include shares of
Class A common stock reserved for future grants under our
incentive compensation plans. Upon completion of the offering,
we intend to file a registration statement on Form S-8 with
the SEC to register shares of our Class A common stock
reserved for issuance or sale under our incentive compensation
plan. Shares of our Class A common stock issuable upon the
exercise of options to be granted under our incentive
compensation plan will be freely tradable without restriction
under the Securities Act, unless such shares are held by an
affiliate of ours.
Rule 144
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are required to be aggregated),
including an affiliate, who has beneficially owned shares of our
common stock for at least one year is entitled to sell in any
three-month period a number of shares that does not exceed the
greater of
•
1% of then outstanding shares of common stock,
    or                      shares; and
•
the average weekly trading volume in the common stock on The
    Nasdaq National Market during the four calendar weeks preceding
    the date on which notice of sale is filed, subject to
    restrictions.
Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of
current public information about us.
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Rule 144(k)
In addition, a person who is not deemed to have been an
affiliate of ours at any time during the 90 days preceding
a sale and who has beneficially owned the shares proposed to be
sold for at least two years, would be entitled to sell those
shares under Rule 144(k) without regard to the manner of
sale, public information, volume limitation or notice
requirements of Rule 144. To the extent that our affiliates
sell their shares, other than pursuant to Rule 144 or a
registration statement, the purchaser's holding period for
the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.
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CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX
CONSIDERATIONS
FOR NON-U.S. HOLDERS
The following discussion is a general summary of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of our Class A common stock
applicable to "Non-U.S. Holders." As used herein,
a Non-U.S. Holder means a beneficial owner of our
Class A common stock that is neither a U.S. person nor
a partnership for U.S. federal income tax purposes, and
that will hold shares of our Class A common stock as
capital assets. For U.S. federal income tax purposes, a
U.S. person includes:
•
an individual who is a citizen or resident of the United States;
•
a corporation (or other business entity treated as a
    corporation) created or organized in the United States or under
    the laws of the United States, any state thereof or the District
    of Columbia;
•
an estate the income of which is includible in gross income
    regardless of source; or
•
a trust that (A) is subject to the primary supervision of a
    court within the United States and the control of one or more
    U.S. persons, or (B) otherwise has validly elected to
    be treated as a U.S. domestic trust.
If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds shares of our
Class A common stock, the U.S. federal income tax
treatment of the partnership and each partner generally will
depend on the status of the partner and the activities of the
partnership and the partner. Partnerships acquiring our
Class A common stock, and partners in such partnerships,
should consult their own tax advisors with respect to the
U.S. federal income tax consequences of the ownership and
disposition of our Class A common stock.
This summary does not consider specific facts and circumstances
that may be relevant to a particular Non-U.S. Holder's
tax position and does not consider U.S. state and local or
non-U.S. tax consequences. It also does not consider
Non-U.S. Holders subject to special tax treatment under the
U.S. federal income tax laws (including partnerships or
other pass-through entities, banks and insurance companies,
dealers in securities, holders of our common stock held as part
of a "straddle," "hedge," "conversion
transaction" or other risk-reduction transaction,
controlled foreign corporations, passive foreign investment
companies, companies that accumulate earnings to avoid
U.S. federal income tax, foreign tax-exempt organizations,
former U.S. citizens or residents, persons who hold or
receive Class A common stock as compensation and persons
subject to the alternative minimum tax). This summary is based
on provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury regulations,
administrative pronouncements of the U.S. Internal Revenue
Service ("IRS") and judicial decisions, all as in
effect on the date hereof, and all of which are subject to
change, possibly on a retroactive basis, and different
interpretations.
This summary is included herein as general information only.
Accordingly, each prospective Non-U.S. Holder is urged to
consult its own tax advisor with respect to the
U.S. federal, state, local and non-U.S. income, estate
and other tax consequences of holding and disposing of our
Class A common stock.
U.S. Trade or Business Income
For purposes of this discussion, dividend income and gain on the
sale or other taxable disposition of our Class A common
stock will be considered to be "U.S. trade or business
income" if such income or gain is (i) effectively
connected with the conduct by a Non-U.S. Holder of a trade
or business within the United States and (ii) in the case
of a Non-U.S. Holder that is eligible for the benefits of
an income tax treaty with the United States, attributable to a
permanent establishment (or, for an individual, a fixed base)
maintained by the Non-U.S. Holder in the United States.
Generally, U.S. trade or business income is not subject to
U.S. federal withholding tax (provided the
Non-U.S. Holder complies with applicable certification and
disclosure requirements); instead, U.S. trade or business
income is subject to U.S. federal
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income tax on a net income basis at regular U.S. federal
income tax rates in the same manner as a U.S. person. Any
U.S. trade or business income received by a
Non-U.S. Holder that is a corporation also may be subject
to a "branch profits tax" at a 30% rate, or at a lower
rate prescribed by an applicable income tax treaty, under
specific circumstances.
Dividends
Distributions of cash or property that we pay will constitute
dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits
(as determined under U.S. federal income tax principles). A
Non-U.S. Holder generally will be subject to
U.S. federal withholding tax at a 30% rate, or at a reduced
rate prescribed by an applicable income tax treaty, on any
dividends received in respect of our Class A common stock.
If the amount of a distribution exceeds our current and
accumulated earnings and profits, such excess first will be
treated as a tax-free return of capital to the extent of the
Non-U.S. Holder's tax basis in our Class A common
stock (with a corresponding reduction in such
Non-U.S. Holder's tax basis in our Class A common
stock), and thereafter will be treated as capital gain. In order
to obtain a reduced rate of U.S. federal withholding tax
under an applicable income tax treaty, a Non-U.S. Holder
will be required to provide a properly executed IRS
Form W-8BEN certifying under penalties of perjury its
entitlement to benefits under the treaty. Special certification
requirements and other requirements apply to certain
Non-U.S. Holders that are entities rather than individuals.
A Non-U.S. Holder of our Class A common stock that is
eligible for a reduced rate of U.S. federal withholding tax
under an income tax treaty may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for a
refund with the IRS on a timely basis. A Non-U.S. Holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty and the
filing of a U.S. tax return for claiming a refund of
U.S. federal withholding tax.
The U.S. federal withholding tax does not apply to
dividends that are U.S. trade or business income, as
defined above, of a Non-U.S. Holder who provides a properly
executed IRS Form W-8ECI, certifying under penalties of
perjury that the dividends are effectively connected with the
Non-U.S. Holder's conduct of a trade or business
within the United States.
Dispositions of our Class A Common Stock
A Non-U.S. Holder generally will not be subject to
U.S. federal income or withholding tax in respect of any
gain on a sale or other disposition of our Class A common
stock unless:
•
the gain is U.S. trade or business income, as defined above;
•
the Non-U.S. Holder is an individual who is present in the
    United States for 183 or more days in the taxable year of the
    disposition and meets other conditions; or
•
we are or have been a "U.S. real property holding
    corporation" (a "USRPHC") under section 897
    of the Code at any time during the shorter of the five-year
    period ending on the date of disposition and the
    Non-U.S. Holder's holding period for our Class A
    common stock.
In general, a corporation is a USRPHC if the fair market value
of its "U.S. real property interests" (as defined
in the Code and applicable Treasury regulations) equals or
exceeds 50% of the sum of the fair market value of its worldwide
real property interests and its other assets used or held for
use in a trade or business. If we are determined to be a USRPHC,
the U.S. federal income and withholding taxes relating to
interests in USRPHCs nevertheless will not apply to gains
derived from the sale or other disposition of our Class A
common stock by a Non-U.S. Holder whose shareholdings,
actual and constructive, at all times during the applicable
period, amount to 5% or less of our Class A common stock,
provided that our Class A common stock is regularly traded
on an established securities market. We are not currently a
USRPHC, and we do not anticipate becoming a USRPHC in the
future. However, no assurance can be given that we will not be a
USRPHC, or that our Class A common stock will be considered
regularly traded, when a Non-U.S. Holder sells its shares
of our Class A common stock.
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U.S. Federal Estate Taxes
Shares of our Class A common stock owned or treated as
owned by an individual who is a Non-U.S. Holder at the time
of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, and may be subject to
U.S. federal estate tax, unless an applicable estate tax
treaty provides otherwise.
Information Reporting and Backup Withholding Requirements
We must annually report to the IRS and to each
Non-U.S. Holder any dividend income that is subject to
U.S. federal withholding tax, or that is exempt from such
withholding tax pursuant to an income tax treaty. Copies of
these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. Holder
resides. Under certain circumstances, the Code imposes a backup
withholding obligation (currently at a rate of 28%) on certain
reportable payments. Dividends paid to a Non-U.S. Holder of
our Class A common stock generally will be exempt from
backup withholding if the Non-U.S. Holder provides a
properly executed IRS Form W-8BEN or otherwise establishes
an exemption.
The payment of the proceeds from the disposition of our
Class A common stock to or through the U.S. office of
any broker, U.S. or foreign, will be subject to information
reporting and possible backup withholding unless the holder
certifies as to its non-U.S. status under penalties of
perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge or reason to know that the
holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the
proceeds from the disposition of our Class A common stock
to or through a non-U.S. office of a non-U.S. broker
will not be subject to information reporting or backup
withholding unless the non-U.S. broker has certain types of
relationships with the United States (a "U.S. related
person"). In the case of the payment of the proceeds from
the disposition of our Class A common stock to or through a
non-U.S. office of a broker that is either a
U.S. person or a U.S. related person, the Treasury
regulations require information reporting (but not the backup
withholding) on the payment unless the broker has documentary
evidence in its files that the holder is a Non-U.S. Holder
and the broker has no knowledge to the contrary.
Non-U.S. Holders should consult their own tax advisors on
the application of information reporting and backup withholding
to them in their particular circumstances (including upon their
disposition of our Class A common stock).
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded or credited against the
Non-U.S. Holder's U.S. federal income tax
liability, if any, if the Non-U.S. Holder provides the
required information to the IRS on a timely basis.
Non-U.S. Holders should consult their own tax advisors
regarding the filing of a U.S. tax return for claiming a
refund of such backup withholding.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
among us and the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters has agreed, severally
and not jointly, to purchase from us, the number of shares of
Class A common stock set forth opposite its name below.
Number of
Underwriter
Shares
Total
Subject to the terms and conditions set forth in the
underwriting agreement, the underwriters have agreed, severally
and not jointly, to purchase all of the shares of our
Class A common stock sold under the underwriting agreement
if any of these shares are purchased. If an underwriter
defaults, the underwriting agreement provides that the purchase
commitments of the non-defaulting underwriters may be increased
or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
The underwriters are offering the shares of Class A common
stock, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of legal matters by their
counsel, including the validity of the shares, and other
conditions contained in the underwriting agreement, such as the
receipt by the underwriters of officers' certificates and
legal opinions. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in
whole or in part.
Commissions and Discounts
The representatives have advised us that they propose initially
to offer the shares our Class A common stock to the public
at the initial public offering price set forth on the cover page
of this prospectus and to dealers at that price less a
concession not in excess of
$           per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of
$           per
share to other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. The
information assumes either no exercise or full exercise by the
underwriters of their option to purchase additional shares.
Per Share
Without Option
With Option
Public offering price
$
$
$
Underwriting discount
$
$
$
Proceeds, before expenses, to our company
$
$
$
The expenses of the offering, not including the underwriting
discount, are estimated at approximately
$          and
are payable by us.
Option to Purchase Additional Shares
We have granted an option to the underwriters to purchase up
to          additional
shares of our Class A common stock at the public offering
price less the underwriting discount. The underwriters may
exercise these options for 30 days from the date of this
prospectus solely to cover overallotments. If the underwriters
exercise these options, each will be obligated, subject to
conditions contained in the purchase
100
Table of Contents
agreement, to purchase a number of additional shares of our
Class A common stock proportionate to that
underwriter's initial amount reflected in the above table.
No Sales of Similar Securities
We, our executive officers and directors, and our Parent have
agreed, subject to limited exceptions, not to sell or transfer
any common stock or securities convertible into or exchangeable
or exercisable for or repayable with common stock, for
180 days after the date of this prospectus without first
obtaining the written consent of the representatives of the
underwriters. Specifically, we and these other persons have
agreed not to directly or indirectly:
•
offer, pledge, sell or contract to sell any common stock;
•
sell any option or contract to purchase any common stock;
•
purchase any option or contract to sell any common stock;
•
grant any option, right or warrant for the sale of any common
    stock;
•
lend or otherwise dispose of or transfer any common stock;
•
request or demand that we file a registration statement related
    to the common stock; or
•
enter into any swap or other agreement that transfers, in whole
    or in part, the economic consequence of ownership of any common
    stock whether any such swap or transaction is to be settled by
    delivery of shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable
with common stock.
Quotation on The Nasdaq National Market
We intend to apply to have our Class A common stock quoted
on The Nasdaq National Market under the symbol "WBMD."
Before this offering, there has been no public market for our
Class A common stock. The initial public offering price
will be determined through negotiations among us and the
representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public
offering price are:
•
the valuation multiples of publicly traded companies that the
    representatives believe to be comparable to us;
•
our financial information;
•
the history of, and the prospects for our company and the
    industry in which we compete;
•
an assessment of our management, its past and present
    operations, and the prospects for and timing of, our future
    revenues;
•
the present state of our development; and
•
the above factors in relation to market values and various
    valuation measures of other companies engaged in activities
    similar to ours.
An active trading market for the shares of our Class A
common stock may not develop. It is also possible that after the
offering, the shares of our Class A common stock will not
trade in the public market at or above the initial public
offering price. The underwriters do not expect to sell more than
five percent in the aggregate of the shares of our Class A
common stock being offered in this offering to accounts over
which they exercise discretionary authority.
101
Table of Contents
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares of our Class A common
stock is completed, SEC rules may limit underwriters and selling
group members from bidding for and purchasing our Class A
common stock. However, the underwriters may engage in
transactions that stabilize the price of the Class A common
stock, such as bids or purchases to peg, fix or maintain that
price.
If the underwriters create a short position in the Class A
common stock in connection with the offering, i.e., if they sell
more shares than are listed on the cover of this prospectus, the
underwriters may reduce that short position by purchasing shares
of the Class A common stock in the open market. The
underwriters may also elect to reduce any short position by
exercising all or part of the option to purchase additional
shares described above. Purchases of the Class A common
stock to stabilize its price or to reduce a short position may
cause the price of the Class A common stock to be higher
than it might be in the absence of such purchases.
The underwriters may also impose a penalty bid on underwriters
and selling group members. This means that if the underwriters
purchase shares of the Class A common stock in the open
market to reduce the underwriter's short position or to
stabilize the price of such shares, they may reclaim the amount
of the selling concession from the underwriters and selling
group members who sold those shares. The imposition of a penalty
bid may also affect the price of the shares in that it
discourages resales of those shares.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the Class A common stock. In addition, neither we nor any
of the underwriters makes any representation that the
underwriters will engage in these transactions or that these
transactions, once commenced, will not be discontinued without
notice.
Stamp Taxes
If you purchase shares of our Class A common stock offered
in this prospectus, you may be required to pay stamp taxes and
other charges under the laws and practices of the country of
purchase, in addition to this offering price listed on the cover
page of this prospectus.
Relationships
The representatives and some of the underwriters or their
affiliates have performed some investment banking and advisory
services for us, our Parent and our affiliates from time to time
for which they have received customary fees and expenses. The
representatives and underwriters may, from time to time, engage
in transactions with and perform services for us, our Parent and
our affiliates in the ordinary course of their business.
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Table of Contents
LEGAL MATTERS
Shearman & Sterling LLP, New York, New York, will pass
upon certain legal matters for us in connection with this
offering. The underwriters will be represented by Cravath,
Swaine & Moore LLP in connection with this offering.
EXPERTS
Ernst & Young LLP, independent registered public
accounting firm, has audited our combined consolidated financial
statements and schedule at December 31, 2004 and 2003, and
for each of the three years in the period ended
December 31, 2004, as set forth in their report. We have
included our financial statements and schedule in the prospectus
and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
J.H. Cohn LLP, independent registered public accounting firm,
has audited the financial statements of MedicineNet, Inc. as of
and for the year ended March 31, 2004 and the financial
statements of HealthShare Technology, Inc. as of and for the
year ended June 30, 2004, as set forth in their reports. We
have included these financial statements in the prospectus and
elsewhere in the registration statement in reliance on J.H. Cohn
LLP's report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1 under the Securities Act relating to the common
stock we are offering. This prospectus, which constitutes part
of the registration statement, does not contain all the
information that is in the registration statement and its
exhibits and schedules. Certain portions of the registration
statement have been omitted as allowed by the rules and
regulations of the SEC. Statements in this prospectus which
summarize documents are not necessarily complete, and in each
case you should refer to the copy of the document filed as an
exhibit to the registration statement. You may read and copy the
registration statement, including exhibits and schedules filed
with it, and reports or other information we may file with the
SEC at the public reference facilities of the SEC at
450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You may call the SEC at
1-800-SEC-0330 for further information on the operation of the
public reference rooms. In addition, the registration statement
and other public filings can be obtained from the SEC's
Internet site at http://www.sec.gov.
Upon completion of this offering, we will become subject to
information and periodic reporting requirements of the Exchange
Act, and we will file annual, quarterly and current reports,
proxy statements and other information with the SEC. We intend
to furnish our stockholders written annual reports containing
financial statements audited by our independent auditors, and
make available to our stockholders quarterly reports for the
first three quarters of each year containing unaudited interim
financial statements.
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Table of Contents
INDEX TO FINANCIAL STATEMENTS
Page
WebMD Health Holdings, Inc.
Report of Independent Registered Public Accounting Firm
F-2
Combined Consolidated Balance Sheets as of December 31,
    2003 and 2004
F-3
Combined Consolidated Statements of Operations for the Years
    Ended December 31, 2002, 2003 and 2004
F-4
Combined Consolidated Statements of Owner's Net Investment
    for the Years Ended December 31, 2002, 2003 and 2004
F-5
Combined Consolidated Statements of Cash Flows for the Years
    Ended December 31, 2002, 2003 and 2004
F-6
Notes to Combined Consolidated Financial Statements
F-7
MedicineNet, Inc.
Report of Independent Registered Public Accounting Firm
F-27
Balance Sheets as of March 31, 2004 and September 30,
    2004 (Unaudited)
F-28
Statements of Operations for the Year Ended March 31, 2004
    and for the Six Months Ended September 30, 2003 and 2004
    (Unaudited)
F-29
Statements of Shareholders' Equity for the Year Ended
    March 31, 2004 and for the Six Months Ended
    September 30, 2004 (Unaudited)
F-30
Statements of Cash Flows for the Year Ended March 31, 2004
    and for the Six Months Ended September 30, 2003 and 2004
    (Unaudited)
F-31
Notes to Financial Statements
F-32
HealthShare Technology, Inc.
Report of Independent Registered Public Accounting Firm
F-40
Balance Sheets as of June 30, 2004 and December 31,
    2004 (Unaudited)
F-41
Statements of Operations for the Year Ended June 30, 2004
    and for the Six Months Ended December 31, 2003 and 2004
    (Unaudited)
F-42
Statements of Redeemable Convertible Preferred Stock and
    Stockholders' Deficit for the Year Ended June 30, 2004
    and for the Six Months Ended December 31, 2004 (Unaudited)
F-43
Statements of Cash Flows for the Year Ended June 30, 2004
    and for the Six Months Ended December 31, 2003 and 2004
    (Unaudited)
F-44
Notes to Financial Statements
F-45
Unaudited Pro Forma Condensed Combined Consolidated Financial
    Statements
Unaudited Pro Forma Condensed Combined Consolidated Balance
    Sheet as of December 31, 2004
F-54
Unaudited Pro Forma Condensed Combined Consolidated Statement of
    Operations for the Year Ended December 31, 2004
F-55
Notes to the Unaudited Pro Forma Condensed Combined Consolidated
    Financial Statements
F-56
Supplemental Financial Data:
Schedule II — Valuation and Qualifying Accounts
S-1
All other schedules not listed above have been omitted as not
    applicable or because the required information is included in
    the Combined Consolidated Financial Statements or in the notes
    thereto. Columns omitted from the schedule filed have been
    omitted because the information is not applicable.
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
WebMD Health Holdings, Inc.
We have audited the accompanying combined consolidated balance
sheets of WebMD Health Holdings, Inc. as of December 31,
2004 and 2003, and the related combined consolidated statements
of operations, owner's net investment, and cash flows for
each of the three years in the period ended December 31,
2004. Our audits also included the financial statement schedule
listed in the Index on page F-1. These financial statements
and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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. We were not engaged to perform an
audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined
consolidated financial position of WebMD Health Holdings, Inc.
at December 31, 2004 and 2003, and the combined
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
MetroPark, New Jersey
May 10, 2005, except for
Note 1 as to which the date is
,
2005
The foregoing report is in the form that will be signed upon the
completion of the contribution and transfer described in
Note 1 to the combined consolidated financial statements.
/s/
Ernst & Young
    LLP
MetroPark, New Jersey
May 10, 2005
F-2
Table of Contents
WebMD Health Holdings, Inc.
Combined Consolidated Balance Sheets
(In thousands)
December 31,
2003
2004
ASSETS
Current assets:
Cash and cash equivalents
$
358
$
3,456
Accounts receivable, net of allowance for doubtful accounts of
    $921 in 2003 and $798 in 2004
20,247
38,453
Current portion of prepaid advertising
11,985
10,350
Other current assets
5,897
2,619
Total current assets
38,487
54,878
Property and equipment, net
5,366
6,316
Prepaid advertising
33,317
20,047
Goodwill
36,843
52,614
Intangible assets, net
6,029
12,065
Other assets
588
576
Total assets
$
120,630
$
146,496
LIABILITIES AND OWNER'S NET INVESTMENT
Current liabilities:
Accrued expenses
$
10,175
$
15,874
Deferred revenue
24,928
29,885
Total current liabilities
35,103
45,759
Commitments and contingencies
Owner's net investment
85,527
100,737
Total liabilities and owner's net investment
$
120,630
$
146,496
See accompanying notes.
F-3
Table of Contents
WebMD Health Holdings, Inc.
Combined Consolidated Statements of Operations
(In thousands, except per share data)
Years Ended December 31,
2002
2003
2004
Revenue
$
84,203
$
110,152
$
134,148
Costs and expenses:
Cost of operations
47,420
46,552
51,879
Sales and marketing
47,814
47,369
48,701
General and administrative
17,377
19,010
21,277
Depreciation and amortization
2,486
4,463
5,620
Restructuring and integration benefit
(5,850
)
—
—
Other income
(823
)
—
—
Income (loss) before income tax provision
(24,221
)
(7,242
)
6,671
Income tax provision
140
183
210
Net income (loss)
$
(24,361
)
$
(7,425
)
$
6,461
Pro forma income per common share (unaudited):
Basic and diluted
$
Pro forma weighted-average common shares outstanding (unaudited):
Basic and diluted
See accompanying notes.
F-4
Table of Contents
WebMD Health Holdings, Inc.
Combined Consolidated Statements of Owner's Net
Investment
(In thousands)
Balance at January 1, 2002
$
92,045
Net loss
(24,361
)
Net transfers from Parent
18,742
Balance at December 31, 2002
86,426
Net loss
(7,425
)
Net transfers from Parent
6,526
Balance at December 31, 2003
85,527
Net income
6,461
Net transfers from Parent
8,749
Balance at December 31, 2004
$
100,737
See accompanying notes.
F-5
Table of Contents
WebMD Health Holdings, Inc.
Combined Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
2002
2003
2004
Cash flows from operating activities:
Net income (loss)
$
(24,361
)
$
(7,425
)
$
6,461
Adjustments to reconcile net income (loss) to net cash (used in)
    provided by operating activities:
Depreciation and amortization
2,486
4,463
5,620
Non-cash advertising and distribution
22,809
18,968
12,147
Non-cash stock-based compensation
2,665
1,597
1,749
Changes in operating assets and liabilities:
Accounts receivable
(3,726
)
(1,452
)
(17,125
)
Other assets
3,269
(1,663
)
1,456
Accrued expenses
(10,874
)
(7,815
)
2,952
Deferred revenue
6,678
(3,756
)
4,878
Net cash (used in) provided by operating activities
(1,054
)
2,917
18,138
Cash flows from investing activities:
Purchases of property and equipment, net of disposals
(2,181
)
(1,518
)
(4,321
)
Cash paid in business combinations, net of cash acquired
(18,763
)
(13,926
)
(22,421
)
Net cash used in investing activities
(20,944
)
(15,444
)
(26,742
)
Cash flows from financing activities:
Net cash transfers from Parent
21,627
12,736
11,702
Net cash provided by financing activities
21,627
12,736
11,702
Net (decrease) increase in cash and cash equivalents
(371
)
209
3,098
Cash and cash equivalents at beginning of year
520
149
358
Cash and cash equivalents at end of year
$
149
$
358
$
3,456
See accompanying notes.
F-6
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial Statements
(In thousands, except share and per share data)
1.
Background and Basis of Presentation
Background
WebMD Health Holdings, Inc. (the "Company" or
"WebMD Health") is a wholly owned subsidiary of WebMD
Corporation ("Parent") formed to conduct an initial
public offering (the "Offering") of equity in the
business of Parent's WebMD Health segment. The Company
expects to offer approximately 10%-14% of its outstanding common
stock in the Offering. Prior to completion of the Offering,
Parent will contribute and transfer to the Company the
subsidiaries that comprise Parent's WebMD Health segment
and certain related assets and liabilities (collectively, the
"Contributed Companies").
The Company is a Delaware corporation that was incorporated on
May 3, 2005. On that date, 3,000 shares of the
Company's common stock, par value $0.01 per share,
were authorized, issued and outstanding. Prior to the completion
of the Offering, there will be a recapitalization of the
Company, the extent of which is currently unknown.
The Company intends to change its corporate name, prior to
completion of the Offering, to a new name that has not yet been
chosen, but that will include "WebMD," which will also
continue to be the primary brand name for the Company's
products and services. Parent intends to take the steps, over
the next several months, needed to change its corporate name to
one that does not include "WebMD" and to cease using
"WebMD" as a brand name for the products and services
of its other segments.
The Company provides health information services to consumers,
physicians and healthcare professionals through the
Company's public and private online portals and specialized
publications. The Company's two operating segments are:
•
Online Services.
The Company provides both public and
    private online portals. The Company's public portals enable
    consumers to become more informed about healthcare choices and
    assist them in playing an active role in managing their health
    and enable physicians and healthcare professionals to improve
    their clinical knowledge and practice of medicine, as well as
    their communication with patients. The Company's private
    portals for employers and health plans provide information and
    services that enable their employers and members to make more
    informed benefit, provider and treatment decisions.
•
Publishing Services.
The Company publishes medical
    reference textbooks,
The Little Blue Book
, a physician
    directory and beginning in 2005,
WebMD the Magazine,
a
    consumer magazine distributed to physician office waiting rooms.
Basis of Presentation
The combined consolidated financial statements have been derived
from the consolidated financial statements and accounting
records of Parent, principally representing the WebMD Health
segment, using the historical results of operations, and
historical basis of assets and liabilities of the WebMD Health
related businesses. Management believes the assumptions
underlying the combined consolidated financial statements are
reasonable. However, the combined consolidated financial
statements included herein may not necessarily reflect the
Company's results of operations, financial position and
cash flows in the future or what its results of operations,
financial position and cash flows would have been had the
Company been a stand-alone company during the periods presented.
Parent's net investment in the Company, including
intercompany debt, is shown as owner's net investment in
lieu of stockholders' equity in the combined consolidated
financial statements, because a direct ownership relationship
did not exist among all the various entities comprising the
Company during all periods presented. Transactions between the
Company
F-7
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
and Parent have been identified in the combined consolidated
statements as transactions with Parent (see Note 3).
2.
Summary of Significant Accounting Policies
Principles of Combination and Consolidation
The accompanying combined consolidated financial statements
include the accounts of the Contributed Companies, which are not
currently owned by the Company but will be transferred from
Parent prior to completion of the Offering, and have been
prepared in conformity with U.S. generally accepted accounting
principles. The results of operations for companies acquired are
included in the combined consolidated financial statements from
the effective date of acquisition. All material intercompany
accounts and transactions have been eliminated in the combined
consolidated financial statements.
Accounting Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make certain estimates and assumptions that affect
the amounts reported in the combined consolidated financial
statements and accompanying notes. The Company is subject to
uncertainties such as the impact of future events, economic,
environmental and political factors and changes in the
Company's business environment; therefore, actual results
could differ from these estimates. Accordingly, the accounting
estimates used in the preparation of the Company's
financial statements will change as new events occur, as more
experience is acquired, as additional information is obtained
and as the Company's operating environment changes. Changes
in estimates are made when circumstances warrant. Such changes
in estimates and refinements in estimation methodologies are
reflected in reported results of operations; if material, the
effects of changes in estimates are disclosed in the notes to
the combined consolidated financial statements. Significant
estimates and assumptions by management affect: revenue
recognition, the allowance for doubtful accounts, the carrying
value of prepaid advertising, the carrying value of long-lived
assets (including goodwill and intangible assets), the
amortization period of long-lived assets (excluding goodwill),
the carrying value, capitalization and amortization of software
development costs, the provision for income taxes and related
deferred tax accounts, certain accrued expenses and
contingencies, the value attributed to warrants issued for
services and transactions with Parent.
Cash and Cash Equivalents
Parent uses a centralized approach to cash management, in which
cash accounts are swept on a regular basis. The financing of its
operations and all related activity between the Company and
Parent are reflected as transactions in owner's net
investment in the Company's combined consolidated balance
sheets. The cash and cash equivalents reflected in the
Company's combined consolidated balance sheets represent
cash held directly by the Company. The Company considers all
highly liquid investments with an original maturity from the
date of purchase of three months or less to be cash equivalents.
Allowance for Doubtful Accounts
The allowance for doubtful accounts receivable reflects the
Company's best estimate of probable losses inherent in the
Company's receivables portfolio determined on the basis of
historical experience, specific allowances for known troubled
accounts and other currently available evidence.
F-8
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
Internal Use Software
The Company accounts for internal use software development costs
in accordance with Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use"
("SOP 98-1"). Software development costs that are
incurred in the preliminary project stage are expensed as
incurred. Once certain criteria of SOP 98-1 have been met,
internal and external direct costs incurred in developing or
obtaining computer software are capitalized. Training and data
conversion costs are expensed as incurred. Capitalized software
costs are amortized over a three-year period.
Web Site Development Costs
In accordance with Emerging Issues Task Force ("EITF")
Issue No. 00-2 "Accounting for Web Site Development
Costs," costs related to the planning and post
implementation phases of the Company's Web site development
efforts, as well as minor enhancements and maintenance, are
expensed as incurred. Direct costs incurred in the development
phase are capitalized. Amounts capitalized for Web site
development costs were not material during the years ended
December 31, 2002, 2003 or 2004 as the Company's
principal Web sites have been obtained through acquisitions.
Long-Lived Assets
Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets.
The useful lives are as follows:
Computer equipment
3 to 5 years
Office equipment, furniture and fixtures
4 to 7 years
Software
3 years
Leasehold improvements
Shorter of useful life or lease term
Expenditures for maintenance, repair and renewals of minor items
are expensed as incurred. Major betterments are capitalized.
Goodwill and Intangible Assets
Goodwill and intangible assets result from acquisitions
accounted for under the purchase method. Intangible assets with
definite lives are amortized on a straight-line basis over the
estimated useful lives of the related asset as follows:
Content
3 to 5  years
Customer lists
2 to 5  years
Technology and patents
3 years
Trade names
3 to 7  years
Recoverability
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"),
the Company reviews the carrying value of goodwill annually and
whenever indicators of impairment are present. The Company
measures impairment losses by comparing the carrying value of
its reporting units to the fair value of its reporting units
determined using an income approach valuation. The
Company's reporting units are determined in accordance with
F-9
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
SFAS No. 142, which defines a reporting unit as an
operating segment or one level below an operating segment.
Goodwill is assigned to individual reporting units based on
their relative fair values.
In accordance with SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets,"
long-lived assets used in operations are reviewed for impairment
whenever events or changes in circumstances indicate that
carrying amounts may not be recoverable. For long-lived assets
to be held and used, the Company recognizes an impairment loss
only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based
on the difference between the carrying amount and fair value.
Long-lived assets held for sale are reported at the lower of
cost or fair value less costs to sell.
Revenue Recognition
Revenue is derived from the Company's Online Services and
Publishing Services segments:
•
Online Services.
The Company generates revenue from its
    public portals through the sale of advertising and sponsorship
    products, such as CME. The Company also derives a small portion
    of its public portal revenue through subscriptions to premium
    content services. The Company generates revenue from private
    portals through the licensing of its content and technology to
    employers and payers. The Company also distributes its online
    content and services to other entities and generates revenue
    from these arrangements from the sale of advertising and
    sponsorship products and from content syndication fees.
•
Publishing Services.
The Company generates revenue from
    sales of subscriptions to the medical reference publications,
    from sales of
The Little Blue Book
physician directory
    and from sales of advertisements in those directories.
Revenue from advertising is recognized as advertisements are
delivered or as publications are distributed. Revenues from
sponsorship arrangements, content syndication and distribution
arrangements, and licenses of healthcare management tools and
private portals are recognized ratably over the term of the
applicable agreement. Revenue from the sponsorship of CME is
recognized over the period the Company satisfies the minimum
distribution requirements. Subscription revenue is recognized
over the subscription period. When contractual arrangements
contain multiple elements, revenue is allocated to the elements
based on their relative fair values, determined using prices
charged when elements are sold separately.
Accounting for Stock-Based Compensation
As discussed more fully in Note 11, the Company accounts
for employee options to purchase Parent stock, restricted stock
and for employee participation in the Parent employee stock
purchase plan using the intrinsic value method under the
recognition and measurement principles of APB Opinion
No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"), and related
interpretations. No stock-based employee compensation cost is
reflected in net income (loss) with respect to options granted
with an exercise price equal to the market value of the
underlying common stock on the date of grant. Stock-based awards
to non-employees are accounted for based on provisions of
SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), and
EITF 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." After the
effective date of the Offering unvested stock options and
restricted stock outstanding under Parent's stock-based
compensation plans that are held by the Company's employees
will continue to vest in accordance with the original terms of
those awards. The following table illustrates the effect on net
F-10
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
income (loss) and pro forma income (loss) per common share if
the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation:
Years Ended December 31,
2002
2003
2004
Net income (loss) as reported
$
(24,361
)
$
(7,425
)
$
6,461
Add: Stock-based employee compensation expense included in
    reported net income (loss)
2,665
1,597
1,749
Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards
(17,692
)
(11,477
)
(10,608
)
Pro forma net loss
$
(39,388
)
$
(17,305
)
$
(2,398
)
Basic and diluted pro forma income (loss) per common share
    (unaudited):
As reported
$
Pro forma
$
The pro forma results above are not intended to be indicative of
or a projection of future results. Refer to Note 11 for
assumptions used in computing the fair value amounts above.
Advertising
Advertising costs are generally expensed as incurred and
included in sales and marketing expense in the accompanying
combined consolidated statements of operations. Advertising
expense totaled $22,349, $17,380 and $15,877 in 2002, 2003 and
2004, respectively. Included in these amounts are non-cash
advertising costs of $11,920, $10,378 and $9,302 in 2002, 2003
and 2004, respectively, related to the advertising services
received from News Corporation.
Pro Forma Income Per Share (Unaudited)
Prior to the completion of the Offering, the Company anticipates
that it will have
approximately            million
shares of common stock outstanding. The Company has presented
pro forma basic and diluted income per share amounts for the
year ended December 31, 2004 as if the recapitalization
described above had occurred on January 1, 2004. The
Company calculated its pro forma income per share in accordance
with SFAS No. 128, "Earnings per Share."
There is no difference between pro forma basic and diluted
income per share since there will be no outstanding options to
purchase shares of the Company's common stock or other
potentially dilutive securities outstanding prior to the
Offering. In connection with the Offering, certain employees
will be awarded initial stock option grants to purchase shares
of the Company or other equity-based awards.
Concentration of Credit Risk
During 2002 and 2003, two customers accounted for more than 10%
of the Company's revenues. As of December 31, 2003,
one customer accounted for more than 10% of the Company's
accounts receivable.
% of Revenue
Years Ended
December 31,
% of Accounts Receivable
December 31,
2002
2003
2003
Customer A
22.2%
17.3%
12.0
%
Customer B
14.3%
10.9%
n/a
F-11
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
Each of the customers identified above relate to the Online
Services operating segment. None of the Company's customers
individually accounted for more than 10% of the Company's
revenues in 2004 or more than 10% of the Company's accounts
receivable as of December 31, 2004.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123, "(Revised
2004): Share-Based Payment" ("SFAS 123R"),
which replaces SFAS No. 123, "Accounting for
Stock-Based Compensation," and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to
Employees." SFAS 123R requires all share-based
payments to employees, including grants of Parent and Company
stock options to Company employees, to be recognized in the
financial statements based on their fair values. The pro forma
disclosures previously permitted under SFAS 123 no longer
will be an alternative to financial statement recognition. The
Company anticipates adopting SFAS 123R in the first quarter
of 2006. Under SFAS 123R, the Company must determine the
appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The transition
methods include prospective and retroactive adoption options.
Under the retroactive option, prior periods may be restated
either as of the beginning of the year of adoption or for all
periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options
and restricted stock at the beginning of the first quarter of
adoption of SFAS 123R. The Company is evaluating the
requirements of SFAS 123R and expects that the adoption of
SFAS 123R will have a material impact on the combined
consolidated results of operations and earnings per share. The
Company has not yet determined the method of adoption or the
effect of adopting SFAS 123R.
3.
Transactions with Parent
The combined consolidated statements of operations include
expense allocations for the following:
Charges from the Company to Parent:
Advertising Expense:
The Parent utilizes the
Company's advertising services which are included in
prepaid advertising within the accompanying combined
consolidated balance sheets. The Company allocates costs to
Parent related to the utilization of this asset by the Parent.
This charge includes a proportional allocation based on the
number of Parent operating segments identified in each
advertisement and an allocation of cost to the Parent relating
to promotion of the WebMD brand. The Company's portion of
the advertising services utilized is reflected in sales and
marketing expense and is reported net of what is charged to
Parent.
Charges from Parent to the Company:
Corporate Services:
The Company is charged a services fee
for costs related to corporate services provided by the Parent.
These expenses include accounting, tax, treasury, legal, human
resources, certain information technology functions and other
services. The services fee is based on Parent's incurred
costs of such services utilized by the Company. The
determination of the services fee was based upon specific
identification where appropriate or an allocation based upon
total employees of both the Company and Parent or other
reasonable measures of allocation. These amounts are reflected
in general and administrative expenses within the accompanying
combined consolidated statements of operations.
Healthcare Expense:
The Company is charged for healthcare
expense for its employees' participation in the
Parent's healthcare plans. Healthcare expense is charged
based on the number of total employees of the Company and
reflect the Parent's average cost of these benefits per
employee. Healthcare expense is
F-12
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
reflected in the accompanying combined consolidated statements
of operations in the same expense captions as the related salary
costs of those employees.
Stock Compensation Expense:
Stock compensation expense is
related to restricted stock awards in the Parent's common
stock that have been granted to certain employees of the Company
and stock options assumed or issued in connection with certain
acquisitions with exercise prices less than the fair market
value of the Parent's stock on the date of grant. Stock
compensation expenses are allocated on a specific employee
identification basis. Stock compensation is reflected in general
and administrative expense in the accompanying combined
consolidated statements of operations.
The following table summarizes the expense allocations reflected
in the Company's combined consolidated financial statements:
Years Ended December 31,
2002
2003
2004
Charges from the Company to Parent:
Advertising expense
$
5,550
$
7,807
$
4,702
Charges from Parent to the Company:
Corporate services
6,420
6,259
6,591
Healthcare expense
1,548
1,743
2,357
Stock compensation expense
2,665
1,597
1,749
The Company and Parent consider the allocations of advertising
expense, the Corporate services fee, healthcare expense and
stock compensation expense to be a reasonable estimate of the
utilization of services. The Company's costs and benefits
received as a stand-alone company would likely be different than
the amounts reflected in the combined consolidated statements of
operations.
Parent uses a centralized approach to cash management and the
financing of its operations with all related activity between
the Company and Parent reflected as transactions in owner's
net investment in the Company's combined consolidated
balance sheets. Types of intercompany transactions between the
Company and Parent include (i) cash deposits from the
Company's businesses which are transferred to Parent's
bank account on a regular basis, (ii) cash borrowings from
Parent used to fund operations, capital expenditures, or
acquisitions, and (iii) costs and benefits to and from the
Parent identified above. Certain intercompany transactions
between Parent and the Company are non-cash in nature.
Accordingly, these non-cash transactions are included within the
change in owner's net investment but do not affect the net
cash transfers from Parent amounts included in the accompanying
combined consolidated statements of cash flows. The following
table summarizes the cash and non-cash components within
owner's net investment:
Years Ended December 31,
2002
2003
2004
Cash:
Transferred from Parent to the Company
$
21,627
$
12,736
$
11,702
Non Cash:
Advertising utilization charged to Parent
(5,550
)
(7,807
)
(4,702
)
Stock compensation expense charged to the Company
2,665
1,597
1,749
Increase in owner's net investment
$
18,742
$
6,526
$
8,749
F-13
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
4.
Business Combinations
2004 Acquisitions
On December 24, 2004, the Company acquired MedicineNet,
Inc. ("MedicineNet"), a privately held provider of
online healthcare content for consumers. The total purchase
consideration of MedicineNet was approximately $17,034 comprised
of $16,394 in cash, net of cash acquired, $338 to be paid in
2005 and $302 of estimated acquisition costs. Additionally, the
Company agreed to pay up to $15,000 in April 2006 if certain
milestones are achieved in 2005. The acquisition was accounted
for using the purchase method of accounting and, accordingly,
the purchase price was allocated to the tangible and intangible
assets acquired and the liabilities assumed on the basis of
their respective fair values. In connection with the preliminary
allocation of the purchase price and intangible asset valuation,
goodwill of $8,929 and intangible assets subject to amortization
of $7,200 were recorded. The Company does not expect that the
goodwill or intangible asset recorded will be deductible for tax
purposes. The intangible assets are comprised of $5,600 relating
to content with estimated useful lives of three years, $900
relating to customer relationships with estimated useful lives
of two years and $700 relating to acquired technology with an
estimated useful life of three years. The results of operations
of MedicineNet will be included in the Online Services segment.
The results of operations of MedicineNet from the closing date
of the acquisition through December 31, 2004 were not
material.
On October 1, 2004, the Company acquired RxList, LLC
("RxList"), a privately held operator of an online
drug directory for consumers and healthcare professionals. The
total purchase consideration was approximately $5,455 comprised
of $4,500 in cash, $500 to be paid in 2006 and $455 of estimated
acquisition costs. Additionally, the Company agreed to pay up to
an additional $5,000 beginning in February 2006 if certain
milestones are achieved in 2005 and 2006. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the preliminary allocation of the purchase price and intangible
asset valuation, goodwill of $4,458 and an intangible asset
subject to amortization of $1,016 were recorded. The Company
expects that substantially all of the goodwill and intangible
asset recorded will be deductible for tax purposes. The
intangible asset is content with an estimated useful life of
five years. The results of operations of RxList have been
included in the financial statements of the Company from
October 1, 2004, the closing date of the acquisition, and
are included in the Online Services segment. The results of
operations of RxList during the period from the closing date of
the acquisition through December 31, 2004 were not material.
2003 Acquisitions
On May 29, 2003, the Company acquired
The Little Blue
Book
("LBB"), a company that maintains a database
containing practice information for physicians, and publishes a
pocket-sized reference book containing physician practice and
contact information. The total purchase consideration for LBB
was approximately $10,061, comprised of $9,926 in cash, net of
the cash acquired, and acquisition costs of $135. Additionally,
the Company paid an additional $1,500 in April 2004 and an
additional $1,000 in April 2005 as a result of LBB achieving
certain financial milestones during the years ending
December 31, 2003 and 2004. These payments resulted in
increases to goodwill. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the purchase
price was allocated to the tangible and intangible assets
acquired and the liabilities assumed on the basis of their
respective fair values. In connection with the initial
allocation of the purchase price, goodwill of $8,545 and
intangible assets subject to amortization of $2,815 were
recorded. The Company expects that substantially all of the
goodwill and intangible assets recorded will be deductible for
tax purposes. The intangible assets are comprised of $1,787
relating to a trade name with an estimated useful life of seven
years, $761 relating to customer relationships with estimated
useful lives of five years and $267 relating to acquired
technology with an
F-14
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
estimated useful life of three years. The results of operations
of LBB have been included in the financial statements of the
Company from May 29, 2003, the closing date of the
acquisition, and are included in the Publishing Services segment.
On April 30, 2003, the Company acquired the assets and
assumed certain liabilities of Optate, Inc.
("Optate"), a provider of healthcare benefit
decision-support tools and solutions to its clients through
online technology. The total purchase consideration for this
acquisition was approximately $4,052, comprised of $4,000 in
cash and acquisition costs of $52. The acquisition was accounted
for using the purchase method of accounting and, accordingly,
the purchase price was allocated to the tangible and intangible
assets acquired and the liabilities assumed on the basis of
their respective fair values. In connection with the allocation
of the purchase price, goodwill of $4,070 and an intangible
asset subject to amortization of $710 were recorded. The Company
expects that substantially all of the goodwill recorded will be
deductible for tax purposes. The intangible asset represents the
fair value of customer relationships with estimated useful lives
of five years. The results of operations of the acquired
business have been included in the financial statements of the
Company from April 30, 2003, the closing date of the
acquisition, and are included in the Online Services segment.
2002 Acquisition
On October 31, 2002, the Company acquired WellMed, Inc.
("WellMed"), a provider of healthcare information
technology applications, including online healthcare
decision-support and health management tools for use by
consumers. The total purchase consideration for WellMed was
approximately $19,013, comprised of $18,763 in cash, net of cash
acquired, and acquisition costs of $250. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the allocation of the purchase price, goodwill of $18,380 and an
intangible asset subject to amortization of $2,700 were
recorded. The Company expects that substantially all of the
goodwill recorded will be deductible for tax purposes. The
intangible asset represents the fair value of acquired
unpatented technology and has a useful life of three years. The
results of operations of WellMed have been included in the
financial statements of the Company from October 31, 2002,
the closing date of the acquisition. WellMed's results of
operations are included in the Online Services segment.
Unaudited Pro Forma Information
The following unaudited pro forma financial information for the
years ended December 31, 2003 and 2004 gives effect to the
acquisitions of Optate, LBB, RxList and MedicineNet, including
the amortization of intangible assets, as if they had occurred
as of the beginning of the earliest period presented. The
information is provided for illustrative purposes only and is
not necessarily indicative of the operating results that would
have occurred if the transactions had been consummated at the
dates indicated, nor is it necessarily indicative of future
operating results of the combined companies, and should not be
construed as representative of these results for any future
period.
Years Ended December 31,
2003
2004
Revenue
$
114,466
$
137,589
Net income (loss)
$
(11,848
)
$
4,352
Pro forma basic and diluted income per share
$
F-15
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
5.
Significant Transactions
America Online, Inc.
In May 2001, Parent entered into an agreement for a strategic
alliance with Time Warner, Inc. ("Time Warner"). Under
the agreement, the Company is the primary provider of healthcare
content, tools and services for use on certain America Online
("AOL") properties. The Company and AOL share certain
revenue from advertising, commerce and programming on the health
channels of the AOL properties and on a co-branded service
created for AOL by the Company, with the Company receiving 80%
of revenues up to an agreed-upon annual threshold and 60%
thereafter. In connection with the strategic alliance, Parent
issued to Time Warner a warrant to
purchase 2,408,908 shares of Parent's common
stock at an exercise price of $9.25 per share. The warrant
was valued at approximately $17,500 using the Black-Scholes
option pricing model and was amortized through May 2004, the
original term of the agreement, as a non-cash distribution
expense included in sales and marketing expense. At
December 31, 2003, the unamortized portion of the warrant
was $1,944 and was included in other current assets in the
accompanying combined consolidated balance sheet.
The original term of the agreement was for three years expiring
May 2004. The Company had the right to extend the original
agreement for an additional three-year term if certain
thresholds were not achieved during the original three-year
term. These thresholds were not achieved and the Company
exercised its right to extend the contract term until May 2007.
Under the terms of the extension, the Company's revenue
share will be subject to a minimum annual guarantee. Included in
the accompanying combined consolidated statements of operations
for the years ended December 31, 2002, 2003 and 2004 is
revenue of $4,159, $5,087 and $10,996, of which $3,754 during
2004 related to the guarantee discussed above.
News Corporation
In connection with a strategic relationship with News
Corporation that Parent entered into in 2000 and amended in
2001, the Company received advertising services from News
Corporation to be used over ten years expiring in 2010 in
exchange for equity securities issued by Parent. The amount of
advertising services received in any contract year is based on
the current market rates in effect at the time the advertisement
is placed. Additionally, the amount of advertising services that
can be used in any contract year is subject to contractual
limitations. The advertising services were recorded at fair
value determined using a discounted cash flow methodology. The
remaining portion of these advertising services is included in
prepaid advertising in the accompanying combined consolidated
balance sheets. Also, as part of the same agreement the Company
licensed its content to News Corporation for use across News
Corporation's media properties for four years, ending in
January 2005, for cash payments totaling $12,000 per
contract year.
6.
Restructuring and Integration Benefit
During 2000 and 2001, Parent initiated two restructuring and
integration plans, with the objective of eliminating duplication
and redundancies that resulted from prior acquisitions and to
restructure certain strategic relationships Parent had with
third parties. During 2002, the Company recorded a benefit of
$5,850 related to the 2000 and 2001 restructuring activity
resulting from the favorable settlements of certain of these
restructured arrangements. With the exception of the $5,850
benefit, substantially all activity with respect to the
restructuring plans was completed as of December 31, 2001.
F-16
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
7.
Segment Information
The Company's reportable segments have been determined
based on the nature of the products offered to customers and, as
described in Note 1, consist of Online Services and
Publishing Services.
The performance of the Company's business is monitored
based on income or loss before restructuring, taxes, non-cash
and other items. Non-cash and other items include depreciation
and amortization, other income, non-cash advertising and
distribution expenses related to services acquired in exchange
for Parent's equity securities and strategic alliances, and
stock compensation expense. Corporate and other overhead
functions are allocated to segments on a specifically
identifiable basis or other reasonable method of allocation. The
Company considers these allocations to be a reasonable
reflection of the utilization of costs incurred. The Company
does not disaggregate assets for internal management reporting
and, therefore, such information is not presented. There are no
inter-segment revenue transactions and, therefore, revenues are
only to external customers. The Company's revenues are
principally generated in the United States.
Summarized financial information for each of the Company's
operating segments and a reconciliation to net income (loss) are
presented below:
Years Ended December 31,
2002
2003
2004
Revenues
Online Services:
Advertising and promotion
$
61,611
$
71,618
$
83,828
Licensing
830
8,923
15,841
Content syndication and other
17,008
19,610
20,618
Total Online Services
$
79,449
$
100,151
$
120,287
Publishing Services
4,754
10,001
13,861
$
84,203
$
110,152
$
134,148
Income (loss) before restructuring, taxes, non-cash and other
    items
Online Services
$
(2,086
)
$
16,145
$
24,902
Publishing Services
(848
)
1,641
1,285
(2,934
)
17,786
26,187
Restructuring, taxes, non-cash and other items
Depreciation and amortization
(2,486
)
(4,463
)
(5,620
)
Non-cash advertising and distribution
(22,809
)
(18,968
)
(12,147
)
Non-cash stock compensation
(2,665
)
(1,597
)
(1,749
)
Restructuring and integration benefit
5,850
—
—
Other income
823
—
—
Income tax provision
(140
)
(183
)
(210
)
Net income (loss)
$
(24,361
)
$
(7,425
)
$
6,461
F-17
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
8.
Long-Lived Assets
Property and Equipment
Property and equipment consist of the following:
December 31,
2003
2004
Computer equipment
$
2,780
$
4,398
Office equipment, furniture and fixtures
1,198
1,219
Software
2,473
4,306
Leasehold improvements
3,246
3,252
Construction in process
—
650
9,697
13,825
Less: accumulated depreciation
(4,331
)
(7,509
)
Property and equipment, net
$
5,366
$
6,316
Depreciation expense was $1,745, $2,588 and $3,440 in 2002, 2003
and 2004, respectively.
Goodwill and Intangible Assets
SFAS No. 142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for
impairment at least annually or when indicators of impairment
are present. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over
their respective estimated useful lives and reviewed for
impairment in accordance with SFAS No. 144. Based on
the Company's analysis, there was no impairment of goodwill
in connection with the annual impairment tests that were
performed during the years ended December 31, 2002, 2003
and 2004.
The changes in the carrying amount of goodwill during the years
ended December 31, 2003 and 2004 are as follows:
Online
Publishing
Services
Services
Total
Balance as of January 1, 2003
$
23,704
$
—
$
23,704
Acquisitions during the period
4,070
8,661
12,731
Adjustments to finalize purchase price allocations
408
—
408
Balance as of January 1, 2004
28,182
8,661
36,843
Acquisitions during the period
13,387
—
13,387
Contingent consideration payments for prior period
    acquisitions(a)
—
2,500
2,500
Adjustments to finalize purchase price allocations
—
(116
)
(116
)
Balance as of December 31, 2004
$
41,569
$
11,045
$
52,614
(a)
During the year ended December 31, 2004, the Company
    accrued for contingent consideration of $1,000 for a Publishing
    Services 2003 Acquisition. This payment was made in the second
    quarter of 2005.
F-18
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
Intangible assets subject to amortization consist of the
following:
December 31, 2003
December 31, 2004
Gross
Gross
Carrying
Accumulated
Carrying
Accumulated
Amount
Amortization
Net
Amount
Amortization
Net
Content
$
—
$
—
$
—
$
6,616
$
(51
)
$
6,565
Customer lists
3,091
(832
)
2,259
3,991
(1,450
)
2,541
Technology and patents
2,967
(1,102
)
1,865
3,667
(2,091
)
1,576
Trade names
2,587
(682
)
1,905
2,587
(1,204
)
1,383
Total
$
8,645
$
(2,616
)
$
6,029
$
16,861
$
(4,796
)
$
12,065
Amortization expense was $741, $1,875 and $2,180 in 2002, 2003
and 2004, respectively. Aggregate amortization expense for
intangible assets is estimated to be:
Year ending December 31,
2005
$
4,466
2006
3,664
2007
2,852
2008
569
2009
408
Thereafter
106
9.
Accrued Expenses
Accrued expenses consist of the following:
December 31,
2003
2004
Accrued compensation
$
5,341
$
7,402
Accrued outside services
1,399
2,245
Accrued marketing and distribution
1,359
2,671
Other accrued liabilities
2,076
3,556
Total accrued expenses
$
10,175
$
15,874
10.
Commitments and Contingencies
Legal Proceedings
Merrill Lynch Fundamental Growth Fund, Inc. et al. v.
    McKesson HBOC, Inc., et al.
Parent was named as a defendant in the action
Merrill Lynch
Fundamental Growth Fund, Inc., et al. v. McKesson HBOC, Inc., et
al.
, Case No. 405792, in the San Francisco Superior
Court. The original complaint in this matter alleged that
McKesson HBOC (now known as McKesson Corp.), HBO and Company
(which we refer to as HBOC), certain officers and directors of
those firms, Arthur Andersen LLP, and Bear Stearns & Co.
engaged in a number of practices whereby HBOC and later McKesson
HBOC improperly recognized revenues. When these practices were
discovered, McKesson HBOC eliminated more than $327,000 in
revenues that HBOC had recognized over the prior three years.
Plaintiffs claim to have lost more than $150,000 as a result of
the decline in McKesson HBOC's share value after the
accounting practices came to light in April 1999.
F-19
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
On September 4, 2003, the plaintiffs filed a fourth amended
complaint, naming Parent and two other defendants, General
Electric Capital Corporation, Inc. and Computer Associates
International, Inc., for the first time. The complaint alleged
that Parent aided and abetted alleged fraud by certain
defendants and conspired with those defendants in relation to
HBOC's and McKesson HBOC's alleged improper
recognition of approximately $14,000 in revenue on two software
transactions. Plaintiffs also alleged that Parent made certain
negligent misrepresentations with respect to these transactions.
Plaintiffs alleged that Parent, through its participation in
certain transactions with HBOC and McKesson HBOC, learned that
officers of HBOC and/or McKesson HBOC, HBOC and McKesson HBOC
were breaching duties owed to McKesson HBOC shareholders by
making material misstatements and suppressing or omitting facts
with respect to HBOC's and McKesson HBOC's financial
results for the periods ending December 31, 1998 and
March 31, 1999 and that Parent aided and abetted and
conspired with these defendants. The complaint was based on
alleged conduct by WebMD, Inc., a Georgia corporation that was
then a separate private company and will be one of the
Company's subsidiaries. One of the HBOC officers allegedly
involved became an officer of WebMD, Inc. on December 1,
1998, after having served as HBOC's representative on the
Board of Directors of WebMD, Inc. and was dismissed by WebMD,
Inc. after the accounting fraud at HBOC was disclosed. The other
HBOC officer allegedly involved served as HBOC's
representative on the Board of Directors of WebMD, Inc. and
ceased to be a director of WebMD, Inc. upon dismissal by
McKesson HBOC. Plaintiffs seek unspecified damages against
Parent. The complaint alleges numerous instances of improper
accounting by HBOC unrelated to the transactions between WebMD,
Inc. and HBOC and/or McKesson HBOC.
On December 16, 2003, Parent filed a demurrer, seeking
dismissal of the plaintiffs' two claims against it. On
July 22, 2004, the Court sustained that demurrer, finding
that the plaintiffs' claims were time barred. On
October 8, 2004, the Court dismissed plaintiffs'
Fourth Amended Complaint with prejudice as to California, but
without prejudice with respect to filing in another
jurisdiction. On November 17, 2004, plaintiffs filed a
notice of appeal of the Court's order in favor of Parent.
On November 30, 2004, Parent filed a cross-appeal for the
purpose of challenging the form of the order. Those appeals are
in the process of being briefed.
In March 2004, McKesson Corp. filed cross-complaints against
General Electric Capital Corporation, Inc., Computer Associates
International, Inc., and Parent for declaratory relief and
indemnification, alleging that each of these cross-defendants is
obligated to indemnify McKesson if McKesson is compelled to pay
any sum as the result of any damages, judgment or other awards
recovered by the plaintiffs against McKesson. McKesson sought
judicial determinations of the comparative fault of McKesson and
each cross-defendant for damages claimed by the plaintiffs, if
any such damages are found to exist, and declarations of the
amount that each cross-defendant is obligated to indemnify
McKesson if McKesson is compelled to pay any sum as the result
of any damages, judgment or other awards recovered by the
plaintiffs against McKesson. The cross-complaints against
General Electric and Computer Associates have since been
dismissed.
On June 8, 2004, Parent filed a demurrer, seeking dismissal
of McKesson's claims. On September 10, 2004, the Court
sustained the demurrer to McKesson's claims against Parent.
On December 7, 2004, the Court dismissed McKesson's
cross-complaint with prejudice and ordered entry of judgment in
favor of Parent. On January 27, 2005, McKesson filed a
notice of appeal of the Court's order in favor of Parent.
That appeal has not yet been briefed.
On August 12, 2004, the original plaintiffs in the
California lawsuit, Merrill Lynch Fundamental Growth Fund, Inc.
and Merrill Lynch Global Value Fund, Inc., filed a separate
lawsuit in Superior Court in New Jersey, Middlesex County,
alleging substantially the same issues and claims against Parent
as they did in the California lawsuit. In response to
Parent's motion to dismiss, plaintiffs filed a First
Amended Complaint on January 4, 2005, dropping claims
against Parent, but asserting the same claims against
F-20
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
WebMD, Inc., the company that engaged in the two software
transactions. On February 4, 2005, the New Jersey court
dismissed Parent from the action without prejudice, and stayed
the New Jersey action until the California action is resolved,
subject to Parent's entering into a tolling agreement with
plaintiffs, which Parent has done.
Parent intends to vigorously defend against the plaintiffs'
and McKesson's claims against Parent and WebMD, Inc.
In the normal course of business, the Company is involved in
various other claims and legal proceedings. While the ultimate
resolution of these matters, and those discussed above, has yet
to be determined, the Company does not believe that their
outcomes will have a material adverse effect on the
Company's combined consolidated financial position, results
of operations or liquidity.
Leases
The Company leases its offices under operating lease agreements
that expire at various dates through 2015. Total rent expense
for all operating leases was approximately $2,772, $2,702 and
$2,818 in 2002, 2003 and 2004, respectively. Future minimum
lease commitments under non-cancelable lease agreements at
December 31, 2004 were as follows:
Year Ending December 31,
2005
$
2,351
2006
3,689
2007
3,345
2008
3,202
2009
2,845
Thereafter
19,957
Total minimum lease payments
$
35,389
Other
Contingencies
The Company provides certain indemnification provisions within
its license agreements to protect the other party from any
liabilities or damages resulting from a claim of
misappropriation or infringement by third parties relating to
its products and services. The Company has not incurred a
liability relating to any of these indemnification provisions in
the past and management believes that the likelihood of any
future payment relating to these provisions is unlikely.
Therefore, the Company has not recorded a liability during any
period for these indemnification provisions.
11.
Stock-Based Compensation Plans
Certain WebMD Health employees participate in the stock-based
compensation plans of Parent. Under these plans certain WebMD
Health employees have received grants of stock options and
restricted stock. Additionally, all eligible WebMD Health
employees are provided the opportunity to participate in
Parent's employee stock purchase plan. Prior to the
effective date of the Offering, the Company will establish its
own stock-based compensation plans which are expected to be
structured similar to the stock-based compensation plans of
Parent. Additionally, all unvested stock options and restricted
stock held by the Company's employees as of the effective
date of the Offering will continue to vest under the original
terms of those awards. Following is a summary of these
stock-based compensation plans:
Stock Options:
Under Parent's stock option plans,
options to acquire shares of Parent common stock have been made
available for grant to certain Company employees. Each option
granted during 2002, 2003
F-21
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
and 2004 had an exercise price equal to the market value of
Parent common stock on the date of grant, and accordingly, no
compensation expense has been recognized for these option
grants. However, the Company recorded stock-based compensation
expense of $2,448, $622 and $188 for the years ended
December 31, 2002, 2003 and 2004, respectively, as a result
of stock options assumed in connection with certain acquisitions
in 2000 and options granted in 2000 with exercise prices less
than the fair market value of Parent's stock on the date of
the grant. The majority of the options have contractual lives of
10 years and vest and become exercisable at 25% increments
over four years. The following table summarizes information
regarding Parent stock options held by the Company's
employees during the years ended December 31, 2002, 2003
and 2004:
Years Ended December 31,
2002
2003
2004
Weighted
Weighted
Weighted
Average
Average
Average
Shares
Exercise Price
Shares
Exercise Price
Shares
Exercise Price
Outstanding at the beginning of the year
16,269,712
$
12.92
15,003,315
$
11.54
15,541,928
$
11.67
Granted
2,148,860
6.21
2,279,500
9.20
3,984,500
8.43
Exercised
(554,239
)
3.67
(1,093,160
)
5.22
(855,371
)
6.63
Cancelled
(2,861,018
)
16.93
(647,727
)
10.93
(999,652
)
11.23
Outstanding at the end of the year
15,003,315
$
11.54
15,541,928
$
11.67
17,671,405
$
11.21
Exercisable at the end of the year
7,597,618
$
13.59
9,161,989
$
13.66
11,160,759
$
12.78
The following table summarizes information with respect to
options outstanding and options exercisable at December 31,
2004:
Outstanding
Exercisable
Weighted
Weighted
Average
Weighted
Average
Remaining
Average
Exercise
Contractual
Exercise
Exercise Prices
Shares
Price
Life (In Years)
Shares
Price
$1.30-$5.60
2,698,412
$
3.89
6.72
2,394,415
$
3.81
$5.71-$8.55
3,522,614
6.94
8.33
1,441,592
6.65
$8.59
2,350,200
8.59
9.21
—
—
$8.60-$10.89
2,191,203
9.22
8.47
500,838
9.30
$11.55-$12.06
2,259,850
11.68
5.56
2,252,463
11.68
$12.19-$17.44
2,850,186
14.03
5.57
2,847,411
14.03
$18.06-$25.07
990,550
20.92
6.11
990,550
20.92
$28.10-$94.69
808,390
44.06
4.92
733,490
43.97
17,671,405
$
11.21
7.14
11,160,759
$
12.78
The pro forma information presented in Note 2 has been
determined as if employee stock options were accounted for under
the fair value method of SFAS No. 123. The fair value
for these options was
F-22
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
2002
2003
2004
Expected dividend yield
0
%
0
%
0
%
Expected volatility
0.90
0.89
0.58
Risk free interest rate
1.85
%
1.38
%
1.67
%
Expected post vesting option lives (years)
0.75-3.0
0.75-3.0
0.75-3.0
Weighted fair value of options granted during the year
$
3.94
$
5.52
$
3.55
Restricted Stock:
Restricted stock consists of shares of
Parent's common stock which have been granted to employees.
The grants are restricted such that they are subject to
substantial risk of forfeiture and to restrictions on their sale
or other transfer by the employee until they vest. Generally,
restricted stock awards vest ratably over a three to four year
period based on their individual award dates.
At December 31, 2004, the amount of deferred compensation
specifically related to the Company's employees reflected
in owner's net investment in the combined consolidated
balance sheets was $1,894. The Company recorded stock
compensation expense related to restricted stock awards of $217,
$975 and $1,561 for the years ended December 31, 2002, 2003
and 2004, respectively, based on the graded vesting method over
the respective vesting periods of the awards.
During 2002, 400,159 restricted stock awards were granted to
Company employees, with a weighted average fair value of
$6.31 per share. There were no restricted stock awards
granted to the Company's employees during 2003. During
2004, 355,800 restricted stock awards were granted to the
Company's employees, with a weighted average fair value of
$8.57 per share. Approximately 96,000 and 71,000 restricted
stock awards vested during 2003 and 2004, respectively.
Approximately 2,000, 87,000 and 9,000 restricted stock awards
were cancelled during 2002, 2003 and 2004, respectively. There
were 491,109 restricted stock awards that were unvested as of
December 31, 2004.
Employee Stock Purchase Plan:
Parent's employee
stock purchase plan ("ESPP") allows eligible employees
the opportunity to purchase shares of Parent's common stock
through payroll deductions, up to 15% of a participant's
annual compensation with a maximum of 5,000 shares
available per participant during each purchase period. Prior to
an amendment to the ESPP on November 1, 2002, the purchase
price of the stock was 85% of the lesser of the fair market
value on the first and last day of each purchase period.
Effective with the November 1, 2002 amendment, the purchase
price of the stock is 85% of the fair market value on the last
day of each purchase period. A total of 43,422, 27,160 and
37,876 shares were issued to the Company's employees
under Parent's ESPP during 2002, 2003 and 2004,
respectively.
12.
Income Taxes
The Company's results of operations have been included in
Parent's consolidated U.S. federal and state income
tax returns. The provision for income taxes included in the
accompanying combined consolidated financial statements has been
determined on a separate return basis using the liability method
in accordance with SFAS No. 109, "Accounting for
Income Taxes." Under this method, deferred income taxes are
recognized for the future tax consequence of differences between
the tax and financial reporting basis of assets and liabilities
at each reporting period. The Company is required to assess its
deferred tax assets and the need for a valuation allowance on a
separate return basis, and exclude from that assessment the
utilization of all or a portion of those losses by Parent under
the separate return method. This assessment requires
considerable judgment on the part of management with respect to
benefits that could be realized from future taxable income, as
well as other positive and negative factors.
F-23
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax assets were as follows:
December 31,
2003
2004
Deferred tax assets:
Net operating loss carryforwards
$
239,491
$
242,710
Research and development tax credits
1,362
1,576
Other accrued expenses
2,989
5,285
Allowance for doubtful accounts
368
319
Depreciation
3,768
3,387
Intangible assets
5,440
1,278
Prepaid assets
13,839
11,376
Other, net
4,728
5,283
Total deferred tax assets
271,985
271,214
Valuation allowance
(271,985
)
(271,214
)
Net deferred tax assets
$
—
$
—
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
2002
2003
2004
United States federal statutory rate
(34.0
)%
(34.0
)%
34.0
%
State income taxes (net of federal benefit)
1.5
9.9
8.1
Valuation allowance released in lieu of equity deductions
(5.0
)
(47.5
)
(32.6
)
Losses benefited to (from) Parent
38.9
76.0
(4.4
)
Other
(0.8
)
(1.9
)
(1.9
)
Effective income tax rate
0.6
%
2.5
%
3.2
%
A valuation allowance equal to 100% of the deferred tax assets
has been established because of the uncertainty of realization
of the deferred tax assets due to the lack of earnings history.
The valuation allowance for deferred tax assets decreased by
$267 and $771 in 2003 and 2004, respectively.
At December 31, 2004, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$606,776, which expire in 2005 through 2024, and federal tax
credits of approximately $1,576, which expire in 2011 through
2024.
Approximately $184,465 and $7,244 of these net operating loss
carryforwards were recorded through owner's net investment
and goodwill, respectively. Therefore, if in the future the
Company believes that it is more likely than not that these tax
benefits will be realized, this portion of the valuation
allowance will be reversed against owner's net investment
and goodwill, respectively.
A portion of net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding
their utilization against taxable income in future periods due
to the "change of ownership" provisions of the
Internal Revenue Code and similar state provisions. A portion of
these carryforwards may expire before becoming available to
reduce future income tax liabilities.
F-24
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
Some of the Company's operating companies are profitable in
certain states in which the Company does not have net operating
losses to offset that income. Accordingly, the Company provided
for taxes of $140, $183 and $210 related to state and other
jurisdictions during 2002, 2003 and 2004, respectively.
13.
Related Party Transaction
In 2004, the Company entered into an agreement with Fidelity
Human Resources Services Company LLC ("FHRS") to
integrate the Company's employer product into the services
FHRS provides to its clients. FHRS provides human resources
administration and benefit administration services to employers.
The Company recorded $817 in revenue in 2004 and $984 was
included in accounts receivable as of December 31, 2004
related to the FHRS agreement. FHRS is an affiliate of FMR Corp,
which reported beneficial ownership of approximately 10.8% of
Parent's common stock at December 31, 2004.
14.
Quarterly Financial Data (Unaudited)
The following table summarizes the quarterly financial data for
2004 and 2003.
2004
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Revenue
$
26,266
$
31,810
$
36,975
$
39,097
Cost of operations
11,119
13,079
13,185
14,496
Sales and marketing
11,487
11,494
11,887
13,833
General and administrative
5,165
5,350
5,837
4,925
Depreciation and amortization
1,204
1,311
1,247
1,858
Income (loss) before income tax provision
(2,709
)
576
4,819
3,985
Income tax provision
44
47
61
58
Net income (loss)
$
(2,753
)
$
529
$
4,758
$
3,927
2003
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Revenue
$
22,052
$
26,410
$
31,035
$
30,655
Cost of operations
9,932
12,154
12,489
11,977
Sales and marketing
10,278
11,298
12,996
12,797
General and administrative
4,066
4,543
4,854
5,547
Depreciation and amortization
1,035
1,013
1,212
1,203
Loss before income tax provision
(3,259
)
(2,598
)
(516
)
(869
)
Income tax provision
45
46
46
46
Net loss
$
(3,304
)
$
(2,644
)
$
(562
)
$
(915
)
15.
Subsequent Events
HealthShare Technology
Acquisition
On March 14, 2005, the Company acquired HealthShare
Technology, Inc. ("HealthShare"). The purchase price
paid at closing was approximately $31,000. In addition, the
Company has agreed to pay up to an additional $5,000 if certain
milestones are achieved for calendar year 2005. HealthShare
provides health plans and employers, and their members and
employees, with online decision-support tools that
F-25
Table of Contents
WebMD Health Holdings, Inc.
Notes to Combined Consolidated Financial
Statements — (Continued)
evaluate both the cost and quality of hospital care. The results
of operations of HealthShare will be included in the
Company's Online Services segment.
Management Changes
The Company recruited a new co-CEO and accepted the resignation
of its former CEO in April 2005. The Company expects to report a
charge related to the recruitment of the new co-CEO and the
resignation of its former CEO during the second quarter of 2005
in an amount of approximately $2,200.
F-26
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
MedicineNet, Inc.
We have audited the accompanying balance sheet of MedicineNet,
Inc. as of March 31, 2004 and the related statements of
operations, shareholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (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 audit provides 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 MedicineNet, Inc. as of March 31, 2004, and the results
of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States.
San Diego, California
April 13, 2005
F-27
Table of Contents
MEDICINENET, INC.
BALANCE SHEETS
March 31,
September 30,
2004
2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
904,630
$
980,740
Accounts receivable, less allowance for doubtful accounts of
    $11,796 as of March 31, 2004
495,995
676,081
Other current assets
34,600
67,515
Total current assets
1,435,225
1,724,336
Investment in joint venture
500,000
500,000
Property and equipment, net of accumulated depreciation and
    amortization of $191,194 at March 31, 2004 and $205,464 at
    September 30, 2004
54,358
53,039
Other assets
10,188
10,188
Total assets
$
1,999,771
$
2,287,563
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses
$
150,921
$
161,975
Deferred revenue
8,875
34,826
Total liabilities
159,796
196,801
Commitments and Contingencies
Shareholders' equity:
Preferred stock, par value $.0001 par share,
    20,000,000 shares authorized;
Series A, 2,666,663 shares issued and outstanding
    (liquidation preference of $1.50 per share)
3,999,995
3,999,995
Series B, 5,000,000 shares issued and outstanding
    (liquidation preference of $1.00 per share)
5,000,000
5,000,000
Common stock, par value $.0001 per share,
    40,000,000 shares authorized;
Series A, 4,481,102 shares issued and outstanding
448
448
Series B, 1,152,180 shares issued and outstanding
115
115
Additional paid-in capital
1,362,759
1,362,759
Deferred compensation
(6,567
)
(4,019
)
Accumulated deficit
(8,516,775
)
(8,268,536
)
Total shareholders' equity
1,839,975
2,090,762
Total liabilities and shareholders' equity
$
1,999,771
$
2,287,563
See accompanying notes.
F-28
Table of Contents
MEDICINENET, INC.
STATEMENTS OF OPERATIONS
Six Months Ended
Year Ended
September 30,
March 31,
2004
2003
2004
(Unaudited)
Revenues:
Advertising
$
1,605,367
$
709,391
$
1,149,401
Content licensing
72,209
41,867
250,393
Other
60,962
27,910
4,769
Total revenues
1,738,538
779,168
1,404,563
Cost of revenues
313,116
108,445
178,877
Gross profit
1,425,422
670,723
1,225,686
Operating expenses:
Selling, general and administrative
1,349,408
743,815
803,088
Research and development
256,971
91,667
179,200
Total operating expenses
1,606,379
835,482
982,288
Operating income (loss)
(180,957
)
(164,759
)
243,398
Other income (expense):
Interest income
9,974
5,266
4,841
Loss from investment in joint venture
(165,340
)
(107,930
)
Net income (loss)
$
(336,323
)
$
(267,423
)
$
248,239
See accompanying notes.
F-29
Table of Contents
MEDICINENET, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A
Series B
Series A
Series B
Preferred Stock
Preferred Stock
Common Stock
Common Stock
Additional
Total
Paid-In
Deferred
Accumulated
Shareholders'
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Compensation
Deficit
Equity
Balance at April 1, 2003
2,666,663
$
3,999,995
5,000,000
$
5,000,000
4,481,102
$
448
1,152,180
$
115
$
1,357,790
$
(20,195
)
$
(8,180,452
)
$
2,157,701
Issuance of common stock options for services
4,969
(4,969
)
Stock compensation expense
18,597
18,597
Net loss
(336,323
)
(336,323
)
Balance at March 31, 2004
2,666,663
3,999,995
5,000,000
5,000,000
4,481,102
448
1,152,180
115
1,362,759
(6,567
)
(8,516,775
)
1,839,975
Stock compensation expense (unaudited)
2,548
2,548
Net income (unaudited)
248,239
248,239
Balance at September 30, 2004 (unaudited)
2,666,663
$
3,999,995
5,000,000
$
5,000,000
4,481,102
$
448
1,152,180
$
115
$
1,362,759
$
(4,019
)
$
(8,268,536
)
$
2,090,762
See accompanying notes.
F-30
Table of Contents
MEDICINENET, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended
Year Ended
September 30,
March 31,
2004
2003
2004
(Unaudited)
Operating activities:
Net income (loss)
$
(336,323
)
$
(267,423
)
$
248,239
Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:
Depreciation and amortization
47,510
23,589
17,181
Loss on investment in joint venture
165,340
107,930
Loss on disposal of equipment
617
323
Provision for doubtful accounts
11,796
14,296
417
Stock compensation expense
18,597
13,465
2,548
Changes in operating assets and liabilities:
Accounts receivable
(245,647
)
(79,404
)
(180,503
)
Other current assets
4,571
(18,119
)
(32,915
)
Deposits
(1,352
)
Accounts payable and accrued expenses
31,205
(10,786
)
11,053
Deferred revenue
(8,021
)
6,838
25,951
Net cash provided by (used in) operating activities
(310,355
)
(210,966
)
92,294
Investing activities:
Purchase of equipment
(12,642
)
(7,332
)
(16,184
)
Sale of short-term investments
500,000
Net cash provided by (used in) investing activities
487,358
(7,332
)
(16,184
)
Net increase (decrease) in cash and cash equivalents
177,003
(218,298
)
76,110
Cash and cash equivalents, beginning of period
727,627
727,627
904,630
Cash and cash equivalents, end of period
$
904,630
$
509,329
$
980,740
Supplemental disclosure of noncash financing activity:
Issuance of common stock options for service
$
4,969
$
4,969
See accompanying notes.
F-31
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS
1.
Organization and Summary of Significant Accounting
    Policies
Information Network, Inc. was incorporated in the State of
Nevada on December 8, 1995. On March 7, 1997, the same
shareholders of Information Network, Inc. formed MedicineNet,
Inc. a California corporation. Upon the formation of
MedicineNet, Inc., all stock issued and stock options related to
Information Network, Inc. were transferred to MedicineNet, Inc.
on a share for share basis. Pursuant to an Agreement of Merger
effective March 31, 1999, Information Network, Inc. merged
(the "Merger") with and into MedicineNet, Inc. and
MedicineNet, Inc. (the "Company") became the surviving
entity. MedicineNet, Inc. and Information Network, Inc. have
been under common ownership since the inception of MedicineNet,
Inc.
Prior to the Merger, Information Network, Inc. had
1,500,000 shares of common stock issued and outstanding and
MedicineNet, Inc. had 3,500,000 shares of common stock
issued and outstanding. Pursuant to the Agreement of Merger, all
the shares of common stock of Information Network, Inc. were
cancelled. The shares of common stock of MedicineNet, Inc.
issued and outstanding prior to the Merger were unaffected by
the Merger. The combination of Information Network, Inc. and
MedicineNet, Inc. was accounted for as a combination of
affiliated entities under common control in a manner similar to
a pooling-of-interests ("as-if-pooling"). Under this
method, the assets, liabilities and shareholders' equity of
Information Network, inc. and MedicineNet, Inc. were combined at
their historical book values and their operations have been
recorded on a combined historical basis subsequent to achieving
common control. The combination did not require any material
adjustments to conform the accounting policies of the separate
entities.
Nature of Operations
The Company is an online healthcare destination for proprietary
doctor-produced health and medical information. The
Company's network of board-certified physician writers and
scientists provides online medical information for consumers,
including a comprehensive range of medical conditions,
procedures, tests, medications, medical terms, news, and health
facts.
Joint Venture
Investment in joint venture is accounted for under the equity
method (see Note 4).
Revenue Recognition
Publishing and advertising revenues are recognized during the
period the publications and advertising are displayed. Content
licensing revenues are recognized over the term of the contract,
generally one year. The Company's revenue recognition
policy is in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin
(SAB) Nos. 101 and 104,
Revenue Recognition
.
Cash and Cash Equivalents
The Company considers all highly-liquid financial investments
with maturity of three months or less when purchased to be cash
equivalents.
Property and equipment
Property and equipment is stated at cost. Depreciation of
property and equipment is provided on a straight-line basis over
the estimated useful lives of the assets which range from two to
five years. Amortization of leasehold improvements is computed
over the shorter of the estimated useful lives of the assets or
the term of the related lease.
F-32
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
Capitalized Software Costs
Statement of Financial Accounting Standards No. 86
(SFAS No. 86),
Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed
, provides
for the capitalization of certain software development costs
once technological feasibility is established. The capitalized
costs are amortized on a straight-line basis over the estimated
product life, or the ratio of current revenues to total
projected product revenues, whichever is greater. No costs to
date have been capitalized as the total capitalizable costs for
all periods presented are immaterial.
The American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.
SOP 98-1 requires the
capitalization of certain costs incurred in the acquisition or
development of internal-use software. No internal-use software
or website development costs to date have been capitalized.
Income Taxes
Income taxes are accounted for under the asset and liability
method in accordance with SFAS No. 109,
Accounting
for 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 and tax credit 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 recovered 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. A valuation allowance is established to
reduce deferred tax assets to the amounts expected to be
realized.
Accounting for stock compensation
The Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25,
Accounting for Stock Issued
to Employees
, and related interpretations including FASB
Interpretation No. 44,
Accounting for Certain
Transactions Involving Stock Compensation an Interpretation of
APB Opinion No. 25
(issued in March 2000), to account
for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123,
Accounting for
Stock-Based Compensation
, established accounting and
disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting
described above and has adopted the disclosure requirements of
SFAS Nos. 123 and 148.
The Company has adopted Emerging Issues Task Force
(EITF) 96-18,
Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction
with Selling Goods or Services.
Equity instruments issued to
non-employees are measured using the fair value of the equity
instrument using the stock price and other measurement
assumptions as of the earlier of the date at which a performance
commitment to earn the equity instruments is reached or the date
at which the performance is complete, which usually will
coincide with the date on which the equity instruments vest and
no longer are forfeitable.
F-33
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
If the Company had elected to recognize compensation cost based
on the fair value of employee options at the date of grant,
consistent with the method as prescribed by
SFAS No. 123, net income (loss) would have changed to
the pro forma amounts indicated below:
Six Months Ended
Year Ended
September 30,
March 31,
2004
2003
2004
(Unaudited)
Net income (loss) as reported
$
(336,323
)
$
(267,423
)
$
248,239
Deduct: Total stock-based employee compensation expense
    determined under fair value based method
(6,901
)
(5,253
)
(2,714
)
Pro forma net income (loss)
$
(343,224
)
$
(272,676
)
$
245,525
Long-Lived Assets
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 144,
Accounting for the
Impairment or Disposal of Long-Lived Assets.
This statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. There has
been no permanent impairment of long-lived assets as of
March 31, 2004.
Use of Estimates
Management of the Company has made estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosures of contingent assets and liabilities to prepare
these financial statements in conformity with accounting
principles generally accepted in the United States. Actual
results could differ from those estimates.
Research and Development
Research and development costs are expensed as incurred.
Interim Financial Statements
The unaudited financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of
management, the accompanying unaudited financial statements
reflect all adjustments necessary to present fairly the
financial position as of September 30, 2004 and the results
of operations and cash flows for the six months ended
September 30, 2003 and 2004.
2.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents. The Company maintains its cash and cash
equivalents with a high credit quality financial institution. At
March 31, 2004, the Company had cash and cash equivalent
balances in excess of Federally insured limits in the amount of
approximately $771,000.
F-34
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
3.
Shareholders' Equity
The Company is authorized to issue two classes of stock,
$.0001 par value, designated "Common Stock," and
"Preferred Stock." The Common Stock and Preferred
Stock were issued in two series each, designated as
"Series A" and "Series B" Common
Stock, and "Series A" and
"Series B" Preferred Stock. The total number of
shares that the Company is authorized to issue is 60,000,000, of
which 35,000,000 are designated as Series A Common Stock,
5,000,000 is designated as Series B Common Stock and
20,000,000 is designated as Preferred Stock. The attributes of
Series A Common Stock and Series B Common Stock are
identical, except that Series B Common Stock does not have
voting rights except as required by law. The holders of
Series A Common Stock are entitled to one vote per share.
The Preferred Stock may be divided into such number of series as
the Board of Directors may determine necessary. As of
March 31, 2004, 5,333,334 shares have been designated
Series A Preferred Stock and 7,500,000 shares have
been designated Series B Preferred Stock. The rights,
preferences and privileges of the Series A Preferred Stock
and Series B Preferred Stock are listed below:
Conversion Rights
Each share of the Series A Preferred Stock and
Series B Preferred Stock outstanding is convertible at the
option of the holder into such shares of Common Stock as
determined by dividing the original issue price by the
conversion price. The conversion price is subject to certain
adjustments for stock splits, combinations, or other dilutive
issuances. Conversion will occur automatically upon the closing
of a registered public offering of the Company's Common
Stock that yields aggregate proceeds to the Company of at least
$20,000,000 or upon written consent or agreement of a majority
of the holders of Series A Preferred Stock and
Series B Preferred Stock, voting separately.
Redemption Rights
The Preferred Stock is not redeemable.
Dividend Rights
Preferred Stockholders are entitled to receive noncumulative
dividends at the rate of $.12 per share of Series A
Preferred Stock and $.08 per share of Series B
Preferred Stock, per annum, payable quarterly when, as and if
declared by the Board of Directors. No dividends will be
declared or paid to any holders of shares of the Common Stock of
the Company unless full dividends for the Preferred Stock have
first been declared and paid.
Liquidation Preference
In the event of a liquidation, dissolution or winding up of the
Company, the holders of Preferred Stock are entitled, sharing
pro rata, to receive a liquidation preference of up to
$1.50 per share of Series A Preferred Stock and
$1.00 per share of Series B Preferred Stock, plus any
accrued but unpaid dividends. Any remaining proceeds are to be
shared pro rata by the holders of the Common Stock on a pro rata
basis.
Voting rights
Holders of Preferred Stock are generally entitled to vote
together with holders of Series A Common Stock on matters
presented for stockholder action at a voting percentage equal to
the number if such preferred shares were converted to
Series A Common Stock.
F-35
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
4.
Investment in Joint Venture
Investment in joint venture as of March 31, 2004 consists
of a 50% ownership interest in Wearnes Biotech and Medicals
(1998) Pte Ltd. formed for the purposes of hosting an
"Asian MedicineNet.com" website (see Note 8). The
investment is accounted for using the equity method. The
Company's share of losses from this investment was $165,340
for the year ended March 31, 2004, and was reflected in
other income (expense).
5.
Income Taxes
The Company's provision for income taxes primarily differs
from the expected tax benefit amount computed by applying the
statutory federal income tax rate to the loss before income
taxes, as a result of an increase in the valuation allowance
that fully reserves for the deferred tax effect of the net
operating loss carryforwards.
At March 31, 2004, the Company had gross deferred tax
assets aggregating approximately $8,072,000, primarily
consisting of net operating loss carryforwards, with a full
valuation allowance.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers projected future taxable income in making
this assessment.
As of March 31, 2004, the Company has net operating loss
carryforwards for federal and state income tax purposes of
approximately $7,244,000 and $6,998,000 respectively, and will
commence expiration in 2018 and 2007, respectively.
In accordance with Internal Revenue Code Section 382, the
annual utilization of net operating loss carryforwards and
credits existing prior to a change in control in the Company may
be limited. A portion of these carryforwards may expire before
becoming available to reduce future income tax liabilities.
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
Six Months
Ended
Year Ended
September 30,
March 31,
2004
2003
2004
(Unaudited)
United States federal statutory rate
(34.0
)%
(34.0
)%
34.0
%
State income taxes (net of federal benefit)
(5.8
)
(5.8
)
5.9
Valuation allowance
39.8
39.8
(40.0
)
Other
0.0
0.0
0.1
Effective income tax rate
0.0
%
0.0
%
0.0
%
6.
Short-term Investments
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair
values have been determined using available market information.
However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that the Company could realize in
F-36
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
As of March 31, 2004, the cost of the Company's cash
equivalents equaled fair value.
7.
Property and equipment
Property and equipment consists of the following at
March 31, 2004:
Computer equipment
$
173,691
Furniture and fixtures
67,333
Leasehold improvements
4,528
Less accumulated depreciation and amortization
(191,194
)
Property and equipment, net
$
54,358
8.
Related Party Transactions
Investment in Joint Venture
In connection with the Series B Preferred Stock issuance,
the Company entered into a shareholder's agreement with
Wearnes Investment Pte Ltd. (WINV) and Wearnes Technology
(Private) Limited (WTPL), whereby the Company has invested
$1,000,000 in Wearnes Biotech and Medicals (1998) Pte Ltd.
and acquired a 50% ownership interest therein for the purposes
of hosting an "AsianMedicineNet.com" website (see
Note 4). This shareholder's agreement was subject to
Wearnes buying $4,000,000 of the Company's Series B
Preferred Stock.
First Interstate Alliance
The Company shares office space and equipment with First
Interstate Alliance ("FIA"), a wholly-owned subsidiary
of WBL Corporation Ltd. Proportionate amounts of rental expense,
office supplies and equipment depreciation are allocated to FIA
on a monthly basis based on FIA and the Company's employee
headcount. The amount due from FIA as of March 31, 2004 was
$20,384.
9.
Stock Options
Prior to June 1999, all nonstatutory stock options (not pursuant
to a plan) granted by the Company were to board members and
consultants for services rendered. These stock options expire
ten years from the date of grant and vest over the service
period. At March 31, 2004, all the outstanding options (not
pursuant to a plan) were fully vested and exercisable, 138,000
were exercisable at $.25 per share and 750,000 were
exercisable at $.01 per share.
The Company's Board of Directors approved the 1999 Stock
Option Plan (the Plan) in June 1999, which provides for grants
of incentive or nonstatutory stock options to both employees and
non-employees. Under the Plan, options may be granted from time
to time for an aggregate of no more than 3,200,000 shares
of Series A Common Stock as determined by the Board of
Directors. All options have ten year terms and vest and
become exercisable ratably each year for the first three years
from the grant date. At March 31, 2004, 537,000 shares
of common stock were available for grant under the Plan.
During 2003, the Company granted 118,000 stock options to
employees under the Plan. The Company did not grant any stock
options to employees during 2004.
F-37
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
The following represents the estimated fair value of options
granted to employees during 2003 as determined using the
Black-Scholes pricing model and the assumptions used for the
calculations:
Weighted average estimated fair value per option at grant date
$
0.08
Average exercise price per option granted
$
0.25
Risk-free interest rate
5.03
%
Option term (years)
8.3
Volatility
0.0
Stock dividend yield
0.0
%
Under the Plan, the Company granted stock options for
30,000 shares to non-employees during 2004. No options were
granted to non-employees in 2003. The fair value based method
prescribed by SFAS No. 123 and EITF 96-18 was
used to determine the fair value of the options granted during
2004 of $4,969 as determined by using the Black-Scholes option
pricing model. Compensation expense of $18,597 was recorded for
the year ended March 31, 2004, related to options granted
to non-employees.
The following represents the estimated fair value of options
granted to non-employees during 2004 using the Black-Scholes
pricing model and the assumptions used for the calculations:
Weighted average estimated fair value per option at grant date
$
0.17
Average exercise price per option granted
$
0.25
Risk-free interest rate
3.2
%
Option term (years)
8.3
Volatility
0.6
Stock dividend yield
0.0
%
The following is a summary of all stock option activity for the
year ended March 31, 2004:
Weighted
Average
Number of
Exercise
Shares
Price
Outstanding at April 1, 2003
3,551,000
0.20
Granted
30,000
0.25
Cancelled
(30,000
)
0.25
Outstanding at March 31, 2004
3,551,000
$
0.20
Exercisable at March 31, 2004
3,456,858
$
0.20
The following table summarizes information regarding options
outstanding and options exercisable at March 31, 2004:
Options Outstanding
Options Exercisable
Weighted-
Weighted-
Outstanding at
Average
Average
Exercisable at
Weighted
March 31,
Remaining
Exercise
March 31,
Average
Range of Exercise Prices
2004
Contractual Life
Price
2004
Exercise Price
$0.01
750,000
3.47 yrs.
$
0.01
750,000
$
0.01
$0.25
2,801,000
5.75 yrs.
$
0.25
2,706,858
$
0.25
3,551,000
5.27 yrs.
$
0.20
3,456,858
$
0.20
F-38
Table of Contents
MEDICINENET, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
10.
Simple IRA Plan
The Company maintains a simple IRA plan which allows eligible
employees to voluntarily make pre-tax deferred salary
contributions. The Company makes matching contributions up to 3%
of the employee's deferrals. The Company made matching
contributions of $8,832 in 2004.
11.
Commitments
The Company leases facilities and office equipment under
noncancelable operating leases that expire on various dates
throughout 2009. Future minimum lease payments under these
leases are as follows:
Year Ending March 31,
2005
$
114,603
2006
147,746
2007
78,971
2008
6,465
2009
1,616
$
349,401
Rental expense was $99,856 for the year ended March 31,
2004.
On November 1, 2004, FIA entered into a sublease agreement
with the Company for monthly rent of approximately $4,000. The
sublease will expire in November 2006.
12.
Subsequent Events
On December 24, 2004, the Company was acquired by WebMD
Corporation ("WebMD"). The purchase price paid at
closing was $17,000,000 in cash. In addition, WebMD has agreed
to pay up to an additional $15,000,000 beginning in 2006 if
certain milestones are achieved. WebMD is a leader in providing
services that help physicians, consumers, providers and health
plans navigate the complexity of the healthcare system.
As a condition to consummating the acquisition of the Company by
WebMD, the Company sold its investment in Wearnes
Biotech & Medicals (1998) Pte Ltd., for a total of
$500,000 to PolyTek Trading Ptc. Ltd. and Wearnes Walden N.V.
F-39
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
HealthShare Technology, Inc.
We have audited the balance sheet of HealthShare Technology,
Inc. as of June 30, 2004 and the related statements of
operations, redeemable convertible preferred stock and
stockholders' deficit and cash flows for the year then
ended. 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 audit in accordance with the standards of the
Public Company Accounting Oversight Board (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 audit provides 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 HealthShare Technology, Inc. as of June 30, 2004, and
its results of operations and cash flows for the year then
ended, in conformity with accounting principles generally
accepted in the United States of America.
Jericho, New York
February 10, 2005, except for the matter
discussed in Note 9 as to which the date is
March 14, 2005
F-40
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
BALANCE SHEETS
June 30,
December 31,
2004
2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
3,357,155
$
4,660,607
Accounts receivable, net of allowance for doubtful accounts of
    $224,116 at June 30, 2004 and $276,616 at December 31,
    2004
1,613,512
2,683,776
Deferred tax assets
176,358
176,358
Prepaid and other current assets
73,860
117,100
Total current assets
5,220,885
7,637,841
Deferred tax assets, net
796,665
796,665
Furniture and equipment, net
451,909
391,424
Capitalized software development costs, net
599,329
585,540
Other assets
14,375
14,437
Total assets
$
7,083,163
$
9,425,907
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
56,325
$
56,345
Accrued expenses
1,212,804
1,378,070
Deferred revenue
3,037,764
4,268,544
Current portion of capital lease obligations
5,484
2,763
Redeemable convertible preferred stock:
Series A redeemable convertible preferred stock,
    $0.01 par value; 1,125,000 shares authorized,
    1,120,454 shares issued and outstanding (liquidation
    preference of $1,506,717 and $1,596,040 as of June 30, 2004
    and December 31, 2004)
839,215
839,737
Series B redeemable convertible preferred stock,
    $0.01 par value; 500,000 shares authorized, issued and
    outstanding (liquidation preference of $846,082 and $866,667 as
    of June 30, 2004 and December 31, 2004)
499,184
499,511
Series C redeemable convertible preferred stock,
    $0.01 par value; 1,000,000 shares authorized, 925,833 and
    921,666 shares issued and outstanding as of June 30,
    2004 and December 31, 2004 (liquidation preference of
    $4,213,686 and $4,320,306 as of June 30, 2004 and
    December 31, 2004)
2,773,675
2,762,770
Total current liabilities
8,424,451
9,807,740
Capital lease obligations, net of current portion
15,287
15,287
Total liabilities
8,439,738
9,823,027
Commitments
Stockholders' deficit:
Common stock, $0.001 par value; 4,000,000 and
    4,400,000 shares authorized as of June 30, 2004 and
    December 31, 2004, 843,312 and 866,062 shares issued
    and outstanding as of June 30, 2004 and December 31,
    2004
843
1,344
Additional paid-in capital
550,226
2,649,377
Deferred compensation
(374,187
)
(2,140,653
)
Accumulated deficit
(1,533,457
)
(907,188
)
Total stockholders' deficit
(1,356,575
)
(397,120
)
Total liabilities, redeemable convertible preferred stock and
    stockholders' deficit
$
7,083,163
$
9,425,907
See accompanying notes.
F-41
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
Six Months Ended
Year Ended
December 31,
June 30,
2004
2003
2004
(Unaudited)
Revenues:
Software subscription
$
6,580,775
$
3,029,134
$
4,119,786
Professional services
290,950
49,050
210,000
Total revenues
6,871,725
3,078,184
4,329,786
Cost of revenues
1,496,412
756,639
870,363
Gross profit
5,375,313
2,321,545
3,459,423
Operating expenses:
Research and development
500,956
251,151
363,468
Selling and marketing
1,523,840
677,379
740,707
General and administrative
2,287,542
886,706
1,321,802
Total operating expenses
4,312,338
1,815,236
2,425,977
Income from operations
1,062,975
506,309
1,033,446
Other income (expense):
Interest income
20,433
8,032
19,156
Interest expense
(2,509
)
(1,910
)
(1,464
)
Other income, net
17,924
6,122
17,692
Income before income tax provision
1,080,899
512,431
1,051,138
Income tax provision
436,910
207,390
422,424
Net income
$
643,989
$
305,041
$
628,714
See accompanying notes.
F-42
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Series A
Series B
Series C
Redeemable
Redeemable
Redeemable
Convertible
Convertible
Convertible
Preferred Stock
Preferred Stock
Preferred Stock
Common Stock
Additional
Total
Paid-In
Deferred
Accumulated
Stockholders'
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Compensation
Deficit
Deficit
Balance at June 30, 2003
1,120,454
$
837,103
500,000
$
497,979
1,000,000
$
2,989,974
830,562
$
831
$
49,922
$
—
$
(2,167,927
)
$
(2,117,174
)
Exercise of stock options
12,750
12
1,388
1,400
Accretion of preferred stock
2,112
1,205
6,202
(9,519
)
(9,519
)
Redemption of shares
(74,167
)
(222,501
)
—
Stock-based compensation
498,916
(374,187
)
124,729
Net income
643,989
643,989
Balance at June 30, 2004
1,120,454
839,215
500,000
499,184
925,833
2,773,675
843,312
843
550,226
(374,187
)
(1,533,457
)
(1,356,575
)
Exercise of stock options (unaudited)
22,750
501
9,058
9,559
Accretion of preferred stock (unaudited)
522
327
1,596
(2,445
)
(2,445
)
Redemption of shares (unaudited)
(4,167
)
(12,501
)
Stock-based compensation (unaudited)
2,090,093
(1,766,466
)
323,627
Net income (unaudited)
628,714
628,714
Balance at December 31, 2004 (unaudited)
1,120,454
$
839,737
500,000
$
499,511
921,666
$
2,762,770
866,062
$
1,344
$
2,649,377
$
(2,140,653
)
$
(907,188
)
$
(397,120
)
See accompanying notes.
F-43
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended
Year Ended
December 31,
June 30,
2004
2003
2004
(Unaudited)
Operating activities:
Net income
$
643,989
$
305,041
$
628,714
Adjustments to reconcile net income to net cash provided by
    operating activities:
Provision for bad debts
69,116
30,000
52,500
Depreciation and amortization expense
400,171
190,370
262,244
Deferred income taxes
431,852
—
—
Non-cash stock-based compensation
124,729
110,609
323,627
Changes in operating assets and liabilities:
Accounts receivable
(404,829
)
(1,246,152
)
(1,122,765
)
Prepaid and other assets
(47,673
)
(6,080
)
(43,302
)
Accounts payable and accrued expenses
546,178
182,786
165,288
Deferred revenue
772,114
864,321
1,230,780
Net cash provided by operating activities
2,535,647
430,895
1,497,086
Investing activities:
Purchases of furniture and equipment
(263,711
)
(118,683
)
(28,293
)
Capitalized software development costs
(316,000
)
(158,000
)
(159,678
)
Net cash used in investing activities
(579,711
)
(276,683
)
(187,971
)
Financing activities:
Exercise of stock options
1,400
475
9,559
Redemption of Series C Preferred Stock
(222,501
)
—
(12,501
)
Payments on capital lease obligations
(5,902
)
(1,903
)
(2,721
)
Net cash used in financing activities
(227,003
)
(1,428
)
(5,663
)
Net increase in cash and cash equivalents
1,728,933
152,784
1,303,452
Cash and cash equivalents at beginning of year
1,628,222
1,628,222
3,357,155
Cash and cash equivalents at end of year
$
3,357,155
$
1,781,006
$
4,660,607
Supplemental disclosure of cash flow information:
Interest paid
$
2,509
$
1,910
$
1,464
Income taxes paid
$
5,058
$
3,791
$
493
Supplemental disclosure of noncash investing and financing
    activities:
Accretion of preferred stock to redemption value
$
9,519
$
4,760
$
2,445
Deferred compensation related to grant of options
$
374,187
$
442,435
$
2,090,093
See accompanying notes.
F-44
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
1.
Organization
HealthShare Technology, Inc. (the Company) (formerly known as
Healthcare Decision Technology, Inc.) was incorporated in the
State of Delaware in 1992 and maintains its corporate offices in
Acton, Massachusetts. The Company is a provider of interactive
analytical tools to focus and direct the healthcare
decision-making process for quality, cost, profitability and
business operations. Using publicly available or a
customer's internal data, the Company's products
convert data into on-demand, detailed management reports for
hospitals, health plans and other healthcare organizations
located throughout the United States.
2.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers highly-liquid investment instruments with
an original maturity when purchased of three months or less to
be cash equivalents. At June 30, 2004 cash equivalents
principally consist of money market investments. The fair value
of the investments approximates cost due to the short-term
nature of such instruments.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk principally consist of cash, cash
equivalents and accounts receivable. As of June 30, 2004,
the Company's cash and cash equivalents are deposited with
various domestic financial institutions. With respect to
accounts receivable, the Company routinely grants credit to its
customers and generally does not require collateral. Periodic
evaluations of customers' financial condition are
performed, and an allowance is maintained to accommodate
potential credit losses.
Furniture and Equipment
Furniture and equipment are stated at cost. Major replacements
and improvements are capitalized, while general repairs and
maintenance are charged to expense as incurred. Depreciation and
amortization are computed by use of the straight-line method
over the following estimated useful lives:
Office furniture and equipment
5-10 years
Computer software
3 years
Equipment under capital leases
Lesser of estimated useful life or life of lease
Income Taxes
The Company provides for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes.
Under
SFAS No. 109, the liability method is used in
accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. A
F-45
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS — (CONTINUED)
valuation allowance is provided when it is more likely than not
that some or all of a deferred asset will not be realized.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25),
and related interpretations. Accordingly, compensation expense
is recorded for stock options awarded to employees and directors
to the extent that the option exercise prices are less than the
common stock's fair market value on the date of grant,
where the number of shares and exercise price are fixed. The
difference between the fair value of the Company's common
stock and the exercise price of the stock option, if any, is
recorded as deferred compensation and is amortized to
compensation expense over the vesting period of the underlying
stock option. The Company follows the disclosure requirements of
SFAS No. 123,
Accounting for Stock-based
Compensation
, as amended by SFAS No. 148,
Accounting for Stock-based Compensation —
Transition and Disclosure."
All stock-based awards to
non-employees are accounted for using the fair value method in
accordance with SFAS No. 123.
The following table illustrates the effect on net income if the
Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation.
Six Months Ended
Year Ended
December 31,
June 30,
2004
2003
2004
(Unaudited)
Net income as reported
$
643,989
$
305,041
$
628,714
Add: Stock-based employee compensation expense included in
    reported net income
124,729
110,609
323,627
Deduct: Stock-based employee compensation expense determined
    under fair value based method
(121,583
)
(107,818
)
(315,461
)
Pro forma net income
$
647,135
$
307,832
$
636,880
The Company recorded compensation expense on options granted to
employees with exercise prices below the fair value of each
share under option. The fair value used in recording
compensation was the price per share paid by WebMD Corporation
(see note 9) to the Company. Accordingly, the pro forma net
income approximates the net income reported because the fair
value per share used in computing the minimum value method
approximates the value paid to the Company by WebMD Corporation.
As permitted by SFAS No. 123, the Company used the
"minimum value" method of option pricing using the
following weighted-average assumptions:
2004
Dividend yield
0.0
%
Risk-free interest rate
4.6
%
Expected life (in years)
10
Volatility
0.0
%
Revenue Recognition
The Company recognizes revenue in accordance with Statement of
Position No. 97-2 (SOP 97-2),
Software Revenue
Recognition
, and related amendments. Pursuant to
SOP 97-2, revenues from software subscriptions are
recognized ratably over the term of the agreement, generally one
to three years. The Company begins revenue recognition upon
meeting all of the following criteria: (i) execution of a
written
F-46
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS — (CONTINUED)
license agreement; (ii) delivery of software or software
license authorization code; (iii) the license fee is fixed
or determinable; and (iv) collectibility is reasonably
assured.
Professional services revenues comprise training and consulting
services, and are recognized when the services are performed.
Customer payments in excess of revenue recognized are recorded
as deferred revenue.
Research and Development Costs
The Company has evaluated the establishment of technological
feasibility of its products in accordance with
SFAS No. 86,
Accounting for the Costs of Computer
Software To Be Sold, Leased or Otherwise Marketed.
The
Company defines technological feasibility as the completion of a
working model. The Company capitalized $316,000 in the fiscal
year ended June 30, 2004 related to the development of new
versions of its Select Quality Care and HealthShare software
products. Amortization expense of $288,519 was recorded for the
year ended June 30, 2004 based on a three-year life. All
other research and development costs are expensed as incurred.
New Accounting Pronouncements
A summary of the impact of certain new accounting pronouncements
on the Company's business follows.
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment.
SFAS No. 123(R) revises
SFAS No. 123 and supersedes APB 25 and its
related implementation guidance. SFAS No. 123(R) will
require compensation costs related to share-based payment
transactions to be recognized in the financial statements (with
limited exceptions). The amount of compensation cost will be
measured based on the grant-date fair value of the equity or
liability instruments issued. Compensation cost will be
recognized over the period that an employee provides service in
exchange for the award. The Company is evaluating its
requirements under SFAS No. 123(R).
Interim Financial Statements
The unaudited consolidated financial statements included herein
have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to
present fairly the financial position as of December 31,
2004 and the results of operations and cash flows for the six
months ended December 31, 2003 and 2004.
3.
Furniture and Equipment
Furniture and equipment consisted of the following as of
June 30, 2004:
Office furniture and equipment
$
1,105,364
Computer software
348,166
Equipment under capital lease
26,866
1,480,396
Less: accumulated depreciation and amortization
1,028,487
$
451,909
F-47
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS — (CONTINUED)
4.
Leases
The Company leases its present facility under an operating lease
expiring in September 2007. The lease contains escalating lease
rates and cost of living adjustments. Rent expense for the year
ended June 30, 2004 was $197,425.
Minimum lease payments through the expiration of the leases are
as follows:
Year Ending June 30,
2005
$
191,625
2006
192,938
2007
198,188
2008
49,875
The Company leases office equipment under a capital lease
expiring June 30, 2007. The following is a schedule, by
year, of future minimum lease payments under the capital lease,
together with the present value of net minimum lease payments,
as of June 30, 2004:
Year Ending June 30,
2005
$
8,376
2006
8,376
2007
9,772
Total minimum lease payments
26,524
Less amount representing interest
5,753
Present value of net minimum lease payments
20,771
Less amounts currently due
5,484
Long-term capital lease obligation
$
15,287
5.
Employee Benefit Plan
The Company maintains a defined contribution plan in accordance
with Section 401(k) of the Internal Revenue Code (the
401(k) Plan) covering substantially all employees. The 401(k)
Plan allows employees to elect to contribute up to 15% of their
gross salary, subject to IRS limitations. At the discretion of
the Board of Directors, the Company may elect to make matching
contributions to the 401(k) Plan. The Company made discretionary
contributions to the 401(k) Plan of $92,626 in the fiscal year
ended June 30, 2004.
6.
Income Taxes
At June 30, 2004, the Company has federal and state net
operating loss carryforwards of $1,789,807, that will expire
through 2024, available to offset future taxable income. Net
operating loss carryforwards are subject to review and possible
adjustments by the IRS. In addition, under the provisions of the
Internal Revenue Code, the occurrence of certain events,
including significant changes in ownership interests, may limit
the amount of the net operating loss carryforwards available to
be used in any given year. The Company is not aware of the
occurrence of any such events.
F-48
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS — (CONTINUED)
The components of the deferred tax assets and liabilities as
June 30, 2004 are as follows:
Deferred tax assets:
Net operating losses
$
715,923
Accounts receivable allowance
89,646
Postretirement and other benefits
112,792
Accrued liabilities and other
86,712
Total deferred tax assets
1,005,073
Deferred tax liabilities:
Tax over book depreciation
32,050
Total deferred tax liabilities
32,050
Net deferred tax assets
$
973,023
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
Six Months
Ended
Year Ended
December 31,
June 30,
2004
2003
2004
Federal income tax expense at statutory rate
34.0
%
34.0
%
34.0
%
State income taxes, net of federal tax benefit
6.5
%
6.5
6.5
Other
(0.1
)
—
(0.3
)
Effective tax rate
40.4
%
40.5
%
40.2
%
The components of the income tax provision for the fiscal year
ended June 30, 2004 are as follows:
Deferred:
Federal
$
366,998
State
69,912
Total deferred
$
436,910
Total income tax provision
$
436,910
During 2004, pursuant to procedures set forth by the IRS, the
Company has changed its income tax reporting method of
accounting for advanced payments received.
7.
Stockholders' Deficit
Common Stock
At June 30, 2004, the Company has reserved the following
shares of common stock for issuance upon the conversion of
preferred stock and upon issuance under the 2003 and 1993 Stock
Plans:
Conversion of Series A redeemable convertible preferred
    stock
1,125,000
Conversion of Series B redeemable convertible preferred
    stock
500,000
Conversion of Series C redeemable convertible preferred
    stock
1,000,000
Issuance under the 2003 and 1993 Stock Plans
620,000
3,245,000
F-49
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS — (CONTINUED)
Redeemable Convertible Preferred Stock
The Company's Board of Directors has authorized
2,625,000 shares of preferred stock and designated
1,125,000, 500,000 and 1,000,000 such shares as Series A,
Series B and Series C redeemable convertible preferred
stock, respectively. The rights, preferences and privileges of
Series A, Series B and Series C preferred stock,
as amended, are as follows:
Redemption
The Company is required to redeem up to an aggregate of 25%,
50%, 75% and 100% of the combined Series A, Series B
and Series C preferred stock outstanding on October 2,
2003, 2004, 2005 and 2006, respectively; provided, however, that
any preferred stockholder may waive such redemption by written
notice not later than 30 days prior to such redemption
date. The redemption prices for the Series A, Series B
and Series C preferred stock are $0.75, $1.00 and $3.00,
respectively, plus any declared but unpaid dividends. During the
year ended June 30, 2004, there were two redemptions of the
Series C preferred stock. A total of 74,167 shares
were redeemed at a redemption price of $3.00 per share, for
a total distribution of $222,501.
Conversion
Each share of preferred stock is initially convertible at the
option of the holder into one share of voting common stock. The
conversion ratio is subject to adjustment upon the occurrence of
certain dilutive events, such as, but not limited to, stock
splits, dividends, issuances of other securities and change in
conversion price. Upon the consummation of a qualified public
offering, all shares of preferred stock are subject to mandatory
conversion.
Right of First Refusal
Series A, Series B and Series C preferred
stockholders have the right of first refusal to purchase any new
securities offered by the Company. The right of first refusal
terminates upon the firm commitment of an underwritten initial
public offering of the Company's common stock.
Dividends
The holders of the Series A, Series B and
Series C preferred stock are entitled to receive, when and
if declared by the Board of Directors, quarterly dividends at
the per annum rate of $0.06 per share, $0.08 per share
and $0.27 per share, respectively. Dividends accrue,
whether or not declared or paid, and are cumulative for
liquidation purposes. Cumulative unpaid and undeclared dividends
included in the preferred stock liquidation values at
June 30, 2004 total $2,563,320.
Liquidation, Dissolution and Winding-Up
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of
Series A, Series B and Series C preferred stock
are entitled to be paid out of the assets available for
distribution, the redemption price of the respective shares,
plus unpaid dividends (declared or undeclared). If the assets of
the Company are insufficient to pay the full preferential
amounts to the Series A, Series B and Series C
preferred stockholders, the assets will be distributed ratably
among the Series A, Series B and Series C
preferred stockholders in proportion to their aggregate
liquidation preference amounts.
F-50
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS — (CONTINUED)
Voting Rights
The holders of Series A, Series B and Series C
preferred stock are entitled to the number of votes equal to the
number of shares of common stock into which they are
convertible. The Series A, Series B and Series C
preferred stockholders vote with the common stockholders as a
single class. The Company is required to obtain approval of at
least 72% of Series A, Series B and Series C
preferred stockholders before the Company liquidates, dissolves,
winds-up or sells substantially all of the assets of the
Company, or merges or consolidates with another entity, as
defined.
Registration Rights
At any time more than six months after the closing of any
registration statement covering a nonqualified public offering,
as defined, by the Company, Series A, Series B and
Series C preferred stockholders holding in aggregate at
least 40% of the preferred shares then outstanding may request
the Company to register the shares, provided that the shares for
which registration has been requested constitute at least 20% of
the total preferred shares originally issued, as defined.
Stock Options
The Company's Board of Directors maintains the HealthShare
Technology, Inc. 1993 and 2003 Stock Plans (the Plans) for which
620,000 shares of common stock have been reserved as of
June 30, 2004. Under the terms of the Plans, the Company
may grant nonqualified stock and incentive stock options, make
awards of stock or authorize stock purchase by officers, key
employees, directors and consultants of the Company. The
exercise price, numbers of shares and grant date are determined
at the discretion of the Company's Board of Directors. The
maximum term of the options is ten years.
The Company's stock option activity for the year ended
June 30, 2004 is summarized below:
Weighted-
Average
Exercise
Options
Price
Outstanding at beginning of year
449,397
$
0.28
Granted
66,250
0.30
Expired or canceled
(6,938
)
0.30
Exercised
(12,750
)
0.11
Outstanding at end of year
495,959
$
0.29
Exercisable at end of year
353,779
$
0.28
Weighted-average fair value of options granted during the year
$
7.53
F-51
Table of Contents
HEALTHSHARE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS — (CONTINUED)
The following table presents weighted-average price and life
information about significant option groups outstanding at
June 30, 2004:
Options Outstanding
Options Exercisable
Weighted-
Average
Weighted-
Weighted-
Remaining
Average
Average
Number
Contractual
Exercise
Number
Exercise
Range of Exercise Prices
Outstanding
Life
Price
Exercisable
Price
$0.10
27,334
2.9 years
$
0.10
27,334
$
0.10
$0.30
468,625
5.9 years
$
0.30
326,445
$
0.30
495,959
$
0.29
353,779
$
0.28
8.
Subsequent Events
Increase in Amount of Common Shares Authorized
On July 15, 2004, the Company's Board of Directors
approved an increase in the authorized shares of common stock of
400,000 to be reserved for issuance under the 2003 Stock Option
Plan.
Redemption of Convertible Preferred Stock
On November 2, 2004, the Company redeemed 4,167 shares
of preferred stock for a preferred stockholder at a total
redemption price of $12,501. All other preferred stockholders
waived their rights to redemption through written notification
to the Company.
Payment of Preferred Stock Dividend
On January 15, 2005, the Company paid all accrued preferred
stock dividends through that date to the preferred stockholders.
The total preferred dividend paid was $2,692,515.
9.
Acquisition
On March 14, 2005, the Company was acquired by WebMD
Corporation ("WebMD"). The purchase price paid was
$31 million in cash. In addition, WebMD has agreed to pay
up to an additional $5 million beginning in 2006 if certain
milestones are achieved. WebMD is a leader in providing services
that help physicians, consumers, providers and health plans
navigate the complexity of the healthcare system.
F-52
Table of Contents
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
WebMD Health Holdings, Inc. (the "Company" or
"WebMD Health") is a wholly owned subsidiary of WebMD
Corporation ("Parent") and was formed to conduct an
initial public offering of equity in the business of
Parent's WebMD Health segment. On December 24, 2004
and March 14, 2005, Parent's WebMD Health segment
acquired MedicineNet, Inc. ("MedicineNet") and
HealthShare Technology, Inc. ("HealthShare"),
respectively.
The Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet at December 31, 2004 combines the historical balance
sheets of the Company and HealthShare, giving effect to the
acquisition as if it had occurred on December 31, 2004. The
Unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations for the year ended December 31, 2004 combine the
historical statements of operations of the Company, MedicineNet
and HealthShare, giving effect to the acquisitions as if they
had occurred on January 1, 2004. We have adjusted the
historical financial statements to give effect to pro forma
events that are (1) directly attributable to the
acquisitions, (2) factually supportable, and (3) with
respect to the statement of operations, expected to have a
continuing impact on the combined consolidated results. You
should read this information in conjunction with:
•
the accompanying notes to the unaudited pro forma condensed
    combined consolidated financial statements; and
•
MedicineNet's separate historical unaudited financial
    statements as of September 30, 2004 and for the six months
    ended September 30, 2003 and 2004 included elsewhere in
    this filing; and
•
HealthShare's separate historical unaudited financial
    statements as of December 31, 2004 and for the six months
    ended December 31, 2003 and 2004 included elsewhere in this
    filing; and
•
WebMD Health's separate historical combined consolidated
    financial statements as of December 31, 2004 and for the
    years ended December 31, 2003 and 2004 included elsewhere
    in this filing; and
•
MedicineNet's separate historical financial statements as
    of and for the year ended March 31, 2004 included elsewhere
    in this filing; and
•
HealthShare's separate historical financial statements as
    of and for the year ended June 30, 2004 included elsewhere
    in this filing.
The unaudited pro forma condensed combined consolidated
financial statements have been prepared for informational
purposes only. The unaudited pro forma condensed combined
consolidated financial statements are not necessarily indicative
of what the financial position or results of operations actually
would have been had the acquisitions been completed at the dates
indicated. In addition, the unaudited pro forma condensed
combined consolidated financial statements do not purport to
project the future financial position or results of operations
of the combined companies.
The unaudited pro forma condensed combined consolidated
financial statements have been prepared using the purchase
method of accounting. Accordingly, WebMD Health's costs to
acquire MedicineNet and HealthShare have been allocated to the
acquired assets, liabilities and commitments based upon their
estimated fair values at the dates indicated. The allocation of
the purchase prices are preliminary and are dependent upon
certain valuations that have not progressed to a stage where
there is sufficient information to make a definitive allocation.
Accordingly, the final purchase accounting adjustments may be
materially different from the unaudited pro forma adjustments
presented herein.
F-53
Table of Contents
WebMD Health Holdings, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
WITH HEALTHSHARE TECHNOLOGIES, INC.
BALANCE SHEET
AS OF DECEMBER 31, 2004
Historical
Pro forma
WebMD
Health
HealthShare
Adjustments
Combined
(In thousands)
Cash and cash equivalents
$
3,456
$
4,661
$
—
$
8,117
Accounts receivable, net
38,453
2,684
—
41,137
Current portion of prepaid advertising
10,350
—
—
10,350
Other current assets
2,619
293
(176
)(a)
2,736
Total current assets
54,878
7,638
(176
)
62,340
Property and equipment, net
6,316
391
—
6,707
Prepaid advertising
20,047
—
—
20,047
Goodwill
52,614
—
18,518
(b)
71,132
Intangible assets, net
12,065
—
10,000
(b)
22,065
Other assets
576
1,397
(797
)(a)
1,176
Total assets
$
146,496
$
9,426
$
27,545
$
183,467
Accrued expenses
$
15,874
$
1,452
$
250
(c)
$
17,576
Deferred revenue
29,885
4,269
—
34,154
Redeemable convertible preferred stock
—
4,102
(4,102
)(d)
—
Total current liabilities
45,759
9,823
(3,852
)
51,730
Owner's net investment
100,737
(397
)
397
(d)
131,737
—
—
31,000
(e)
Total liabilities and owner's net investment
$
146,496
$
9,426
$
27,545
$
183,467
The accompanying notes to the unaudited pro forma condensed
combined consolidated
financial statements are an integral part of this balance sheet.
F-54
Table of Contents
WebMD Health Holdings, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
WITH MEDICINENET, INC. AND HEALTHSHARE, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
Historical
Pro Forma
WebMD
Health
MedicineNet
HealthShare
Adjustments
Combined
(In thousands)
Revenue
$
134,148
$
2,365
$
8,124
—
$
144,637
Cost and expenses:
Cost of operations
51,879
728
2,222
—
54,829
Sales and marketing
48,701
298
1,588
—
50,587
General and administrative
21,277
1,071
2,251
—
24,599
Depreciation and amortization
5,620
41
472
2,550
(f)
12,016
3,333
(g)
Other (income) expense
—
48
(29
)
—
19
Income before income tax provision
6,671
179
1,620
(5,883
)
2,587
Income tax provision
210
—
652
(465
)(h)
397
Net income
$
6,461
$
179
$
968
$
(5,418
)
$
2,190
The accompanying notes to the unaudited pro forma condensed
combined consolidated
financial statements are an integral part of this statement.
F-55
Table of Contents
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 —
Basis of Pro Forma Presentation
WebMD Health Holdings, Inc. (the "Company" or
"WebMD Health") is a wholly owned subsidiary of WebMD
Corporation ("Parent") and was formed to conduct an
initial public offering of equity in the business of
Parent's WebMD Health segment. On December 24, 2004
and March 14, 2005, Parent's WebMD Health segment
acquired MedicineNet, Inc. ("MedicineNet") and
HealthShare Technology, Inc. ("HealthShare"),
respectively. These acquisitions are being accounted for as
purchase business combinations under U.S. generally
accepted accounting principles.
The Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet as of December 31, 2004 reflects the acquisition of
HealthShare as if it had occurred on December 31, 2004. The
Unaudited Pro Forma Condensed Combined Consolidated Statement of
Operations for the year ended December 31, 2004 reflects
the acquisitions of MedicineNet and HealthShare as if they had
occurred on January 1, 2004.
The pro forma condensed combined consolidated financial
statements presented herein are not necessarily indicative of
the results of operations or the financial position that would
have resulted had the acquisition been completed at the dates
indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of
the combined companies.
The unaudited pro forma adjustments represent management's
estimates based on information available at this time.
Additionally, the total estimated purchase prices of the
acquisitions of MedicineNet and HealthShare have been allocated
on a preliminary basis to assets and liabilities based on
management's current estimate of their fair values. These
allocations are subject to change pending the completion of the
final analyses of the purchase prices and fair values of assets
acquired and liabilities assumed. Also, the total purchase
prices are subject to customary closing conditions which have
not been finalized as of the date of this filing. Accordingly,
the final purchase accounting adjustments may be materially
different from the unaudited pro forma adjustments presented
herein. In connection with the preliminary allocation of the
purchase price and intangible asset valuation, intangible assets
subject to amortization were recorded as follows:
Amount
Useful Lives
MedicineNet
Content
$
5,600
3 years
Technology
700
3 years
Customer Lists
900
2 years
HealthShare
Content
$
10,000
3 years
Certain amounts in the historical financial statements of
MedicineNet and HealthShare have been reclassified to conform to
the Company's financial statement presentation.
Note 2 —
Pro Forma Adjustments
The following pro forma adjustments result from the allocation
of the purchase prices for the acquisitions based on the fair
value of the assets, liabilities and commitments acquired from
MedicineNet and HealthShare.
F-56
Table of Contents
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The pro forma adjustments for HealthShare related to the
Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet as of December 31, 2004 assume the acquisition took
place on December 31, 2004 and are as follows:
a)
To eliminate deferred tax accounts, reflecting consolidation
    within Parent's consolidated tax return.
b)
To record the estimated goodwill and estimated intangible assets
    resulting from the acquisition.
c) To record the liability for WebMD Health's
    estimated expenses related to the acquisition.
d) To eliminate the historical equity accounts and
    preferred stock of HealthShare.
e)
To record the $31,000 purchase price of HealthShare which
    was paid by the Parent.
The pro forma adjustments for MedicineNet and HealthShare
related to the Unaudited Pro Forma Condensed Combined
Consolidated Statement of Operations for the year ended
December 31, 2004 assume the acquisitions took place on
January 1, 2004 and are as follows:
f)
To reflect the estimated amortization of intangible assets
    resulting from the acquisition of MedicineNet.
g)
To reflect the estimated amortization of intangible assets
    resulting from the acquisition of HealthShare.
h)
To eliminate federal tax expense due to the inclusion of
    HealthShare's results within the consolidated tax return of
    Parent.
F-57
Table of Contents
Schedule II.     Valuation and
Qualifying Accounts
Years Ended December 31, 2002, 2003 and 2004
Balance at
Charged to
Beginning
Costs and
Balance at
of Year
Expenses
Acquired
Write-offs
Other*
End of Year
December 31, 2002
Allowance for Doubtful Accounts
$
884
$
157
$
—
$
(205
)
$
—
$
836
Valuation Allowance for Deferred Tax Assets
272,835
(2,494
)
(8
)
—
1,919
272,252
December 31, 2003
Allowance for Doubtful Accounts
836
175
—
(90
)
—
921
Valuation Allowance for Deferred Tax Assets
272,252
(3,528
)
(62
)
—
3,323
271,985
December 31, 2004
Allowance for Doubtful Accounts
921
202
—
(325
)
798
Valuation Allowance for Deferred Tax Assets
271,985
(2,105
)
97
—
1,237
271,214
*
Represents valuation allowance created through equity as a
    result of stock option and warrant exercises.
S-1
Table of Contents
Until                     ,
2005 (25 days after the commencement of the offering), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer's obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
Shares
WebMD Health Holdings, Inc.
Common Stock
PROSPECTUS
,
2005
Table of Contents
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution
The following are the estimated expenses to be incurred in
connection with the issuance and distribution of the securities
registered under this Registration Statement, other than
underwriting discounts and commissions. All amounts shown are
estimates, except the SEC registration fee and the National
Association of Securities Dealers, Inc. filing fee. The
following expenses will be borne solely by the Registrant.
SEC Registration Fee
$
5,885
National Association of Securities Dealers, Inc. Filing Fee
*
Nasdaq Listing Fee
*
Printing and Engraving Expenses
*
Legal Fees and Expenses
*
Accounting Fees and Expenses
*
Transfer Agent and Registrar Fees and Expenses
*
Miscellaneous
*
Total
*
*
To be provided by amendment.
Item 14.
Indemnification
of Directors and Officers
Section 145 of Delaware law authorizes a court to award, or
a corporation's Board of Directors to grant,
indemnification to directors and officers in terms sufficiently
broad to permit indemnification under specified circumstances
for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act. Our bylaws provide for the
mandatory indemnification of our directors, officers, employees
and other agents to the maximum extent permitted by Delaware
law, and we have entered into agreements with our officers,
directors and some key employees implementing this
indemnification.
Item 15.
Recent Sales of Unregistered Securities
We have not sold any unregistered securities within the past
three years.
Item 16.
Exhibits and Financial Statement Schedules
The exhibits to this Registration Statement are listed on the
Exhibit Index to this Registration Statement, which is
hereby incorporated by reference.
Item 17.
Undertakings
(a) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue
II-1
Table of Contents
(b) The undersigned Registrant undertakes that:
i. For purposes of determining any liability under the
    Securities Act of 1933, the information omitted from the form of
    prospectus filed as part of this Registration Statement in
    reliance upon Rule 430A and contained in the form of
    prospectus filed by the Registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Securities
    Act shall be deemed to be part of this Registration Statement as
    of the time it was declared effective; and
ii. For the purpose of determining any liability under the
    Securities Act of 1933, each post-effective amendment that
    contains a form of prospectus shall be deemed to be a new
    Registration Statement relating to the securities offered
    therein, and the offering of such securities at that time shall
    be deemed to be the initial
bona fide
offering thereof.
(c) The undersigned Registrant undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-2
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, New York, on
May 11, 2005.
WEBMD HEALTH HOLDINGS, INC.
By:
/s/
Wayne T. Gattinella
Wayne T. Gattinella
Chief Executive Officer and President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of WebMD Health
Holdings, Inc., hereby severally constitute and appoint Douglas
W. Wamsley and Lewis H. Leicher and each of them singly, our
true and lawful attorneys with full power to them, and each of
them singly, with full powers of substitution and
resubstitution, to sign for us and in our names in the
capacities indicated below, the Registration Statement on
Form S-1 filed herewith and any and all pre-effective and
post-effective amendments to said Registration Statement on
Form S-1 filed herewith and any and all pre-effective and
post-effective amendment to said Registration Statement, and any
subsequent Registration Statement for the same offering which
may be filed under Rule 462(b), and generally to do all
such things in our names and on our behalf in our capacities as
officers and directors to enable WebMD Health Holdings, Inc. to
comply with the provision of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as
they may be signed by our said attorney, or any of them, or
their substitute or substitutes, to said Registration Statement
and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed
under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/
Wayne T. Gattinella
Wayne
    T. Gattinella
Chief Executive Officer,
President and Director
(Principal Executive Officer)
May 11, 2005
/s/
Martin J. Wygod
Martin
    J. Wygod
Director
May 11, 2005
/s/
Anthony Vuolo
Anthony
    Vuolo
Chief Financial Officer
(Principal Financial and
Accounting Officer)
May 11, 2005
II-3
Table of Contents
EXHIBIT INDEX
Exhibit
Number
Description
1
.1*
Form of Underwriting Agreement
3
.1*
Form of Amended and Restated Certificate of Incorporation of the
    Registrant
3
.2*
Bylaws of Registrant
4
.1*
Specimen Certificate evidencing shares of the Registrant's
    Class A common stock
4
.2*
Specimen Certificate evidencing shares of the Registrant's
    Class B common stock
4
.3*
Form of Registration Rights Agreement between WebMD Corporation
    and the Registrant
5
.1*
Opinion of Shearman & Sterling LLP
10
.1*
Form of Tax Sharing Agreement between WebMD Corporation and the
    Registrant
10
.2*
Form of Services Agreement between WebMD Corporation and the
    Registrant
10
.3*
Form of Release and Indemnity between WebMD Corporation and the
    Registrant
10
.4*
Form of Registration Rights Agreement between WebMD Corporation
    and the Registrant
10
.5
Employment Agreement, dated as of October 8, 2001, between
    WebMD Corporation and Martin J. Wygod (incorporated by reference
    to Exhibit 10.55 to WebMD Corporation's Form 10-K
    to Annual Report on Form 10-K for the year ended
    December 31, 2001)
10
.6
Employment Agreement, dated as of April 28, 2005, between
    WebMD, Inc. and Wayne T. Gattinella (incorporated by reference
    to Exhibit 99.1 to WebMD Corporation's Current Report
    on Form 8-K filed with the Securities and Exchange
    Commission on May 3, 2005)
10
.7
Employment Agreement, dated as of April 28, 2005, between
    WebMD, Inc. and David Gang (incorporated by reference to
    Exhibit 99.2 to WebMD Corporation's Current Report on
    Form 8-K filed with the Securities and Exchange Commission
    on May 3, 2005)
10
.8
Employment Agreement dated as of July 1, 2000 between WebMD
    Corporation (as successor to Medical Manager Corporation) and
    Anthony Vuolo, as amended (incorporated by reference to
    Exhibit 10.52 to WebMD Corporation's Annual Report on
    Form 10-K for the year ended December 31, 2001, as
    amended by Amendment No. 1 on Form 10-K/ A)
10
.9*
Employment Agreement between WebMD Health Holdings, Inc. and
    Douglas W. Wamsley
10
.10
Employment Agreement dated as of October 23, 2002 between
    WebMD Corporation and Roger C. Holstein (incorporated by
    reference to Exhibit 10.14 to WebMD Corporation's
    Annual Report on Form 10-K for the year ended
    December 31, 2002)
10
.11
Letter Agreement, dated as of April 27, 2005, between WebMD
    Corporation and Roger C. Holstein (incorporated by reference to
    Exhibit 99.3 to WebMD Corporation's Current Report on
    Form 8-K filed with the Securities and Exchange Commission
    on May 3, 2005)
10
.12
Amended and Restated Stock Option Agreement dated
    August 21, 2000 between WebMD Corporation (as successor to
    Medical Manager Corporation) and Martin J. Wygod (incorporated
    by reference to Exhibit 10.21 to WebMD Corporation's
    Annual Report on Form 10-K for the year ended
    December 31, 2000, as amended by Amendment No. 1 on
    Form 10-K/ A)
10
.13
Stock Option Agreement between WebMD Corporation and Wayne
    Gattinella dated August 20, 2001 (incorporated by reference
    to Exhibit 4.8 to WebMD Corporation's Registration
    Statement on Form S-8 (No. 333-888420) filed
    May 16, 2002)
10
.14
Form of Amended and Restated Stock Option Agreement dated
    August 21, 2000, between WebMD Corporation (as successor to
    Medical Manager Corporation) and Anthony Vuolo (incorporated by
    reference to Exhibit 10.54 to WebMD Corporation's
    Annual Report on Form 10-K for the year ended
    December 31, 2001, as amended by Amendment No. 1 on
    Form 10-K/ A)
10
.15
Healtheon Corporation 1996 Stock Plan and Form of Stock Option
    Agreement (incorporated by reference to Exhibit 10.2 to
    Amendment No. 2 to WebMD Corporation's Registration
    Statement on Form S-1 (No. 333-70553) filed
    February 10, 1999)
10
.16
WebMD Corporation Amended and Restated 1998 Employee Stock
    Purchase Plan (incorporated by reference to Exhibit 99.27
    to WebMD Corporation's Registration Statement on
    Form S-8 (No. 333-47250) filed October 4, 2000)
Table of Contents
Exhibit
Number
Description
10
.17
WebMD Corporation 2000 Long-Term Incentive Plan (incorporated by
    reference to Annex G to the Proxy Statement/ Prospectus,
    filed on August 7, 2000, and included in WebMD
    Corporation's Registration Statement on Form S-4 (No.
    333-39592)
10
.18
Amended and Restated 1989 Class A Non-Qualified Stock
    Option Plan of Synetic, Inc. (incorporated by reference to
    Exhibit 10.1 to Synetic, Inc.'s Registration Statement
    on Form S-1 (No. 333-28654) filed May 18, 1989)
10
.19
Amended and Restated 1989 Class B Non-Qualified Stock
    Option Plan of Synetic, Inc. (incorporated by reference to
    Exhibit 10.2 to Synetic, Inc.'s Registration Statement
    on Form S-1 (No. 333-28654) filed May 18, 1989)
10
.20
1991 Director Stock Option Plan of Synetic, Inc.
    (incorporated by reference to Exhibit 4.2 to Synetic,
    Inc.'s Registration Statement on Form S-8 (No.
    333-46640) filed March 24, 1992)
10
.21
CareInsite, Inc. 1999 Officer Stock Option Plan (incorporated by
    reference to Exhibit 10.18 to Amendment No. 6 to
    CareInsite, Inc.'s Registration Statement on Form S-1
    (No. 333-75071) filed June 11, 1999)
10
.22
CareInsite, Inc. 1999 Employee Stock Option Plan (incorporated
    by reference to Exhibit 10.17 to Amendment No. 6 to
    CareInsite, Inc.'s Registration Statement on Form S-1
    (No. 333-75071) filed June 11, 1999)
10
.23
WebMD Corporation 2001 Employee Non-Qualified Stock Option Plan,
    as amended (incorporated by reference to Exhibit 10.46 to
    WebMD Corporation's Form 10-K for the year ended
    December 31, 2001, as amended by Amendment No. 1 on
    Form  10-K/ A)
10
.24
Amended and Restated 1991 Special Non-Qualified Stock Option
    Plan of Synetic, Inc. (incorporated by reference to
    Exhibit 4.3 to Synetic, Inc.'s Registration Statement
    on Form S-8 (No. 333-36041) filed September 19,
    1997)
10
.25
Amendment to the Company Stock Option Plans of Medical Manager
    Corporation and CareInsite, Inc. (incorporated by reference to
    Exhibit 99.28 to WebMD Corporation's Registration
    Statement on Form S-8 (No. 333-47250) filed
    October 4, 2000)
21
.1*
Subsidiaries of WebMD Health Holdings, Inc.
23
.1
Consent of Ernst & Young LLP
23
.2
Consent of J.H. Cohn LLP
23
.3*
Consent of Shearman & Sterling LLP (included in
    Exhibit 5.1)
24
.1
Powers of Attorney (included on signature page)
*
To be filed by amendment.