<PAGE>

    As filed with the Securities and Exchange Commission on October 1, 1999
                                                      Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549
                                ---------------
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933
                                ---------------
                               ORGANICNET, INC.
            (Exact name of registrant as specified in its charter)
                                ---------------
         Delaware                    7372                    68-0347739
     (State or other     (Primary Standard Industrial     (I.R.S. Employer
     jurisdiction of      Classification Code Number)   Identification No.)
      incorporation             ---------------
     or organization)   330 Townsend Street, Suite 206
                         San Francisco, CA 94107-1630
                                (415) 495-4741
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                                ---------------
                               Jack D. Anderson
                            Chief Executive Officer
                               OrganicNet, Inc.
                        330 Townsend Street, Suite 206
                         San Francisco, CA 94107-1630
                                (415) 495-4741
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                                ---------------
                                  Copies to:
 Patrick A. Pohlen, Esq.                   Rodd M. Schreiber, Esq.
    Cooley Godward LLP         Skadden, Arps, Slate, Meagher & Flom (Illinois)
  Five Palo Alto Square                     333 West Wacker Drive
   3000 El Camino Real                        Chicago, IL 60606
 Palo Alto, CA 94306-2155
                                ---------------
   Approximate date of commencement of the proposed sale to the public: as
soon as practicable after the effective date of the Registration Statement.
   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. [_]
   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. [_]
   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. [_]
   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. [_]
   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                        CALCULATION OF REGISTRATION FEE
<TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
                                                        Proposed
                                                        Maximum
                                                       Aggregate     Amount of
               Title of Each Class of                Offering Price Registration
            Securities to be Registered                   (1)           Fee
--------------------------------------------------------------------------------
<S>                                                  <C>            <C>
Common Stock, $.001 par value per share............   $51,750,000    $14,386.50
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
    Registration Fee in accordance with Rule 457(o) of the Securities Act of
    1933, as amended.
                                ---------------
   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 of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed.        +
+OrganicNet 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 October 1, 1999

Preliminary Prospectus

                                       Shares

                                OrganicNet, Inc.

                                 [COMPANY LOGO]

                                  Common Stock

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

  This is OrganicNet, Inc.'s initial public offering of common stock.

  We expect the public offering price to be between $    and $    per share.
Currently, no public market exists for the shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the
symbol "OGNT."

  Investing in our common stock involves risks which are described in the "Risk
Factors" section beginning on page 5 of this prospectus.

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

<TABLE>
<CAPTION>
                                                               Per Share Total
                                                               --------- -----
     <S>                                                       <C>       <C>
     Public offering price....................................      $      $
     Underwriting discounts...................................      $      $
     Proceeds, before expenses, to OrganicNet.................      $      $
</TABLE>


  The underwriter may also purchase up to an additional      shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments.

  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.

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

                             Punk, Ziegel & Company

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

                  The date of this prospectus is       , 1999
<PAGE>

Description of Artwork:

   1. Inside cover. Five overlapping circles. The circles are labelled Clinic
Management, Practice Management, Credentialing, Clinical Drug Trials and
Disease Management. The words The CoreModel appear in the center.

   2. Gatefold. There is a box with three screens of the Organic Browser on the
left side of the gatefold. On the right side of the gatefold is a diagram of
the interaction of the Internet, our customers and our solutions.

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   1
Risk Factors.............................................................   5
Forward-Looking Statements...............................................  16
Use of Proceeds..........................................................  17
Dividend Policy..........................................................  17
Dilution.................................................................  18
Capitalization...........................................................  19
Selected Consolidated Financial Data.....................................  20
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  22
Business.................................................................  32
Management...............................................................  46
Certain Relationships and Related Transactions...........................  57
Principal Stockholders...................................................  61
Description of Capital Stock.............................................  63
Shares Eligible for Future Sale..........................................  66
Underwriting.............................................................  68
Legal Matters............................................................  70
Experts..................................................................  70
Available Information....................................................  70
Index to Financial Statements............................................ F-1
</TABLE>

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

   The terms "OrganicNet", "company", "we", "our" and "us" refer to
OrganicNet, Inc. and its subsidiaries unless the context suggests otherwise.
The term "you" refers to a prospective investor.

   OrganicNet, the OrganicNet logo, Organic Architecture, Object Products,
CoreModel and Organic Browser are trademarks of OrganicNet, Inc. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.

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

   You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.

<PAGE>

                               PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in the common stock of OrganicNet.
Investors should read the entire prospectus carefully.

                                   OrganicNet

   We are an application services provider (ASP) that develops software
solutions for healthcare clinics and physician group practices using our
proprietary technology platform. Our customers can access and use our solutions
over the Internet or their local or wide area networks. We are developing
integrated solutions designed to manage all elements of the business and
clinical processes of our customers within a single system. We currently have
developed and implemented solutions in three areas: disease management,
clinical drug trials recruitment and workers' compensation. We charge our
customers a monthly subscription fee for our solutions.

   Our software solutions are built using our object-oriented Organic
Architecture, which we believe is a significant advancement over traditional
technologies. Central to our Organic Architecture is our CoreModel, which is
comprised of objects that represent a universal set of clinical and business
processes. This proprietary technology provides a platform for rapid
development and deployment of codeless software solutions to meet our
customers' specific needs. To develop our CoreModel and solutions, we
selectively acquired companies with healthcare domain expertise and enabling
technologies. These acquisitions also provided near-term products, customers
and revenues.

   The growth of the managed care, risk sharing and other alternative payment
and reimbursement mechanisms, increased government regulation and the rise of
healthcare delivery networks have increased the need for information technology
products and services. In order to reduce unnecessary spending and manage costs
while delivering quality care, healthcare providers are increasingly demanding
software solutions that enable them to effectively extract and analyze data
located throughout their enterprises, measure clinical results, evaluate
operational efficiency and support process improvement. The Internet has
emerged as an accessible, low-cost and flexible means of accessing and
distributing information, making it particularly well-suited for deploying
software solutions for the healthcare industry. We believe that the ASP model
addresses many of the shortcomings of traditional healthcare information
technology solutions. Customers rent, rather than own the applications they
require, reducing the capital commitment necessary for information technology
and reducing the need for a dedicated staff of information technology
personnel.

   Our objective is to become the leading ASP serving clinics and group
practices by capitalizing on our early market entrance, extending our
technology and implementing a subscription-based business model that generates
recurring revenue. We intend to achieve this objective by:


  .  leveraging our proprietary technology platform by rapidly developing
     additional solutions, functions and features;

  .  achieving rapid market penetration by focusing on customers within our
     target market segments and cross-selling our ASP software solutions to
     our existing installed base of customers; and

  .  enhancing our capabilities by forming strategic alliances that provide
     us with specific expertise and access to new customer channels.


                                       1
<PAGE>


   Our ASP software solutions provide the following advantages:

   Comprehensive. Our solutions are designed to enable our customers to rely on
us as the single source for their software solutions, whether these solutions
are deployed over the Internet or their local or wide area network.

   Cost-effective. Our solutions eliminate the need for our customers to incur
significant capital expenditures for hardware, operating systems and
application software and significantly reduce the costs for technical support
and training.

   Adaptable. Our solutions are built with data instead of code, which makes
them easier and less expensive to tailor to accommodate the practice variation
and workflow of each user.

   Integrated. Information and applications are stored on a single remote
database and can be accessed simultaneously by multiple users in geographically
dispersed locations.

   As part of our strategy, we have entered into relationships with strategic
partners for distribution, consulting and implementation services, Internet
infrastructure and application hosting. Our initial ASP software solution,
which manages patient-reported health and clinical data, is being distributed
as part of our strategic relationship with Pfizer Health Solutions Inc, with
whom we have had a relationship since 1997. We also have entered into an
alliance with Superior Consultant Holdings Corporation. Under this agreement,
Superior will introduce and outline the advantages of our ASP software
solutions based on client interests, as well as provide systems integration,
process improvement, consulting and implementation services to healthcare
organizations. Superior is a leading provider of business solutions, including
consulting, systems integration, e-Health and outsourcing to the healthcare
industry. Superior serves clients nationally and internationally and has over
1,500 professionals located throughout the United States. We also have entered
into agreements with Conxion Corporation, which provides us with application
hosting, Internet infrastructure and data centers. Conxion invested $550,000 in
our preferred stock in April 1999.

   We were incorporated in California in January 1995 under the name Object
Products, Inc. and reincorporated in Delaware in April 1996. The company
changed its name to OrganicNet, Inc. in May 1999. Our principal executive
offices are located at 330 Townsend Street, Suite 206, San Francisco,
California, 94107-1630. Our telephone number is (415) 495-4741. Our website is
www.organic-net.com. Information contained on our website is not a part of this
prospectus.

                                       2
<PAGE>


                                  The Offering

<TABLE>
 <C>                                            <S>
 Shares offered by OrganicNet..................         shares
 Total shares outstanding after this offering..         shares
 Use of proceeds............................... To repay short-term debt,
                                                including amounts owed to or
                                                guaranteed by certain of our
                                                directors, officers and
                                                stockholders, to continue
                                                development of our solutions
                                                and architecture, expand our
                                                sales and marketing efforts,
                                                expand our administrative
                                                infrastructure, and for working
                                                capital and other general
                                                corporate purposes.
 Proposed Nasdaq National Market symbol........ OGNT
</TABLE>

The common stock to be outstanding after this offering is based on the shares
outstanding as of August 31, 1999 and excludes:

  .  1,619,168 shares of common stock issuable as of August 31, 1999 upon the
     exercise of outstanding stock options issued at a weighted average
     exercise price of $1.16 per share under our stock option plans;

  .  821,263 shares of common stock reserved for issuance under our stock
     option plans as of August 31, 1999;

  .  16,667 shares of our preferred stock issued in connection with the
     acquisition of PSI-Med Corporation after August 31, 1999, which will
     convert into 333,340 shares of our common stock upon the closing of this
     offering; and

  .  200,000 shares of common stock issuable upon the exercise of outstanding
     options issued at an exercise price of $6.00 per share to Superior
     Consultant Holdings Corporation on September 17, 1999 in connection with
     the formation of our strategic alliance with Superior.

Except as otherwise indicated, information in this prospectus assumes the
following:

  .  the conversion of all outstanding shares of preferred stock into common
     stock upon consummation of this offering;

  .  the filing of our amended and restated certificate of incorporation, the
     provisions of which are summarized in "Description of Capital Stock;"
     and

  .  no exercise of the underwriter's over-allotment option.

                                  Risk Factors

   You should consider the risk factors before investing in OrganicNet's common
stock and the impact from various events which could adversely affect our
business.

                                       3
<PAGE>


                             Summary Financial Data

   The following table summarizes our consolidated statements of operations for
the years ended December 31, 1996, 1997 and 1998 and the six months ended June
30, 1998 and 1999, as well as our unaudited pro forma combined statements of
operations for the year ended December 31, 1998 and the six months ended June
30, 1999 that gives effect to our acquisition of PSI-Med Corporation as if the
acquisition occurred at the beginning of the periods. The unaudited pro forma
information is not necessarily indicative of the results that would have
occurred had the acquisition taken place as of the beginning of the periods
presented, nor is it necessarily indicative of results that may occur in the
future. The table also includes our consolidated balance sheet as of June 30,
1999 on an actual and pro forma as adjusted basis. See the consolidated
financial statements and related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                               Years Ended December 31,             Six Months Ended June 30,
                          -------------------------------------- --------------------------------
                                                      Pro Forma                        Pro Forma
                           1996     1997     1998       1998        1998      1999       1999
                          -------  -------  -------  ----------- ----------- -------  -----------
                                                     (unaudited) (unaudited)          (unaudited)
                                     (in thousands, except per share information)
<S>                       <C>      <C>      <C>      <C>         <C>         <C>      <C>
Consolidated Statement
 of Operations:
Revenue:
 License................  $   --   $   424  $   571    $ 1,087     $   113   $   370    $   654
 Product development....      --     1,238      565        565         530       227        227
 Service................      371    1,310    3,488      5,182       2,053     2,112      2,938
                          -------  -------  -------    -------     -------   -------    -------
 Total revenue..........      371    2,972    4,624      6,834       2,696     2,709      3,819
                          -------  -------  -------    -------     -------   -------    -------
Cost of revenue:
 License................      --       475      756        756         387       336        336
 Product development....      --       320      209        209         128        63         63
 Service................      238      892    2,314      3,850       1,249     1,230      1,928
                          -------  -------  -------    -------     -------   -------    -------
 Total cost of revenue..      238    1,687    3,279      4,815       1,764     1,629      2,327
                          -------  -------  -------    -------     -------   -------    -------
Gross profit............      133    1,285    1,345      2,019         932     1,080      1,492
                          -------  -------  -------    -------     -------   -------    -------
Operating expense:
 Sales and marketing....       24    1,395    1,644      1,812         834       672        734
 Research and
  development...........      724    1,345    1,833      2,070         783     1,204      1,321
 General and
  administrative........    1,690    3,332    3,768      4,597       1,663     1,762      2,001
                          -------  -------  -------    -------     -------   -------    -------
 Total operating
  expense...............    2,438    6,072    7,245      8,479       3,280     3,638      4,056
                          -------  -------  -------    -------     -------   -------    -------
Operating loss..........   (2,305)  (4,787)  (5,900)    (6,460)     (2,348)   (2,558)    (2,564)
Interest expense........       (2)     (20)     (93)       (93)        (43)      (76)       (76)
Other income (expense)..      --        14       (9)       (95)         (6)       (5)       (56)
                          -------  -------  -------    -------     -------   -------    -------
Loss before income
 taxes..................   (2,307)  (4,793)  (6,002)    (6,648)     (2,397)   (2,639)    (2,696)
Provision for income
 taxes..................        4        6        4          5           2         4          5
                          -------  -------  -------    -------     -------   -------    -------
Net loss................  $(2,311) $(4,799) $(6,006)   $(6,653)    $(2,399)  $(2,643)   $(2,701)
                          =======  =======  =======    =======     =======   =======    =======
Net loss per share:
 basic and diluted......  $ (0.45) $ (0.88) $ (1.10)   $ (1.22)    $ (0.44)  $ (0.48)   $ (0.49)
                          =======  =======  =======    =======     =======   =======    =======
Weighted average shares
 outstanding: basic and
 diluted................    5,189    5,426    5,448      5,448       5,432     5,485      5,485
                          =======  =======  =======    =======     =======   =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                            As of June 30, 1999
                                                            --------------------
                                                                      Pro Forma
                                                            Actual   As Adjusted
                                                            -------  -----------
                                                                     (unaudited)
                                                              (in thousands)
<S>                                                         <C>      <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................. $ 1,680      $
Working capital (deficit)..................................  (3,704)
Total assets...............................................   3,445
Total stockholders' equity (deficit).......................  (2,733)
</TABLE>

   The preceding consolidated balance sheet data is shown on a pro forma as
adjusted basis to give effect to:

  .  the acquisition of PSI-Med Corporation as if the acquisition occurred on
     June 30, 1999;

  .  the conversion of all outstanding shares of preferred stock into shares
     of common stock upon consummation of this offering, including shares of
     preferred stock issued in connection with our acquisition of PSI-Med;
     and

  .  the sale of      shares of common stock in this offering at an assumed
     initial public offering price of $   per share, after deducting the
     underwriting discounts and commissions and estimated offering expenses
     and application of the net proceeds therefrom.

                                       4
<PAGE>

                                  RISK FACTORS

   You should carefully consider the following risk factors, in addition to the
other information set forth in this prospectus, before purchasing shares of
common stock of OrganicNet. Each of these risk factors could adversely affect
our business, operating results and financial condition, as well as adversely
affect the value of an investment in our common stock. This investment involves
a high degree of risk.

  Risks Related To Our Business

  Our business is difficult to evaluate because we have a limited operating
  history.

   We were incorporated in January 1995 and have a limited operating history,
which makes an evaluation of our business and prospects difficult. Since our
inception, we have been developing our object-oriented technology and marketing
the legacy software products developed by the companies we acquired. In
February 1999, we delivered our first ASP software solution. As a result, we
only have a limited number of ASP software solutions currently in use. Revenue
to date from our ASP software solutions has not been material. You must
consider our business and prospects in light of the risks, uncertainties and
difficulties frequently encountered by companies in their early stages of
development, particularly those in new and rapidly evolving markets such as
ours, which use new and unproven business models. We cannot assure you that our
business strategy will be successful or that we will be able to complete the
development of and sell our ASP software solutions.

  Our historical revenue was derived primarily from products and services
  that we do not expect to be the focus of our business in the future, which
  makes it difficult to evaluate our current and future financial
  performance.

   We currently derive substantially all of our revenue from the sale of our
legacy software products and services. These software products and related
services are substantially different from the ASP software solutions that will
be our focus. We intend to phase out sales of legacy products and related
services and expect the associated revenue to decline substantially. As a
result, our historical financial information does not reflect the results of
the current and future focus of our business and cannot be used to predict our
future revenue or results of operations.

  We expect to continue to incur operating losses and net cash outflow and
  may never achieve profitability, which may cause our stock price to
  decline.

   We have experienced net losses in each quarterly and annual period since
inception. We recorded net operating losses of approximately $4.8 million for
the year ended December 31, 1997, approximately $5.9 million for 1998 and
approximately $2.6 million as of June 30, 1999. As of June 30, 1999, we had an
accumulated deficit of approximately $16.0 million. We intend to increase our
operating expenses substantially, particularly expenses related to development
of our solutions and architecture, expansion of our sales and marketing
efforts, and expansion of our administrative infrastructure. Therefore, we
expect to incur significant operating losses and to record significant net cash
outflow for the foreseeable future. We cannot assure you that we will achieve
significant revenues from our solutions or achieve, sustain or improve
profitability on a quarterly or annual basis in the future.

  Our quarterly operating results are expected to fluctuate and could cause
  our stock price to decline.

   Our quarterly operating results have varied in the past and we expect them
to continue to fluctuate in future periods. These fluctuations depend on a
number of factors described below and elsewhere in this "Risk Factors" section
of the prospectus, many of which are outside our control. In particular, the
sale and implementation of our software solutions are subject to delay due to
our potential customers' internal procedures for approving expenditures and
deploying new technologies within their clinics or group practices.

                                       5
<PAGE>

We provide our solutions to customers on a monthly subscription basis. We
cannot predict subscription fees accurately because we have limited experience
selling our solutions. In addition, our customers may decide to stop using our
solutions at any time with very little notice. We may spend substantial time
and resources developing or tailoring solutions for channel partners or
customers prior to the time that we have entered into subscription agreements
with them. If we do not enter into agreements with these channel partners and
customers or if our customers do not subscribe for these solutions for a
sufficient period of time, we will not be able to achieve revenue to recoup our
investment. For these and other reasons, our stock price could decline.

  Our business model is unproven and may not effectively address our market.

   Providing software solutions over the Internet to the healthcare industry is
a business that has only recently begun to develop. It is difficult to value
our business and evaluate our prospects because our business model and our
revenue and income potential are unproven. Our business model depends on our
ability to generate usage by a large number of clinics and group practices.
Growth in demand for and acceptance of business software applications,
including our ASP offerings, by clinics and group practices is highly
uncertain. This uncertainty is due in part to the possibility that customers
using existing systems may refuse to adopt new systems when they have made
extensive investment in hardware, software, and training for existing systems,
or if they perceive that our ASP solutions will not adequately or cost-
effectively address their requirements.

   In order to successfully sell our software solutions, we may need to
convince potential customers that the features and functionality of our
solutions justify their cost, as well as the time and administrative expense
required to switch to our solutions. Achieving market acceptance for our
software solutions will require substantial marketing efforts and expenditure
of significant funds to increase awareness and demand by our target customers.
We cannot assure you that we will be able to succeed in positioning our ASP
offerings as appropriate solutions to address the clinical and business needs
of potential users, or that our ASP model will be economically viable or
acceptable to clinics and group practices. If our strategy does not prove
successful or if the market for our solutions does not grow or grows more
slowly than we currently anticipate, achieving profitability could take longer
than expected or we may never achieve profitability, either of which could harm
our business.

  If we cannot develop additional software solutions, we may be unable to
  achieve or sustain profitability.

   We are unlikely to achieve or sustain profitability unless we offer and
successfully market a broad range of software solutions. Our business strategy
depends on developing solutions to manage the entire clinical and business
process for clinics and group practices. We have only completed development of
solutions for a limited number of applications and have not commenced
development of the full range of applications required to provide such a
solution. We cannot assure you that we will be able to develop the applications
we need to keep our ASP software solutions competitive and to meet our business
plan objectives. If we cannot develop these additional applications, our sales
may suffer and achieving profitability could take longer than expected or we
may never achieve profitability, either of which could cause our stock price to
decline.

  We depend on third parties to provide our Internet infrastructure and
  application hosting.

   We do not intend to develop or maintain Internet infrastructure or
application hosting capabilities to support delivery of our software solutions
over the Internet. Therefore, we are dependent on obtaining those capabilities
from third parties. We currently obtain Internet infrastructure and application
hosting services from Conxion Corporation and include them as part of our ASP
software solutions. The ability to deliver our software solutions over the
Internet is central to our business strategy and depends on the efficient and
uninterrupted operation of the computer and Internet network systems at
Conxion.

   Conxion's operations are vulnerable to damage or interruption from fire,
flood, tornado, hurricane, earthquake, power loss, telecommunications or
Internet failure, viruses, physical and electronic break-ins, or

                                       6
<PAGE>

other similar events and they have recently suffered a service disruption at
one of their data centers related to a system upgrade. The ability of Conxion
or any other third party we might use to prevent system failures or manage the
effects of system failures which occur in computer and Internet network systems
is limited. If Conxion or another third party suffers a system failure, it
would prevent us from maintaining our service standards. The occurrence of such
a failure could harm our reputation, business and prospects. If Conxion fails
to perform its obligations under this agreement or if this agreement is
terminated or not renewed and we are unable to obtain comparable services on
favorable financial terms, or at all, our business would be harmed.

  Our systems may be vulnerable to security breaches and viruses.

   Our success depends on the confidence of our customers in our ability to
securely transmit confidential information over the Internet. Any failure to
provide secure online communication services could harm our business and
reputation. Our systems and those of our hosting services provider rely on
encryption, authentication and other security technology licensed from third
parties to achieve secure transmission of confidential information. Neither we
nor any third party may be able to stop unauthorized attempts to gain access to
or disrupt the transmission of communications by our customers. Anyone who is
able to circumvent our security measures could misappropriate confidential user
information or interrupt our, or our customers', operations. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments could result in a compromise or breach of the security
measures taken to protect our systems and the systems we use. In addition, our
servers at Conxion's data centers may be vulnerable to viruses, physical or
electronic break-ins, and similar disruptions. We depend on Conxion to prevent
these disruptions and its failure to do so could limit use of our solutions and
otherwise harm our business. Computer viruses, break-ins and other disruptions
could lead to interruptions, delays or loss of data. In addition to purposeful
security breaches, the inadvertent transmission of computer viruses could
expose us to litigation, damage our reputation or otherwise harm our business.

   Although we generally limit warranties and liabilities relating to security
in our customer contracts, our customers may seek to hold us liable for any
losses suffered as a result of unauthorized access to their information. We may
not have adequate insurance to cover these losses. We may be required to expend
significant capital and other resources to protect against these security
breaches or to alleviate the problems they cause and to defend any lawsuits or
claims. Moreover, concerns over the security of transactions conducted on the
Internet and commercial online services, which may be heightened by publicized
compromises of security, may also deter future customers from using our
solutions or cause current customers to terminate their solution subscriptions.
In either case, this could harm our business and prospects. Our security
measures may not be sufficient to prevent security breaches, and failure to
prevent security breaches could harm our reputation, business and prospects.

  Errors in our Organic Architecture or software solutions may harm our
  reputation and cause us to lose customers.

   Our Organic Architecture and software solutions may contain undetected
errors resulting in performance problems. Such errors are most frequently found
during the period immediately following introduction of new software solutions
or enhancements to existing solutions. Despite extensive product testing prior
to introduction, our software has in the past contained errors that were
discovered after commercial introduction. We cannot assure you that errors or
performance problems will not be discovered in the future with respect to any
of our products. Errors and mistakes in the processing of client data may
result in loss of data, inaccurate information and delays. Such errors could
cause us to lose clients and incur liability. Any errors in our Organic
Architecture and software solutions could harm our reputation, business and
prospects.

  We plan to expand rapidly and it may be difficult to manage our growth.

   We intend to rapidly grow our business. However, we cannot be sure that we
will successfully manage our growth. In order to successfully manage our
growth, we must:

  .  expand and enhance our administrative infrastructure;

                                       7
<PAGE>

  .  improve our management, financial and information systems and controls;
     and

  .  expand, train and manage our employees effectively.

   Continued growth could place a further strain on our management, operational
and financial resources. There will also be additional demands on our sales,
marketing and administrative resources as we increase our solutions offerings
and expand our target markets and customers. We cannot assure you that our
operating and financial control systems, administrative infrastructure,
facilities and personnel will be adequate to support our future operations or
to effectively adapt to future growth. If we cannot manage our growth
effectively, our business may be harmed.

  We may undertake additional acquisitions which may pose risks to our
  business.

   Our strategy contemplates the possibility of completing additional
acquisitions. There are risks and uncertainties associated with our completing
additional acquisitions, including:

  .  we might pay more than the acquired company is worth;

  .  we might not fully understand the business we acquire;

  .  we might be entering markets in which we have little or no direct prior
     experience;

  .  our ongoing business may be disrupted and resources and management time
     may be diverted;

  .  our accounting for acquisitions could require us to amortize substantial
     goodwill, which would adversely affect our reported results of
     operations;

  .  we might issue equity or debt securities that are dilutive to our
     stockholders; and

  .  we might incur debt or contingent liabilities in connection with
     acquisitions.

In addition, once we have made an acquisition we will face additional risks and
uncertainties, including:

  .  it may be difficult to assimilate acquired operations and personnel;

  .  we may not be able to retain the management and other key personnel of
     the acquired business;

  .  we may not be able to maintain uniform standards, controls, procedures
     and policies; and

  .  changing management may impair relationships with an acquired business'
     employees or customers.

Any of these risks and uncertainties associated with completing additional
acquisitions could harm our business.

  Others may seize the market opportunity we have identified because we may
  not effectively execute our strategy.

   If we fail to execute our strategy in a timely or effective manner, our
competitors may be able to seize the marketing opportunities we have
identified. Our strategy is complex and requires that we successfully and
simultaneously complete many tasks, including:

  .  developing and protecting our technology;

  .  developing economically attractive solutions;

  .  negotiating and maintaining effective channel partnerships;

  .  selling and marketing our solutions;

  .  attracting and retaining highly skilled employees; and

  .  integrating acquired companies into our operations.

                                       8
<PAGE>

We cannot assure you that we will be able to successfully execute any or all
elements of our strategy. If we are unable to do so, our business could be
harmed and our stock price could decline.

  We may be unable to attract and retain qualified personnel and we depend on
  certain personnel.

   We believe that our success depends largely on our ability to attract and
retain highly skilled technical, managerial and marketing personnel.
Individuals with information technology skills are in short supply and
competition for qualified personnel is particularly intense. We may not be able
to hire the necessary personnel to implement our business strategy, or we may
need to pay higher compensation for employees than we currently expect. We
cannot assure you that we will succeed in attracting and retaining the
personnel we need to continue to grow and to implement our business strategy.
If we are unable to do so, our business could be harmed.

   We depend on the performance of our executive officers and other key
employees. The loss of any member of our senior management or other key
employees could negatively impact our ability to execute our strategy. We do
not maintain "key person" life insurance policies on any of our employees.

  We are dependent upon a third party database management system.

   We use a database management system to store our data and software
solutions, which we license from a third party. If we change our database
management system or if the license of our current database management system
is terminated, we would need to secure a license to use another database
management system. If we were to use a different database management system, we
would need to modify the interface with our application server to recognize
that system, which could take several weeks. If modifying that interface took
longer than expected or if there was insufficient time to obtain and implement
the new system before we lost the use of our current system, we would be unable
to provide uninterrupted service to our customers, and our business and
reputation would be harmed.

  If we are unable to protect our intellectual property rights from third
  party challenges, it may significantly impair our competitive position.

   We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We cannot assure you that the patent applications we have filed on
aspects of our technology will be successful. We also enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and control access to and distribution of our software,
documentation and other proprietary information. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Monitoring use of our products is
difficult, and we cannot assure you that the steps we have taken will prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.

  Intellectual property infringement claims against us could cost a
  significant amount of money to defend and could divert management's
  attention away from our business.

   As the number of software products in our target markets increases and as
the functionality of these products further overlaps, software industry
participants may become increasingly subject to infringement claims. Any
infringement claims alleged against us, even if without merit, can be time
consuming and expensive to defend. Any such claims may divert management's
attention and resources, and could also cause service implementation delays.
Settlement of any such claims could also require us to enter into costly
royalty or licensing agreements. If such a claim of product infringement
against us was successful and we were unable to license the infringing or
similar technology, our business, financial condition and results of operations
could be harmed and our stock price could decline.


                                       9
<PAGE>

  Risks Related To Our Industry

  Our success depends on Internet acceptance.

   Our success depends, in part, on the adoption of Internet solutions by
commercial users. Our business could suffer dramatically if Internet solutions
are not accepted or are not perceived to be effective. The recent growth in
Internet use has resulted in frequent periods of poor performance. Internet
service providers and other organizations with links to the Internet have
responded by upgrading routers and switches, telecommunications links and other
components forming the Internet infrastructure. Any perceived degradation in
the performance of the Internet as a whole could undermine the value of the
solutions we provide over the Internet. Performance improvements in our
solutions partly depend upon, and are ultimately limited by, the speed and
reliability of networks. In order for the market for our solutions to emerge
and grow, improvements must be made to the entire Internet infrastructure to
ease overloading and congestion.

   Several telecommunications carriers are supporting regulation of the
Internet by the Federal Communications Commission (FCC) in the same manner that
the FCC regulates other telecommunications services. If the FCC regulates the
Internet in the manner it regulates other telecommunications services and
imposes fees, it could increase the cost of doing business on or through the
Internet, slow the growth of the Internet and adversely affect the demand for
our products and services or increase our cost of doing business.

  Technology solutions may change faster than we are able to update our
  technology.

   The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, emerging competition and the frequent
introduction of new services, software and other products. Our success depends
partly on our ability to:

  .  develop new or enhance existing solutions, software and services that
     meet changing customer needs in a timely and cost-effective way;

  .  respond effectively to technological changes and new product offerings
     of our competitors; and

  .  maintain and continue to develop relationships with providers of
     Internet infrastructure and application hosting capabilities.

We cannot assure you that we will be able to accomplish any or all of these
goals. Many of our competitors may develop products or technologies that are
better or more attractive than ours or that may render our technology or
solutions obsolete. If we do not succeed in adapting our technology, our
business could be harmed.

  Our business may be harmed if our software solutions are not compatible
  with other products and services.

   Our ability to compete successfully also depends on the continued
compatibility of our software solutions with products, services and
architectures offered by other software vendors, particularly for customers who
have installed software applications. We cannot assure you that other products
will be compatible with our software solutions. Although we currently plan to
support emerging standards, we cannot anticipate what new industry standards
will develop. In addition, we cannot assure you that we will be able to conform
to these new standards quickly enough to stay competitive. If our software
solutions are not compatible with other products and services, our business
could be harmed and our stock price could decline.

  The markets we serve are highly competitive and many of our competitors
  have much greater resources.

   The business of providing application software and services to clinics and
group practices is extremely competitive. In addition, the market for Internet-
based application service providers is relatively new and

                                       10
<PAGE>

evolving, and we anticipate that competition will continue to intensify as the
use of the Internet grows. Our competitive position in the healthcare software
application market is difficult to evaluate due to the variety of current and
potential competitors and the evolving nature of our market and the ASP model.

   Our primary competitors include legacy software vendors, application service
providers, and healthcare e-commerce and portal companies. Each of these types
of companies either competes or in the future can be expected to compete with
us in delivering software solutions to the clinic and group practice markets,
including the delivery of software applications over the Internet. Furthermore,
major software companies and other entities, including those specializing in
the healthcare industry that are not currently offering applications, products
or services that compete with our solutions, may enter our markets. In
addition, our existing and future strategic partners may compete with us from
time to time by selling, consulting on or hosting other software that competes
with our software solutions.

   Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have. We cannot assure you that we will have the resources or expertise to
compete successfully in the future. Our competitors may be able to:

  .  develop and expand their service offerings more quickly;

  .  develop products or services that are more attractive to customers;

  .  adapt to new or emerging technologies and changing customer needs more
     effectively;

  .  take advantage of acquisitions and other opportunities more readily;

  .  devote greater resources to the marketing and sales of their products;
     and

  .  adopt more aggressive pricing policies.

   Finally, there are few barriers to entry in our market. The principal
competitive factors in our market include:

  .  features and functionality;

  .  fit with the user's practice, processes and needs;

  .  cost;

  .  ease of implementation and use;

  .  level of service;

  .  business and technical expertise;

  .  integration of applications;

  .  quality of customer service and support;

  .  reliability; and

  .  scalability.

We cannot assure you that we will have the resources or expertise to compete
successfully in the future based on these or any other criteria or that
competitive pressures we face will not harm our business.

  Government regulation and legal uncertainties could add additional costs to
  doing business on the Internet and could limit our customers' use of the
  Internet.

   Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. Laws and regulations may be adopted
with respect to the Internet or other online services

                                       11
<PAGE>

covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics, and quality of products and services. The
adoption of any additional laws or regulations may impede the growth of the
Internet, which could, in turn, decrease the demand for our applications and
services and increase our cost of doing business, or otherwise harm our
business. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could harm our business.

   The confidentiality of patient records and the circumstances under which
records may be released for inclusion in our databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Although compliance with these laws and regulations is at present
principally the responsibility of the healthcare provider, regulations
governing patient confidentiality rights are evolving rapidly. Additional
legislation governing the dissemination of medical record information has been
proposed at both the state and federal level. This legislation may require
holders of this information to implement security measures. Such legislation
might require us to make substantial expenditures to implement such measures.
We cannot assure you that changes to state or federal laws will not materially
restrict the ability of healthcare providers to submit information from patient
records using our applications.

   Legislation currently being considered at the federal level could impact the
manner in which we conduct our business. The Health Insurance Portability and
Accountability Act of 1996 (HIPAA) mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000. We are
designing our solutions to enable compliance with the proposed regulations but
cannot assure you that we will be able to comply with those proposed
regulations in a timely manner or at all. Moreover, until the proposed
regulations become final, they could change, which could require us to expend
additional resources to comply with the revised standards and we may not be
able to comply with the revised standards in a timely manner or at all. Based
on our present business operations, we believe that the HIPAA requirements
related to the maintenance and exchange of electronic health information may
apply to legacy products sold by our wholly owned subsidiary, PSI-Med
Corporation, but not to our other products, services or solutions. If any of
our products, services or solutions are subject to those regulations, we may be
required to incur additional expenses in order to comply with these
requirements and we may not be able to comply with them in a timely manner or
at all. In addition, the success of our compliance efforts may also be
dependent on the success of healthcare participants in dealing with the
standards. If we are unable to comply with regulations implementing HIPAA in a
timely manner or at all, the sale of our solutions and business could be
harmed.

   The United States Food and Drug Administration (FDA) is responsible for
assuring the safety and effectiveness of medical devices under the Federal
Food, Drug and Cosmetic Act. Computer applications and software are considered
medical devices and are subject to regulation by the FDA when they are
indicated, labeled or intended to be used in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment or prevention of disease, or
are intended to affect the structure or function of the body. We do not believe
that any of our current applications or services are subject to FDA regulation
as medical devices; however, we plan to expand our application and service
offerings into areas that may be subject to FDA regulation. We have no
experience in complying with FDA regulations. Our compliance with such FDA
regulations could prove to be time consuming, burdensome and expensive, which
could adversely affect our ability to introduce new applications or services in
a timely manner.

  Changes in the regulatory and economic environment and consolidation in the
  healthcare industry could adversely affect our business.

   The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could require us to make
unplanned enhancements of

                                       12
<PAGE>

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

   Many healthcare industry participants are consolidating to create integrated
healthcare delivery systems with greater market power. As the healthcare
industry consolidates, competition to provide products and services to industry
participants will become more intense and the importance of establishing a
relationship with each industry participant will become greater. These industry
participants may try to use their market power to negotiate price reductions
for our software solutions and services. If we were forced to reduce our
prices, our operating results could suffer.

  Failure of computer systems and software products to be Year 2000 compliant
  could increase our costs, disrupt our services and reduce demand from our
  clients.

   Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four-digit entries in order for 20th century dates to be
distinguished from 21st century dates. As a result, before the end of this
year, computer systems and software used by many companies may need to be
upgraded to comply with these "Year 2000" requirements.

   We confront the Year 2000 problem in three contexts:

   Our Solutions. Because we sell computer-related solutions, our risk of
lawsuits relating to Year 2000 issues is likely to be greater than that of
companies in other industries. Because computer products and services may
incorporate components from different providers, it may be difficult to
determine which component may cause a Year 2000 problem. As a result, we may be
subjected to Year 2000-related lawsuits whether or not our software solutions
and services are Year 2000 compliant. There can be no assurance as to what the
outcomes or impact of any such lawsuits may be. Our acquired subsidiaries have
several contracts which make Year 2000 warranties. The potential liability
arising from these warranties is not limited. Any Year 2000-related lawsuits or
claims may divert management's attention and resources. If such lawsuits or
claims are resolved against us, our business may be harmed.

   Our Suppliers. We rely on third party network infrastructure providers to
gain access to the Internet. If such providers experience business
interruptions as a result of their failure to achieve Year 2000 compliance, our
ability to provide Internet connectivity could be impaired, which could harm
our reputation and our business. We use and license software and hardware from
third parties. If this software or hardware is not Year 2000 compliant, our
business may suffer. We also rely on third parties for other products and
services required to operate our business. If we cannot obtain products or
services that are Year 2000 compliant, or if vendors and service suppliers
cannot deliver their products or services because of Year 2000 compliance
problems, our business may be harmed.

   Our Customers. Many of our customers and potential customers maintain their
operations on computer hardware that may be impacted by Year 2000
complications. Many of our customers may not be Year 2000 compliant. Customer
difficulties due to Year 2000 issues could interfere with healthcare
transactions or the transmission of information, which might expose us to
significant potential liability. If customer failures result in the failure of
our systems, it could harm our reputation and our business. Furthermore, Year
2000 issues may affect the purchasing patterns of these customers or potential
customers as companies expend significant resources to become Year 2000
compliant. The costs of becoming Year 2000 compliant for current or potential

                                       13
<PAGE>

customers may result in reduced funds being available to purchase and implement
our solutions and services, which would harm our sales and our business.

  Risks Related To This Offering

  Our management will have broad discretion to allocate the net proceeds of
  this offering and the proceeds may not be used appropriately.

   Our management will retain broad discretion allocating the proceeds of this
offering. We estimate the net proceeds from this offering to be approximately
$41.1 million, after deducting estimated offering expenses. We plan to use
these proceeds to repay short-term debt, including amounts owed to or
guaranteed by certain of our directors, officers and stockholders, for
development of our solutions and architecture, expansion of our sales and
marketing efforts, and expansion of our administrative infrastructure. We have
no specific allocations for any other net proceeds of this offering.
Consequently, management will retain a significant amount of discretion over
the application of these proceeds. Because of the number and variability of
factors that will determine the use of these proceeds, how we spend the
proceeds may vary substantially from our current intentions.

  We may need additional capital to fund our operations and finance our
  growth, and we may not be able to obtain it on terms acceptable to us or at
  all.

   We will require substantial additional capital to finance our future growth
and solutions development activities. We expect that the net proceeds from this
offering, together with our existing assets, anticipated debt and capital lease
financing, and revenue from operations will be sufficient to fund our
operations for at least the next 18 months. The timing and amount of our
capital requirements will depend on many factors, including:

  .  acceptance and demand for our solutions;

  .  the costs of developing new solutions or enhancing existing solutions;

  .  the costs associated with expanding our operations; and

  .  the number and timing of acquisitions.

   If we issue additional stock to raise capital, your percentage ownership
will be reduced. If funding is insufficient at any time in the future, we may
be unable to develop or enhance our products or services, take advantage of
business opportunities or respond to competitive pressures, any of which could
harm our business.

  Our existing principal stockholders, executive officers and directors will
  continue to control our company and the outcome of proposals put to a vote
  of stockholders after this offering.

   When this offering is completed, our executive officers, directors, existing
5% or greater stockholders and their affiliates will, in the aggregate, own
shares representing approximately  % of our outstanding voting capital stock.
As a result, these persons, acting together, will be able to control all
matters submitted to our stockholders for approval and to control our
management and affairs. For example, these persons, acting together, will
control the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets.

  The market price of our common stock could be affected by the substantial
  number of shares that are eligible for future sale.

   After this offering is completed,     shares of our common stock will be
issued and outstanding, assuming no exercise of the underwriter's over-
allotment option. There can be no assurance as to what effect, if any, future
sales of shares or the availability of shares for future sale will have on the
market price of the common stock. The market price of our common stock could
drop due to sales of a large number of shares in

                                       14
<PAGE>

the market after this offering or the perception that sales of large numbers of
shares could occur. These factors could also make it more difficult to raise
funds through future offerings of common stock. All of the shares of common
stock sold in this offering will be freely tradable under the Securities Act of
1933, as amended, unless purchased by our "affiliates," as that term is defined
in the Securities Act. Our officers, directors and stockholders have entered
into lock-up agreements under which they have agreed not to, directly or
indirectly, offer, sell, offer to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of common stock or securities
convertible into or exchange or exerciseable for shares of common stock for a
period of 180 days after the date of this prospectus without the prior written
consent of the underwriter. Upon expiration of this lock-up period and as set
forth in the chart below, the shares owned by these persons prior to completion
of this offering may be sold into the public market without a registration
statement under the Securities Act in compliance with the volume limitations
and other applicable restrictions of Rule 144 under the Securities Act. As
these restrictions on resale end, the market price of our common stock could
drop significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.

<TABLE>
<CAPTION>
                                 Date of availability for resale
 Number of shares                      into public market
 ----------------                -------------------------------
 <C>              <S>
                  180 days after the date of this prospectus due to a lock-up
                  agreement our officers, directors and stockholders have with
                  the underwriter. However, the underwriter can waive this
                  restriction at any time and without notice.

                  Between 180 and 365 days after the date of this prospectus
                  due to the requirements of the federal securities laws.
</TABLE>

   After the date of this prospectus, we intend to file one or more
registration statements under the Securities Act to register all shares of
common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock plans, of which 1,018,594 shares will be
immediately exercisable upon the completion of this offering and an additional
15,933 shares will be exercisable within 60 days of August 31, 1999. Those
registration statements are expected to become effective immediately upon
filing, and subject to the vesting requirements and exercise of the related
options as well as the terms of the lock-up agreements, shares covered by those
registrations statements will be eligible for sale in the public markets,
except for any shares held by our "affiliates."

  Our stock price could be volatile.

   The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and Internet-related companies
in particular, has experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
assure you that an active public market for our common stock will develop or
continue after this offering. Investors may not be able to sell their common
stock at or above our initial public offering price. Prices for the common
stock will be determined in the marketplace and may be influenced by many
factors, including variations in our financial results, changes in earnings
estimates by industry research analysts, investors' perceptions of us and our
financial prospects, and general economic, industry and market conditions.

   We believe that there are relatively few comparable companies that have
publicly-traded equity securities. This may also affect the trading price of
our common stock after this offering. In addition, the stock market has from
time to time experienced extreme price and volume volatility, and this
volatility may adversely affect the market price of our common stock.

  We have certain anti-takeover defenses that could delay or prevent a change
  of control and that could adversely affect the price of our common stock.

   Provisions of our amended and restated certificate of incorporation and
bylaws and the provisions of Delaware law could delay, defer or prevent an
acquisition or change of control of OrganicNet or otherwise

                                       15
<PAGE>

adversely affect the price of our common stock. For example, our board of
directors is staggered in three classes, so that only one-third of the
directors could be replaced at any annual meeting. Additionally, our bylaws
limit the ability of stockholders to call a special meeting or act by written
consent. Our certificate of incorporation also permits our board to issue
shares of preferred stock without stockholder approval. In addition to delaying
or preventing an acquisition, the issuance of a substantial number of preferred
shares could adversely affect the price of the common stock.

                           FORWARD-LOOKING STATEMENTS

   This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions about OrganicNet, including, among other
things:

  .  general economic and business conditions, both nationally and in our
     markets;

  .  our expectations and estimates concerning future financial performance,
     financing plans and the impact of competition;

  .  anticipated trends in our business;

  .  existing and future regulations affecting our business; and

  .  other risk factors set forth under "Risk Factors" in this prospectus.

   In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to OrganicNet, our business or our management, are
intended to identify forward-looking statements.

   We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-
looking statements.

                                       16
<PAGE>

                                USE OF PROCEEDS

   Our net proceeds from the sale of the     shares of common stock in this
offering, assuming a public offering price of $    per share, are estimated to
be $41.1 million ($47.3 million if the underwriter's over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses. Approximately $800,000 of the proceeds will be
used to repay short-term debt, including amounts owed to or guaranteed by
certain of our directors, officers and shareholders. See "Certain Relationships
and Related Transactions." We intend to use the remaining net proceeds as
follows:

  .  to continue the development of our solutions and architecture;

  .  to continue the expansion of our sales and marketing efforts;

  .  to continue the expansion of our administrative infrastructure; and

  .  for working capital and other general corporate purposes.

   In addition, the net proceeds may also be used to fund acquisitions or
acquire complementary products, technologies or businesses; however, we
currently have no commitments or agreements and are not involved in any
negotiations to do so.

   Pending these uses, we may invest the net proceeds from this offering
temporarily in short-term, investment-grade, interest bearing securities or
guaranteed obligations of the United States government.

                                DIVIDEND POLICY

   We have not declared or paid, and do not anticipate declaring or paying, any
dividends on our common stock in the near future. We currently intend to retain
future earnings, if any, to fund the expansion and growth of our business. Any
future determination as to the declaration and payment of dividends will be at
the discretion of our board of directors and will depend on then existing
conditions, including our financial condition, results of operations,
contractual restrictions, capital requirements, business prospects and other
factors that our board of directors considers relevant.

                                       17
<PAGE>

                                    DILUTION

   Purchasers of our common stock in this offering will experience immediate
and substantial dilution in the pro forma net tangible book value of their
common stock from the initial public offering price. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
on a pro forma basis after giving effect to the conversion of all outstanding
shares of our preferred stock upon the consummation of this offering and the
acquisition of PSI-Med Corporation. The pro forma net tangible book value of
our common stock on June 30, 1999 was $(4,263,220), or approximately $(0.33)
per share. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to the sale of
shares of common stock by us in this offering at an assumed initial public
offering price of $    and after deducting the underwriting discounts and
commissions and estimated offering expenses and the application of the
estimated net proceeds therefrom, our pro forma net tangible book value would
have been $    or approximately $    per share. This represents an immediate
increase in pro forma net tangible book value of $    per share to existing
stockholders and an immediate and substantial dilution of $    per share to new
investors. The following table illustrates this per share dilution.

<TABLE>
   <S>                                                            <C>     <C>
   Assumed initial public offering price.........................         $
     Pro forma net tangible book value as of June 30, 1999....... $(0.33)
     Increase attributable to new investors...................... $
                                                                  ------
   Pro forma net tangible book value after this offering.........
                                                                          ----
   Dilution in pro forma net tangible book value to new
    investors....................................................         $
                                                                          ====
</TABLE>

   The following table sets forth, as of June 30, 1999, on the same pro forma
basis, the number of shares of common stock purchased from us by existing
stockholders and by the new investors at the assumed initial public offering
price together with the total price and average price per share paid by each of
these groups, before deducting underwriting discounts and commissions and
estimated offering expenses.

<TABLE>
<CAPTION>
                                 Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent Amount (1)  Percent Per Share
                                ---------- ------- ----------- ------- ---------
   <S>                          <C>        <C>     <C>         <C>     <C>
   Existing stockholders....... 12,778,107      %  $13,887,489      %    $1.09
   New investors...............
                                ----------   ---   -----------   ---
     Total.....................              100%                100%
                                ==========   ===   ===========   ===
</TABLE>
--------
(1) Includes $11,185,275 of cash consideration paid, $2,052,209 of stock issued
    in connection with acquisitions, including the PSI-Med acquisition, and
    $650,005 of stock issued for services, compensation and repayment of a
    loan.

   Except as noted above, the foregoing discussions and tables assume no
exercise of any outstanding stock options or warrants. As of August 31, 1999,
there were options outstanding to purchase 1,619,168 shares of common stock
pursuant to our stock option plans at a weighted average exercise price of
$1.16 per share. In addition, on September 17, 1999, we granted Superior
Consultant Holdings Corporation an option to purchase 200,000 shares of common
stock at $6.00 per share in connection with the formation of our strategic
alliance with Superior. To the extent that any of these options are exercised,
there will be further dilution to the new investors.

                                       18
<PAGE>

                                 CAPITALIZATION

   The following table sets forth as of June 30, 1999:

  .  our actual capitalization and short-term debt;

  .  our pro forma capitalization after giving effect to the conversion of
     all outstanding shares of our preferred stock into a total of 7,278,494
     shares of common stock upon the consummation of this offering, including
     shares of preferred stock issued in connection with our acquisition of
     PSI-Med Corporation completed after June 30, 1999; and

  .  our pro forma as adjusted capitalization after giving effect to the sale
     of the shares of common stock sold in this offering at the assumed
     initial public offering price of          per share, after deducting the
     underwriting discounts and commissions and the estimated offering
     expenses and the application of the estimated net proceeds therefrom.

   You should read the following table in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                     As of June 30, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                        (in thousands)
<S>                                             <C>       <C>        <C>
Short-term debt, including line of credit,
 notes payable, advances from employees and
 current portion of capital leases............. $  1,998  $  2,413      $
Capital lease obligations, less current
 portion.......................................       40       186
                                                --------  --------      -----
                                                   2,038     2,599
                                                --------  --------      -----
Stockholders' equity (deficit):
 Convertible preferred stock, all $0.01 par
  value, none pro forma and pro forma as
  adjusted:
  Series A, 1,500,000 shares authorized;
   1,418,270 shares issued and outstanding
   actual......................................       14       --
  Series A-II, 115,000 shares authorized;
   61,490 shares issued and outstanding
   actual......................................        1       --
  Series A-III, 5,416 shares authorized; 5,416
   shares issued and outstanding actual .......      --        --
  Series B, 1,250,000 shares authorized;
   1,202,470 shares issued and outstanding
   actual......................................       12       --
  Series C, 4,000,000 shares authorized;
   2,986,294 shares issued and outstanding
   actual......................................       30       --
  Receivable for shares purchased..............     (550)     (550)
 Common stock, $0.001 par value, 29,500,000
  shares authorized actual and pro forma,
  shares authorized pro forma as adjusted;
  5,499,613 shares issued and outstanding
  actual, 12,778,107 shares issued and
  outstanding pro forma and     shares issued
  and outstanding pro forma as adjusted........        6        13
 Additional paid-in capital....................   13,815    14,531
 Deferred compensation.........................      (89)      (89)
 Accumulated deficit...........................  (15,972)  (15,972)
                                                --------  --------      -----
Total stockholders' equity (deficit)...........   (2,733)   (2,067)
                                                --------  --------      -----
Total capitalization........................... $   (695) $    532      $
                                                ========  ========      =====
</TABLE>

   The shares of common stock outstanding in the actual, pro forma and pro
forma adjusted columns exclude:

  .  1,619,168 shares of common stock issuable as of August 31, 1999 upon the
     exercise of outstanding stock options issued at a weighted average
     exercise price of $1.16 per share under our stock option plans;

  .  821,263 shares of common stock reserved for issuance under our stock
     option plans as of August 31, 1999; and

  .  200,000 shares of common stock issuable upon the exercise of outstanding
     options issued at an exercise price of $6.00 per share to Superior
     Consultant Holdings Corporation on September 17, 1999 in connection with
     the formation of our strategic alliance with Superior.

                                       19
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

   The selected data presented below under the captions "Consolidated Statement
of Operation" and "Consolidated Balance Sheet Data" for, and as of the end of,
each of the years in the four years ended December 31, 1995, 1996, 1997 and
1998, and for and as of the six months ended June 30, 1999, are derived from
the consolidated financial statements of OrganicNet, Inc. and subsidiaries,
which consolidated financial statements have been audited by KPMG LLP,
independent certified public accountants. The consolidated financial statements
as of December 31, 1997 and 1998 and June 30, 1999, and for each of the years
in the three-year period ended December 31, 1998 and the six months ended June
30, 1999, and the independent auditors' report thereon, are included elsewhere
in this prospectus.

   The pro forma selected data presented below for the year ended December 31,
1998 and the six months ended June 30, 1998 and 1999 are derived from the
unaudited pro forma condensed combined financial statements of OrganicNet, Inc.
and its subsidiaries, including PSI-Med Corporation, included elsewhere in this
prospectus and give effect to our acquisition of PSI-Med Corporation as if such
acquisition had occurred as of the beginning of the periods presented. The
unaudited pro forma information is not necessarily indicative of the combined
results that would have occurred had such acquisition taken place as of the
beginning of the periods presented, nor is it necessarily indicative of results
that may occur in the future.

   The selected data presented below for the six months ended June 30, 1998,
and as of June 30, 1998, are derived from the unaudited consolidated financial
statements of OrganicNet, Inc. and its subsidiaries included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
                                    Years Ended December 31,                 Six Months Ended June 30,
                           ---------------------------------------------- --------------------------------
                                                               Pro Forma                        Pro Forma
                            1995    1996     1997     1998       1998        1998      1999       1999
                           ------  -------  -------  -------  ----------- ----------- -------  -----------
                                                              (unaudited) (unaudited)          (unaudited)
                                          (in thousands, except per share information)
Consolidated Statement of
Operations:
<S>                        <C>     <C>      <C>      <C>      <C>         <C>         <C>      <C>
Revenue:
 License................   $  --   $   --   $   424  $   571   $  1,087     $   113   $   370    $   654
 Product development....      --       --     1,238      565        565         530       227        227
 Service................      525      371    1,310    3,488      5,182       2,053     2,112      2,938
                           ------  -------  -------  -------   --------     -------   -------    -------
 Total revenue..........      525      371    2,972    4,624      6,834       2,696     2,709      3,819
                           ------  -------  -------  -------   --------     -------   -------    -------
Cost of revenue:
 License................      --       --       475      756        756         387       336        336
 Product development....      --       --       320      209        209         128        63         63
 Service................      --       238      892    2,314      3,850       1,249     1,230      1,928
                           ------  -------  -------  -------   --------     -------   -------    -------
 Total cost of revenue..      --       238    1,687    3,279      4,815       1,764     1,629      2,327
                           ------  -------  -------  -------   --------     -------   -------    -------
 Gross profit...........      525      133    1,285    1,345      2,019         932     1,080      1,492
                           ------  -------  -------  -------   --------     -------   -------    -------
Operating expense:
 Sales and marketing....        7       24    1,395    1,644      1,812         834       672        734
 Research and
  development...........      508      724    1,345    1,833      2,070         783     1,204      1,321
 General and
  administrative........      212    1,690    3,332    3,768      4,597       1,663     1,762      2,001
                           ------  -------  -------  -------   --------     -------   -------    -------
 Total operating
  expense...............      727    2,438    6,072    7,245      8,479       3,280     3,638      4,056
                           ------  -------  -------  -------   --------     -------   -------    -------
Operating loss..........     (202)  (2,305)  (4,787)  (5,900)    (6,460)     (2,348)   (2,558)    (2,564)
Interest expense........       (9)      (2)     (20)     (93)       (93)        (43)      (76)       (76)
Other income (expense)..        1      --        14       (9)       (95)         (6)       (5)       (56)
                           ------  -------  -------  -------   --------     -------   -------    -------
Loss before income
 taxes..................     (210)  (2,307)  (4,793)  (6,002)    (6,648)     (2,397)   (2,639)    (2,696)
Provision for income
 taxes..................        1        4        6        4          5           2         4          5
                           ------  -------  -------  -------   --------     -------   -------    -------
Net loss................   $ (211) $(2,311) $(4,799) $(6,006)  $(6,653)     $(2,399)  $(2,643)   $(2,701)
                           ======  =======  =======  =======   ========     =======   =======    =======
Net loss per share:
 basic and diluted......   $(0.05) $ (0.45) $ (0.88) $ (1.10)  $  (1.22)    $ (0.44)  $ (0.48)   $ (0.49)
                           ======  =======  =======  =======   ========     =======   =======    =======
Weighted average shares
 outstanding: basic and
 diluted................    4,000    5,189    5,426    5,448      5,448       5,432     5,485      5,485
                           ======  =======  =======  =======   ========     =======   =======    =======
</TABLE>

                                       20
<PAGE>

<TABLE>
<CAPTION>
                            As of December 31,                      As of June 30,
                         ---------------------------  -------------------------------------------
                                                                                       Pro Forma
                                                                           Pro Forma  As Adjusted
                         1995  1996    1997    1998      1998      1999      1999        1999
                         ----  -----  ------  ------  ----------- ------  ----------- -----------
                                                      (unaudited)         (unaudited) (unaudited)
Consolidated Balance
Sheet Data:                                        (in thousands)
<S>                      <C>   <C>    <C>     <C>     <C>         <C>     <C>         <C>
 Cash and cash
  equivalents........... $ 25  $  --  $   47  $   41    $  109    $1,680    $1,726       $
 Working capital
  (deficit).............  223   (524) (3,149) (6,290)   (3,842)   (3,704)   (4,610)
 Total assets...........  144    754   2,904   2,215     2,650     3,445     5,245
 Total stockholders'
  equity (deficit)...... (205)   (55) (1,257) (5,047)   (2,181)   (2,733)   (2,066)
</TABLE>

   The preceding consolidated balance sheet data is shown on a pro forma basis
to give effect to:

  .  the acquisition of PSI-Med Corporation as if the acquisition occurred on
     June 30, 1999; and

  .  the conversion of all outstanding shares of preferred stock into shares
     of common stock upon consummation of this offering, including shares of
     preferred stock issued in connection with our acquisition of PSI-Med.

   The preceding consolidated balance sheet data is shown on a pro forma as
adjusted basis to give effect to:

  .  the acquisition of PSI-Med Corporation as if the acquisition occurred on
     June 30, 1999;

  .  the conversion of all outstanding shares of preferred stock into shares
     of common stock upon consummation of this offering, including shares of
     preferred stock issued in connection with our acquisition of PSI-Med;
     and

  .  the sale of      shares of common stock in this offering at an assumed
     initial public offering price of $   per share, after deducting the
     underwriting discounts and commissions and estimated offering expenses
     and application of the net proceeds therefrom.

                                       21
<PAGE>

   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

   The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the accompanying financial
statements and related notes included elsewhere in this prospectus. The
following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in these forward-looking statements. Factors that could cause
or contribute to such differences include but are not limited to, those
discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."

Overview

   We are an application services provider that develops software solutions for
clinics and group practices using our proprietary technology platform. Our
customers can access and use our solutions over the Internet or their local or
wide area networks. We charge our customers a monthly subscription fee for our
ASP software solutions. We also market and support legacy software products
that were developed by the companies we acquired, as discussed below. Our
software solutions and acquired legacy products are sold by our own direct
sales force and through third parties. We currently provide the following range
of services principally related to our acquired legacy products: post-contract
customer support, maintenance, technical support, consulting, software
customization, training, credentialing and case management services.

   Historically, we derived substantially all of our revenue from the sale of
legacy software products and services. Our legacy products address
credentialing, scheduling, resource management, case management and
disease/outcomes management. From our inception in January 1995, we have been
developing our Organic Architecture, a flexible platform for creating codeless
software applications. As a part of our development strategy, we have acquired
companies which provided us with enabling technologies and domain expertise, as
well as near-term products, customers and revenues. In February 1999, we
delivered our first ASP software solution using our Organic Architecture to
customers, and in April 1999, we deployed our first ASP software solution over
the Internet. With the introduction of our ASP software solutions, we are de-
emphasizing the sale of legacy systems and expect sales of these systems and
related service revenue to substantially decline in future periods. We will
market these ASP software solutions as an upgrade to our existing legacy
products. Due to the anticipated substantial decline in revenue associated with
these legacy systems and the costs associated with the development and
commercialization of our ASP software solutions, as well as the development of
sales and marketing support for these solutions, we expect that our operating
losses will increase substantially in future periods and continue for at least
the next several years. Our ability to achieve profitability will depend on our
successful development and marketing of our solutions. With our strategy, we
are subject to the risks inherent in both the ASP business model and the entry
into a new and uncertain market. Our solutions may not achieve market
acceptance. Accordingly, the extent of future losses and the time required to
achieve profitability, if any, is highly uncertain.

   We have generated and will continue to generate revenue from software
license, product development and service fees from our legacy products.
Software license fees are derived from the licensing of acquired legacy
products and are expected to decline substantially in future periods. Product
development fees have been and will continue to be generated from co-
development agreements with Pfizer Health Solutions Inc, but we expect these
revenues and their related costs to substantially decline in the future.
Revenue received under these co-development agreements with Pfizer Health
Solutions Inc represented 46% of total revenue in 1997, 14% of total revenue in
1998 and 31% of total revenue for the six months ended June 30, 1999. Service
fees are derived from post-contract software support, case management,
credentialing, training, installation and software application customization
for legacy products, which we expect to decline substantially as sales of our
legacy systems decline.

   In the future, we expect to generate revenue from subscription and service
fees from the sale of our ASP software solutions. Subscription fees will be
derived from our ASP software solutions on a monthly basis. We

                                       22
<PAGE>

will generate subscription fees for these solutions beginning in the third
quarter of 1999. We cannot predict subscription fees accurately because we have
limited experience selling our solutions. In addition, our customers may decide
to stop using our solutions at any time with very little notice. We may spend
substantial time and resources developing or tailoring solutions for channel
partners or customers prior to the time we have entered into subscription
agreements with them. If we do not enter into agreements with these channel
partners and customers do not subscribe for these solutions for a sufficient
period of time, we will not be able to achieve revenue to recoup our
investment. Service fees related to our solutions will increase as we deploy
them.

   License revenue is recognized when the related contract has been executed,
the product has been shipped, collectibility is probable and the software
license fees are fixed and determinable. In the event that the contract
provides for multiple elements (e.g., training, application customization or
post-contract customer support), the total fee is allocated to these elements
based on vendor-specific objective evidence of fair value. If any portion of
the license fee is subject to forfeiture, refund or other contractual
contingencies, we will postpone revenue recognition until these contingencies
have been removed.

   Subscription fees for our ASP software solutions will be recognized on a
monthly basis. We recognize product development revenue from our co-development
agreements using a percentage-of-completion method based on meeting key
milestone events over the term of the contracts. Service revenue from post-
contract customer support and maintenance is recognized ratably over the term
of the maintenance period. Revenue from case management, credentialing,
training, installation and customization services is recorded as the services
are performed.

   Historically, cost of revenue consisted of the cost of license, product
development and service. In the future, we expect cost of revenue to consist of
the cost of subscription, license and service related to our ASP software
solutions. Cost of subscription revenue will include the charges paid to our
Internet service, application host and data center provider, as well as the
amortization of the costs of third party database licenses and ongoing annual
fees for these licenses. Cost of license revenue consists of personnel
salaries, benefits and related overhead expenses, as well as the amortization
of acquired technologies. Cost of service revenue includes direct costs, such
as salaries and benefits, and related overhead expenses, such as occupancy
charges. As we focus on our ASP solutions, we expect the cost of subscription
revenue and services related to our ASP solutions to increase and the cost of
license revenue and services related to our legacy products to decrease.

   Sales and marketing expense consists of salaries, related benefits,
commissions, printing of promotional material, public relations, attendance at
industry trade shows, advertising and other costs associated with our sales and
marketing efforts. We expect to incur substantial expenditures related to sales
and marketing as we build our direct sales force and expand our distribution
channels.

   Research and development expense consists primarily of salaries, related
benefits, third party consultant fees and other costs. With respect to software
development, we establish technological feasibility once a working model has
been created. The time between establishment of a working model and general
release is short. Development costs incurred subsequent to technological
feasibility have not been material. We expect to continue to make substantial
investments in research and development activities as we seek to advance our
technology and broaden our ASP software solutions.

   General and administrative expense consists primarily of salaries and
related benefits, amortization of goodwill and workforce-in-place, and fees for
professional services, such as legal and accounting. We expect general and
administrative expense to increase as we add personnel, including select senior
management personnel, and incur additional costs related to the anticipated
growth of our business and operation as a public company.

   We were incorporated in January 1995 as a California corporation and
reincorporated in Delaware in 1996. Since our inception, we have incurred
significant losses and as of June 30, 1999, had an accumulated deficit of
approximately $16.0 million.


                                       23
<PAGE>

Acquisitions

   As a result of our experience with healthcare information systems, we
concluded that the legacy software applications used by the healthcare industry
could not provide the adaptable, cost-effective solutions needed by clinics and
group practices. To develop solutions that could address these needs, we
decided to pursue a strategy of selectively acquiring companies with healthcare
domain expertise and enabling technologies. In April 1996, we completed our
first acquisition, a company with technology tools for the development of
object-oriented software. With our second acquisition, we acquired a company
with expertise in modeling and business process reengineering methodology.
Using this methodology, we created a map of the core processes involved in
managing a clinic or group practice. This map became the process map of the
Organic Clinic and it was used to identify the tasks needed to deliver a
software solution that could manage the entire clinical and business process.
We then targeted and acquired six small software and service companies, each
representing specialized healthcare domains that had been identified in the
process map.

   In our first three years of operations, we completed the following
acquisitions:

<TABLE>
<CAPTION>
Company                       Acquisition date            Expertise
-------                       ----------------- ------------------------------
<S>                           <C>               <C>
First Principles, Inc. ...... April 22, 1996    Object Technology
RiteLine Systems, Inc. ...... April 30, 1996    Business Methodology
Comprehensive Provider
 Credentialing Services,
 Inc. ....................... May 23, 1996      Credentialing Service
Velocity Healthcare
 Informatics, Inc. .......... December 20, 1996 Outcomes/Disease Management
Res-Q, Inc., formerly MMS,
 Inc. ....................... May 14, 1997      Scheduling/Resource Management
Intedata, Inc. .............. June 4, 1997      Marketing Service
L.I.N.C., Inc. .............. June 23, 1997     Case Management
Healthcheck, Incorporated ... November 14, 1997 Credentialing Service
</TABLE>

   All of our acquisitions were accounted for using the purchase method of
accounting and, accordingly, the results of the acquired companies' operations
are included in our consolidated financial statements from their respective
effective dates forward. Under terms of the acquisition agreements, the
consideration included preferred shares, notes payable, common shares and cash.
We acquired all of the outstanding common stock for each of the acquired
companies except for Velocity Healthcare Informatics. This acquisition was
structured as an asset purchase. Total consideration for our acquisitions,
completed through December 31, 1998, was approximately $1.7 million.

   For each of the acquired companies, the purchase price was allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed
based on their fair values on the acquisition date. Amounts allocated to
acquired technology and workforce-in-place are amortized on a straight-line
basis over an approximately three-year period. Amounts allocated to goodwill
are amortized on a straight-line basis over seven years.

PSI-Med Corporation

   Subsequent to June 30, 1999, we completed our acquisition of PSI-Med
Corporation, which sells and services practice management software and is
engaged as a full service provider of medical insurance billing and accounts
receivable collection services. The PSI-Med acquisition will become effective
upon the acceptance of the Certificate of Merger filed with the California
Secretary of State on September 7, 1999. We have acquired all of the capital
stock of PSI-Med Corporation in exchange for 16,667 shares of preferred stock,
which will convert into 333,340 shares of our common stock upon the closing of
this offering. These shares have been valued at approximately $667,000. Our
acquisition was accounted for using the purchase method of accounting,
resulting in approximately $1.6 million of goodwill to be amortized using the
straight-line method over its estimated life of seven years.

                                       24
<PAGE>

Results of Operations

 Six Months Ended June 30, 1999 and 1998

 License revenue

   License revenue includes fees from the licensing of our acquired legacy
products. License revenue increased 227% to approximately $370,000 for the six
months ended June 30, 1999 from approximately $113,000 for the six months ended
June 30, 1998. The increase in license revenue was primarily the result of
increased sales and installation of our legacy products.

 Product development revenue

   Product development revenue is primarily generated from co-development
agreements addressing outcomes, credentialing and survey software and services
with Pfizer Health Solutions Inc. Product development revenue decreased 57% to
approximately $227,000 for the six months ended June 30, 1999 from
approximately $530,000 for the six months ended June 30, 1998 due to having
earned less milestone revenue under our co-development agreements with Pfizer
Health Solutions Inc in the six months ended June 30, 1999.

 Service revenue

   Service revenue is comprised of fees from post-contract software support,
case management services, credentialing services, training, installation and
software application customization. Service revenue increased 3% to
approximately $2.1 million for the six months ended June 30, 1999 from
approximately $2.0 million for the six months ended June 30, 1998. The increase
in service revenue was primarily the result of increases in the volume of
credentialing services and development of patient surveys.

 Cost of license revenue

   Cost of license revenue consists of personnel salaries, benefits and related
overhead expenses, as well as the amortization of acquired technologies. Cost
of license revenue decreased 13% to approximately $336,000 for the six months
ended June 30, 1999 from approximately $387,000 for the six months ended June
30, 1998 due to the redirection of our resources from our legacy products to
the development of our ASP software solutions.

 Cost of product development revenue

   Cost of product development includes direct costs, such as personnel
salaries and benefits, and related overhead expenses, such as occupancy
charges. Cost of product development revenue decreased 51% to approximately
$63,000 for the six months ended June 30, 1999 from approximately $128,000 for
the six months ended June 30, 1998, primarily due to a decreased level of
development efforts associated with the Pfizer Health Solutions Inc co-
development agreements.

 Cost of service revenue

   Cost of service revenue includes direct costs, such as personnel salaries
and benefits, and related overhead expenses, such as occupancy charges. Cost of
service revenue decreased 2% to approximately $1.2 million in the six months
ended June 30, 1999 from approximately $1.3 million for the six months ended
June 30, 1998, primarily due to two of our subsidiaries merging operations.

 Sales and marketing expense

   Sales and marketing expense consists primarily of salaries, related
benefits, commissions, printing of promotional material, public relations,
attendance at industry trade shows, advertising and other costs associated

                                       25
<PAGE>

with our sales and marketing efforts. Sales and marketing expenses decreased
19% to approximately $672,000 for the six months ended June 30, 1999 from
approximately $834,000 for the six months ended June 30, 1998, primarily due to
decreased spending for trade show and third party marketing activities.

 Research and development expense

   Research and development expense consists primarily of salaries, related
benefits, third party consultant fees and other costs. Research and development
expense increased 54% to approximately $1.2 million for the six months ended
June 30, 1999 from approximately $783,000 for the six months ended June 30,
1998, primarily due to increasing development costs associated with our ASP
software solutions.

 General and administrative expense

   General and administrative expense consists primarily of salaries and
related benefits, amortization of intangible assets for goodwill and workforce-
in-place, and fees for professional services, such as legal and accounting.
General and administrative expense increased 6% to approximately $1.8 million
for the six months ended June 30, 1999 from approximately $1.7 million for the
six months ended June 30, 1998, primarily due to professional fees associated
with our acquisition and financing activities.

 Interest expense

   Interest expense increased 78% to approximately $76,000 for the six months
ended June 30, 1999 from approximately $43,000 for the six months ended June
30, 1998, primarily due to increased borrowings used to fund our operations.

 Income taxes

   Income taxes paid to state taxing authorities consisted of minimum payments
of $4,000 for the six months ended June 30, 1999 and $2,000 for the six months
ended June 30, 1998. As a result of operating losses, no provision or benefit
for income taxes has been recorded for either period. Deferred tax assets
associated with net operating losses generated have not been recognized as
there is substantial uncertainty as to the likelihood of the realization of
those net operating losses.

 Years Ended December 31, 1998 and 1997

 License revenue

   License revenue increased 34% to approximately $571,000 in 1998 from
approximately $424,000 in 1997, primarily due to the increased volume of sales
of our scheduling, resource management and case management products.

 Product development revenue

   Product development revenue decreased 54% to approximately $565,000 in 1998
from approximately $1.2 million in 1997, due to the completion of Outcomes
Partners III under our co-development agreements with Pfizer Health Solutions
Inc in 1998.

 Service revenue

   Service revenue increased 166% to approximately $3.5 million in 1998 from
approximately $1.3 million in 1997, primarily due to increased sales of service
and support contracts and, to a lesser extent, an increase in consulting and
training services.

 Cost of license revenue

   Cost of license revenue increased 59% to approximately $756,000 in 1998 from
approximately $475,000 in 1997, primarily due to 1998 being the first full year
of amortization of our acquired technologies.

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<PAGE>

 Cost of product development revenue

   Cost of product development revenue decreased 35% to approximately $209,000
in 1998 from approximately $320,000 in 1997 due to the decreased level of
development under our Pfizer Health Solutions Inc co-development agreements.

 Cost of service revenue

   Cost of service revenue increased 159% to approximately $2.3 million in 1998
from approximately $892,000 in 1997, primarily due to the full year impact of
acquisitions made in 1997 and to growth in credentialing service and additional
services, such as customer support and maintenance, training, installation and
customization, which were delivered.

 Sales and marketing expense

   Sales and marketing expense increased 18% to approximately $1.6 million in
1998 from approximately $1.4 million in 1997, primarily due to the inclusion of
a full year of salaries and benefits associated with sales and marketing
personnel gained through our acquisitions made in 1997.

 Research and development expense

   Research and development expense increased 36% to approximately $1.8 million
in 1998 from approximately $1.3 million in 1997, primarily due to the growth in
personnel costs through additional headcount and facilities expense for the
development of our Organic Architecture and ASP software solutions. In
addition, 1998 includes a full year of salaries and benefits associated with
the development activities of the companies we acquired in 1997.

 General and administrative expense

   General and administrative expense increased 13% to approximately $3.8
million in 1998 from approximately $3.3 million in 1997, primarily due to
increased personnel and facility costs as a result of a full year of operations
from the businesses we acquired in 1997.

 Interest expense

   Interest expense increased 371% to approximately $93,000 in 1998 from
approximately $20,000 in 1997, primarily due to increased borrowings used to
fund our operations.

 Income taxes

   Income taxes paid to state tax authorities consisted of minimum payments of
$4,000 in 1998 and $6,400 in 1997. As a result of operating losses, no
provision or benefit for income taxes has been recorded. Deferred tax assets
associated with net operating losses generated have not been recognized as
there is substantial uncertainty as to the likelihood of the realization of
those net operating losses.

 Years Ended December 31, 1997 and 1996

 License revenue

   License revenue of approximately $424,000 in 1997 was attributable to the
software products of the companies we acquired in 1997. We had no license
revenue in 1996.

 Product development revenue

   Product development revenue was approximately $1.2 million in 1997, the
first year of our co-development agreements with Pfizer Health Solutions Inc.

                                       27
<PAGE>

 Service revenue

   Service revenue increased 253% to approximately $1.3 million in 1997 from
approximately $371,000 in 1996. This increase was primarily due to the
inclusion of a full year of credentialing revenue associated with a 1996
acquisition and the acquisition of a second credentialing company in 1997, as
well as an increase in the service and support contracts associated with the
acquisition of our legacy software products.

 Cost of license revenue

   Cost of license revenue was approximately $475,000 in 1997. We had no cost
of license revenue in 1996.

 Cost of product development revenue

   Cost of product development revenue was approximately $320,000 in 1997, the
first year of our co-development agreements with Pfizer Health Solutions Inc.

 Cost of service revenue

   Cost of service revenue increased 274% to approximately $892,000 in 1997
from approximately $238,000 in 1996, primarily due to the full year impact of
acquisitions made in 1997 and to growth in credentialing service and
additional services, such as customer support and maintenance, training,
installation and customization, which were delivered.

 Sales and marketing expense

   Sales and marketing expense increased to approximately $1.4 million in 1997
from approximately $24,000 in 1996, primarily due to the increase in salaries
and benefits of the sales and marketing personnel acquired through our 1997
acquisitions.

 Research and development expense

   Research and development expense increased 86% to approximately $1.3
million in 1997 from approximately $724,000 in 1996. This increase was
primarily due to the growth in personnel costs as a result of increased
headcount and facilities expense for the development of Organic Architecture
and ASP software solutions, as well as an increase in salaries and benefits of
personnel, third party development efforts and facility charges associated
with the development activities of the companies we acquired in 1997.

 General and administrative expense

   General and administrative expense increased 97% to approximately $3.3
million in 1997 from approximately $1.7 million in 1996, primarily due to
increased personnel and facility costs as a result of a full year of
operations from the businesses we acquired in 1996.

 Interest expense

   Interest expense increased to approximately $20,000 in 1997 from
approximately $2,000 in 1996, primarily due to increased borrowings used to
fund our operations.

 Income taxes

   Income taxes paid to state tax authorities consisted of minimum payments of
$6,400 in 1997 and $4,000 in 1996. As a result of operating losses, no
provision or benefit for income taxes has been recorded. Deferred tax assets
associated with net operating losses generated have not been recognized as
there is substantial uncertainty as to the likelihood of the realization of
those net operating losses.

                                      28
<PAGE>

Pro Forma Financial Information

   The unaudited condensed combined financial statements included elsewhere
herein give effect to our business combination with PSI-Med Corporation. See
"Unaudited Pro Forma Condensed Combined Financial Information, OrganicNet, Inc.
and PSI-Med Corporation."

 Pro Forma Six Months Ended June 30, 1999

   On a pro forma basis, our revenue for the six months ended June 30, 1999 was
approximately $3.8 million, compared to actual revenue of approximately $2.7
million. Pro forma total revenue of PSI-Med includes sales of medical
accounting software and service revenue from post-contract customer support
agreements, accounts receivable management and collection services, and rental
arrangements for medical accounting software on a shared computer system
maintained at PSI-Med.

   Our pro forma operating loss for the six months ended June 30, 1999 was
approximately $2.6 million, compared to actual operating loss of approximately
$2.6 million. The operating loss remained unchanged as a result of PSI-Med's
operating income of $115,000 being offset by the additional goodwill
amortization from the business combination of approximately $121,000.

   Our pro forma net loss for the six months ended June 30, 1999 was
approximately $2.7 million, which reflects the increase in the operating loss
from the additional goodwill amortization resulting from the business
combination.

 Pro Forma Year Ended December 31, 1998

   Our pro forma total revenue for 1998 was approximately $6.8 million compared
to our actual revenue of approximately $4.6 million.

   Our pro forma operating loss in 1998 was approximately $6.5 million compared
to our actual operating loss of approximately $5.9 million. The increase in our
operating loss on a pro forma basis was primarily the result of the addition of
approximately $317,000 in pro forma PSI-Med operating losses and the additional
goodwill amortization of approximately $241,000 resulting from the business
combination.

   Our pro forma net loss for 1998 was approximately $6.7 million compared to
our actual net loss of approximately $6.0 million. The increase in our net loss
was for the same reasons as the increase in our operating loss.

Liquidity and Capital Resources

   Since inception, we have spent approximately $11.1 million primarily for the
development of our Organic Architecture and ASP software solutions. We have
financed these operating and development activities through approximately $12.9
million raised from the sale of our capital stock and the issuance of notes to
employees and stockholders. Investing activities included receipt of an
aggregate approximately $191,000 in cash from acquired businesses offset by an
aggregate approximately $371,000 investment in capital assets. As of June 30,
1999, we have approximately $1.7 million in cash reserves and a working capital
deficit of approximately $3.7 million.

   Net cash used in operating activities was approximately $2.5 million for the
six months ended June 30, 1999, approximately $3.2 million in 1998,
approximately $3.3 million in 1997 and approximately $2.1 million in 1996. Cash
used in operating activities for the six months ended June 30, 1999 resulted
primarily from the funding of our operations and our payment of current
liabilities.

   Our investing activities used approximately $58,000 for the six months ended
June 30, 1999, used approximately $32,000 in 1998, provided approximately
$6,000 in 1997 and used approximately $97,000 in 1996. Investing activities
during those periods consisted primarily of the cash obtained from acquisitions
of

                                       29
<PAGE>

approximately $191,000 and capital expenditures of approximately $58,000 for
the six months ended June 30, 1999, approximately $32,000 in 1998,
approximately $207,000 in 1997 and approximately $75,000 in 1996. We have no
significant capital spending or purchase commitments other than normal
commitments under facilities and equipment leases.

   Financing activities provided cash of approximately $4.2 million during the
six months ended June 30, 1999, approximately $3.3 million in 1998,
approximately $3.3 million in 1997 and approximately $2.2 million in 1996,
primarily from the aggregate net proceeds from sales of capital stock and the
issuance of notes to stockholders. We used cash from financing activities to
make aggregate payments under lease obligations of approximately $51,000 during
these periods.

   As of June 30, 1999, we had net operating loss carryforwards for federal
income tax purposes of approximately $14.4 million expiring in the years 2013
through 2019. We had net operating loss carryforwards for state income tax
purposes of approximately $8.0 million expiring primarily in 2003. The
difference between federal and state net operating loss carryforwards is due
primarily to a 50% limitation on net operating loss carryforwards for
California income tax purposes. Due to the "change in ownership" provisions of
the Tax Reform Act of 1986, utilization of the net operating loss carryforwards
will be subject to an annual limitation regarding their utilization against
taxable income in future periods.

   We expect that the net proceeds from this offering, together with our
existing assets, anticipated debt and capital lease financing, and revenue from
operations will be sufficient to fund our operations for at least the next 18
months. Thereafter, we may seek to raise additional funds through public or
private equity financings or from other sources. If we raise additional funds
by issuing equity securities, dilution to stockholders may result. There can be
no assurance that additional financing will be available on favorable terms or
at all. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products or services, take advantage of business
opportunities or respond to competitive pressures, any of which could harm our
business.

Year 2000 Preparedness

   Many currently installed computer systems and software products are written
using two digits rather than four to define the applicable year. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in systems failures or miscalculations causing disruptions of
operations for any company using such computer systems or software, including,
among other things, a temporary inability to process transactions, send
invoices or engage in normal business activities. As a result, many companies'
computer systems may need to be upgraded or replaced in order to avoid this
"Year 2000" issue.

   The majority of the software and hardware we use to manage our business has
been purchased or developed in the last five years. Generally, hardware and
software design within the current decade and the past several years in
particular have addressed the Year 2000 issue. All of the solutions we have
developed are written with four digits to define the applicable year. Testing
has been completed on our internal information technology systems and based on
that testing, we believe that our information technology systems are Year 2000
compliant.

   In addition to our internally developed software, we use and license
software and hardware from third parties. We have obtained certifications from
our key suppliers of hardware and networking equipment for our data centers
that such hardware and networking equipment is Year 2000 compliant. Based upon
an initial evaluation of our broader list of software and hardware providers,
we are aware that all of these providers are in the process of reviewing and
implementing their own Year 2000 compliance programs, and we are working with
these providers to address and remediate any exposure to the Year 2000 issue
and continue to seek assurances from them that their products are Year 2000
compliant.

   We also rely on third party network infrastructure providers to gain access
to the Internet. If such providers experience business interruptions as a
result of their failure to achieve Year 2000 compliance, our ability to provide
Internet connectivity and deliver our ASP software solutions could be impaired,
which could harm our reputation and our business.


                                       30
<PAGE>

   Many of our customers may not be Year 2000 compliant. Customer difficulties
due to Year 2000 issues could interfere with healthcare transactions or the
transmission of information, which might expose us to significant potential
liability. If customer failures result in the failure of our systems, it could
harm our reputation and business. Furthermore, Year 2000 issues may affect the
purchasing patterns of customers or potential customers as companies expend
significant resources to become Year 2000 compliant. The costs of becoming Year
2000 compliant for current or potential customers may result in reduced funds
being available to purchase and implement our software solutions.

   We have not incurred any significant costs to date with respect to our Year
2000 compliance efforts, and we do not anticipate that future costs associated
with Year 2000 remediation efforts will be material. However, if our customers,
our providers of hardware and software, our third party network providers or we
fail to remedy any Year 2000 issues, our services and certain transactions
could be interrupted and we could experience a material loss of revenue that
could harm our business, financial condition and operating results. We would
consider such an interruption to be the most reasonably likely unfavorable
result of any failure by us, or failure by the third parties upon which we
rely, to achieve Year 2000 compliance. Presently, we believe we are unable to
reasonably estimate the duration and extent of any such interruption or
quantify the effect it may have on our future revenue.

   We have yet to develop a comprehensive contingency plan to address the
issues that could result from Year 2000 issues. We are prepared to develop such
a plan if our ongoing assessment leads us to conclude we have significant
exposure based upon the likelihood of such an event. For more information about
Year 2000 risks, see "Risk Factors--Failure of computer systems and software
products to be Year 2000 compliant could increase our costs, disrupt our
services and reduce demand from our clients."

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial
Accounting Standard No. 137, "Accounting For Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement
No. 133" (SFAS 137). SFAS 137 delayed the effective date for SFAS 133 to fiscal
years beginning after
June 15, 2000. We do not believe that the impact of this statement will have a
material effect on our financial position or results of operations upon the
adoption of this accounting standard.

Quantitative and Qualitative Disclosure about Market Risk

   We have considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Investments and
Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity Instruments."
We had no holdings of derivative financial or commodity instruments at June 30,
1999, nor has the Company had any foreign currency denominated sales. However,
we are exposed to financial market risks associated with interest rates. This
exposure is directly related to our normal operating and funding activities.

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

                                       31
<PAGE>

                                    BUSINESS

Overview

   We are an application services provider (ASP) that develops proprietary
software solutions for clinics and group practices using our proprietary
technology platform. Our customers can access and use our solutions over the
Internet or their local or wide area networks. We are developing integrated
solutions designed to manage all elements of the business and clinical
processes of our customers within a single system. We currently have developed
and implemented solutions in three areas: disease management, clinical drug
trials recruitment and workers' compensation. We charge our customers a monthly
subscription fee for our solutions.

Industry Background

   According to the Health Care Financing Administration, the healthcare
industry is the largest sector of the United States economy with annual
expenditures reaching approximately $1.3 trillion by the year 2000. Rising
costs have driven employers, insurers and the government sector to attempt to
control expenses through managed care. Rising costs have also led to the
creation of new payment mechanisms, including fixing fees, lowering
reimbursement rates, restricting coverage for services, limiting access to a
select group of providers, negotiating discounts and shifting the economic risk
for the delivery of care through alternative reimbursement modes, such as
capitation and risk pools. As a result, healthcare providers are bearing
greater financial risk and need to contain costs and deliver care efficiently
in order to operate profitably and remain competitive. Pressures to control
costs have also contributed to the movement of care from relatively expensive
inpatient settings to less costly outpatient settings. These outpatient care
providers, particularly clinics and group practices, deliver the majority of
healthcare services and are responsible for a substantial portion of total
healthcare spending.

   In order to provide quality and cost-efficient healthcare while managing
costs, hospitals and other large healthcare organizations, as well as
individual physicians, physician groups and other outpatient care providers are
forming affiliations with one another to take advantage of economies of scale.
Although these affiliations have enhanced economies of scale, they have
generally not addressed the inefficient delivery of healthcare services.
Substantial resources are wasted in the healthcare industry through the
delivery of unnecessary care, performance of redundant procedures and tests, or
excessive administrative costs. We believe that a portion of this wasteful
spending is attributable to the inefficient collection, management, sharing and
storage of data. To operate efficiently, healthcare delivery networks must be
able to manage patient care and workflow processes which may extend across
multiple locations and member organizations. We anticipate that process and
information management will become even more critical to healthcare
organizations as new governmental regulations requiring greater documentation
are adopted. For example, the Health Insurance Portability and Accountability
Act of 1996 (HIPAA) imposes additional regulatory compliance responsibilities
on the healthcare industry relating to the storage, maintenance and
transmission of healthcare information. Proposed regulations implementing HIPAA
would impose new requirements on the healthcare industry to maintain the
security of healthcare information.

 Demand for Information Services in Healthcare

   The growth of managed care, the increase in government regulation and the
rise of healthcare delivery networks have increased the need for information
technology products and services. Annual healthcare information systems
expenses are expected to reach approximately $18 billion by the year 2000
according to industry sources. Healthcare providers increasingly demand
integrated solutions that offer the core functions required to manage
healthcare clinical and business processes. In addition, geographically
dispersed healthcare delivery networks require central databases and analysis
tools that permit them to effectively extract and analyze data located
throughout the enterprise, measure clinical results, control costs, evaluate
operational efficiency and support process improvement.

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<PAGE>

 Traditional Healthcare Information Systems

   Traditional healthcare information systems, known as legacy systems, were
built with specialized computer languages using "code." The first legacy
systems were introduced in the 1970s. Building systems out of code requires
highly trained technicians and can take anywhere from several months to several
years to complete. Users' needs frequently change before code-based systems are
completed from the initial design. Modifying the original code is a time-
consuming and expensive process. As a result, legacy systems cannot be adapted
easily to the changing functional requirements of end-users, such as the need
to address practice variations within clinics and group practices. These
factors contribute to the high cost of legacy systems, which often requires a
significant commitment of capital for the initial acquisition of hardware and
system infrastructure. In addition, healthcare providers may incur additional
capital expenditures in expanding installed systems when increasing their
internal capacity.

   Most legacy systems were originally developed to address the financial
aspects of information management, such as capturing charges and generating
bills. Most hospitals and managed care organizations have installed legacy
systems that continue to perform the functions for which they were originally
designed. As end-user information requirements expanded to include the need to
manage clinical information, legacy vendors introduced code-based legacy
applications that were either built by those legacy vendors or acquired from
other software developers. Because these new applications generally were not
included in the design of the original systems, these legacy vendors are
required to develop complex system interfaces that permit the integrated
exchange of information between applications and systems. The time and expense
associated with building interfaces make legacy systems less adaptable to
structural and organizational changes within healthcare organizations.

 The Emergence of the Internet and the ASP Model in Healthcare

   The Internet has emerged as an important means of accessing and distributing
information, as well as a medium to facilitate the transfer of secure
information between organizations. We believe the Internet's key attributes as
an open, accessible, low-cost and flexible network make it particularly well-
suited for the information technology and communication needs of the healthcare
industry. We believe that the Internet will ultimately become the primary
method of communication and commerce in the healthcare industry.

   The increasing acceptance of the Internet as a medium to access and exchange
data has contributed to the development of a new business model for the
delivery of mission-critical healthcare software solutions--the application
service provider model. ASPs offer software applications deployed over the
Internet from a remote facility. This eliminates the need for a customer to
invest in complex and expensive software and hardware, such as installing
network servers. Industry analysts estimate that the total cost of hosted
applications under the ASP model can be significantly less than traditional
licensing and internally managed software.

 Designing a Comprehensive Information Technology Solution

   Healthcare entities' information technology needs vary greatly and are
dependent upon their range of operating activities, which can be impacted by
frequent government and regulatory changes, ongoing margin pressures and Year
2000 challenges. Large, self-contained healthcare entities with significant
information technology budgets have been able to keep up with the changing
requirements. However, smaller healthcare entities, such as clinics and group
practices, need sophisticated information technology solutions that can be
accessed cost-effectively. We believe that a comprehensive information
technology solution for the smaller healthcare provider should:

  .  manage the entire clinical and business process in a single system;

  .  expand easily to accommodate more users and applications;

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<PAGE>

  .  enable the creation of fully integrated solutions;

  .  allow trained users to quickly and easily tailor solutions to
     accommodate their different needs;

  .  offer a cost-effective alternative to currently available software
     applications;

  .  permit Internet delivery or on-site installation;

  .  provide different users simultaneous access and the ability to modify
     data in real time;

  .  contain the requisite healthcare domain expertise; and

  .  facilitate easy use.

The OrganicNet Solution

   Our proprietary technology provides a platform for the rapid development and
deployment of codeless software solutions designed to manage the entire
clinical and business process for clinics and group practices. These processes
include patient enrollment and patient health assessment, scheduling,
diagnosis, selecting and monitoring treatment plans, billing and contract
management. We design our software solutions to be deployed over the Internet
or the user's intranet or local or wide area network with our ASP model. As an
ASP, we charge our customers on a monthly subscription basis for the delivery
of our software solutions. We provide integrated solutions that can be
implemented incrementally, extended easily and tailored rapidly for each user's
needs. Our solutions offer the following benefits:

   Comprehensive. We provide our customers with a comprehensive solution that
combines our software applications with Internet infrastructure, application
hosting, and consulting and implementation services provided by our strategic
partners. Our software applications address a range of business and clinical
processes, such as billing and claims, scheduling, credentialing and disease
management. Our solutions are designed to enable our customers to rely on us as
the single source for their software solutions, whether these solutions are
deployed over the Internet or their local or wide area network.

   Cost-effective. We believe that our ASP model allows users to access
sophisticated software solutions for a lower start-up cost and reduced
operating cost. Our technology enables most customers to run our solutions
using their existing computer equipment. Each user needs only a relatively
modest desktop computer and a modem that allows the computer to connect to our
remote servers over standard telephone lines. As a result, our solutions
eliminate the need for the user to incur significant capital expenditures for
hardware, operating systems, application software. In addition, our solutions
are designed to significantly reduce the costs for technical support and
training, thereby reducing the need for in-house information technology
experts.

   Adaptable. Our applications are built with data instead of code. As a
result, we can avoid many of the limitations of code-based software systems and
more easily tailor any component of a solution to meet the needs of each user.
Trained clients can quickly modify our software to adapt to practice variation
and practice changes. Our clients do not have to conform their clinical and
business processes to the fixed features and functions of rigidly-coded legacy
systems.

   Scalable. Our solutions run on an object-oriented database management system
designed to manage large and complex databases. In addition, we have partnered
with Conxion Corporation to provide application hosting services, Internet
infrastructure and data centers. The combination of our proprietary
architecture and technology, the bandwidth capacity of Conxion's data centers
and the storage capacity of our database management system minimizes the cost
of adding incremental users and applications.

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<PAGE>

   Integrated. Our software solutions are built on a single, integrated
database so that information and applications are stored centrally and shared
simultaneously by all users. As a result, data is entered once and shared
across all applications on the system. We believe the single entry of patient
and other data will increase efficiency and lower costs while reducing the
errors that result from duplicative data entry. Changes to data made by a
single user in one application are immediately shared by all authorized users
across applications.

   Internet accessible. Our solutions can be provided over the Internet.
Multiple users can simultaneously and continuously access the same software
applications and data from geographically dispersed locations. Users access our
software solutions using our Organic Browser, a proprietary, thin client
browser that provides the interface between the user, the applications and the
database.

   Easy to use. We design our software solutions in consultation with users to
accommodate their workflow and processes. The appearance of the computer screen
and the information that is displayed can be designed so that users see only
those features that they need. Users are not required to navigate through
features and applications they do not need or use. For example, schedulers will
see only the scheduling tools and information they need on their screens.

   Embedded domain expertise. Our solutions incorporate the collective
healthcare knowledge and experience of our personnel. We are highly experienced
in each of the following domains:

  .  outcomes and disease management;

  .  clinical drug trials;

  .  practice management;

  .  credentialing and provider profiling;

  .  scheduling and resource management;

  .  business process reengineering; and

  .  case management.

We use our expertise in these areas to create comprehensive, integrated
software solutions for our customers and to continually refine those solutions
as the needs of our customers evolve.

   Security. To safeguard user data, we have designed our solutions to support
the security options necessary to meet our user's requirements on an
application by application basis. We offer the following security options:

  .  client authentication: proprietary communication protocols that generate
     a public key infrastructure based key to uniquely identify each client;

  .  user authentication: standard login ID/password identification and other
     more secure means to identify and authenticate users;

  .  access control: system mechanisms to restrict a user's access to only
     the data they have clearance to see;

  .  channel security: proprietary transmission protocol makes it difficult
     to intercept data during transmission;

  .  database security: data in the database can be encrypted; and

  .  physical site security: Conxion hosts our data and applications at
     government rated Class A data centers. To be rated as a Class A data
     center, Conxion must conform to government security requirements and be
     able to guarantee 72 hours of independent continuous operations.

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<PAGE>

Our Strategy

   Our objective is to become the leading ASP serving clinics and group
practices. We believe that we are one of the first ASPs to deliver software
solutions to clinics and group practices over the Internet. Our strategy is to
capitalize upon our early market entrance, extend our technology and implement
a subscription-based business model focused on recurring revenue. Elements of
our strategy include:

   Leverage our proprietary technology platform. Our proprietary, object-
oriented technology provides a platform for the rapid, codeless development of
ASP software solutions for clinics and group practices. Our platform combines a
universal set of clinical and business processes with the capability to quickly
create a solution that can be easily tailored to meet the specific needs of
each customer. Using this platform, we have delivered solutions for the disease
management, clinical drug trials and workers' compensation markets. We are
using our platform to complete development of a software solution that manages
the entire clinical and business process for clinics and group practices. The
scalable, adaptable and interactive design of our software solutions enables us
to offer a customer an initial solution targeting a specific business or
clinical need, with the opportunity to easily sell additional functions and
features.

   Achieve rapid market penetration. We are using a sales and marketing
strategy that focuses on identifying channels of customers with common needs
and cross-selling our solutions to our existing installed customer base. We
intend to establish relationships with specialty healthcare industry groups who
will endorse and co-market our solutions to their customers and members in
these channels. In addition, we have an existing base of over 500 customers
using the legacy systems sold by the companies we have acquired. To capitalize
on our installed customer base, we are developing ASP software solutions that
will be sold as an upgrade to our existing systems. We use our Internet sales
team to quickly reach many customers and increase our market penetration.

   Enhance our capabilities by forming strategic alliances. We believe that our
ability to offer a complete, integrated and adaptable software solution to our
customers will be an important element in their selection of us as their
solutions provider. In order to continue to specialize in software solution
development, we have formed and will continue to form strategic alliances with
leading companies that can provide us with specific expertise in areas
important to providing complete solutions, such as Internet infrastructure,
application hosting, and consulting and implementation services. Given the
significant time and financial and human resources required to internally
develop our own Internet connectivity and data storage requirements, we believe
that we can offer cost-effective software solutions by partnering with
recognized leaders in these areas. Our strategic alliance with Conxion
Corporation, a leader in network hosting, is an example of such a partnership.

   Selectively acquire complementary businesses and technologies. Historically,
we have grown through acquisitions that brought us new personnel with domain
knowledge of the healthcare industry, additional customers, software products
and technology. In the future, we will continue to acquire businesses and
domain knowledge, product lines or technologies that will enhance our solutions
and domain expertise, and increase our customer base.

   Protect our intellectual property. We believe that our technology
incorporates a unique approach to the codeless development of software
applications. We believe that our software technology is a significant asset
which we intend to actively protect. We have filed five patent applications
relating to key elements of our architecture and intend to seek appropriate
intellectual property protection for the technologies that we develop in the
future.

Our Technology

   Our solutions embody object-oriented technology. Object-oriented software is
written using objects that represent components of real-world settings, such as
a doctor or a clinic. Each component is represented by one object that is
shared by all applications. Software applications are built by linking objects
in various configurations. Because objects can be used simultaneously in
multiple configurations, models representing

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<PAGE>

complex systems can be built easily. The self-contained nature of objects
allows them to be tested, modified and maintained independently from the rest
of the system.

   Historically, objects and the links between them have been built using code.
After five years of development, we believe that we have achieved a significant
advancement in object-oriented technology by building both objects and the
links between them with data instead of code. We believe this advancement
enables us to build, link and modify objects without the significant
development time associated with code-based software. In February 1997, we
filed patent applications on these advancements.

   Our CoreModel encompasses the classes of objects and relationships that
represent the general elements and flow of the clinical and business processes
in healthcare. The specialized knowledge of healthcare required to build the
CoreModel originated from the experience of our employees as well as extensive
interviews with our users and other healthcare professionals. If a customer
chooses to deploy our solutions over the Internet, the CoreModel, user data and
the applications are accessed on our servers at Conxion Corporation.

   The Organic Browser is our application browser that resides on the user's
computer. Applications are delivered to the user by the interaction between our
proprietary application server software and the Organic Browser. When a user
logs on to the system and enters a user name and password, the Organic Browser
requests the data required to display the user's software solutions from the
application server. The application server communicates that request to our
database management system, which retrieves the data required and delivers it
to the application server. The application server then assembles the user's
software solution and delivers it to the Organic Browser which renders it on
the user's screen. Our Organic Browser is able to do this as quickly as
traditional systems with modest computers and an Internet connection over
standard telephone lines.

   The Organic Browser and our application server require relatively little
hard disk space on the user's computer regardless of the size of the software
applications they are running because of our data-based and object-oriented
architecture. As a result, most users can run our software solutions on their
existing computers and do not have to invest in additional hardware. The
Organic Browser requires only four megabytes of hard disk space on the user's
computer to run, which is less computing power than general purpose Internet
browsers, which typically require about 80 megabytes. Applications, such as our
browser, that require little disk space and are used to access applications
stored on a server are referred to as "thin clients." Our software solutions
can run on a thin client because they are built using data, which can be stored
in a database on a server instead of on the user's computer. In contrast,
typical software applications built with code must be stored and executed on
the user's computer and therefore cannot be run with a thin client. Because our
CoreModel is stored in the database, we can increase the total number of
software applications and the functionality of any software application running
on our system without changing the Organic Browser or the rest of the user's
system.

   Our application server software requires only one megabyte of hard disk
space. Typically, application server software requires at least 10 megabytes of
storage space, but can require up to several hundred megabytes for more complex
applications. Our application server software requires less disk space because
the processes, generally referred to as "server side processes," are written in
data rather than code and stored in the database. Server side processes
generally include:

  .  queries: used to locate and retrieve data elements from the database;

  .  triggers: used to activate particular processes upon the occurrence of
     another process; and

  .  constraints: used to limit acceptance of data entry to defined
     parameters.

   Our ability to store server side processes as data, instead of code, enables
us to quickly and easily modify the server side processes for increased
adaptability. We have applied for patents on our technology for storing
processes as data. In September 1999, we received a Notice of Allowance from
the United States Patent and Trademark Office on one of these applications.

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<PAGE>

Our Software Solutions

   We are in the process of developing the Organic Clinic, a software solution
that will manage the entire clinical and business process for clinics and group
practices. We are designing the Organic Clinic to be deployed over the Internet
or the user's intranet or area network using our ASP model. In the interim, we
are providing software solutions for use in specific practice areas, such as
disease management, clinical drug trials recruitment and workers' compensation.
We have targeted these areas to accelerate adoption of our technology based on
our domain knowledge, the strength of our channel partner contacts and the
potential of these markets.

   To build our solutions, we begin by spending a few days in a clinic
interviewing users and modeling and mapping the processes of that clinic. We
assemble a solution by using the library of healthcare tasks built by our
domain experts as extensions of the CoreModel. These tasks share the same data
objects and are integrated with all of our solutions. We have built and can
utilize hundreds of healthcare specific tasks such as "enroll a patient,"
"schedule a patient" or "bill a patient." These tasks comprise the templates we
use to tailor a solution for a particular clinic. Providing a tailored solution
generally takes three to six weeks, depending on the complexity of the process
and practice variation.

   We are delivering the following solutions to customers:

   Disease Management. Healthcare providers are increasingly employing disease
management solutions to achieve favorable patient outcomes while controlling
costs. Annually, an aggregate of over $50 billion is spent in the United States
to treat the disease states of asthma, diabetes and congestive heart failure. A
number of specialty healthcare providers have targeted the treatment of these
specific disease states. These providers often contract to treat patients at a
fixed cost and therefore depend on strict patient compliance with treatment
plans to manage their costs and to deliver quality care to their patients. We
have designed effective disease management solutions that have the following
attributes:

  .  Improved patient selection. Our solutions use patient questionnaires and
     clinical data to identify and select patients with specific chronic
     conditions who are most at risk for poor clinical outcomes.

  .  Automated clinical process. Our solutions link all network users,
     including doctors, laboratories and pharmacies, track compliance, and
     provide real time and updated information.

  .  Customized care plans. Our solutions allow healthcare providers to
     design and monitor care plans that meet the specific needs of individual
     at-risk patients using guidelines and predictive outcomes established at
     the clinic.

   We delivered our first disease management solution in February 1999. As of
September 15, 1999, we deployed seven of our ASP software solutions for the
disease management market.

   As part of our disease management solutions, we developed Outcomes Partner
III, a healthcare outcomes management software solution. This solution was
developed in collaboration with Pfizer Health Solutions Inc, a subsidiary of
Pfizer Inc. that provides information technology solutions to Pfizer Inc.
clients. Outcomes Partner III combines patient-reported health and functional
status with outcomes program administration and reporting tools that evaluate
the effectiveness of disease management. Through our relationship with Pfizer
Inc., we have installed Outcomes Partner III at the American Medical Group
Association's headquarters. The American Medical Group Association is a trade
association representing over 230 medical groups composed of approximately
48,000 physicians. In conjunction with Pfizer Inc., we intend to market
Outcomes Partner III to the American Medical Group Association's member
clinics.

   Clinical Drug Trials Recruitment. We believe there is a significant market
for a software solution that improves the efficiency of clinical drug trials
management based on the level of expenditures spent on clinical trials to
support drug development efforts. We believe there is not an adequate system
for managing patient recruitment and enrollment in the clinical drug trials
process.

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<PAGE>

   A clinic's participation in the clinical drug trial process begins with
patient recruitment and enrollment. Participation in clinical drug trials can
be a significant revenue source for clinics and group practices. Pharmaceutical
companies set compensation for investigators based on the number of patients
enrolled and the time taken to complete recruitment.

   Clinical drug trials recruitment is conducted by various types of healthcare
organizations including clinics and group practices. These organizations must
conduct broad searches of their practice management systems to identify
patients who meet general criteria. They then review patients' medical charts
to find individuals who meet the trial's requirements. Manual chart review is a
time consuming and expensive process. Even for simple studies, it can take a
clinic site several months to identify, screen, recruit and enroll its target
number of patients. We believe an effective patient recruitment solution can
significantly reduce the time required to complete these tasks.

   Our patient recruitment solution provides a comprehensive set of easy-to-use
tools for efficient patient screening, recruitment and enrollment. Our first
solution was delivered in February 1999. Our solution offers clinics and group
practices several important benefits, such as:

  .  Simplified data management. Interfaces with a practice management system
     to eliminate the need to duplicate data entry.

  .  Reduced number of chart reviews. Quickly queries system data to
     prioritize patients that are most likely to meet the inclusion criteria
     for a trial.

  .  Customized patient screening. Uses adaptable tools to enable customized
     follow-up screening interviews and medical history questionnaires with
     no additional programming, and provides survey administration over the
     Internet.

  .  Reduced enrollment time. Facilitates quick and efficient enrollment of
     patients who meet the inclusion criteria for a trial.

  .  Integrated patient contact tracking. Includes user-friendly tools to
     help track and manage all contacts with patients from initial screening
     through the completion of their participation in a clinical drug trial.

  .  Reduced computer hardware costs. Permits data input using scan forms,
     which enables clinic staff to interact with the system without a
     computer on their desk.

   Workers' Compensation. Annually, approximately $24 billion is spent to treat
workers' compensation claims in the United States. Workers' compensation is a
separate healthcare delivery system for employment-related injury and health
issues. Patient treatment is funded through insurance premiums paid by the
employer. When a job-related injury occurs, the employee is sent to either an
industrial medicine clinic or a network of doctors contracted to treat workers'
compensation injuries. We believe there is currently no clinical management
software solution to handle these claims across a network of clinics and group
practices. Moreover, we believe no reporting system is available to employers
who are funding the system and want to track employee status and compliance
with treatment protocols.

   Our clinical management solution links doctors, clinics and group practices
to a single database and to a single and unique patient record. In addition, we
are developing a solution with American Medical Information Systems, Inc. to
integrate the management of clinical and business processes in occupational
medicine. This solution would enable us to track progress and compliance during
the course of a patient's treatment. Our solution will capture patient medical
histories, help physicians determine diagnoses and suggest appropriate
treatment protocols at the point of care. The criteria for diagnosis and
treatment protocols will be established by the physicians at the treatment
clinic.

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<PAGE>

   The Internet enables different organizations, such as physical therapy
centers, laboratories and pharmacies, to inexpensively link to the same system.
Our solution allows employers to track the treatment of their employees on
their desktop. Employers are linked to the same database the clinic network is
using. The use of standard methods of treatment can then be monitored by all
parties connected to the network, including employers.

   We have installed our first workers' compensation solution in a clinic
running on a remote server over the Internet under an agreement with American
Medical Information Systems. We expect that we will have the final version of
this solution installed and that AMIS will accept it by the end of 1999. AMIS
plans to offer employers a network of existing clinics that can treat those of
their employees with workers' compensation claims and allow the employer to
track the treatment of their employees using the Internet. AMIS is in the
process of building this network and as of September 15, 1999, one clinic has
agreed to participate in this network. Under our agreement with AMIS, they have
the exclusive rights for 12 months from acceptance of the system to use and
market the solution in California and in the United States with AMIS clinics
and affiliate clinics so long as AMIS has paid us for a minimum number of AMIS
clinics and affiliate clinics for a period of 12 months. If AMIS has not paid
us for at least half of the minimum number of required users by the end of the
first six months, then we may cancel the exclusive arrangement. Similarly, we
may cancel the exclusive arrangement if AMIS has not paid us for an increased
minimum number of users during each subsequent year.

   Our Software Solutions in Development. As part of our strategy of completing
the Organic Clinic and targeting markets in which we have domain knowledge,
channel partners or existing customers, we are currently developing the
following solutions:

  .  Patient Management. We are developing a patient management solution that
     will streamline claims processing by making eligibility information
     obtained at a clinic available to the billing service over the Internet.
     In September 1999, we entered into a letter of intent with California
     Medical Billing Association, an association of billing service bureaus,
     to market this solution to its 200 member billing services and their
     clinic customers. We cannot assure you that this letter of intent will
     result in a definitive agreement.

  .  Medical Record Management. We are developing a medical record management
     solution to expand the process of managing clinical data by making
     electronic medical records available over the Internet to the
     association's entire network. This solution is covered by our letter of
     intent with California Medical Billing Association.

  .  Practice Management. This solution will provide scheduling, billing and
     contract management features. We will initially market this solution as
     an upgrade to the traditional legacy products sold by PSI-Med
     Corporation, one of the companies we acquired.

  .  Case Management. This solution will provide tracking, management and
     analysis of case-specific information required to manage a patient's
     treatment. We will initially market this solution as an upgrade to the
     traditional application sold by L.I.N.C., Inc., one of the companies we
     acquired.

  .  Credentialing. We are developing this solution to provide credentialing
     capabilities to healthcare organizations over the Internet.

  .  Urology Management. We are developing a clinical management solution for
     urology clinics and have a letter of intent with a urology association
     to market the solution.

   Our Legacy Software Products. We currently market traditional legacy
software products for credentialing, scheduling, resource management, case
management and outcomes management applications. These products were developed
by the companies we have acquired since our inception in 1995. We acquired
these companies primarily for their specific domain expertise and enabling
technologies. Our acquired domain

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<PAGE>

expertise is incorporated into our CoreModel and has been used to build our
current solutions and solutions in development. We intend to continue to market
these legacy products until we have completed development of a comparable
solution that can be delivered using our ASP model. As each of these solutions
is completed, we will market it as an upgrade to our existing legacy products.
For more information concerning our acquisitions, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Strategic Relationships and Alliances

   We have entered into strategic relationships and alliances with companies to
expand our sales distribution capabilities and improve our ability to deliver
reliable, scalable ASP software solutions. We will continue to consider
strategic relationships and alliances that enable us to leverage our core
competencies in the development of advanced technologies and software
solutions. These strategic relationships and alliances include the following:

   Pfizer Health Solutions Inc. We have had a strategic relationship with
Pfizer Health Solutions Inc, a subsidiary of Pfizer Inc., since 1997. We have
entered into agreements with Pfizer Health Solutions Inc that provide it with
non-exclusive distribution rights to the solutions described below. Pursuant to
these agreements, we cannot enter into distribution agreements for the same
solutions with any competitor of Pfizer Inc. Since 1997, we have received over
$2.9 million in revenue through this relationship. The solutions covered by
these agreements include:

  .  Outcomes Partner III. We are working to implement this quality
     measurement tool in innovative pilot projects, including several
     designed to use outcomes in support of disease management. This is a
     three-year agreement which expires on May 27, 2000. This agreement may
     be renewed by mutual agreement of the parties for additional periods of
     12 months.

  .  Surveys. We also collaborate with Pfizer Health Solutions Inc in
     marketing and implementing standard and tailored surveys for managed
     care organizations. This is a two-year agreement which expires on June
     15, 2000. This agreement may be renewed by mutual agreement of the
     parties for additional periods of 12 months.

  .  Credentialing. Along with Pfizer Health Solutions Inc, we offer
     credentialing services and software on a contract basis. This is a
     three-year agreement which expires on January 15, 2002, unless testing
     of the final version of the software extends beyond January 15, 2000, in
     which case the term of the agreement will be extended by the period by
     which such testing is extended. This agreement may be renewed by mutual
     agreement of the parties for additional periods of 12 months.

   Superior Consultant Holdings Corporation. In September 1999, we entered into
a Distribution and Services Agreement, as amended, with Superior Consultant
Holdings Corporation under which Superior agreed to introduce and outline the
advantages of our ASP software solutions based on client interests, as well as
providing systems integration, process improvement, consulting and
implementation services to healthcare organizations. We agreed to market
Superior's healthcare consulting services and business integration services, to
promote Superior as our exclusive alliance partner for the provision of
healthcare consulting services and not to offer distribution rights to our
Organic Architecture and solutions to any direct competitor of Superior without
Superior's prior written approval. Under the agreement, Superior has a non-
exclusive worldwide license to market, use, install and display our Organic
Architecture and solutions. We have also appointed Superior as our
international provider of healthcare consulting services to our clients. The
agreement entitles Superior to appoint a member to our board of directors and
to receive a vested non-statutory stock option grant exercisable for 200,000
shares of our common stock at an exercise price of $6.00 per share. The initial
term of the agreement runs through August 31, 2002 and may be renewed by
Superior for up to two additional two-year terms.

   Conxion Corporation. We have entered into several agreements with Conxion
Corporation, under which they supply us with application hosting services and
Internet infrastructure for our ASP software solutions. Conxion houses the
equipment for these services in government rated Class A data centers from
which our ASP software solutions are deployed and run. We have been using
Conxion's services to deploy our ASP

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<PAGE>

solutions since May 1999 and have been using them as our Internet service
provider since June 1998. These agreements typically have terms of one year.
Conxion has agreed to enter into extensions of these agreements and to enter
into supplemental service agreements, as required by us on terms not less
favorable to us as they offer to any of their customers. Conxion cannot
terminate or suspend the services provided under these agreements even if a
bona fide dispute exists so long as undisputed payments are paid. If we
withhold an undisputed payment, Conxion must notify us of the breach in writing
and provide us thirty days to cure the breach. In connection with these
agreements, Conxion invested $550,000 in our Series C Preferred Stock.

Sales and Marketing

   Our sales and marketing strategy is to increase acceptance of our ASP
solutions in clinics and group practices by (1) entering into partnerships with
specialty industry groups and associations who provide us access to customer
channels and (2) selling our ASP solutions as upgrades to our installed base of
over 500 customers that currently use legacy systems. We believe that our
channel partner relationships will enable us to identify customers with common
needs as a channel for our sales efforts. Our current channel partners,
American Medical Information Systems and Pfizer Health Solutions Inc, endorse
our ASP software solutions and provide for co-marketing to their members and
customers.

   Our sales force is divided into Internet, strategic and tactical teams. The
Internet team sells services and products over the Internet and telephone,
which makes more efficient use of their time. The strategic sales team is
focused on selling through our channel partners as well as through our
strategic relationships with Superior and Pfizer Health Solutions Inc. The
tactical sales team focuses on selling our legacy software products and
services. Our tactical sales force is also responsible for selling our ASP
software solutions as upgrades to our installed legacy products. We currently
have nine employees in our sales force, five of which are in the tactical sales
team. We intend to expand the Internet and strategic sales teams significantly
following this offering.

   We market our solutions and services through our website, articles in
industry publications, direct mail and participation in trade shows. From our
website, prospective customers can obtain product information, and download and
run demonstration software. We also use our website to identify and qualify
prospective customers who request information. We believe that publication of
relevant articles in key trade journals is an important method of building
industry awareness. Since 1998, we have published 13 articles under the bylines
of our staff.

Research and Development

   Our research and development organization is comprised of development
engineers who work on system architecture and solution development teams who
work with our domain experts to build solutions for each domain incorporated in
the CoreModel. As of September 15, 1999, we had 25 professionals dedicated to
architecture and solutions development. We will continue to make substantial
investments in research and development to enhance our proprietary architecture
and support the development of additional solutions.

Competition

   The business of providing application software and services to clinics and
group practices is extremely competitive. In addition, the market for Internet-
based ASPs is relatively new and evolving, and we anticipate that competition
will continue to intensify as the use of the Internet grows.

   Our competitive position in the healthcare software application market is
difficult to evaluate due to the variety of current and potential competitors
and the evolving nature of our market and the ASP model. However, we believe
that our ability to provide tailored, integrated and adaptable solutions to our
customers over the Internet on a monthly subscription basis is a competitive
advantage. Our primary competitors include:

  .  Legacy software vendors such as Cerner Corporation, Eclipsys
     Corporation, IDX Systems Corporation, McKesson HBOC, Inc. and Medical
     Manager Corporation;

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<PAGE>

  .  Application service providers such as Confer Software, Inc.,
     MedicaLogic, Inc. and The Trizetto Group, Inc.; and

  .  Healthcare e-commerce and portal companies such as CareInsite, Inc. and
     Healtheon Corporation.

   Each of these types of companies either is or in the future can be expected
to compete with us in delivering software solutions to the clinic and group
practice markets, including the delivery of software applications over the
Internet. Furthermore, major software companies and other entities, including
those specializing in the healthcare industry that are not currently offering
applications, products or services that compete with our products and services,
may enter our markets. In addition, our existing and future strategic partners
may compete with us from time to time by selling, consulting on or hosting
other software that competes with our software solutions.

   We believe the principal differentiating characteristics upon which we
compete are:

  .  features and functionality;

  .  fit with the user's practice, processes and needs;

  .  cost;

  .  ease of implementation and use;

  .  business and technical expertise;

  .  integration of applications;

  .  quality of customer service and support;

  .  reliability; and

  .  scalability.

   To remain competitive, we must continue to enhance our software solutions,
as well as expand our sales, marketing and distribution channels to respond
promptly and effectively to:

  .  changing needs of clinics and group practices;

  .  advances in the delivery of software applications over the Internet;

  .  technological innovation and change;

  .  our competitors' new products, services and pricing models; and

  .  challenges of hiring and retaining qualified information technology
     professionals.

   For additional information concerning risks associated with competition, see
"Risk Factors--The markets we serve are highly competitive and many of our
competitors have much greater resources."

Intellectual Property Rights

   Our success and ability to compete are dependent in part upon our
proprietary technology. We rely upon a combination of copyright, patent,
trademark and trade secret laws and other means to protect our technology.
However, the steps we have taken may not prevent the misappropriation of our
products or technology. In addition, effective proprietary rights protection
may be unavailable or limited in some foreign countries. We have five U.S.
patent applications pending and have received a Notice of Allowance from the
United States Patent and Trademark Office on one of them. In addition, we have
five registered trademarks and have 13 trademark applications pending.

   We retain ownership of our CoreModel and the software applications we
develop. In addition, we have entered into agreements for the right to use
third party software components, such as our database program, in

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<PAGE>

our products on a non-exclusive basis. Our breach of these agreements could
result in our loss of these rights and would harm our business. Our success
will depend in part on our ability to continue to license additional third
party software and upgrades to existing third party software in order to
enhance our products. However, we may not be able to license additional rights
for this software on commercially reasonable terms or at all. If we cannot
obtain required licenses, we could encounter delays or unanticipated
development expense while we attempt to internally develop substitute
technology.

   We may become the target of intellectual property litigation. Although we
have not been notified that any of our products infringe third party
intellectual property rights, we may receive notices of these claims in the
future. Any litigation to determine the validity of such claims, including
claims arising from our contractual indemnification obligations to our
customers, regardless of its merit or resolution, would likely be costly and
may divert management's attention and resources, or cause service
implementation delays. In the event of an adverse ruling in any such
litigation, we could be required to pay substantial damages, cease the sale of
infringing products or obtain a license of the intellectual property rights of
the third party claiming infringement. There can be no assurance that such a
license would be available to us on reasonable terms or at all.

   We also seek to protect our trade secrets and proprietary technology through
confidentiality agreements with employees, customers, consultants and other
appropriate parties. However, we may not have an adequate remedy in the event
these agreements are breached or any remedy if our trade secrets are
independently developed by others.

   For information concerning risks associated with intellectual property
rights, see "Risk Factors."

Government Regulation

   Government Regulation and Healthcare Reform. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more
prevalent. Laws and regulations may be adopted with respect to the Internet
covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services. The
adoption of any additional laws or regulations may impede the growth of the
Internet or other online services, which could, in turn, decrease the demand
for our applications and services and increase our cost of doing business, or
otherwise have an adverse effect on our business, financial condition and
results of operations. Moreover, the applicability to the Internet of existing
laws in various jurisdictions governing issues such as property ownership,
sales and other taxes, libel and personal privacy is uncertain and may take
years to resolve. Any such new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and other online services could harm our business.

   The confidentiality of patient records and the circumstances under which
records may be released for inclusion in our databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Although compliance with these laws and regulations is at present
principally the responsibility of the hospital, physician or other healthcare
provider, regulations governing patient confidentiality rights are evolving
rapidly. Additional legislation governing the dissemination of medical record
information has been proposed at both the state and federal level. This
legislation may require holders of this information to implement security
measures. Such legislation might require us to make substantial expenditures to
implement such measures. We cannot assure you that changes to state or federal
laws will not materially restrict the ability of healthcare providers to submit
information from patient records using our applications.

   Legislation currently being considered at the federal level could impact the
manner in which we conduct our business. The Health Insurance Portability and
Accountability Act of 1996 (HIPAA) mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000. We are
designing our applications to enable compliance with the proposed regulations,
but cannot assure you that we will be able to

                                       44
<PAGE>

comply with those proposed regulations in a timely manner or at all. Moreover,
until the proposed regulations become final, they could change, which could
require us to expend additional resources to comply with the revised standards
and we may not be able to comply with the revised standards in a timely manner
or at all. Based on our present business operations, we believe that the HIPAA
requirements related to the maintenance and exchange of electronic health
information may apply to legacy products sold by our wholly owned subsidiary,
PSI-Med Corporation, but not to our other products, services or solutions. If
any of our products, services or solutions are subject to those regulations, we
may be required to incur additional expenses in order to comply with these
requirements and we may not be able to comply with them in a timely manner or
at all. In addition, the success of our compliance efforts may also be
dependent on the success of healthcare participants in dealing with the
standards. If we are unable to comply with regulations implementing HIPAA in a
timely manner or at all, the sale of our solutions and business could be
harmed.

   The United States Food and Drug Administration is responsible for assuring
the safety and effectiveness of medical devices under the Federal Food, Drug
and Cosmetic Act. Computer applications and software are considered medical
devices and subject to regulation by the FDA when they are indicated, labeled
or intended to be used in the diagnosis of disease or other conditions, or in
the cure, mitigation, treatment or prevention of disease, or are intended to
affect the structure or function of the body. We do not believe that any of our
current applications or services are subject to FDA regulation as medical
devices; however, we plan to expand our application and service offerings into
areas that may subject it to FDA regulation. We have no experience in complying
with FDA regulations. Our compliance with such FDA regulations could prove to
be time consuming, burdensome and expensive, which could have a material
adverse effect on our ability to introduce new applications or services in a
timely manner.

Employees

   As of September 15, 1999, we had approximately 130 employees. Our employees
are not subject to any collective bargaining agreements and we generally have
good relationships with our employees.

Facilities

   We lease eight facilities, all of which are located within the United
States. Our principal executive and corporate offices are located in San
Francisco, California. In addition, we maintain offices in Berkeley, Santa Ana
and Calabasas, California, Denver, Wheat Ridge and Ft. Collins, Colorado and
Golden Valley, Minnesota. Our leases have expiration dates ranging from January
2000 to August 2002. We believe that our facilities are adequate for our
current operations and that additional leased space can be obtained if needed.

Legal Proceedings

   There are no legal proceedings pending to which we are a party and our
management is unaware of any contemplated actions against us.

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<PAGE>

                                   MANAGEMENT

Directors and Executive Officers

   The following table presents information regarding each of our directors and
executive officers as of September 15, 1999.

<TABLE>
<CAPTION>
   Name                                   Age             Position
   ----                                   ---             --------
   <C>                                    <C> <S>
   Jack D. Anderson......................  55 Chairman of the Board; Chief
                                              Executive Officer
   William W. Shaw, III..................  42 President, Secretary and
                                              Treasurer
   William H. Matthews...................  45 Chief Financial Officer
   Robert L. Anderson....................  54 Director; Senior Vice President
   Michael J. Barry......................  38 Chief Information Officer
   David W. McComb.......................  46 Director; Vice President,
                                              Research and Development
   Michael E. Meisel.....................  45 Chief Sales Officer; President
                                              and CEO of Res-Q, Inc., a wholly
                                              owned subsidiary of OrganicNet
   M. Jan Roughan........................  53 Director; President and CEO of
                                              L.I.N.C., Inc., a wholly owned
                                              subsidiary of OrganicNet
   Robert S. Garvie......................  50 Director
   Gail E. Oldfather.....................  64 Director
   Michael A. Wilson.....................  52 Director
</TABLE>

   Jack D. Anderson co-founded OrganicNet in January 1995. He has been Chairman
of the Board and Chief Executive Officer since inception. Mr. Anderson has
approximately 28 years of experience in healthcare management and approximately
20 years of experience in healthcare information systems. From 1993 to 1994,
Mr. Anderson served as a Business Development Consultant for Velocity
Healthcare Informatics, Inc., which was purchased by OrganicNet in December
1996. In 1978, he co-founded Cost Containment Systems, Inc., a healthcare
software company, which was subsequently merged with Serving Software, Inc. Mr.
Anderson served as a director of Serving Software from 1992, when it became a
public company, until it was acquired by HBO & Company in 1994.

   William W. Shaw, III has been President of OrganicNet since February 1997
and Secretary and Treasurer since July 1996. From July 1996 to June 1999, he
also served as Chief Financial Officer of OrganicNet. Mr. Shaw was a consultant
to the Company from October 1995 to July 1996. Mr. Shaw has approximately 16
years of management experience in the healthcare industry. From February 1993
to July 1995, he was Executive Vice President, Vice President of Marketing and
Research and Development for Aesculap, Inc., a surgical products company and
wholly owned subsidiary of Aesculap AG. From 1983 to February 1993, Mr. Shaw
held several other positions at Aesculap including Chief Operating Officer,
Vice President Finance, Treasurer and Controller. From 1980 to 1983, Mr. Shaw
was an Audit Supervisor with Coopers & Lybrand.

   William H. Matthews has been the Chief Financial Officer of OrganicNet since
June 1999. He joined OrganicNet in February 1999 as a financial and accounting
consultant. From October 1994 to February 1999, Mr. Matthews was the Chief
Financial Officer for Imagicast, Inc., formerly Telescan Systems, Inc., a
developer of software and hardware for interactive retail point of sale
applications. From 1993 to 1994, Mr. Matthews served as the controller for
Ravenswood Winery. From 1988 to 1992, Mr. Matthews was the Chief Financial
Officer for Ocean Colony Partners, a real estate development firm. From 1981 to
1987, Mr. Matthews held financial management positions for various companies.
From 1977 to 1981, he was a Senior Auditor for Coopers & Lybrand.

   Robert L. Anderson co-founded OrganicNet in January 1995 and has been Senior
Vice President of OrganicNet since January 1996. He has served as a director
since inception. Mr. Anderson has approximately 20 years of experience in the
development of solutions for complex project and program management
engagements. From August 1993 to October 1994, he served as Director of
Practice Development of BSW Advanced Technology, Inc., an object-oriented
project management software company.

                                       46
<PAGE>

   Michael J. Barry joined OrganicNet as Chief Information Officer in January
1996. Mr. Barry has approximately 20 years of software development experience.
From June 1993 to January 1996, he served as Vice President of Research and
Development at Velocity Healthcare Informatics, Inc. From 1991 to 1993, Mr.
Barry served as the Information Systems Manager for the Carlson Companies,
Inc., a relationship marketing company. From 1985 to 1991, he was an
independent software consultant.

   David W. McComb co-founded OrganicNet in January 1995. He has been Vice
President of Research and Development and a director since June 1995. Mr.
McComb has approximately 20 years of experience in software project management.
From 1989 to 1994, he was President of First Principles, Inc., which he founded
to develop an object-oriented business application framework. First Principles
was acquired by OrganicNet in April 1996. From June 1993 to January 1995, Mr.
McComb also served as Vice President of Research and Development for BSW
Advanced Technology, where he developed object-oriented project management
systems. From 1976 to 1989, he managed client software projects at Andersen
Consulting. He is a frequent lecturer for systems development groups and has
published numerous articles on the subject of systems development.

   Michael E. Meisel was appointed Chief Sales Officer of the Company in
February 1999. Since 1987, Mr. Meisel has served as the President of Res-Q,
Inc., formerly MMS, Inc., which became a wholly owned subsidiary of OrganicNet
in May 1997. Mr. Meisel has approximately 20 years of experience in healthcare
systems product development.

   M. Jan Roughan has been a director of OrganicNet since December 1998. She
joined OrganicNet as the President and Chief Executive Officer of L.I.N.C.,
Inc. in connection with OrganicNet's acquisition of L.I.N.C. in June 1997.
Ms. Roughan founded L.I.N.C. in 1987. From 1982 to 1987, she worked for the
Equitable Life Assurance Society in various capacities including Vice President
and Business Manager. Ms. Roughan is a Registered Nurse, a Certified Disability
Management Specialist, a Certified Rehabilitation Registered Nurse, a Certified
Case Manager and a Certified Developmental Disabilities Nurse.

   Robert S. Garvie has been a director of OrganicNet since March 1996. Mr.
Garvie has served as a director for various private companies in the medical
device and healthcare industries. In 1993, Mr. Garvie founded ArthroCare, a
medical device company. From 1992 to 1993, Mr. Garvie served as the Vice
President of Sales and Marketing for Citation Caliber, Inc., a diagnostic
medical device company. From 1991 to 1992, Mr. Garvie was a consultant for Shaw
Medical Management Group, an electrosurgical products company. From 1986 to
1991, Mr. Garvie served as Vice President, Surgical Products Division for
Haemonetics, a medical device company. Prior to Haemonetics, Mr. Garvie co-
founded Cost Containment Systems, Inc., a healthcare software company.

   Gail E. Oldfather has been a director of OrganicNet since October 1995.
Since 1985, Mr. Oldfather has held various positions for GEO Communications, a
financial consulting company. Mr. Oldfather is currently the President of GEO
Communications.

   Michael A. Wilson has been a director of OrganicNet since March 1998. He is
currently an independent healthcare consultant. From September 1997 to July
1999, he was President and Chief Executive Officer of the CHW Medical
Foundation in San Francisco, a division of Catholic Healthcare West. Before
joining CHW in September 1997, Mr. Wilson served for eight years as President
and Chief Administrative Officer of the Dean Medical Clinic in Madison,
Wisconsin. He is also a former president of the Medical Group Management
Association and is a member of the board of directors of Physician Insurance
Company of Wisconsin.

Board Composition

   The board of directors currently consists of seven members. OrganicNet's
Amended and Restated Certificate of Incorporation, as in effect immediately
prior to the consummation of this offering, divides the board of directors into
three classes. The members of each class of directors serve for staggered
three-year terms. The board of directors is composed of (1) two Class II
directors, Messrs. Robert S. Garvie and Gail E.

                                       47
<PAGE>

Oldfather, whose terms expire upon the election and qualification of directors
at the annual meeting of stockholders to be held in 1999; (2) three Class I
directors, Messrs. Jack D. Anderson, Robert L. Anderson and David W. McComb,
whose terms expire upon the election and qualification of directors at the
annual meeting of stockholders to be held in 2000; and (3) two Class III
directors, Mr. Michael A. Wilson and Ms. M. Jan Roughan, whose terms expire
upon the election and qualification of directors at the annual meeting of
stockholders to be held in 2001.

   Pursuant to our agreement with Superior Consultant Holdings Corporation,
Superior has the right to appoint a member to our board of directors prior to
this offering.

   Our executive officers are appointed by the board of directors and serve
until their successors are qualified and appointed. There are no family
relationships among any of our directors or executive officers.

Director Compensation

   Directors who are also executive officers do not receive additional
compensation for serving on the board or any board committee. Directors are
reimbursed for reasonable travel expenses incurred in attending meetings. There
are no formal arrangements for compensating non-employee directors. We have
compensated non-employee directors with stock options for their service on the
board. In December 1996, Robert S. Garvie received an option to purchase 10,000
shares of common stock at an exercise price of $.50 per share and Gail E.
Oldfather received an option to purchase 18,000 shares of common stock at an
exercise price of $.50 per share. In March 1998, Mr. Garvie and Mr. Oldfather
each received options to purchase 4,500 shares of common stock at an exercise
price of $1.50 per share. All of Mr. Garvie's and Mr. Oldfather's options are
fully vested. Michael A. Wilson received an option in March 1998 to purchase
2,500 shares of common stock at an exercise price of $1.50, half of which are
fully vested.

   In addition, the following directors received the following options to
purchase common stock in consideration for granting bridge loans to us:

  .  In October 1998, Robert S. Garvie received an option to purchase 1,000
     shares of common stock at an exercise price of $2.00 per share;

  .  In October 1998, Gail E. Oldfather received an option to purchase 1,200
     shares of common stock at an exercise price of $2.00 per share; and

  .  In December 1998, Gail E. Oldfather received an option to purchase 1,000
     shares of common stock at an exercise price of $2.00 per share.

   See "Certain Relationships and Related Transactions" for a description of
these bridge loans.

Committees of the Board Of Directors

   In September 1999, the board of directors established an audit committee to
review our internal accounting procedures and consult with, and review the
services provided by, our independent auditors. The audit committee currently
consists of Messrs. Oldfather, McComb and Wilson.

   In July 1997, the board of directors established a compensation committee.
The compensation committee reviews and recommends to the board the compensation
and benefits of all of our executive officers and establishes and reviews
general policies relating to compensation and benefits of our employees and its
subsidiaries. The compensation committee currently consists of Messrs. Garvie,
Oldfather and Shaw.

Compensation Committee Interlocks and Insider Participation

   Prior to July 1997, we did not have a separate compensation committee or
other board committee performing equivalent functions. These functions were
performed by Jack D. Anderson and William W. Shaw, III. No interlocking
relationships exist between our board of directors or compensation committee
and the board of directors or compensation committee of any other company, nor
has any other interlocking relationship existed in the past.

                                       48
<PAGE>

Executive Compensation

   The following table sets forth the total compensation for services rendered
by our Chief Executive Officer and each of our seven other most highly
compensated executive officers including Ms. Roughan, who is an executive
officer of one of our wholly owned subsidiaries during the fiscal year ended
December 31, 1998. These individuals are referred to as the "named executive
officers." The titles listed below are the titles of the named executive
officers as of June 30, 1999. William H. Matthews joined OrganicNet in June
1999 and will be compensated at an annual base salary of $125,000 during the
fiscal year ending on December 31, 1999.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                Long-Term
                                 Annual Compensation           Compensation
                                 ------------------------ ----------------------
                                                                Securities
Name and Principal Position        Salary         Bonus   Underlying Options (#)
---------------------------      ----------     --------- ----------------------
<S>                              <C>            <C>       <C>
Jack D. Anderson, Chairman of
 the Board and Chief Executive
 Officer.......................  $  120,000 (1) $     --             --
William W. Shaw, III,
 President, Secretary and
 Treasurer.....................     120,000 (1)       --          10,000
William H. Matthews, Chief
 Financial Officer.............         --            --             --
Robert L. Anderson, Senior Vice
 President.....................     120,000 (1)       --             --
Michael J. Barry, Chief
 Information Officer...........     120,000 (1)       --          10,000
David W. McComb, Vice
 President, Research and
 Development...................     120,000 (2)       --             --
Michael E. Meisel, Chief Sales
 Officer; President and CEO of
 Res-Q, Inc....................     150,000 (3)    11,877          5,000
M. Jan Roughan, President and
 Chief Executive Officer of
 L.I.N.C., Inc.................     175,000        12,472            --
</TABLE>
--------
(1)  Includes $85,000 of salary accrued during fiscal year 1998 but has not yet
     been paid.
(2)  Includes $40,000 of salary accrued during fiscal year 1998 but has not yet
     been paid.
(3)  Includes $12,000 of salary accrued during fiscal year 1998 but has not yet
     been paid.

Option Grants in Last Fiscal Year and the Six Months Ended June 30, 1999

   The following table sets forth grants of stock options to each of the named
executive officers during the fiscal year ended December 31, 1998. The
potential realizable value is calculated by assuming that the initial public
offering price appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price on the last day
at the appreciated price. The 5% and 10% assumed annual rates of stock price
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future common
stock prices.
<TABLE>
<CAPTION>
                                                                              Potential Realizable
                                                                                Value at Assumed
                                                                                 Annual Rates of
                                                                                   Stock Price
                                                                                Appreciation for
                                          Individual Grants                      Option Term (2)
                         ---------------------------------------------------- ---------------------
                         Number of    Percent of
                         Securities  Total Options
                         Underlying   Granted to
                          Options    Employees in                  Expiration
Name                      Granted   Fiscal Year (1) Exercise Price    Date        5%        10%
----                     ---------- --------------- -------------- ---------- ---------- ----------
<S>                      <C>        <C>             <C>            <C>        <C>        <C>
Jack D. Anderson........     --           --              --             --          --         --
William W. Shaw, III....   5,000         1.26%          $1.50       01/13/08
                           5,000         1.26%           2.00       09/25/08
William H. Matthews.....     --           --              --             --          --         --
Robert L. Anderson......     --           --              --             --          --         --
Michael J. Barry........   5,000         1.26%           1.50       01/13/08
                           5,000         1.26%           2.00       09/25/08
David W. McComb.........     --           --              --             --          --         --
Michael E. Meisel.......   5,000         1.26%           1.50       01/13/08
M. Jan Roughan..........     --           --              --             --          --         --
</TABLE>


                                       49
<PAGE>

--------
(1) In 1998, we granted options to purchase an aggregate of 398,183 shares of
    common stock.
(2) The potential realizable value is calculated by assuming that the initial
    public offering price of $    per share appreciates at the indicated rate
    for the entire term of the option and that the option is exercised at the
    exercise price and sold on the last day of its term at the appreciated
    price. The potential realizable value computation is net of the applicable
    exercise price, but does not take into account applicable federal or state
    income tax consequences and other expenses of option exercises or sales of
    appreciated stock. The values shown do not consider non-transferability or
    termination of the options upon termination of such employee's employment
    with OrganicNet.

   The following table sets forth option grants to the named executive officers
for the time period of January 1, 1999 to June 30, 1999.

<TABLE>
<CAPTION>
                                      Individual Grants
                             -----------------------------------
                             Number of Securities
                              Underlying Options
Name                               Granted        Exercise Price Expiration Date
----                         -------------------- -------------- ---------------
<S>                          <C>                  <C>            <C>
Jack D. Anderson............           --               --               --
William W. Shaw, III........         7,500            $2.00         03/02/09
William H. Matthews.........         4,000             2.50         04/21/09
                                     2,465             2.50         06/22/09
                                    90,000             2.50         06/22/09
Robert L. Anderson..........           --               --               --
Michael J. Barry............         7,500             2.00         03/02/09
David W. McComb.............           --               --               --
Michael E. Meisel...........         4,000             2.00         03/02/09
M. Jan Roughan..............         3,500             2.00         03/02/09
</TABLE>

Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

   The following table sets forth summary information with respect to
exercisable and unexercisable stock options held as of December 31, 1998 by
each of the named executive officers and with respect to the fiscal year ended
December 31, 1998. None of the named executive officers exercised options in
the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
                             Number of Securities
                                  Underlying             Value of Unexercised
                              Unexercised Options       In-the-Money Options at
                             at December 31, 1998        December 31, 1998 (2)
                         ----------------------------- -------------------------
Name                     Exercisable (1) Unexercisable Exercisable Unexercisable
----                     --------------- ------------- ----------- -------------
<S>                      <C>             <C>           <C>         <C>
Jack D. Anderson........         --            --          --           --
William W. Shaw, III....     171,666        88,334
William H. Matthews.....         --            --          --           --
Robert L. Anderson......         --            --          --           --
Michael J. Barry........     171,666        88,334
David W. McComb.........         --            --          --           --
Michael E. Meisel.......         --          5,000
M. Jan Roughan..........         --            --          --           --
</TABLE>
--------
(1) Exercisable refers to those options which will be vested and exercisable
    immediately upon completion of this offering, while "unexercisable" refers
    to those options which will be unvested at such time.
(2) Value is determined by subtracting the exercise price from the fair market
    value of the common stock based on an assumed initial public offering price
    of $  , multiplied by the number of shares underlying the options.


                                       50
<PAGE>

Employment Agreements and Change of Control Arrangements

   Jack D. Anderson entered into an employment agreement with OrganicNet on
January 1, 1996. Mr. Anderson's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Anderson or the company. Under the terms of his employment
agreement, Mr. Anderson receives a base salary of $120,000, subject to change
at the sole discretion of the board of directors. In addition, the board of
directors, or a duly appointed committee thereof will, no less than once
annually, determine if the award of a bonus is warranted and the amount of such
bonus, if any. If we terminate Mr. Anderson's employment without cause or if
Mr. Anderson resigns for good reason, upon a change of control or due to
disability or death, he would be entitled to receive his then existing base
salary for a period of 18 months from the date of termination. In addition, Mr.
Anderson would be entitled to his annual bonus, prorated to his date of
termination, and immediate and full vesting of all outstanding stock options
granted through any termination date. The terms of Mr. Anderson's employment
agreement also provide that Mr. Anderson will not, during the course of his
employment and the 18 months following the date of the termination of his
employment with us: (1) engage or otherwise have a financial interest in any
business activity which is in competition with us or (2) solicit our employees.

   William W. Shaw, III entered into an employment agreement with OrganicNet on
June 1, 1996. Mr. Shaw's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Shaw or the company. Under the terms of his employment agreement,
Mr. Shaw receives a base salary of $120,000, subject to change at the sole
discretion of the board of directors. In addition, the board of directors, or a
duly appointed committee thereof will, no less than once annually, determine if
the award of a bonus is warranted and the amount of such bonus, if any.
Pursuant to his employment agreement, we issued Mr. Shaw options to purchase up
to 250,000 shares of our common stock and he is eligible for future issuances
at the discretion of the board of directors. If we terminate Mr. Shaw's
employment without cause or if Mr. Shaw resigns for good reason, upon a change
of control or due to disability or death, he would be entitled to receive his
then existing base salary for a period of 18 months from the date of
termination. In addition, Mr. Shaw would be entitled to his annual bonus,
including the cash value of shares issued, prorated to his date of termination,
and immediate and full vesting of all outstanding stock options granted through
the termination date. The terms of Mr. Shaw's employment agreement also provide
that Mr. Shaw will not, during the course of his employment and the 18 months
following the date of the termination of his employment with us: (1) engage or
otherwise have a financial interest in any business activity which is in
competition with us or (2) solicit our employees.

   William H. Matthews entered into an employment agreement with OrganicNet on
June 17, 1999. Mr. Matthew's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Matthews or the company. Under the terms of his employment
agreement, Mr. Matthews receives a base salary of $125,000 which will be
adjusted by the compensation committee within 45 days of the closing of this
offering to an amount that represents a market range salary for a public
company of our size and in our industry. Pursuant to his employment agreement,
we issued to Mr. Matthews options to purchase up to 90,000 shares of our common
stock at an option price of $2.50 per share and he is eligible for future
issuances. Upon the occurrence of a change of control before June 20, 2000,
fifty percent of Mr. Matthews' remaining unvested options will vest. Should a
change of control occur after June 20, 2000, all of his remaining options will
vest.

   Robert L. Anderson entered into an employment agreement with OrganicNet on
January 1, 1996. Mr. Anderson's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Anderson or the company. Under the terms of his employment
agreement, Mr. Anderson receives a base salary of $120,000, subject to change
at the sole discretion of the board of directors. In addition, the board of
directors, or a duly appointed committee thereof will, no less than once
annually, determine if the award of a bonus is warranted and the amount of such
bonus, if any. If we terminate Mr. Anderson's employment without cause or if
Mr. Anderson resigns for good reason, upon a change of control or due to
disability or death, he would be entitled to receive his then existing base
salary for

                                       51
<PAGE>

a period of 18 months from the date of termination. In addition, Mr. Anderson
will be entitled to his annual bonus, including the cash value of shares
issued, prorated to his date of termination, and immediate and full vesting of
all outstanding stock options granted through the termination date. The terms
of Mr. Anderson's employment agreement also provide that Mr. Anderson will
not, during the course of his employment and the 18 months following the date
of the termination of his employment with us: (1) engage or otherwise have a
financial interest in any business activity which is in competition with us or
(2) solicit our employees.

   Michael J. Barry entered into an employment agreement with OrganicNet on
January 1, 1996. Mr. Barry's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Barry or the company. Under the terms of his employment agreement,
Mr. Barry receives a base salary of $120,000, subject to change at the sole
discretion of the board of directors. In addition, the board of directors, or
a duly appointed committee thereof will, no less than once annually, determine
if the award of a bonus is warranted and the amount of such bonus, if any.
Pursuant to his employment agreement, we issued to Mr. Barry options to
purchase up to 250,000 shares of our common stock and he is eligible for
future issuances at the discretion of the board of directors. If we terminate
Mr. Barry's employment without cause or if Mr. Barry resigns for good reason,
upon a change of control or due to disability or death, he would be entitled
to receive his then existing base salary for a period of 18 months from the
date of termination. In addition, Mr. Barry would be entitled to his annual
bonus, including the cash value of shares issued, prorated to his date of
termination, and immediate and full vesting of all outstanding stock options
granted through the termination date. The terms of Mr. Barry's employment
agreement also provide that Mr. Barry will not, during the course of his
employment and the 18 months following the date of the termination of his
employment with us: (1) engage or otherwise have a financial interest in any
business activity which is in competition with us or (2) solicit our
employees.

   M. Jan Roughan entered into an employment agreement with OrganicNet on
January 1, 1997. Ms. Roughan's employment agreement ends on December 31, 1999.
Under the terms of her employment agreement, Ms. Roughan receives a base
salary of $175,000. In addition, incentive bonuses will be awarded to Ms.
Roughan based upon net revenue realized from the sale of L.I.N.C., Inc.
software products during the preceding year. Either OrganicNet or Ms. Roughan
may terminate this agreement by giving written notice to the other party.
Pursuant to the terms of her employment agreement, if Ms. Roughan is
terminated for cause, as specified in the agreement, or upon her death, the
company is obligated to pay her base salary and benefits through the effective
date of termination, or the date of her death, as applicable, plus an
additional 12 months of base salary and benefits. If Ms. Roughan is terminated
without cause upon a majority vote of the board of directors, she is entitled
to the greater of her base salary and benefits through the term of the
agreement or 12 months of her then base salary and benefits. The terms of Ms.
Roughan's employment agreement also provide that she will not, during the
course of her employment and the 12 months following the date of the
termination of her employment with us: (1) engage or otherwise have a
financial interest in any business activity which is in competition with us or
(2) solicit our employees.

Limitation of Liability and Indemnification Matters

   Our bylaws limit the personal liability of our directors to the fullest
extent permitted by Delaware law.

   Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and
officers, provided that this provision does not eliminate or limit the
liability of a director for the following:

  .  any breach of the director's duty of loyalty to us or our stockholders;

  .  acts or omissions not in good faith or which involve intentional
     misconduct or a knowing violation of law;

  .  unlawful payments of dividends or unlawful stock repurchases or
     redemptions;

  .  any transaction from which the director derived an improper personal
     benefit;

                                      52
<PAGE>

  .  if the officer or director did not act in good faith and in a manner
     reasonably believed to be in, or not opposed to, our best interests; or

  .  with respect to any criminal action or proceeding, if the officer or
     director had reasonable cause to believe his conduct was unlawful.

   We believe that indemnification provisions under our bylaws covers at least
negligence and gross negligence on the part of indemnified parties.

1997 Stock Option/Stock Issuance Plan

   In November 1997, the board of directors adopted, and the stockholders
approved, the 1997 Stock Option/Stock Issuance Plan. An aggregate of 1,478,513
shares of common stock currently are authorized for issuance under the
incentive plan and the share reserve will automatically be increased on the
first business day of each calendar year by an amount equal to 2% of the total
outstanding shares of common stock on the last business day of the immediately
preceding calendar year. No incentive stock option may be granted on the basis
of the annual share increases. When a stock award expires, is terminated before
it is exercised or is cancelled, the shares set aside for that award are
returned to the pool of shares available for future awards. Shares that are
issued when an award is exercised and that are subsequently repurchased by us
will again become available for future awards.

   The 1997 Plan permits the grant of options to employees, non-employee
directors, and consultants and other independent advisors to the company.
Options may be either ISOs within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or nonstatutory stock options. In addition,
the 1997 Plan permits the grant of stock bonuses and rights to purchase
restricted stock.

   The 1997 Plan is administered by the board of directors. The board of
directors may delegate its authority to administer the 1997 Plan to a committee
of two or more board members appointed by the board of directors. The
administrator has the authority to select the eligible persons to whom award
grants are to be made, to designate the number of shares to be covered by each
award, to determine whether an option is to be an ISO or nonstatutory stock
option, to establish vesting schedules, to specify the exercise price of
options and the type of consideration to be paid upon exercise and to specify
other terms of awards.

   In general, the stock options granted under the 1997 Plan may not exceed 10
years. An optionholder may not transfer a stock option other than by will or
the law of descent or distribution. The exercise price for an ISO cannot be
less than 100% of the fair market value of the common stock on the date of
grant. The exercise price for nonstatutory stock options cannot be less than
85% of the fair market value of the common stock on the date of grant. In the
event the optionholder is a 10% stockholder, then the exercise price per share
shall not be less than 110% of the fair market value of common stock on the
date of grant.

   Unless the terms of an optionholder's stock option agreement provide for
earlier termination, in the event an optionholder's service relationship with
us, or any affiliate of ours, ceases due to disability or death, the
optionholder (or his beneficiary) may exercise any vested options up to 12
months after the date such service relationship ends. If an optionholder's
relationship with us, or any affiliate of ours, ceases for any reason other
than disability or death, the optionholder may (unless the terms of the stock
option agreement provide for earlier termination) exercise any vested options
up to three months from cessation of service. Should an optionholder's
relationship with us be terminated for misconduct, then all outstanding options
held by the optionholder will terminate immediately and cease to remain
outstanding.

   ISOs may be granted only to our employees. The aggregate fair market value,
determined at the time of grant, of shares of our common stock with respect to
which ISOs are exercisable for the first time by an optionholder during any
calendar year under all of our stock plans may not exceed $100,000. If any ISO
is granted to any employee who at the time of the grant owns or is deemed to
own stock possessing more than

                                       53
<PAGE>

10% of the total combined voting power of the Company or any of its affiliates,
the term of the ISO award may not exceed five years from the date of grant.

   In the event of certain changes in control, all outstanding options under
the incentive plan either may be assumed, continued or substituted for by any
surviving entity. If the surviving entity determines not to assume, continue or
substitute for such awards, the vesting provisions of such stock options will
be accelerated and such stock options will be terminated upon the change in
control if not previously exercised. The portion of any ISO accelerated by a
change in control will remain exercisable as an ISO only to the extent the
$100,000 limitation is not exceeded. To the extent this dollar limitation is
exceeded, the accelerated portion of such option will be exercisable as a
nonstatutory stock option under the Federal tax laws. Even if the surviving
entity does assume or substitute outstanding stock awards, if the holder of an
award is terminated other than for misconduct, or constructively terminated,
within a specified period not more than 18 months following the change in
control, the holder's award will vest in full.

   The terms of any stock bonuses or restricted stock purchase awards granted
under the 1997 Plan will be determined by the administrator. However, the
administrator may not impose a vesting schedule which is more restrictive than
20% per year, with initial vesting to occur no later than one year after the
issuance date. Such limitation shall not apply to any common stock issuance
made to officers, non-employee directors or consultants. The administrator may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the 1997 Plan may be subject to
repurchase by us. The purchase price of restricted stock under any restricted
stock purchase agreement will not be less than 85% of the fair market value of
the company's common stock on the date of grant. However, the purchase price
per share of common stock for a 10% stockholder shall not be less then 110% of
the fair market value on the date of grant.

   Upon a change in control, all outstanding repurchase rights will terminate
and the shares of common stock subject to those rights will immediately vest in
full, except to the extent the repurchase rights are assigned to the successor
entity or such accelerated vesting is precluded by limitations imposed by the
administrator at the time the repurchase right was issued. In addition, the
administrator will have full and complete discretion with regard to outstanding
shares to provide that repurchase rights will automatically terminate on an
accelerated basis and that the shares shall immediately vest in the event the
participant's relationship with the company should terminate by reason of the
change in control within no more than 18 months following the effective date of
the change in control.

   The board of directors may amend or modify the 1997 Plan at any time.
However, no such amendment or modification shall adversely affect the right and
obligations with respect to options or unvested awards unless the participant
consents to such an amendment or modification. In addition, certain amendments
may require stockholder approval.

   As of August 31, 1999, the Company had issued and outstanding under the 1997
Plan options to purchase 792,732 shares of common stock.

1996 Stock Option/Stock Issuance

   On April 30, 1996, the board of directors adopted, and the stockholders
approved, the 1996 Stock Option/Stock Issuance Plan. On April 22, 1997, the
board of directors adopted, and on November 21, 1997, the stockholders
approved, an amendment and restatement of the incentive plan. A maximum of
1,000,000 shares are authorized under the 1996 Plan. The authorized share
reserve is comprised of (1) 750,000 shares originally available under the
incentive plan and (2) an additional 250,000 shares of common stock authorized
by the board on April 22, 1997, subject to stockholder approval. When a stock
award expires, is terminated before it is exercised or is cancelled, the shares
set aside for that award are returned to the pool of shares available for
future awards. Awards may be granted in excess of the number of shares of
common stock then available for issuance under the 1996 Plan, provided any
excess shall be held in escrow until stockholder approval is obtained
increasing the number of shares of common stock available for issuance. If
approval is not obtained

                                       54
<PAGE>

within 12 months after the issuance of the excess is made, then (1) any
unexercised options granted on the basis of the excess will terminate and cease
to be outstanding and (2) the company will refund the exercise or purchase
price plus interest.

   The 1996 Plan permits the grant of options to employees, non-employee
directors and consultants. Options may be either ISOs within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, or nonstatutory
stock options. In addition, the 1996 Plan permits the grant of stock bonuses
and rights to purchase restricted stock.

   The 1996 Plan is administered by the board of directors. The board of
directors may delegate its authority to administer the 1996 Plan to a committee
of two or more board members appointed by the board of directors. The
administrator has the authority to select the eligible persons to whom award
grants are to be made, to designate the number of shares to be covered by each
award, to determine whether an option is to be an ISO or nonstatutory stock
option, to establish vesting schedules, to specify the exercise price of
options and the type of consideration to be paid upon exercise and to specify
other terms of awards.

   In general, the stock options granted under the 1996 Plan may not exceed 10
years. An optionholder may not transfer a stock option other than by will or
the law of descent or distribution. However, a nonstatutory option may be
assigned in whole or in part during optionholder's lifetime in accordance with
the terms of a qualified domestic relations order. The exercise price for an
ISO cannot be less than 100% of the fair market value of the common stock on
the date of grant. The exercise price for nonstatutory stock options cannot be
less than 85% of the fair market value of the common stock on the date of
grant. In the event the optionholder is a 10% stockholder, then the exercise
price per share will not be less than 110% of the fair market value of common
stock on the date of grant.

   Unless the terms of an optionholder's stock option agreement provide for
earlier termination, in the event an optionholder's service relationship with
us, or any affiliate of ours, ceases due to death, the optionholder's
beneficiary may exercise any vested options up to 12 months after the date such
service relationship ends. In the event an optionholder's service relationship
with us, or any affiliate of ours, ceases due to disability, the optionholder
may exercise any vested option up to six months (12 months for permanent
disability) after the cessation of service. If an optionholder's relationship
with us, or any affiliate of ours, ceases for any reason other than disability
or death, the optionholder may (unless the terms of the stock option agreement
provide for earlier termination) exercise any vested options up to three months
from cessation of service. Should an optionholder's relationship with us be
terminated for misconduct, then all outstanding options held by the
optionholder will terminate immediately and cease to remain outstanding.

   ISOs may be granted only to our employees. The aggregate fair market value,
determined at the time of grant, of shares of our common stock with respect to
which incentive stock options are exercisable for the first time by an
optionholder during any calendar year under all of our stock plans may not
exceed $100,000. If any ISO is granted to any employee who at, the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of the Company or any of its affiliates, the term of the
ISO award may not exceed five years from the date of grant.

   In the event of certain changes in control, all outstanding options under
the incentive plan may be assumed by any surviving entity. If the surviving
entity determines not to assume the options, they will terminate and no longer
be outstanding on the effective date of such change in control.

   The terms of any stock bonuses or restricted stock purchase awards granted
under the 1996 Plan will be determined by the administrator. However, the
administrator may not impose a vesting schedule which is more restrictive than
20% per year, with initial vesting to occur no later than one year after the
issuance date. Such limitation shall not apply to any common stock issuance
made to officers, non-employee directors or consultants. The administrator may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the 1996 Plan may be subject to
repurchase by the company. The

                                       55
<PAGE>

purchase price of restricted stock under any restricted stock purchase
agreement will not be less than 85% of the fair market value of the company's
common stock on the date of grant. However, the purchase price per share of
common stock for a 10% stockholder will not be less then 110% of the fair
market value on the date of grant.

   Upon a change in control, all outstanding repurchase rights will terminate
to the extent the surviving entity does not accept the assignment of the
repurchase rights.

   The board of directors may amend or modify the 1996 Plan at any time.
However, no such amendment or modification shall adversely affect the right and
obligations with respect to options or unvested awards unless the participant
consents to such an amendment or modification. In addition, the board of
directors will not without the approval of the stockholders (1) increase the
maximum number of shares issuable under the 1996 Plan (except for permissible
adjustments in the event of certain changes in the Company's capitalization),
(2) materially modify the eligibility requirements for participation or (3)
materially increase the benefits accruing to participants.

   As of August 31, 1999, the Company had issued and outstanding under the 1996
Plan options to purchase 826,436 shares of common stock.

401(k) Plan

   We sponsor a 401(k) plan, a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code of 1986, as amended. All
employees who exceed 20 hours per week and 1,000 hours per year and who
complete one month of service are eligible to participate. Participants may
make pre-tax contributions to the 401(k) plan of up to 20% of their eligible
earnings, subject to a statutorily prescribed annual limit ($10,000 in calendar
year 1999). Under the 401(k) plan, each employee is fully vested in his or her
deferred salary contributions. Employee contributions are held and invested by
the 401(k) plan's trustee. The 401(k) plan also permits us to make matching
contributions and profit-sharing contributions, subject to established limits.

   Each participant's contributions and the corresponding investment earnings
are generally not taxable to the participants until withdrawn. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.

                                       56
<PAGE>

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Since January 1, 1998, some of our directors, executive officers and
affiliates have entered into transactions with us as follows:

                           Purchase Of Capital Stock

<TABLE>
<CAPTION>
                         Date of                                           Number of
Name                     Purchase     Type of Security     Price per Share  Shares
----                     -------- ------------------------ --------------- ---------
<S>                      <C>      <C>                      <C>             <C>
Jack D. Anderson (1).... 08/10/99 Series C Preferred Stock      $2.75       51,789
William H. Matthews..... 04/17/98 Series C Preferred Stock       2.75       10,909
                         01/06/99 Series C Preferred Stock       2.75        7,143
                         06/30/99 Series C Preferred Stock       2.75        5,000
                         08/02/99 Series C Preferred Stock       2.75       20,000
Michael E. Meisel....... 04/01/99 Series C Preferred Stock       2.75        5,000
Robert S. Garvie (2).... 02/19/99 Series C Preferred Stock       2.75       31,110
                         04/05/99 Common Stock (4)               0.50       10,000
                         04/05/99 Common Stock (4)               1.50        4,500
                         04/05/99 Common Stock (4)               2.00        1,000
                         04/05/99 Series C Preferred Stock       2.75       11,581
                         08/05/99 Series C Preferred Stock       2.75       36,363
Gail E. Oldfather (3)... 03/10/98 Series C Preferred Stock       2.75       17,945
                         11/25/98 Series C Preferred Stock       2.75       29,753
                         12/28/98 Series C Preferred Stock       2.75        1,800
                         03/31/99 Series C Preferred Stock       2.75       10,000
                         07/20/99 Series C Preferred Stock       2.75       75,000
</TABLE>
--------
(1) Includes shares purchased on behalf of Mr. Anderson's spouse.
(2) Includes shares purchased by Omeah Ltd. Partnership. Mr. Garvie is a
    General Partner of Omeah Ltd. Partnership.
(3) Includes shares purchased on behalf of Mr. Oldfather's spouse and
    relatives.
(4) Shares purchased pursuant to the exercise of stock options.

                                       57
<PAGE>

   Since January 1, 1998, we have granted options to purchase common stock to
some of our directors, executive officers and affiliates as follows:

                           Issuance Of Stock Options

<TABLE>
<CAPTION>
Name                                         Date Granted Exercise Price Options
----                                         ------------ -------------- -------
<S>                                          <C>          <C>            <C>
William W. Shaw, III........................   01/13/98       $1.50       5,000
                                               09/25/98        2.00       5,000
                                               03/02/99        2.00       7,500
                                               08/06/99        2.50      10,000
William E. Matthews.........................   04/21/99        2.50       4,000
                                               06/22/99        2.50       2,465
                                               06/22/99        2.50      90,000
Michael J. Barry............................   01/13/98        1.50       5,000
                                               09/25/98        2.00       5,000
                                               03/02/99        2.00       7,500
                                               08/06/99        2.50      10,000
Michael E. Meisel...........................   01/13/98        1.50       5,000
                                               03/02/99        2.00       4,000
M. Jan Roughan..............................   03/02/99        2.00       3,500
Robert S. Garvie............................   03/12/98        1.50       2,500
                                               03/12/98        1.50       2,000
                                               10/29/98        2.00       1,000
Gail E. Oldfather...........................   03/12/98        1.50       2,500
                                               03/12/98        1.50       2,000
                                               10/29/98        2.00       1,200
                                               12/10/98        2.00       1,000
                                               08/06/99        2.50      27,000
Michael A. Wilson...........................   03/12/98        1.50       2,500
</TABLE>

Lock-Up Agreements

   Each of the individuals listed above have entered into lock-up agreements
pursuant to which they have agreed not to, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of common stock, preferred stock or any
substantially similar securities or securities convertible into or exchangeable
or exercisable for shares of common stock, preferred stock or any substantially
similar securities for a period of 180 days from the date of this prospectus
without the prior written consent of the underwriter. The underwriter may, at
any time and without notice, waive the terms of these lock-up agreements.

ASP Agreement with Conxion Corporation

   We have entered into several agreements with Conxion Corporation under which
Conxion supplies us with application hosting services and Internet
infrastructure for our ASP software solutions. In connection with these
agreements, Conxion invested $550,000 in our Series C preferred stock. See
"Business--Strategic Relationships and Alliances" for a description of these
agreements.

Loan From Jack D. Anderson and Peggy L. Anderson to OrganicNet

   On September 30, 1997, Mr. and Mrs. Anderson loaned $60,000 to us at an
interest rate of 6.5% per annum. As of September 15, 1999, the Company has
repaid a total of approximately $56,371 of the loan, approximately $31,453 of
which was repaid in cash and approximately $24,917 of which was repaid in the
form of 9,061 shares of Series C preferred stock. The remaining balance on this
loan is approximately $10,994.

                                       58
<PAGE>

Agreement with Superior Consultant Holdings Corporation

   We entered into a marketing alliance with Superior Consulting Holdings
Corporation in September 1999, under which Superior will introduce, promote and
demonstrate our ASP software solutions. Pursuant to this agreement, we granted
Superior an option to purchase 200,000 shares of our common stock at an
exercise price of $6.00 per share. See "Business--Strategic Relationships and
Alliances" for a description of this agreement.

Indemnity and Subrogation Agreement between Michael E. Meisel and OrganicNet

   On January 1, 1998, Michael E. Meisel entered into an Indemnity and
Subrogation Agreement with us in connection with a line of credit agreement
between our wholly owned subsidiary Res-Q, Inc. (formerly MMS, Inc.) and Wells
Fargo Bank. This line of credit was assigned to and assumed by us upon the
acquisition of MMS, Inc. In connection with this line of credit, Mr. Meisel
provided a personal guaranty. OrganicNet agreed to indemnify Mr. Meisel for a
maximum amount of $200,000, the current amount of Mr. Meisel's guaranty plus
accrued interest, for any deficiency in repayment that he may suffer after
making a claim for reimbursement from the principal borrower.

Promissory Note dated April 1, 1999 between Michael E. Meisel and OrganicNet

   In connection with our acquisition of Res-Q, Inc. (formerly MMS, Inc.),
OrganicNet and Mr. Meisel executed two $50,000 promissory notes on April 4,
1997 and December 1, 1997, respectively. These notes were consolidated on April
1, 1999. Under this consolidated promissory note, we were obligated to pay Mr.
Meisel approximately $105,187, plus interest at the rate of 10% per annum,
compounded monthly. This note becomes due and payable on December 31, 1999 and
can be prepaid at any time in whole or in part without premium or penalty. As
of June 30, 1999, the outstanding balance of this note was approximately
$107,832. In August 1999, we repaid $5,000 of this note. We will repay the
entire outstanding balance of this note from the proceeds of this offering.

Line of Credit Agreement between First National Bank and Jack D. Anderson,
David W. McComb and Robert L. Anderson

   On October 28, 1997, First National Bank extended a line of credit in the
amount of $100,000 to three of our executive officers and directors, Jack D.
Anderson, David W. McComb and Robert L. Anderson. The terms of the line of
credit are for a term for one year at a variable rate of interest, currently
10%. The line of credit has been extended to September 30, 1999. Messrs.
Anderson, McComb and Anderson have borrowed $100,000 under this line of credit
for our benefit. We have assumed the obligation to repay this loan. Messrs.
Anderson, McComb and Anderson have executed promissory notes with First
National Bank and have personally guaranteed this loan.

Promissory Notes dated June 1, 1997 and December 1, 1997 between M. Jan Roughan
and OrganicNet

   In connection with our acquisition of L.I.N.C., Inc. on June 23, 1997,
OrganicNet and Ms. Roughan executed two promissory notes in the amount of
$50,000 each on June 1, 1997 and December 1, 1997. As of June 30, 1999, the
total balance of these notes was approximately $120,045. In August 1999, we
repaid a total of $5,000 of these notes. We will repay the entire outstanding
balance of these notes from the proceeds of this offering.

Promissory Note dated October 2, 1998 between Robert S. Garvie and OrganicNet

   On October 2, 1998, Mr. Garvie loaned us $20,000 at an interest rate of 12%
per annum. As consideration for this loan, we granted Mr. Garvie options to
purchase 1,000 shares of common stock at an exercise price of $2.00 per share.
We have repaid this loan.

                                       59
<PAGE>

Promissory Note dated November 25, 1998 between Gail B. Oldfather and
OrganicNet

   On November 25, 1998, Mr. Oldfather loaned us $20,000 at an interest rate of
12% per annum. As consideration for this loan, we granted Mr. Oldfather options
to purchase 1,000 shares of common stock at an exercise price of $2.00 per
share. We have repaid this loan.

Promissory Note dated October 19, 1998 between Gail B. Oldfather and OrganicNet

   On October 19, 1998, Mr. Oldfather loaned us $24,000 at an interest rate of
12% per annum. As consideration for this loan, we granted Mr. Oldfather options
to purchase 1,200 shares of common stock at an exercise price of $2.00 per
share. We have repaid this loan.

Other Related Party Transactions

   We have entered into an employment agreement with William H. Matthews, a
named executive officer. See "Management--Employment Agreements and Change of
Control Arrangements."

Indemnification Agreements

   We intend to enter into indemnification agreements with our officers and
directors containing provisions that require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.

   We believe that all transactions described in this section "Certain
Relationships and Related Transactions" were made on terms no less favorable to
us than would have been obtained from unaffiliated third parties. All future
transactions, if any, with our executive officers, directors and affiliates
will be on terms no less favorable to us than could be obtained from unrelated
third parties and will be approved by a majority of the board of directors and
by a majority of the disinterested members of the board of directors.

                                       60
<PAGE>

                             PRINCIPAL STOCKHOLDERS

   The following table sets forth information with respect to beneficial
ownership of our common stock as of August 31, 1999 and as adjusted to reflect
the sale of common stock offered by us pursuant to this offering. The following
table lists:

  .  each person known by us to beneficially own more than 5% of our
     outstanding common stock;

  .  each director;

  .  each named executive officer; and

  .  all directors and executive officers as a group.

   Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address for each listed director and officer is
OrganicNet, Inc., 330 Townsend Street, Suite 206, San Francisco, California,
94107-1630. Except as indicated by footnote, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares
of common stock underlying options that are exercisable within 60 days of
August 31, 1999, but excludes shares of common stock underlying options held by
any other persons and the preferred stock issued in the acquisition of PSI-Med
Corporation. Percentage of beneficial ownership prior to the offering is based
on 13,460,389 shares of common stock outstanding as of August 31, 1999 after
giving effect to the conversion of our currently outstanding preferred stock.
Percentage of beneficial ownership after the offering is based on     shares
outstanding after the offering.

<TABLE>
<CAPTION>
                                                    Percentage of Shares
                                Shares               Beneficially Owned
                             Beneficially     --------------------------------
Name of Beneficial Owner        Owned         Prior to Offering After Offering
------------------------     ------------     ----------------- --------------
<S>                          <C>              <C>               <C>
Jack D. Anderson............  2,287,813 (1)         17.00%
William W. Shaw, III........    343,889 (2)          2.51%
William H. Matthews.........     90,160 (3)             *
Robert L. Anderson..........  1,353,986 (4)         10.06%
Michael J. Barry............    330,505 (5)          2.41%
David W. McComb.............    923,139 (6)          6.86%
Michael E. Meisel...........    517,658 (7)          3.85%
M. Jan Roughan..............    260,233              1.93%
Robert S. Garvie............    236,904 (8)          1.76%
Gail E. Oldfather...........    701,812 (9)          5.19%
Michael A. Wilson...........      1,250 (10)            *
All directors and executive
 officers as a group (11
 persons)...................  7,047,349 (11)        50.14%
</TABLE>
--------
*  Represents beneficial ownership of less than one percent of the common
   stock.

(1)  Includes 228,170 shares of common stock owned by Mr. Anderson's spouse and
     held in trust for the benefit of Mr. Anderson and his spouse.
(2)  Includes 266,667 shares of common stock beneficially owned as a result of
     options that become exercisable within 60 days of August 31, 1999.
(3)  Includes 6,465 shares of common stock beneficially owned as a result of
     options that become exercisable within 60 days of August 31, 1999.
(4)  Includes 46,000 shares of common stock owned by Mr. Anderson's spouse and
     children and held in trust for the benefit of Mr. Anderson's children.
(5)  Includes 266,667 shares of common stock beneficially owned as a result of
     options that become exercisable within 60 days of August 31, 1999.
(6)  Includes 28,652 shares of common stock owned by Mr. McComb's spouse.

                                       61
<PAGE>

(7)  Includes 213,966 shares of common stock owned by Mr. Meisel's spouse and
     held in trusts established for the benefit of Mr. Meisel's children, and
     1,667 shares of common stock beneficially owned as a result of options
     that become exercisable within 60 days of August 31, 1999.
(8)  Includes 3,636 shares of common stock held in trust for the benefit of Mr.
     Garvie's family and 233,268 shares owned by Omeah Ltd. Partnership. Mr.
     Garvie is a General Partner of Omeah Ltd. Partnership.
(9)  Includes 367,112 shares held in trusts established for the benefit of Mr.
     Oldfather's family, and 51,700 shares of common stock beneficially owned
     as a result of options that become exercisable within 60 days of August
     31, 1999.
(10)  Includes 1,250 shares of common stock beneficially owned as a result of
      options that become exercisable within 60 days of August 31, 1999.
(11)  Includes shares described in the notes above, as applicable.

                                       62
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

   Following the closing of the sale of the shares offered by this prospectus,
our authorized capital stock will consist of     shares of common stock, $0.001
par value, and     shares of preferred stock, $0.01 par value.

Common Stock

   As of August 31, 1999, there were 13,460,389 shares of common stock
outstanding held of record by approximately 460 stockholders, on an as-
converted basis. There will be     shares of common stock outstanding after
giving effect to the sale of the shares of common stock offered in this
prospectus. This number assumes no exercise of the underwriter's over-allotment
option and no exercise of options after August 31, 1999.

   The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred
stock, the holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of legally available
funds. In the event of our liquidation, dissolution or winding up, holders of
the common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preferences of any outstanding
shares of preferred stock. Holders of common stock have no preemptive rights or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.

Preferred Stock

   Effective upon the closing of this offering, we will be authorized to issue
    shares of undesignated preferred stock. Our board of directors will have
the authority to issue the undesignated preferred stock in one or more series
and to determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of undesignated preferred stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the stockholders. The issuance of preferred stock may have
the effect of delaying, deferring or preventing any change in control may
adversely affect the voting and other rights of holders of common stock, and
the likelihood that the holders will receive dividend payments and payments
upon liquidation. At present, we have no plans to issue any shares of preferred
stock.

Registration Rights

   The Amended and Restated Investor Rights Agreement dated October 31, 1997,
provides holders of the preferred stock rights to register shares of our
capital stock. At any time after the later of six months after the effective
date of the first registration statement that we file under the Securities Act
or December 31, 2001, holders of a majority of the registrable securities, as
defined in the Investor Rights Agreement, may require us to effect registration
under the Securities Act of their Registrable Securities, subject to the board
of directors' right to defer the registration for a period of up to 120 days.
The investors also have the right, upon demand made by 25% of the holders of
registrable securities, to cause us to register their securities on Form S-3
when it becomes available to us if they propose to register securities having a
value of at least $1 million. In addition, if we propose to register securities
under the Securities Act, other than registrations on Form S-4 or Form S-8,
then any of the investors has a right, subject to quantity limitations, as
determined by the underwriter if the offering is underwritten to request that
we register such holder's registrable securities. We will bear all registration
expenses incurred in connection with registrations. We have agreed to indemnify
the investors against liabilities related to the accuracy of the registration
statement used in connection with any registration effected pursuant to the
foregoing.

                                       63
<PAGE>

Effect of Selected Provisions of the Certificate of Incorporation and Bylaws,
and the Delaware Anti-takeover Statute

 Amended and Restated Certificate of Incorporation and Bylaws

   Upon the closing of this offering, our amended and restated certificate of
incorporation will provide that our board of directors be classified into three
classes of directors and all stockholder action must be effected at a duly
called meeting of stockholders and not by a consent in writing. The amended and
restated certificate of incorporation and bylaws provide that only our Chief
Executive Officer, the Chairman of the board of directors or a majority of the
members of the board of directors may call a special meeting of the
stockholders. Directors may not be removed without cause. The amended and
restated bylaws establish procedures including advance notice with regard to
the nomination of directors and stockholder proposals. These provisions of the
amended and restated certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control.
These provisions also may have the effect of preventing changes in our
management.

   The board of directors has authority to issue up to     shares of preferred
stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the common stock will be subject
to, and may be harmed by, the rights of the holders of any preferred stock that
may be issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control.

 Delaware Takeover Statute

   We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:

  .  prior to that date, the board of directors of the corporation approved
     either the business combination or the transaction that resulted in the
     stockholder becoming an interested stockholder;

  .  upon consummation of the transaction that resulted in the stockholder
     becoming an interested stockholder, the interested stockholder owned at
     least 85% of the voting stock of the corporation outstanding at the time
     the transaction commenced, excluding for purposes of determining the
     number of shares outstanding those shares owned:

    . by persons who are directors and also officers; and

    .  by employee stock plans in which employee participants do not have
       the right to determine confidentially whether shares held subject to
       the plan will be tendered in a tender or exchange offer; or

  .  on or subsequent to that date, the business combination is approved by
     the board of directors of the corporation and authorized at an annual or
     special meeting of stockholders and not by written consent, by the
     affirmative vote of at least 66 2/3% of the outstanding voting stock
     that is not owned by the interested stockholder.

   Section 203 defines "business combination" to include the following:

  .  any merger or consolidation involving the corporation and the interested
     stockholder;

  .  any sale, transfer, plan or other disposition of 10% or more of the
     assets of the corporation involving the interested stockholder;

                                       64
<PAGE>

  .  subject to certain exceptions, any transaction that results in the
     issuance or transfer by the corporation of any stock of the corporation
     to the interested stockholder;

  .  any transaction involving the corporation that has the effect of
     increasing the proportionate share of the stock of any class or series
     of the corporation beneficially owned by the interested stockholder; and

  .  the receipt by the interested stockholder of the benefit of any loans,
     advances, guarantees, pledges or other financial benefits provided by or
     through the corporation.

   In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.

Transfer Agent and Registrar

   The transfer agent and registrar for the common stock is      .

Listing

   We have applied for our common stock to be quoted on the Nasdaq National
Market under the trading symbol "OGNT."

                                       65
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.

   After this offering,     shares of common stock will be outstanding,
shares if the underwriter exercises its over-allotment options in full. Of
these shares, the     shares sold in this offering,    shares if the
underwriter's over-allotment options are exercised in full, will be freely
tradable without restriction under the Securities Act except for shares
purchased by our "affiliates" as defined in Rule 144 under the Securities Act.
The remaining 13,793,729 shares are "restricted securities" within the meaning
of Rule 144 under the Securities Act. The restricted securities generally may
not be sold unless they are registered under the Securities Act or are sold
pursuant to an exemption from registration, such as the exemption provided by
Rule 144 under the Securities Act.

   Our officers, directors and stockholders holding     shares of common stock
have entered into lock-up agreements under which they have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose of, any shares of
common stock, preferred stock or any substantially similar securities or
securities convertible into or exchangeable or exercisable for shares of common
stock, preferred stock or any substantially similar securities for a period of
180 days after the date of this prospectus without the prior written consent of
the underwriter. Following the lock-up period and as set forth in the chart
below, these shares will be eligible for sale in the public market without
registration under the Securities Act if such sales meet the applicable
conditions and restrictions of Rule 144 as described above. As these
restrictions on resale end, the market price of our common stock could drop
significantly if the holders of these restricted shares sell them, or are
perceived by the market as intending to sell them.

<TABLE>
<CAPTION>
                                 Date of availability for resale
 Number of shares                      into public market
 ----------------                -------------------------------
 <C>              <S>
                  180 days after the date of this prospectus due to a lock-up
                  agreement our officers, directors and stockholders have with
                  the underwriter. However, the underwriter can waive this
                  restriction at any time and without notice.

                  Between 180 and 365 days after the date of this prospectus
                  due to the requirements of the federal securities laws.
</TABLE>

   In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, any person, or persons whose shares are
aggregated, including an affiliate, who has beneficially owned shares for a
period of at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:

  .  1% of the then-outstanding shares of common stock; and

  .  the average weekly trading volume in the common stock during the four
     calendar weeks immediately preceding the date on which the notice of
     such sale on Form 144 is filed with the Securities and Exchange
     Commission.

   Sales under Rule 144 are also subject to provisions relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person or persons whose shares are aggregated who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale,
and who has beneficially owned the shares for at least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above. The above summary of Rule 144
is not intended to be a complete description.


                                       66
<PAGE>

   In addition, our employees, directors, officers, advisors or consultants who
were issued shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits affiliates to sell their Rule 701 shares without having
to comply with Rule 144's holding period restrictions, in each case commencing
90 days after the date of this prospectus.

   As soon as practicable following the closing of this offering, we intend to
file a registration statement under the Securities Act to register     shares
of common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock option plans and our stock purchase
plans, of which 1,018,594 shares subject to options under our stock option
plans will be exercisable immediately upon the closing of this offering and an
additional 15,933 shares subject to options under our stock option plans will
be exercisable within 60 days of August 31, 1999. After the effective date of
such registration statement, these shares will be available for sale in the
open market subject to the lock-up agreements described above and, for our
affiliates, to the conditions and restrictions of Rule 144.

                                       67
<PAGE>

                                  UNDERWRITING

   We have entered into an underwriting agreement with the underwriter named
below. We are obligated to sell, and the underwriter is obligated to purchase,
all of the shares offered on the cover page of this prospectus, if any are
purchased. Subject to certain conditions of the underwriting agreement, the
underwriter has agreed to purchase the shares indicated opposite its name:

<TABLE>
<CAPTION>
                                                                        Number
Underwriter                                                            of Shares
-----------                                                            ---------
<S>                                                                    <C>
Punk, Ziegel & Company, L.P...........................................
                                                                         ----
  Total...............................................................
                                                                         ====
</TABLE>

   The underwriter may sell more shares than the total number of shares offered
on the cover page of this prospectus and it has for a period of 30 days from
the date of this prospectus, an over-allotment option to purchase up to
additional shares from us. If any additional shares are purchased, the
underwriter will purchase the shares in the same proportion as per the table
above.

   The underwriter has advised us that the shares will be offered to the public
at the offering price indicated on the cover page of this prospectus. The
underwriter may allow selected dealers a concession not in excess of $    per
share and such dealers may reallow a concession not in excess of $    per share
to certain other dealers. After the shares are released for sale to the public,
the underwriter may change the offering price and the concessions. The
underwriter has informed us that it does not intend to sell shares to any
investor who has granted it discretionary authority.

   We have agreed to pay to the underwriter the following fees, assuming both
no exercise and full exercise of the underwriter's over-allotment option to
purchase additional shares:

<TABLE>
<CAPTION>
                                                     Total Fees
                                     -------------------------------------------
                              Fee     Without Exercise of    Full Exercise of
                           Per Share Over-Allotment Option Over-Allotment Option
                           --------- --------------------- ---------------------
<S>                        <C>       <C>                   <C>
Fees paid by us...........   $               $                     $
</TABLE>

   In addition, we estimate that we will spend approximately $    in expenses
for this offering. We have agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments that the underwriter may be required to make in respect of these
liabilities.

   We, our officers and directors, and our stockholders have entered into lock-
up agreements pursuant to which we and they have agreed not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose of any shares of common stock,
preferred stock or any substantially similar securities or securities
convertible into or exchangeable or exercisable for shares of common stock,
preferred stock or any substantially similar securities for a period of 180
days from the date of this prospectus without the prior written consent of the
underwriter. The underwriter may, at any time and without notice, waive the
terms of these lock-up agreements as specified in such agreements.

   Prior to this offering, there has been no public market for the common stock
of OrganicNet. The initial public offering price, negotiated between OrganicNet
and the underwriter, will be based upon various

                                       68
<PAGE>

factors such as our financial and operating history and condition, our
prospects, the prospects for our industry and prevailing market conditions.

   The underwriter, may engage in the following activities in accordance with
applicable securities rules:

  .  Over-allotments involving sales in excess of the offering size, creating
     a short position. The underwriter may elect to reduce this short
     position by exercising some or all of the over-allotment option.

  .  Stabilizing and short covering; stabilizing bids to purchase the shares
     are permitted if they do not exceed a specified maximum price. After the
     distribution of shares has been completed, short covering purchases in
     the open market may also reduce the short position. These activities may
     cause the price of the shares to be higher than would otherwise exist in
     the open market.

  .  Penalty bids permitting the underwriter to reclaim concessions from a
     syndicate member for the shares purchased in the stabilizing or short-
     covering transactions.

   Such activities, which may be commenced or discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.

   The underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:

  .  the Public Offers of Securities Regulation 1995;

  .  the Financial Services Act 1986; and

  .  the Financial Services Act 1986, (Investment Advertisements)
     (Exemptions) Order 1996 (as amended).

   In March 1998, certain entities and persons affiliated with Punk, Ziegel &
Company, L.P. purchased an aggregate of 60,227 shares of our Series C preferred
stock at a purchase price of $2.75 per share for an aggregate amount of
approximately $165,624. Such shares will convert into 60,227 shares of common
stock upon the closing of this offering.

   We have asked the underwriter to reserve shares for sale at the offering
price to our officers, directors, employees and other business affiliates or
related third parties. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase the
reserved shares.

                                       69
<PAGE>

                                 LEGAL MATTERS

   The validity of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal matters
will be passed upon for the underwriter by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois.

                                    EXPERTS

   The consolidated financial statements and the related consolidated financial
statement schedule of OrganicNet, Inc. as of December 31, 1997 and 1998 and as
of June 30, 1999, and for each of the years in the three-year period ended
December 31, 1998 and for the six months ended June 30, 1999, and the financial
statements of PSI-Med Corporation as of May 31, 1998 and 1999, and for each of
the years in the three-year period ended May 31, 1999, have been included
herein and in the registration statement in reliance upon the reports of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.

                             AVAILABLE INFORMATION

   We have filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form S-1, including the exhibits and
schedules thereto, under the Securities Act of 1933, as amended, with respect
to the common stock offered hereby. This prospectus does not contain all of the
information contained in the registration statement and the exhibits and
schedules to the registration statement. Some items are omitted in accordance
with the rules and regulations of the Commission. For further information about
OrganicNet and the common stock offered under this prospectus, you should
review the registration statement and the exhibits and schedules filed as a
part of the registration statement. Descriptions of contracts or other
documents referred to in this prospectus are not necessarily complete. If the
contract or document is filed as an exhibit to the registration statement, you
should review that contract or document. You should be aware that when we
discuss these contracts or documents in the prospectus we are assuming that you
will read the exhibits to the registration statement for a more complete
understanding of the contract or document. The registration statement and its
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C., 20549, and the Commission's regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661 and Seven World Trade Center, 13th Floor, New York, New York, 10048.
Copies of all or any portion of the registration statement may be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington D.C. 20549, or by calling the Commission at
1-800-SEC-0330, at prescribed rates. The Commission also maintains a website at
www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants, such as OrganicNet, that make electronic
filings with the Commission.

   We intend to furnish to our stockholders annual reports containing financial
statements audited by an independent public accounting firm.

                                       70
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Consolidated Financial Statements, OrganicNet, Inc.
  Independent Auditors' Report...........................................  F-2
  Consolidated Balance Sheets............................................  F-3
  Consolidated Statements of Operations..................................  F-4
  Consolidated Statements of Stockholders' Deficit.......................  F-5
  Consolidated Statements of Cash Flows..................................  F-6
  Notes to Consolidated Financial Statements.............................  F-7
Unaudited Pro Forma Condensed Combined Financial Information, OrganicNet,
 Inc. and PSI-Med Corporation
  Financial Information..................................................  F-23
  Condensed Combined Balance Sheet.......................................  F-23
  Condensed Combined Statement of Operations.............................  F-24
  Notes to Pro Forma Condensed Combined Financial Statements.............  F-26
Financial Statements, PSI-Med Corporation
  Independent Auditors' Report...........................................  F-27
  Balance Sheets.........................................................  F-28
  Statements of Operations...............................................  F-29
  Statements of Stockholders' Deficit....................................  F-30
  Statements of Cash Flows...............................................  F-31
  Notes to Financial Statements..........................................  F-32
</TABLE>

                                      F-1
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

  The Board of Directors
  OrganicNet, Inc.:

     We have audited the accompanying consolidated balance sheets of
  OrganicNet, Inc. (a Delaware Corporation) and subsidiaries (the Company) as
  of December 31, 1997 and 1998 and June 30, 1999, and the related
  consolidated statements of operations, stockholders' deficit and cash flows
  for each of the years in the three-year period ended December 31, 1998, and
  for the six-month period ended June 30, 1999. These consolidated financial
  statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these consolidated financial
  statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
  present fairly, in all material respects, the financial position of
  OrganicNet, Inc. and subsidiaries as of December 31, 1997 and 1998 and June
  30, 1999, and the results of their operations and their cash flows for each
  of the years in the three-year period ended December 31, 1998, and for the
  six-month period ended June 30, 1999, in conformity with generally accepted
  accounting principles.

                                             /s/ KPMG LLP

  San Francisco, California
  August 27, 1999, except as to note 14  which is as of September 20, 1999

                                      F-2
<PAGE>

                                OrganicNet, Inc.

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                December 31,                 June 30, 1999
                          -------------------------  ------------------------------
                                                                      Pro forma
                                                                    stockholders'
                             1997          1998         Actual     deficit (note 1)
                          -----------  ------------  ------------  ----------------
                                                                     (unaudited)
         ASSETS
         ------

<S>                       <C>          <C>           <C>           <C>
Current assets:
  Cash and cash
   equivalents..........  $    46,558  $     41,104  $  1,680,135
  Accounts receivable,
   net of allowance for
   doubtful accounts of
   $113,000, $128,800
   and $196,945 in 1997,
   1998 and 1999,
   respectively.........      805,687       732,370       647,523
  Prepaids and other
   current assets.......      119,340       158,186       105,578
                          -----------  ------------  ------------
   Total current
    assets..............      971,585       931,660  $  2,433,236
Property and equipment,
 net of accumulated
 depreciation of
 $426,475, $615,402 and
 $711,580 in 1997, 1998
 and 1999,
 respectively...........      504,867       348,134       309,483
Intangible assets, net
 of accumulated
 amortization of
 $364,110, $928,094 and
 $1,242,560 in 1997,
 1998 and 1999,
 respectively...........    1,392,291       884,970       570,504
Other noncurrent
 assets.................       35,598        50,284       131,407
                          -----------  ------------  ------------
                          $ 2,904,341  $  2,215,048  $  3,444,630
                          ===========  ============  ============

<S>                       <C>          <C>           <C>           <C>
Current liabilities:
  Accounts payable......  $ 1,289,354  $  2,359,263  $  1,416,523
  Deferred revenue......    1,589,817     2,372,162     2,329,020
  Advances from
   employees............      516,180     1,162,895       971,711
  Notes payable to
   employees............      331,373       444,124       552,948
  Notes payable to
   stockholders.........      133,106       474,768       405,356
  Current portion of
   capital leases.......       39,342        19,506        10,801
  Other current
   liabilities..........      221,912       388,592       450,877
                          -----------  ------------  ------------
   Total current
    liabilities.........    4,121,084     7,221,310     6,137,236
Long-term portion of
 capital leases.........       40,742        40,742        40,117
                          -----------  ------------  ------------
   Total liabilities....    4,161,826     7,262,052     6,177,353
Commitments,
 contingencies and
 subsequent events
Stockholders' deficit:
  Series A, A-II, A-III,
   B and C preferred
   stock, $0.01 par
   value, authorized
   14,000,000 shares;
   issued and
   outstanding
   2,904,712, 3,679,446
   and 5,673,940 shares
   in 1997, 1998 and
   1999, respectively;
   none pro forma; with
   an aggregate
   liquidation
   preference of
   $4,725,880,
   $6,856,398 and
   $12,341,257 in 1997,
   1998 and 1999,
   respectively.........       29,047        36,794        56,739    $        --
  Common stock, $0.001
   par value, 29,500,000
   shares authorized;
   5,425,672, 5,463,447
   and 5,499,613 shares
   issued and
   outstanding in 1997,
   1998 and 1999,
   respectively;
   12,778,107 shares pro
   forma................        5,426         5,464         5,500          12,778
  Additional paid-in
   capital..............    6,030,273     8,238,670    13,815,209      14,531,350
  Receivable related to
   sale of stock........          --            --       (550,000)       (550,000)
  Deferred
   compensation.........          --            --        (88,635)        (88,635)
  Accumulated deficit...   (7,322,231)  (13,327,932)  (15,971,536)    (15,971,536)
                          -----------  ------------  ------------    ------------
   Total stockholders'
    deficit.............   (1,257,485)   (5,047,004)   (2,732,723)   $ (2,066,043)
                          -----------  ------------  ------------    ============
                          $ 2,904,341  $  2,215,048  $  3,444,630
                          ===========  ============  ============
</TABLE>
[CAPTION]
     LIABILITIES AND
  STOCKHOLDERS' DEFICIT
  ---------------------


          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                                OrganicNet, Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  Six Months Ended June
                               Years Ended December 31,                    30,
                          -------------------------------------  ------------------------
                             1996         1997         1998         1998         1999
                          -----------  -----------  -----------  -----------  -----------
                                                                 (unaudited)
<S>                       <C>          <C>          <C>          <C>          <C>
Revenue:
  License...............  $       --   $   424,340  $   570,694  $   113,092  $   369,769
  Product development...          --     1,237,500      564,560      530,245      227,402
  Service...............      371,054    1,309,645    3,488,397    2,052,986    2,112,049
                          -----------  -----------  -----------  -----------  -----------
    Total revenue.......      371,054    2,971,485    4,623,651    2,696,323    2,709,220
                          -----------  -----------  -----------  -----------  -----------
Cost of revenue:
  License...............          --       474,849      756,156      387,129      336,031
  Product development...          --       319,974      208,533      128,163       63,072
  Service...............      238,431      892,183    2,314,026    1,249,097    1,230,311
                          -----------  -----------  -----------  -----------  -----------
    Total cost of
     revenue............      238,431    1,687,006    3,278,715    1,764,389    1,629,414
                          -----------  -----------  -----------  -----------  -----------
Gross profit............      132,623    1,284,479    1,344,936      931,934    1,079,806
                          -----------  -----------  -----------  -----------  -----------
Operating expense:
  Sales and marketing...       24,335    1,394,852    1,643,868      833,592      672,109
  Research and
   development..........      724,231    1,344,640    1,832,783      782,991    1,204,494
  General and
   administrative.......    1,689,723    3,332,443    3,768,388    1,662,940    1,761,776
                          -----------  -----------  -----------  -----------  -----------
    Total operating
     expense............    2,438,289    6,071,935    7,245,039    3,279,523    3,638,379
                          -----------  -----------  -----------  -----------  -----------
Operating loss..........   (2,305,666)  (4,787,456)  (5,900,103)  (2,347,589)  (2,558,573)
Interest expense........       (2,068)     (19,752)     (92,955)     (42,772)     (76,018)
Other income (expense)..          --        13,596       (8,643)      (5,509)      (5,013)
                          -----------  -----------  -----------  -----------  -----------
Loss before income
 taxes..................   (2,307,734)  (4,793,612)  (6,001,701)  (2,395,870)  (2,639,604)
Provision for income
 taxes..................        4,000        6,400        4,000        2,000        4,000
                          -----------  -----------  -----------  -----------  -----------
Net loss................  $(2,311,734) $(4,800,012) $(6,005,701) $(2,397,870) $(2,643,604)
                          ===========  ===========  ===========  ===========  ===========
Loss per share:
  Basic and diluted.....  $     (0.45) $     (0.88) $     (1.10) $     (0.44) $     (0.48)
                          ===========  ===========  ===========  ===========  ===========
Weighted average shares
 outstanding:
  Basic and diluted.....    5,188,513    5,425,672    5,447,820    5,431,968    5,484,663
                          ===========  ===========  ===========  ===========  ===========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                                OrganicNet, Inc.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

Years Ended December 31, 1996, 1997 and 1998 and Six Months Ended June 30, 1999

<TABLE>
<CAPTION>
                                                                                               Receivable
                     Preferred Stock     Common Stock   Additional                             related to      Total
                    ------------------ ----------------   paid-in     Deferred   Accumulated    sale of    stockholders'
                     Shares    Amount   Shares   Amount   capital   compensation   deficit       stock        deficit
                    --------- -------- --------- ------ ----------- ------------ ------------  ----------  -------------
<S>                 <C>       <C>      <C>       <C>    <C>         <C>          <C>           <C>         <C>
Balances at
 December 31,
 1995.............        --  $    --  4,000,000 $4,000 $     6,000   $    --    $   (210,485) $   (5,000)  $  (205,485)
Issuance of Series
 A preferred
 stock............  1,333,270   13,333       --     --    1,319,937        --             --          --      1,333,270
Issuance of Series
 B preferred
 stock............    401,182    4,012       --     --      898,648        --             --          --        902,660
Paydown of notes
 receivable.......        --       --        --     --          --         --             --        5,000         5,000
Common stock
 issued upon the
 acquisition of
 FPI..............        --       --  1,385,533  1,386     158,220        --             --          --        159,606
Series A-II
 preferred stock
 issued upon the
 acquisition of
 CPCS ............      1,783       18       --     --        3,951        --             --          --          3,969
Common stock
 issued upon the
 acquisition of
 CPCS.............        --       --     40,139     40       3,974        --             --          --          4,014
Series A-II and A-
 III preferred
 stock issued upon
 the acquisition
 of Velocity......     10,832      108       --     --       48,636        --             --          --         48,744
Series A-II
 preferred stock
 issued upon the
 acquisition of
 RiteLine.........      2,333       23       --     --        5,109        --             --          --          5,132
Net loss..........        --       --        --     --          --         --      (2,311,734)        --     (2,311,734)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at
 December 31,
 1996.............  1,749,400   17,494 5,425,672  5,426   2,444,475        --      (2,522,219)        --        (54,824)
Issuance of Series
 A preferred stock
 in lieu of
 compensation.....     85,000      850       --     --       84,150        --             --          --         85,000
Issuance of Series
 B preferred
 stock............    761,288    7,613       --     --    1,710,361        --             --          --      1,717,974
Issuance of Series
 B preferred stock
 in lieu of
 compensation.....     40,000      400       --     --       89,600        --             --          --         90,000
Issuance of Series
 C preferred
 stock............    217,066    2,171       --     --      594,805        --             --          --        596,976
Series A-II
 preferred stock
 issued upon the
 acquisition of
 Res-Q............     23,333      233       --     --      497,227        --             --          --        497,460
Series A-II
 preferred stock
 issued upon the
 acquisition of
 LINC.............     13,333      133       --     --      284,393        --             --          --        284,526
Series A-II
 preferred stock
 issued upon the
 acquisition of
 Healthcheck......      8,624       86       --     --      183,055        --             --          --        183,141
Series A-II
 preferred stock
 issued upon the
 acquisition of
 Intedata.........      6,668       67       --     --      142,207        --             --          --        142,274
Net loss..........        --       --        --     --          --         --      (4,800,012)        --     (4,800,012)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at
 December 31,
 1997.............  2,904,712   29,047 5,425,672  5,426   6,030,273        --      (7,322,231)        --     (1,257,485)
Issuance of Series
 C preferred
 stock............    774,734    7,747       --     --    2,122,771        --             --          --      2,130,518
Stock options
 granted to non-
 employees........        --       --        --     --       29,001        --             --          --         29,001
Common shares
 issued for
 purchase price
 adjustment for
 CPCS.............        --       --     37,775     38      56,625        --             --          --         56,663
Net loss..........        --       --        --     --          --         --      (6,005,701)        --     (6,005,701)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at
 December 31,
 1998.............  3,679,446   36,794 5,463,447  5,464   8,238,670        --     (13,327,932)        --     (5,047,004)
Issuance of Series
 C preferred
 stock............  1,621,765   16,218       --     --    4,346,447        --             --          --      4,362,665
Issuance of Series
 C preferred stock
 to Conxion.......    200,000    2,000       --     --      548,000        --             --          --        550,000
Receivable related
 to sale of
 stock............        --       --        --     --          --         --             --     (550,000)     (550,000)
Issuance of Series
 C preferred stock
 in exchange for
 legal services...    150,000    1,500       --     --      411,000        --             --          --        412,500
Issuance of Series
 C preferred stock
 in exchange for
 other services...     12,729      127       --     --       34,878        --             --          --         35,005
Issuance of Series
 C preferred stock
 to repay loan to
 related parties..     10,000      100       --     --       27,400        --             --          --         27,500
Issuance of common
 stock pursuant to
 exercise of stock
 options..........        --       --     36,166     36      33,987        --             --          --         34,023
Stock options
 granted to non-
 employees........        --       --        --     --       58,192        --             --          --         58,192
Deferred
 compensation
 related to stock
 option grants....        --       --        --     --      116,635   (116,635)           --          --            --
Amortization of
 deferred
 compensation.....        --       --        --     --          --      28,000            --          --         28,000
Net loss..........        --       --        --     --          --         --      (2,643,604)        --     (2,643,604)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at June
 30, 1999.........  5,673,940 $ 56,739 5,499,613 $5,500 $13,815,209   $(88,635)  $(15,971,536) $(550,000)   $(2,732,723)
                    ========= ======== ========= ====== ===========   ========   ============  ==========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

                                OrganicNet, Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    Six Months Ended
                               Years Ended December 31,                 June 30,
                          -------------------------------------  ------------------------
                             1996         1997         1998         1998         1999
                          -----------  -----------  -----------  -----------  -----------
                                                                 (unaudited)
<S>                       <C>          <C>          <C>          <C>          <C>
Cash flows from
 operating activities:
 Net loss...............  $(2,311,734) $(4,800,012) $(6,005,701) $(2,397,870) $(2,643,604)
 Adjustments to
  reconcile net loss to
  net cash used in
  operating activities:
  Depreciation and
   amortization.........       76,535      522,506      752,911      399,762      410,644
  Provision for bad
   debts................          --       113,000       15,800       12,000       68,145
  Noncash compensation
   expense..............          --       175,000       29,001       16,600       86,192
  Changes in operating
   assets and
   liabilities:
  Accounts receivable...      154,699      (61,920)      57,517       49,012       16,702
  Prepaid expenses and
   other current and
   non-current assets...      (16,450)     (28,079)     (53,532)      15,476      (28,515)
  Accounts payable and
   other current
   liabilities..........      (78,060)       5,645    1,184,988      782,927     (326,009)
  Deferred revenue......       78,030      805,558      782,345     (121,073)     (43,142)
                          -----------  -----------  -----------  -----------  -----------
   Net cash used in
    operating
    activities..........   (2,096,980)  (3,268,302)  (3,236,671)  (1,243,166)  (2,459,587)
                          -----------  -----------  -----------  -----------  -----------
Cash flows from
 investing activities:
 Capital expenditures...      (74,752)    (206,916)     (32,194)     (83,706)     (57,527)
 Cash (paid for)
  received from
  acquisitions..........      (22,032)     212,822          --           --           --
                          -----------  -----------  -----------  -----------  -----------
   Net cash (used in)
    provided by
    investing
    activities..........      (96,784)       5,906      (32,194)     (83,706)     (57,527)
                          -----------  -----------  -----------  -----------  -----------
Cash flows from
 financing activities:
 Proceeds from notes
  payable to and
  advances from related
  parties...............      (71,720)     903,492    1,101,128        8,428     (124,272)
 Borrowings (payments)
  under line of credit,
  net...................          --        92,790       71,107           --     (106,941)
 Proceeds from preferred
  stock issued in
  private placements....    2,235,930    2,314,950    2,130,518    1,400,694    4,362,665
 Repayment of note
  receivable............        5,000          --           --           --           --
 Proceeds from exercise
  of stock options......          --           --           --           --        34,023
 Repayment of capital
  lease obligations.....          --        (2,278)     (39,342)     (20,164)      (9,330)
                          -----------  -----------  -----------  -----------  -----------
   Net cash provided by
    financing
    activities..........    2,169,210    3,308,954    3,263,411    1,388,958    4,156,145
                          -----------  -----------  -----------  -----------  -----------
Net (decrease) increase
 in cash and cash
 equivalents............      (24,554)      46,558       (5,454)      62,086    1,639,031
Cash and cash
 equivalents at
 beginning of period....       24,554          --        46,558       46,558       41,104
                          -----------  -----------  -----------  -----------  -----------
Cash and cash
 equivalents at end of
 period.................  $       --   $    46,558  $    41,104  $   108,644  $ 1,680,135
                          ===========  ===========  ===========  ===========  ===========
Supplemental disclosure
 of cash flow
 information:
  Cash paid during the
   period for income
   taxes................  $     4,000  $     6,400  $     4,000  $     2,000  $     4,000
Supplemental schedule of
 noncash investing and
 financing activities:
 Summary of the
  acquisitions described
  in note 2:
  Fair value of assets
   acquired.............  $   781,900  $ 2,435,357  $       --   $       --   $       --
  Net cash (paid)
   received.............      (22,032)     212,822          --           --           --
  Stock issued..........     (221,465)  (1,107,401)     (56,663)         --           --
  Notes issued..........          --      (200,000)         --           --           --
                          -----------  -----------  -----------  -----------  -----------
   Liabilities assumed..  $   538,403  $ 1,340,778  $   (56,663) $       --   $       --
                          ===========  ===========  ===========  ===========  ===========
  Receivable related to
   sale of stock........  $       --   $       --   $       --   $       --   $   550,000
  Stock issued in
   exchange for legal
   services.............          --           --           --           --       412,500
  Stock issued in
   exchange for other
   services.............          --           --           --           --        35,005
  Stock issued to repay
   loan to related
   parties..............          --           --           --           --        27,500
  Assets acquired under
   capital lease
   obligations..........          --       114,524       33,620       19,019          --
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                                OrganicNet, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          December 31, 1996, 1997 and 1998, and June 30, 1998 and 1999
  (Information as of and for the Six Months Ended June 30, 1998 is unaudited)

(1) Nature of Business and Summary of Significant Accounting Policies

 Business of the Company

   We are an application services provider (ASP) that develops proprietary
software solutions for healthcare clinics and physician group practices using
our proprietary technology platform. Our customers can access and use our
solutions over the Internet or their local or wide area networks. We are
developing integrated solutions designed to manage all elements of the business
and clinical processes of our customers within a single system. Our software
solutions are built using our object-oriented Organic Architecture. Central to
our Organic Architecture is our CoreModel, which is comprised of objects that
represent a universal set of clinical and business processes. To develop our
CoreModel and solutions, we selectively acquired companies with healthcare
domain expertise and enabling technologies. These acquisitions also provided
near term products, customers and revenues. We were incorporated in January
1995 as a California corporation and reincorporated in Delaware in April 1996.
We changed our name to OrganicNet, Inc. in May 1999. We are headquartered in
San Francisco, California.

 Basis of Presentation

   Our consolidated financial statements include the accounts of OrganicNet,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

 Interim Financial Information

   The consolidated financial statements and related notes for the six months
ended June 30, 1998 are unaudited, but include all adjustments (consisting
solely of normal recurring adjustments) which are, in our opinion, necessary
for a fair presentation. The results of operations for the six months ended
June 30, 1998 and 1999 are not necessarily indicative of operating results to
be expected in any future period.

 Accounting Estimates

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

 Revenue Recognition

   License revenue includes fees from the licensing of our acquired legacy
products. Product development revenue consists of revenue derived from
development of customer requested software or customer satisfaction surveys and
development of the related database. Service revenue is composed of post-
contract software support, case management, credentialing, training,
installation and software application customization for legacy products.

   Beginning January 1, 1998, we have recognized revenue in accordance with the
American Institute of Certified Public Accountants' Statement of Position (SOP)
No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9, Software
Revenue Recognition with Respect to Certain Transactions. Revenue is recognized
from licenses of our software application products when the contract has been
executed, the product has been shipped, collectibility is probable and the
software license fees are fixed and determinable. In the

                                      F-7
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

event that the contract provides for multiple elements (e.g., training,
application customization or post-contract customer support), the total fee is
allocated to these elements based on vendor-specific objective evidence of fair
value. If any portion of the license fee is subject to forfeiture, refund or
other contractual contingencies, we will postpone revenue recognition until
these contingencies have been removed. We recognize product development revenue
from co-development contracts using a percentage-of-completion method based on
meeting key milestone events over the term of the contracts. Service revenue
from post-contract customer support and maintenance is recognized ratably over
the term of the maintenance period. Revenue from case management,
credentialing, training, installation and customization services is recorded as
the services are performed.

   Our adoption of SOP 97-2 did not have a material effect on our revenue
recognition or our results of operations. Prior to adoption of SOP 97-2, we
accounted for software and related revenues in accordance with SOP 91-1,
Software Revenue Recognition.

 Research and Development

   Research and development expenditures are charged to expense in the period
incurred.

 Advertising Costs

   All costs associated with advertising and promoting products are charged to
expense in the period incurred.

 Income Taxes

   We account for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS
No. 109, 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. 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.

 Net Loss per Share

   We compute net loss per share based upon SFAS No. 128, Earnings per Share.
The basic net loss per share is computed by dividing the net loss available to
common stockholders by the weighted-average number of common shares
outstanding. Potential common shares relating to stock options of 590,333,
860,936, 1,243,769 and 1,569,309 in 1996, 1997 and 1998, and for the six months
ended June 30, 1999 are anti-dilutive due to the net losses sustained by us.
Convertible preferred stock of 1,749,400, 2,904,712, 3,679,446 and 5,673,940
shares in 1996, 1997, 1998 and for the six months ended June 30, 1999 has also
been excluded from the calculation of net loss per share as the impact would be
anti-dilutive. Thus, the diluted net loss per share in these years is the same
as the basic net loss per share.

 Stock-Based Compensation

   We account for our stock option plans under SFAS No. 123, Accounting for
Stock-Based Compensation. This statement establishes financial accounting and
reporting standards for stock-based compensation, including employee stock
purchase plans and stock option plans. As allowed by SFAS No. 123, we continue
to measure compensation expense for options granted to employees under the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations.

                                      F-8
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   We have recorded deferred compensation for the difference between the
exercise price and the deemed fair market value for financial reporting
purposes of stock options granted to employees. The compensation expense
related to such grants is amortized over the vesting period of the related
stock options.

 Comprehensive Loss

   We have no components of other comprehensive loss other than our net loss
and, accordingly, our comprehensive loss is equivalent to our net loss for all
periods presented.

 Cash and Cash Equivalents

   We consider all highly liquid investments purchased with an original
maturity of three months or less from the date of purchase to be cash
equivalents.

 Long-Lived Assets, Including Intangible Assets

   We account for long-lived assets under SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
SFAS No. 121 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 the assets 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 undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment loss 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. We estimate fair value based on the best
information available, making judgments and projections as considered
necessary.

   Intangible assets consist of items related to our business combinations
during the years ended December 31, 1996 and 1997. Goodwill is amortized over a
seven-year period. Acquired technology is being amortized over its estimated
useful life of approximately three years. Workforce-in-place is being amortized
over the lesser of the employment tenure of the employee or the agreement term.

 Software Development Costs

   Software development costs are accounted for in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. This statement provides for capitalization of certain software
development costs once technological feasibility is established. We establish
technological feasibility once a working model has been created. The time
between establishment of a working model and general release is short.
Therefore, we believe that software development costs incurred subsequent to
technological feasibility have not been material.

 Property and Equipment

   Property and equipment is stated at cost. Computer and related equipment is
depreciated over a useful life of three years using the straight-line method.
Office furniture and fixtures are depreciated over useful lives ranging from
three to five years using the straight-line method. Leasehold improvements are
amortized on a straight-line basis over the shorter of the useful life or
remaining lease term.

 Concentrations of Credit Risk

   Financial instruments, which potentially subject us to concentrations of
credit risk, consist principally of trade receivables. We control credit risk
through credit approvals, credit limits, a reserve for doubtful accounts, and
monitoring procedures.

                                      F-9
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   We have several product development and collaborative agreements with Pfizer
Health Solutions Inc to co-develop, market, license and distribute various
OrganicNet products and services. Co-development and marketing agreements to
date include development of OrganicNet's Outcomes Partner III, care management
and credentialing applications. Additionally, we have together co-developed and
marketed several survey products including the National Committee for Quality
Assurance Member Satisfaction Survey, disenrollment and patient satisfaction
surveys. Sales to Pfizer Health Solutions Inc amounted to approximately $0,
$1,375,000, $652,000, $598,000 and $837,000 for the years ended December 31,
1996, 1997 and 1998, and the six months ended June 30, 1998 and 1999,
respectively. These sales represented approximately 0%, 46%, 14%, 22% and 31%,
respectively, of our total revenue for those periods.

   A different customer accounted for 15% and 10% of total revenue and accounts
receivable for the six months ended and as of June 30, 1999, respectively.

 Fair Value of Financial Instruments

   The carrying amounts of cash, trade receivables, accounts payable and other
current liabilities approximate fair value due to the short maturities of these
instruments. The advances and loans from employees and stockholders are not
traded on any public market and approximate our best estimate of fair value.

 Pro Forma Stockholders' Deficit (Unaudited)

   The unaudited pro forma stockholders' deficit gives effect to the issuance
of 16,667 shares of our Series A-II preferred stock in conjunction with the
purchase of PSI-Med Corporation, the conversion of these PSI-Med shares into
333,340 shares of common stock at a conversion rate of 20 common shares for
each preferred share, and the conversion of 5,673,940 shares of Series A, A-II,
A-III, B and C convertible preferred stock outstanding as of June 30, 1999 into
6,945,154 shares of common stock, at a conversion rate of 20 common shares for
each preferred share of Series A-II and A-III and at a conversion rate of one
common share for each preferred share of Series A, B and C, upon closing of our
initial public offering.

(2) Business Combinations

   During the years ended December 31, 1996 and 1997, we completed the
following acquisitions:

<TABLE>
<CAPTION>
Company                        Acquisition Date            Expertise
-------                        ----------------- ------------------------------
<S>                            <C>               <C>
First Principles, Inc.
 (FPI).......................  April 22, 1996    Object Technology
RiteLine Systems, Inc.
 (RiteLine)..................  April 30, 1996    Business Methodology
Comprehensive Provider
 Credentialing Services, Inc.
 (CPCS)......................  May 23, 1996      Credentialing Service
Velocity Healthcare
 Informatics, Inc.
 (Velocity)..................  December 20, 1996 Outcomes/Disease Management
Res-Q, Inc., formerly MMS,
 Inc. (Res-Q)................  May 14, 1997      Scheduling/Resource Management
Intedata, Inc. (Intedata)....  June 4, 1997      Marketing Service
L.I.N.C., Inc. (LINC)........  June 23, 1997     Case Management
Healthcheck, Incorporated
 (Healthcheck)...............  November 14, 1997 Credentialing Service
</TABLE>

                                      F-10
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   We acquired all of the outstanding stock of each of the above companies,
with the exception of Velocity. We purchased certain assets of Velocity,
including all of its intellectual property. Under terms of the acquisition
agreements, we paid cash and issued notes payable and the following shares of
common, Series A-II preferred and Series A-III preferred stock, valued at the
fair market value of the stock on the respective acquisition dates:

<TABLE>
<CAPTION>
                                                        Series A-II Series A-III
                                               Common    preferred   preferred
   Acquired company                             stock      stock       stock
   ----------------                           --------- ----------- ------------
   <S>                                        <C>       <C>         <C>
   FPI....................................... 1,596,066      --           --
   RiteLine..................................       --     2,333          --
   CPCS......................................    77,914    1,783          --
   Velocity..................................       --     5,416       5,416
   Intedata..................................       --     6,668          --
   LINC......................................       --    13,333          --
   Res-Q.....................................       --    23,333          --
   Healthcheck...............................       --     8,624          --
</TABLE>

   The acquisitions were accounted for using the purchase method of accounting
and, accordingly, the results of the companies' operations are included in our
consolidated financial statements from their respective acquisition dates
forward.

   Summaries of the consideration paid and the allocation of the purchase price
to the assets acquired and liabilities assumed are as follows:

<TABLE>
   <S>                                                              <C>
   Common stock.................................................... $   220,283
   Series A-II preferred stock.....................................   1,140,874
   Series A-III preferred stock....................................      24,372
   Cash paid (CPCS)................................................      74,900
   Notes payable (LINC and Res-Q)..................................     200,000
                                                                    -----------
                                                                    $ 1,660,429
                                                                    ===========

   The purchase price was allocated to the assets acquired and liabilities
assumed as follows:

   Cash............................................................ $   265,690
   Accounts receivable.............................................     874,855
   Other current assets............................................     145,719
   Property and equipment..........................................     440,283
   Goodwill........................................................     492,964
   Workforce-in-place..............................................     142,274
   Acquired technology.............................................   1,177,826
   Liabilities.....................................................    (761,456)
   Customer deposits and deferred maintenance......................  (1,117,726)
                                                                    -----------
                                                                    $ 1,660,429
                                                                    ===========
</TABLE>

   In conjunction with the Intedata acquisition, we entered into two employment
agreements with the former founders of Intedata. As there were no assets to be
acquired or liabilities to be assumed in the Intedata acquisition, the full
purchase price has been allocated to those agreements as workforce-in-place and
is being amortized over the lesser of the employment tenure of the employee or
the agreement term of three years from the acquisition date.

                                      F-11
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   We acquired certain software technology in the LINC and Res-Q acquisitions.
The fair value of this technology was determined using a discounted cash flow
analysis of the revenue stream to be derived from such technology. Acquired
software technology is being amortized on a straight-line basis over its
expected economic life of approximately three years, which is when we expect to
release our ASP software version of the legacy product.

   Goodwill, which arose from the FPI, CPCS and Healthcheck acquisitions,
represents the excess of the purchase price over the fair value of the assets
acquired and liabilities assumed, and is amortized using the straight-line
method over its estimated life of seven years.

   The above purchase price includes $56,663 of contingent payments made in
September 1998 for CPCS through the issuance of 37,775 shares of our common
stock. This amount has been allocated to goodwill and is being amortized using
the straight-line method over five years, which is the remaining estimated life
of the goodwill.

   Effective March 1998, the operations of CPCS were combined with Healthcheck.
Effective December 31, 1996, the operations of FPI and RiteLine were combined
with our Corporate Headquarters.

   We issued four $50,000 notes to the former shareholders of LINC and Res-Q in
conjunction with the LINC and Res-Q acquisitions. The notes are due on December
31, 1999 and bear interest at 10% per year.

   The results of operations for all of the acquired entities are included in
the 1998 results of operations of the Company for the full year. The following
table presents unaudited pro forma results of operations as if the acquisitions
had occurred on the first day of the earliest period presented. The unaudited
pro forma information is not necessarily indicative of the combined results
that would have occurred had the acquisitions taken place on the first day of
the period presented, nor is it necessarily indicative of results that may
occur in the future:

<TABLE>
<CAPTION>
                                                        Years Ended December
                                                                 31,
                                                       ------------------------
                                                          1996         1997
                                                       -----------  -----------
                                                             (unaudited)
   <S>                                                 <C>          <C>
   Pro forma basis:
     Total net revenues............................... $ 4,480,048  $ 5,040,332
     Net loss.........................................  (2,877,036)  (4,980,815)
     Net loss per share basic and diluted.............       (0.53)       (0.92)
   Weighted average shares outstanding:
     Basic and diluted................................   5,425,672    5,425,672
</TABLE>

(3) Property and Equipment

   Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                December 31,
                                             --------------------   June 30,
                                               1997       1998        1999
                                             ---------  ---------  ----------
   <S>                                       <C>        <C>        <C>
   Computers and related equipment.......... $ 746,195  $ 752,400  $  801,278
   Furniture and fixtures...................   176,114    201,076     209,725
   Leasehold improvements...................     9,033     10,060      10,060
                                             ---------  ---------  ----------
                                               931,342    963,536   1,021,063
   Less accumulated depreciation and
    amortization............................  (426,475)  (615,402)   (711,580)
                                             ---------  ---------  ----------
                                             $ 504,867  $ 348,134  $  309,483
                                             =========  =========  ==========
</TABLE>

   Depreciation and amortization expense on property and equipment was
approximately $60,000, $175,000, $189,000, $121,000 and $96,000 for the years
ended December 31, 1996, 1997 and 1998, and for the six months ended June 30,
1998 and 1999, respectively.


                                      F-12
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(4) Intangible Assets

   Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                               December 31,
                                          ------------------------   June 30,
                                             1997         1998         1999
                                          -----------  -----------  -----------
   <S>                                    <C>          <C>          <C>
   Goodwill.............................. $   436,301  $   492,964  $   492,964
   Acquired technology...................   1,177,826    1,177,826    1,177,826
   Workforce-in-place....................     142,274      142,274      142,274
                                          -----------  -----------  -----------
                                            1,756,401    1,813,064    1,813,064
   Less accumulated amortization.........    (364,110)    (928,094)  (1,242,560)
                                          -----------  -----------  -----------
                                          $ 1,392,291  $   884,970  $   570,504
                                          ===========  ===========  ===========

(5) Other Current Liabilities

  The following items are
  included in other current
  liabilities:

<CAPTION>
                                               December 31,
                                          ------------------------   June 30,
                                             1997         1998         1999
                                          -----------  -----------  -----------
   <S>                                    <C>          <C>          <C>
   Accounts payable, non-trade........... $       --   $    15,000  $    15,000
   Line of credit........................      92,790      163,897       56,956
   Bank overdraft........................     119,596       62,025          --
   Accrued payroll taxes.................         --           --       304,642
   Other accrued expenses................       9,526      147,670       74,279
                                          -----------  -----------  -----------
                                          $   221,912  $   388,592  $   450,877
                                          ===========  ===========  ===========
</TABLE>

   We have a $200,000 revolving line of credit with Wells Fargo Bank, which
bears interest at a rate of 1.0% above the prime rate. The weighted average
interest rate was approximately 9.50%, 8.75% and 7.75% for the years ended
December 31, 1997 and 1998, and for the six months ended June 30, 1999,
respectively. We are required to make regular monthly payments of accrued
interest. The line of credit is collateralized by all accounts receivable,
inventory and furniture and equipment of Res-Q. In addition, an officer of Res-
Q has provided a guaranty in connection with this line of credit. We agreed to
indemnify the officer for a maximum amount of $200,000.00 (the amount of the
officer's guaranty plus accrued interest) for any deficiency that may be
suffered after making a claim for reimbursement from the principal borrower.

(6) Notes Payable to Employees and Stockholders

   The notes payable to employees and stockholders consist of notes with
interest rates generally ranging from 9% to 12%. One note to a stockholder for
$85,000 bears a 3% interest rate. All notes are due on December 31, 1999.
Certain of the notes to stockholders provided for the borrower to receive
options for shares of the Company's common stock at a rate of 10% times the
principal loaned divided by $2.00, which was the fair market value of our
common stock when the notes were issued. Options to purchase 10,400 shares of
the Company's common stock were granted in conjunction with this provision. A
portion of the proceeds of the notes was allocated to the value of the options
based on the Black-Scholes option pricing model and was amortized into the
statement of operations during the year ended December 31, 1998.

                                      F-13
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(7) Commitments and Contingencies

 Leases

   We lease office facilities and equipment under noncancelable operating and
capital leases. The leases provide for us to pay property taxes, insurance and
other operating costs of the leased property and generally contain renewal
provisions.

   Future minimum lease payments under all noncancelable capital and operating
leases as of June 30, 1999 are as follows:

<TABLE>
<CAPTION>
                                                              Capital  Operating
                                                              leases    leases
                                                              -------  ---------
   <S>                                                        <C>      <C>
   Year ending December 31:
    1999..................................................... $13,873  $219,444
    2000.....................................................  27,747   293,113
    2001.....................................................  15,530   226,280
    2002.....................................................   4,502   162,630
    2003 and thereafter......................................     --        --
                                                              -------  --------
   Total minimum payments....................................  61,652  $901,467
                                                                       ========
   Less amount representing interest......................... (10,734)
                                                              -------
   Present value of capital lease obligations................  50,918
   Less current portion...................................... (10,801)
                                                              -------
   Lease obligations, long term.............................. $40,117
                                                              =======
</TABLE>

   Equipment recorded under capital leases is included in property and
equipment as follows:

<TABLE>
<CAPTION>
                                                                         June
                                                       December 31,       30,
                                                     -----------------  -------
                                                       1997     1998     1999
                                                     --------  -------  -------
   <S>                                               <C>       <C>      <C>
   Computers and related equipment.................. $114,524  $62,968  $62,968
   Accumulated depreciation.........................  (32,991) (31,540) (38,721)
                                                     --------  -------  -------
                                                     $ 81,533  $31,428  $24,247
                                                     ========  =======  =======
</TABLE>

   Rent expense for operating leases totaled approximately $33,000, $248,000,
$428,000, $193,000 and $201,000 for the years ended December 31, 1996, 1997 and
1998, and for the six months ended June 30, 1998 and 1999, respectively.

                                      F-14
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(8) Capital Stock

   We are authorized to issue 14,000,000 shares of preferred stock. The
preferred shares are automatically convertible into common shares upon an
initial public offering of our common stock. A summary of preferred stock
follows:

<TABLE>
<CAPTION>
                                                 December 31,       June 30,
                                             --------------------- -----------
                                                1997       1998       1999
                                             ---------- ---------- -----------
   <S>                                       <C>        <C>        <C>
   Series A, 1,500,000 shares designated,
    $.01 par value per share, 1,418,270
    shares issued and outstanding,
    liquidation preference of $1,418,270 in
    1997, 1998 and 1999....................  $1,418,270 $1,418,270 $ 1,418,270

   Series A-I, 1,500,000 shares designated,
    $.01 par value per share, none issued
    and outstanding........................         --         --          --

   Series A-II, 115,000 shares designated,
    $.01 par value per share, 61,490 shares
    issued and outstanding in 1997, 1998
    and 1999...............................   1,140,874  1,140,874   1,140,874

   Series A-III, 5,416 shares designated,
    $.01 par value per share, 5,416 shares
    issued and outstanding in 1997, 1998
    and 1999...............................      24,372     24,372      24,372

   Series B, 1,250,000 shares designated,
    $.01 par value per share, 1,202,470
    shares issued and outstanding,
    liquidation preference of $2,710,634 in
    1997, 1998 and 1999....................   2,710,634  2,710,634   2,710,634

   Series B-I, 1,250,000 shares designated,
    $.01 par value per share, none issued
    and outstanding........................         --         --          --
   Series C-I, 4,000,000 shares designated,
    $.01 par value per share, none issued
    and outstanding........................         --         --          --
                                             ---------- ---------- -----------
                                             $5,891,126 $8,021,644 $13,409,314
                                             ========== ========== ===========
</TABLE>

   Series C, 4,000,000 shares designated,
    $.01 par value per share, 217,066,
    991,800 and 2,986,294 shares issued and
    outstanding in 1997, 1998 and 1999,
    respectively, liquidation preference of
    $596,976, $2,727,494 and $8,212,353 in
    1997, 1998 and 1999, respectively, net
    of transaction costs of $97,189 in
    1999...................................     596,976  2,727,494   8,115,164


   The Series A-II and Series A-III preferred shares have been issued in
conjunction with our acquisitions as discussed in note 2. Series A shares were
issued at $1.00 per share, Series B shares were issued at $2.25 per share, and
Series C shares were issued at $2.75 per share.

                                      F-15
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The rights, preferences, and privileges of preferred stockholders are as
follows:

  . Series A, B and C stockholders are entitled to cumulative dividends, if
    declared by the Board of Directors, of $.08 per share per annum, payable
    in preference to the payment of any dividends on the common stock (other
    than a common stock dividend). No such dividends have been declared.
    Series A-II and A-III stockholders are not entitled to receive dividends.

  . Series, A, B and C stockholders have a liquidation preference of an
    amount equal to the original price of the preferred stock plus any
    declared but unpaid dividends. Any remaining liquidation proceeds are
    distributed pro rata to the common, Series A-II and Series A-III
    stockholders.

  . Each share of Series A, A-II, B and C votes equally with shares of common
    stock. Series A-III shares have no voting rights.

  . Each share of Series A, A-II, A-III, B and C is convertible at any time
    into common stock at the original issue price, with automatic conversion
    upon an initial public offering, upon the consolidation or merger of the
    Company, or upon the sale of substantially all of the assets of the
    Company. The conversion rate is one for one for Series A, B and C shares
    and 20 shares of common stock for each share of Series A-II and A-III.
    The conversion price will be equal to the issue price of the shares.

(9) Stock Option Plans

   We have been authorized to issue options to purchase up to 1,000,000 and
1,478,513 shares of our common stock in connection with our 1996 and 1997 stock
option plans (the Plans) to employees, directors, and consultants. The number
of shares of common stock available for issuance under the 1997 stock option
plan automatically increases on the first business day of each calendar year
during the term of the 1997 stock option plan, beginning with the 1999 calendar
year, by an amount equal to two percent (2%) of the shares of common stock
outstanding on the last business day of the immediately preceding calendar
year. The Plans provide for the issuance of stock purchase rights, incentive
stock options, or nonstatutory stock options.

   Under the Plans, the exercise price for incentive stock options is at least
100% of the stock's fair market value on the date of the grant for employees
owning less than 10% of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonqualified stock
options, the exercise price is also at least 110% of the fair market value on
the date of grant for employees owning more than 10% of the voting power of all
classes of stock and no less than 85% for employees owning less than 10% of the
voting power of all classes of stock.

   Options granted under the Plans generally expire in 10 years. However, the
term of the options may be limited to 5 years if the optionee owns stock
representing more than 10% of the voting power of all classes of stock. Vesting
periods are determined by the Board of Directors and generally provide for
shares to vest at a rate of 1/3 of the shares at the end of each subsequent
anniversary of the initial vesting date, subject to continued service as an
employee.

   As of June 30, 1999, options to purchase 827,436 and 741,873 shares of our
common stock were outstanding under the 1996 and 1997 stock option plans,
respectively. As of June 30, 1999, there were 873,038 additional shares
available for grant under the 1997 stock option plan. With the creation of the
1997 stock option plan, no further issuance of options under the 1996 stock
option plan are allowed.

                                      F-16
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Stock-Based Compensation

   We continue to apply APB Opinion No. 25 in accounting for our employee
stock-based compensation plans and use the intrinsic-value method in accounting
for options granted to employees. Accordingly, compensation cost has only been
recognized in the accompanying consolidated statements of operations for any
stock options granted to employees where the exercise price of the option was
less than the fair value of the underlying common stock as of the grant date.
Had we determined compensation cost based on the fair value at the grant date
for stock options under SFAS No. 123 for our stock-based compensation plans,
net loss and basic and diluted net loss per share would have been as follows:

<TABLE>
<CAPTION>
                                    Years Ended December
                                             31,
                                   -------------------------  Six Months Ended
                                    1996     1997     1998     June 30, 1999
                                   -------  -------  -------  ----------------
                                                (in thousands)
<S>                                <C>      <C>      <C>      <C>
Net loss:
  As reported..................... $(2,312) $(4,800) $(6,006)     $(2,644)
  Pro forma.......................  (2,319)  (4,837)  (6,116)      (2,745)
Basic and diluted net loss per
 share:
  As reported..................... $ (0.45) $ (0.88) $ (1.10)     $ (0.48)
  Pro forma.......................   (0.45)   (0.89)   (1.12)       (0.50)
</TABLE>

   These pro forma results assume that we began recording compensation expense
for option grants to employees subsequent to January 1, 1995 and may not be
indicative of pro forma results to be expected in future periods. The fair
value of each option was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                         Years Ended December
                                                  31,
                                        ----------------------- Six Months Ended
                                         1996    1997    1998    June 30, 1999
                                        ------- ------- ------- ----------------
<S>                                     <C>     <C>     <C>     <C>
Expected volatility....................   40%     40%     40%          40%
Average life........................... 5 years 5 years 5 years     5 years
Risk-free interest rate................  6.82%   6.89%   5.64%        6.27%
Dividends..............................   --      --      --          --
</TABLE>

   Compensation cost recognized in the accompanying consolidated statements of
operations for stock options granted to nonemployees was $0, $0, $29,001 and
$58,192 for the years ended December 31, 1996, 1997, 1998, and for the six
months ended June 30, 1999, respectively.

   Compensation cost recognized in the accompanying consolidated statements of
operations for stock options granted to employees at less than the fair market
value of the underlying common stock was $28,000 for the six months ended June
30, 1999.

                                      F-17
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A summary of the activity within our stock option plans is as follows:

<TABLE>
<CAPTION>
                                         Years Ended December 31,
                          ---------------------------------------------------------  Six Months Ended
                                1996              1997                1998             June 30, 1999
                          ----------------- ------------------ -------------------- --------------------
                                  Weighted-          Weighted-            Weighted-            Weighted-
                                   average            average              average              average
                                  exercise           exercise             exercise             exercise
                          Shares    price   Shares     price    Shares      price    Shares      price
                          ------- --------- -------  --------- ---------  --------- ---------  ---------
<S>                       <C>     <C>       <C>      <C>       <C>        <C>       <C>        <C>
Outstanding at beginning
 of period..............      --    $ --    590,333    $0.15     860,936    $0.42   1,243,769    $0.78
Granted.................  590,333    0.15   286,256     1.00     398,183     1.56     379,472     2.19
Exercised...............      --      --        --       --          --       --      (36,166)    0.94
Canceled................      --      --    (15,653)    0.69     (15,350)    1.24     (17,766)    1.80
                          -------   -----   -------    -----   ---------    -----   ---------    -----
Outstanding at end of
 period.................  590,333   $0.15   860,936    $0.42   1,243,769    $0.78   1,569,309    $1.10
                          =======   =====   =======    =====   =========    =====   =========    =====
Options exercisable at
 end of period..........   67,333   $0.50   234,602    $0.24     539,466    $0.46     919,952    $0.68
                          =======   =====   =======    =====   =========    =====   =========    =====
Weighted average fair
 value of options
 granted at fair value
 during the period......            $0.06              $0.46                $0.68                $1.19
                                    =====              =====                =====                =====
Weighted average fair
 value of options
 granted below fair
 value during the
 period.................            $ --               $ --                 $ --                 $0.95
                                    =====              =====                =====                =====
</TABLE>

   The following table summarizes information about stock options outstanding
as of June 30, 1999:

<TABLE>
<CAPTION>
                                                                Options
                    Options Outstanding                       Exercisable
     -----------------------------------------------------------------------
                                Weighted-                          Weighted-
                                 average  Weighted-average          average
                                exercise     remaining             exercise
     Option price     Shares      price   contractual life Shares    price
     ------------   ----------  --------- ---------------- ------- ---------
     <S>            <C>         <C>       <C>              <C>     <C>
     $     0.10        520,000    $0.10         6.8        500,000   $0.10
           0.50         43,062     0.50         7.4         43,562    0.50
           1.00        264,374     1.00         7.7        174,702    1.00
           1.50        322,800     1.50         8.6         86,986    1.50
           2.00        278,870     2.00         9.5         81,000    2.00
           2.50        140,203     2.50         9.9         33,702    2.50
      ----------    ----------    -----         ---        -------   -----
     $0.10-2.50      1,569,309    $1.10         8.1        919,952   $0.68
                    ==========    =====         ===        =======   =====
</TABLE>

(10) Employee Retirement and Savings Plan

   We sponsor an employee savings plan (the Plan) pursuant to Section 401(k) of
the Internal Revenue Code. All employees who work at least 20 hours per week
with one month of service may defer a portion of their salary. The Plan allows
us to make discretionary contributions. However, we have not made any
discretionary contributions for the periods presented.

(11) Internet Hosting Agreements

   In fiscal year 1999, we have entered into several agreements with Conxion
Corporation under which it will supply us with application hosting services and
Internet infrastructure for our ASP software solutions. These agreements
typically have terms of one year. Conxion has agreed to enter into extensions
of these agreements and to enter into supplemental service agreements, as
required by us on terms not less favorable to us as they

                                      F-18
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

offer to any of their customers. In addition, they have agreed not to terminate
or suspend the services provided under these agreements in the event of a bona
fide dispute so long as undisputed payments are not withheld. In connection
with these agreements, we have issued 200,000 shares of our Series C preferred
stock to Conxion and recorded a receivable in the amount of $550,000. In
addition, we have agreed to purchase $550,000 of future application hosting
services from Conxion.

(12) Income Taxes

   The provision for income taxes consists of the following components:

<TABLE>
<CAPTION>
                                           Years Ended December
                                                   31,
                                           -------------------- Six Months Ended
                                            1996   1997   1998   June 30, 1999
                                           ------ ------ ------ ----------------
   <S>                                     <C>    <C>    <C>    <C>
   Current portion:
     Federal.............................. $  --  $  --  $  --       $  --
     State................................  4,000  6,400  4,000       4,000
   Deferred portion.......................    --     --     --          --
                                           ------ ------ ------      ------
                                           $4,000 $6,400 $4,000      $4,000
                                           ====== ====== ======      ======
</TABLE>

   A reconciliation from the federal tax assuming the statutory rate to the
total provision for the income taxes is as follows:

<TABLE>
<CAPTION>
                                 Years Ended December 31,
                             -----------------------------------  Six Months Ended
                               1996        1997         1998       June 30, 1999
                             ---------  -----------  -----------  ----------------
   <S>                       <C>        <C>          <C>          <C>
   Tax at statutory rate...  $(784,629) $(1,629,828) $(2,040,578)    $(897,465)
   State income taxes, net
    of federal taxes.......      2,640        4,224        2,640         2,640
   Permanent differences,
    including goodwill.....      5,327       35,449       59,310        44,493
   Net operating losses not
    benefited..............    780,662    1,596,555    1,982,628       854,332
                             ---------  -----------  -----------     ---------
                             $   4,000  $     6,400  $     4,000     $   4,000
                             =========  ===========  ===========     =========
</TABLE>

   The components of our net deferred tax asset are as follows:

<TABLE>
<CAPTION>
                                              December 31,
                                         ------------------------   June 30,
                                            1997         1998         1999
                                         -----------  -----------  -----------
<S>                                      <C>          <C>          <C>
Deferred tax liabilities:
  Property and equipment................ $    58,460  $    26,617  $    40,338
  Intangibles...........................     172,819       48,982          --
  State taxes...........................     139,074      253,107      286,725
                                         -----------  -----------  -----------
    Total deferred tax liabilities......     370,353      328,706      327,063
                                         -----------  -----------  -----------
Deferred tax assets:
  Various accruals and reserves not
   deductible for tax purposes..........     222,032      790,659      724,725
  Intangibles...........................         --           --        11,342
  Net operating loss carryforwards......   3,101,362    4,696,158    5,591,650
  Tax credit carryforwards..............      16,073       16,073       16,073
                                         -----------  -----------  -----------
    Total deferred tax assets...........   3,339,467    5,502,890    6,343,790
                                         -----------  -----------  -----------
  Net deferred tax assets...............   2,969,114    5,174,184    6,016,727
  Valuation allowance...................  (2,969,114)  (5,174,184)  (6,016,727)
                                         -----------  -----------  -----------
    Net deferred tax assets after
     valuation allowance................ $       --   $       --   $       --
                                         ===========  ===========  ===========
</TABLE>

                                      F-19
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The net changes in the valuation allowance for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30, 1999 were increases
of $1,950,719, $2,205,070 and $842,543, respectively. We believe sufficient
uncertainty exists regarding our ability to realize our deferred tax assets
and, accordingly, a valuation allowance has been established against the net
deferred tax assets.

   As of June 30, 1999, we had approximately $14,400,000 and $8,000,000 of net
operating loss carryforwards for federal and state purposes, respectively. The
federal net operating loss carryforwards expire between 2013 and 2019 and the
state net operating loss carryforwards expire primarily in 2003. The difference
between the federal and state net operating loss carryforwards is due primarily
to a 50% limitation on net operating loss carryforwards for California income
tax purposes.

   Federal and state laws impose substantial restrictions on the utilization of
net operating loss carryforwards in the event of an "ownership change," as
defined in Section 382 of the Internal Revenue Code. We have not yet determined
whether an ownership change occurred due to significant stock transactions in
each of the reported years. If an ownership change has occurred, utilization of
the net operating loss carryforwards could be significantly reduced.
Additionally, the utilization of the net operating loss carryforwards of
approximately $1.0 million acquired in the acquisition of Healthcheck is
limited to the taxable income generated by the operations of Healthcheck.

(13) Segment Information

   We have adopted the provisions of SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes standards
for the reporting by public business enterprises of information about operating
segments, products and services, geographic areas and major customers.

   Our chief operating decision maker is considered to be the Company's
President. The President reviews discrete financial information regarding
profitability of our five segments: Corporate Headquarters, Healthcheck,
Velocity, LINC, and Res-Q. The corporate headquarters manages the corporate
business, oversees all of the segments and performs research and development
for our organic product. Healthcheck specializes in a service that researches
the history and credentials of healthcare professionals. LINC offers software
used by hospitals to monitor costs of patient care and offers expert testimony
services related to management of medical cases. Velocity provides services
that survey and track the effectiveness of medical procedures as well as
services related to development of customized software and patient satisfaction
surveys. Res-Q offers scheduling software to hospitals. We do all of our
business in the United States.

                                      F-20
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the accompany notes to the
consolidated financial statements. Information about our segments as of and for
the years ended December 31, 1996, 1997, and 1998, and as of and for the six
months ended June 30, 1999 are as follows:

<TABLE>
<CAPTION>
                          Corporate
                            Head-
                          quarters     Velocity   Healthcheck    Res-Q       LINC     Consolidated
                         -----------  ----------  -----------  ----------  ---------  ------------
<S>                      <C>          <C>         <C>          <C>         <C>        <C>
1996
Revenue from external
 customers:
  Service............... $       --   $    3,755  $  367,299   $      --   $     --   $   371,054
Depreciation and
 amortization...........      33,218       1,392      41,925          --         --        76,535
Interest expense........       2,017         --           51          --         --         2,068
Income tax expense......       4,000         --          --           --         --         4,000
Net loss................  (1,994,958)    (41,851)   (274,925)         --         --    (2,311,734)
Total assets............     300,476     319,706     133,585          --         --       753,767
1997
Revenue from external
 customers:
  License............... $       --   $   15,693  $      --    $  347,166  $  61,481  $   424,340
  Product development...         --    1,237,500         --           --         --     1,237,500
  Service...............         --      491,018     171,721      497,597    149,309    1,309,645
Depreciation and
 amortization...........     133,161      60,159      40,326      135,797    153,063      522,506
Interest expense........      18,605         --        1,147          --         --        19,752
Income tax expense......       6,400         --          --           --         --         6,400
Net loss................  (4,037,950)    289,569    (308,826)    (284,200)  (458,605)  (4,800,012)
Total assets............     673,289     354,953     649,612      736,730    489,757    2,904,341
1998
Revenue from external
 customers:
  License............... $       --   $   25,460  $      --    $  421,395  $ 123,839  $   570,694
  Product development...         --      564,560         --           --         --       564,560
  Service...............      73,000     637,067   1,022,937    1,024,324    731,069    3,488,397
Depreciation and
 amortization...........     219,489      65,453      17,155      216,176    234,638      752,911
Interest expense........      90,344         --          --         2,611        --        92,955
Income tax expense......       4,000         --          --           --         --         4,000
Net loss................  (4,674,652)   (443,703)   (113,242)    (372,191)  (401,913)  (6,005,701)
Total assets............     380,061     450,414     558,704      465,208    360,661    2,215,048
1999
Revenue from external
 customers:
  License............... $       --   $    7,995  $      --    $  308,619  $  53,155  $   369,769
  Product development...         --      227,402         --           --         --       227,402
  Service...............      29,765     527,406     818,138      294,599    442,141    2,112,049
Depreciation and
 amortization...........      94,401      33,951      48,591      116,384    117,317      410,644
Interest expense........      71,008         --        5,010          --         --        76,018
Income tax expense......       4,000         --          --           --         --         4,000
Net loss................  (2,363,504)     (9,254)    145,988     (346,912)   (69,922)  (2,643,604)
Total assets............   1,774,696     269,545     533,654      581,363    285,372    3,444,630
</TABLE>

                                      F-21
<PAGE>

                                OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In 1996, we had not acquired LINC and Res-Q and the information for
Healthcheck reflects CPCS only as Healthcheck was not acquired until 1997. The
information for Healthcheck reflects the combined operations of Healthcheck and
CPCS in 1997 and 1998 as those operations were combined in early 1998. CPCS was
also in the business of providing credentialing services.

(14) Subsequent Events

 PSI-Med Corporation Acquisition

   Subsequent to June 30, 1999, we completed our acquisition of PSI-Med in
exchange for 16,667 shares of our Series A-II preferred stock. PSI-Med
Corporation sells and services practice management software and is engaged as a
full service provider of medical insurance billing and accounts receivable
collection services. The Series A-II preferred stock has been valued at
$666,680. We will account for the acquisition under the purchase method of
accounting and, accordingly, the results of PSI-Med's operations will be
included in our consolidated financial statements beginning with the effective
date of the acquisition.

   Since June 7, 1998, we have committed to fund the salary of PSI-Med's
President. The portion of the President's salary attributable to PSI-Med's
business totals $90,000 and has been paid by us and charged to expense by PSI-
Med in the 1999 PSI-Med financial statements.

   The following table shows unaudited pro forma results of operations assuming
the acquisition of PSI-Med had been consummated at the beginning of the
earliest period presented. The unaudited pro forma information is not
necessarily indicative of the combined results that would have occurred had the
acquisitions taken place as of the beginning of the periods presented, nor is
it necessarily indicative of results that may occur in the future:

<TABLE>
<CAPTION>
                                                     Year Ended     Six Months
                                                    December 31,  Ended June 30,
                                                        1998           1999
                                                    ------------  --------------
                                                            (unaudited)
   <S>                                              <C>           <C>
   Pro forma basis:
     Total net revenues............................ $ 6,834,242    $ 3,819,223
     Net loss......................................  (6,651,008)    (2,701,349)
     Net loss per share: Basic and diluted.........       (1.22)         (0.49)
     Weighted average shares outstanding:
       Basic and diluted...........................   5,447,820      5,484,663
</TABLE>

 Superior Consultant Holdings Corporation

   In September 1999, we entered into a Distribution and Services Agreement, as
amended, with Superior Consultant Holdings Corporation under which Superior
agreed to market our product as a preferred ASP solution for healthcare
organizations. We agreed to market Superior's healthcare consulting services
and business integration services, to promote Superior as our exclusive
alliance partner for the provision of healthcare consulting services and not to
offer distribution rights to our Organic Architecture and solutions to any
direct competitor of Superior without Superior's prior written approval.
Superior has a non-exclusive worldwide license to market, use, install and
display our Organic Architecture and solutions. We have also appointed Superior
as our exclusive international provider of healthcare consulting services to
our clients. The agreement also entitles Superior to appoint a member to our
board of directors and to receive a vested non-statutory stock option grant
exercisable for 200,000 shares of our common stock at an exercise price of
$6.00 per share. The initial term of the agreement runs through August 31, 2002
and may be renewed by Superior for up to two additional two-year terms.

                                      F-22
<PAGE>

                    OrganicNet, Inc. and PSI-Med Corporation

          UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   The following unaudited pro forma condensed combined financial statements
have been prepared to illustrate the effect of our acquisition of PSI-Med
Corporation and include in this prospectus an Unaudited Pro Forma Condensed
Combined Balance Sheet as of June 30, 1999 and Unaudited Pro Forma Condensed
Combined Statements of Operations for the six months ended June 30, 1999 and
the year ended December 31, 1998. The pro forma condensed combined financial
statements are based on the historical consolidated financial statements of
OrganicNet, Inc. and the historical financial statements of PSI-Med
Corporation.

   The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1999
assumes that the acquisition was consummated on June 30, 1999 and the Unaudited
Pro Forma Condensed Combined Statements of Operations for the six months ended
June 30, 1999 and the year ended December 31, 1998 assume that the acquisition
had been consummated as of the first day of the earliest period presented.

                    OrganicNet, Inc. and PSI-Med Corporation
              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                                 June 30, 1999

<TABLE>
<CAPTION>
                                                     Pro forma          Pro forma
                          OrganicNet     PSI-Med    adjustments          combined
                         ------------  -----------  -----------        ------------
<S>                      <C>           <C>          <C>                <C>
         ASSETS
         ------
Current assets:
  Cash and cash
   equivalents.......... $  1,680,135  $    46,059  $      --          $  1,726,194
  Accounts receivable,
   net..................      647,523      109,929     (74,777)(E)          682,675
  Prepaids and other
   current assets.......      105,578          804         --               106,382
                         ------------  -----------  ----------         ------------
    Total current
     assets.............    2,433,236      156,792     (74,777)           2,515,251
Property and equipment,
 net....................      309,483       81,824         --               391,307
Intangibles, net........      570,504       51,022   1,575,651 (A)        2,197,177
Other noncurrent
 assets.................      131,407        9,784         --               141,191
                         ------------  -----------  ----------         ------------
                         $  3,444,630  $   299,422  $1,500,874         $  5,244,926
                         ============  ===========  ==========         ============
    LIABILITIES AND
 STOCKHOLDERS' DEFICIT
 ---------------------
Current liabilities:
  Accounts payable and
   accrued expenses..... $  1,416,523  $   373,697  $  (24,668)(C)     $  1,765,552
  Deferred revenue......    2,329,020       70,163         --             2,399,183
  Loans and other
   payables to related
   parties..............    1,930,015    1,020,582    (622,837)(C)(E)     2,327,760
  Current portion of
   long-term obligations
   and other current
   liabilities..........      461,678      171,154         --               632,832
                         ------------  -----------  ----------         ------------
    Total current
     liabilities........    6,137,236    1,635,596    (647,505)           7,125,327
Long-term obligations,
 less current portion...       40,117      145,525         --               185,642
                         ------------  -----------  ----------         ------------
    Total liabilities...    6,177,353    1,781,121    (647,505)           7,310,969
                         ------------  -----------  ----------         ------------
Stockholders' deficit:
  Preferred stock.......       56,739          --          167 (D)           56,906
  Common stock..........        5,500          --          --                 5,500
  Additional paid-in
   capital..............   13,815,209      367,204     299,309 (D)       14,481,722
  Receivable related to
   sale of stock........     (550,000)          --          --             (550,000)
  Deferred
   compensation.........      (88,635)         --          --               (88,635)
  Accumulated deficit...  (15,971,536)  (1,848,903)  1,848,903 (D)      (15,971,536)
                         ------------  -----------  ----------         ------------
    Total stockholders'
     deficit............   (2,732,723)  (1,481,699)  2,148,379           (2,066,043)
                         ------------  -----------  ----------         ------------
                         $  3,444,630  $   299,422  $1,500,874         $  5,244,926
                         ============  ===========  ==========         ============
</TABLE>

   See accompanying notes to unaudited pro forma condensed combined financial
                                  statements.

                                      F-23
<PAGE>

                    OrganicNet, Inc. and PSI-Med Corporation

         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
                                                    Pro forma      Pro forma
                          OrganicNet    PSI-Med    adjustments     combined
                          -----------  ----------  -----------    -----------
<S>                       <C>          <C>         <C>            <C>
Revenue:
  License................ $   369,769  $  283,995   $     --      $   653,764
  Product development....     227,402         --          --          227,402
  Service................   2,112,049     826,008         --        2,938,057
                          -----------  ----------   ---------     -----------
    Total revenue........   2,709,220   1,110,003         --        3,819,223
                          -----------  ----------   ---------     -----------
Cost of revenue:
  License................     336,031         --          --          336,031
  Product development....      63,072         --          --           63,072
  Service................   1,230,311     697,787         --        1,928,098
                          -----------  ----------   ---------     -----------
    Total cost of
     revenue.............   1,629,414     697,787         --        2,327,201
                          -----------  ----------   ---------     -----------
Gross profit ............   1,079,806     412,216         --        1,492,022
                          -----------  ----------   ---------     -----------
Operating Expense:
  Sales and marketing....     672,109      61,996         --          734,105
  Research and
   development...........   1,204,494     116,631         --        1,321,125
  General and
   administrative........   1,761,776     118,894     120,613 (B)   2,001,283
                          -----------  ----------   ---------     -----------
    Total operating
     expense.............   3,638,379     297,521     120,613       4,056,513
                          -----------  ----------   ---------     -----------
Operating loss...........  (2,558,573)    114,695    (120,613)     (2,564,491)
Interest expense.........     (76,018)        --          --          (76,018)
Other expense............      (5,013)    (51,027)        --          (56,040)
                          -----------  ----------   ---------     -----------
Net (loss) income before
 income taxes............  (2,639,604)     63,668    (120,613)     (2,696,549)
Provision for income
 taxes...................       4,000         800         --            4,800
                          -----------  ----------   ---------     -----------
Net loss................. $(2,643,604) $   62,868   $(120,613)    $(2,701,349)
                          ===========  ==========   =========     ===========
Net loss per share:
  Basic.................. $     (0.48) $     0.74                 $     (0.49)
                          ===========  ==========                 ===========
  Diluted................ $     (0.48) $     0.68                 $     (0.49)
                          ===========  ==========                 ===========
Weighted average shares
 outstanding:
  Basic..................   5,484,663      84,693                   5,484,663
                          ===========  ==========                 ===========
  Diluted................   5,484,663      92,971                   5,484,663
                          ===========  ==========                 ===========
</TABLE>

   See accompanying notes to unaudited pro forma condensed combined financial
                                  statements.

                                      F-24
<PAGE>

                    OrganicNet, Inc. and PSI-Med Corporation

         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                    Pro forma      Pro forma
                          OrganicNet    PSI-Med    adjustments     combined
                          -----------  ----------  -----------    -----------
Revenue:
<S>                       <C>          <C>         <C>            <C>
  License................ $   570,694  $  516,559   $     --      $ 1,087,253
  Product development....     564,560         --          --          564,560
  Service................   3,488,397   1,694,032         --        5,182,429
                          -----------  ----------   ---------     -----------
    Total revenue........   4,623,651   2,210,591         --        6,834,242
                          -----------  ----------   ---------     -----------
Cost of revenue:
  License................     756,156         --          --          756,156
  Product development....     208,533         --          --          208,533
  Service................   2,314,026   1,535,514         --        3,849,540
                          -----------  ----------   ---------     -----------
    Total cost of
     revenue.............   3,278,715   1,535,514         --        4,814,229
                          -----------  ----------   ---------     -----------
Gross profit.............   1,344,936     675,077         --        2,020,013
                          -----------  ----------   ---------     -----------
Operating Expense:
  Sales and marketing....   1,643,868     168,135         --        1,812,003
  Research and
   development...........   1,832,783     237,105         --        2,069,888
  General and
   administrative........   3,768,388     587,077     241,225 (B)   4,596,690
                          -----------  ----------   ---------     -----------
    Total operating
     expense.............   7,245,039     992,317     241,225       8,478,581
                          -----------  ----------   ---------     -----------
Operating loss...........  (5,900,103)   (317,240)   (241,225)     (6,458,568)
Interest expense.........     (92,955)        --          --          (92,955)
Other expense............      (8,643)    (86,042)        --          (94,685)
                          -----------  ----------   ---------     -----------
Loss before income
 taxes...................  (6,001,701)   (403,282)   (241,225)     (6,646,208)
Provision for income
 taxes...................       4,000         800         --            4,800
                          -----------  ----------   ---------     -----------
Net loss................. $(6,005,701) $ (404,082)  $(241,225)    $(6,651,008)
                          ===========  ==========   =========     ===========
Net loss per share:
  Basic and diluted...... $     (1.10) $    (4.77)                $     (1.22)
                          ===========  ==========                 ===========
Weighted average share
 outstanding:
  Basic and diluted......   5,447,820      84,693                   5,447,820
                          ===========  ==========                 ===========
</TABLE>

   See accompanying notes to unaudited pro forma condensed combined financial
                                  statements.

                                      F-25
<PAGE>

                    OrganicNet, Inc. and PSI-Med Corporation

                     NOTES TO UNAUDITED PRO FORMA CONDENSED
                         COMBINED FINANCIAL STATEMENTS

   (A) To reflect the excess of acquisition costs over the estimated fair value
of net assets acquired (goodwill). The purchase price and purchase-price
allocation are summarized as follows:

<TABLE>
   <S>                                                            <C>
   Purchase price:
     Stock issued................................................ $   666,680
                                                                  -----------
   Allocated to:
     Cash........................................................      46,059
     Accounts receivable, net....................................      35,152
     Property and equipment......................................      81,824
     Other assets................................................      10,588
     Liabilities assumed and acquisition costs incurred..........  (1,063,453)
     Deferred revenue............................................     (70,163)
                                                                  -----------
       Total allocation..........................................    (959,993)
                                                                  -----------
       Excess of purchase price over identifiable assets and
        liabilities (goodwill)................................... $ 1,626,673
                                                                  ===========
</TABLE>

   (B) To reflect the amortization expense due to the amortization of goodwill
on a straight-line basis over seven years.

   (C) To reflect the purchase price adjustment for payables which were not
assumed by OrganicNet as part of the acquisition.

   (D) To reflect the issuance of 16,667 shares of Series A-II preferred stock
in exchange for all PSI-Med stock outstanding. The shares have been valued at
$666,680 based on the market price of the stock on the date the two companies
reached agreement on the purchase price and the proposed transaction was
announced.

   (E) To eliminate intercompany financing.

                                      F-26
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors
PSI-Med Corporation:

   We have audited the accompanying balance sheets of PSI-Med Corporation as
of May 31, 1998 and 1999 and the related statements of operations,
stockholders' deficit and cash flows for each of the years in the three-year
period ended May 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PSI-Med Corporation as of
May 31, 1998 and 1999 and the results of its operations and its cash flows for
each of the years in the three-year period ended May 31, 1999, in conformity
with generally accepted accounting principles.

                                          KPMG LLP

Orange County, California
August 4, 1999, except
 as to note 10, which is as of
 September 7, 1999

                                     F-27
<PAGE>

                              PSI-Med Corporation

                                 BALANCE SHEETS
                             May 31, 1998 and 1999

<TABLE>
<CAPTION>
                                                         1998         1999
                                                      -----------  -----------
<S>                                                   <C>          <C>
                       ASSETS

Current assets:
 Cash and cash equivalents........................... $    17,158  $    38,850
 Accounts receivable, net of allowances for doubtful
  accounts of $182,518 and $56,607 for 1998 and 1999,
  respectively.......................................     112,417      126,720
 Prepaid expenses....................................       2,145       10,801
                                                      -----------  -----------
    Total current assets.............................     131,720      176,371
Furniture, fixtures and equipment, net...............     102,902       85,214
Goodwill, net of accumulated amortization of $12,413
 as of May 31, 1999..................................         --        53,713
Other assets.........................................      11,588        9,738
                                                      -----------  -----------
                                                      $   246,210  $   325,036
                                                      ===========  ===========

<CAPTION>
        LIABILITIES AND STOCKHOLDERS' DEFICIT

<S>                                                   <C>          <C>
Current liabilities:
 Accounts payable.................................... $   491,142  $   395,762
 Accrued liabilities.................................     141,851      140,680
 Advances from affiliate.............................       8,000       22,000
 Current portion of notes payable to related
  parties............................................     353,057      576,673
 Notes payable.......................................      67,639       46,459
 Deferred compensation payable to related parties....     300,000      300,000
 Unearned revenue....................................      68,487       66,807
 Sales taxes payable.................................     133,926      130,988
 Current portion of capital lease obligations........      15,673       17,021
                                                      -----------  -----------
    Total current liabilities........................   1,579,775    1,696,390
Capital lease obligations, excluding current
 portion.............................................      44,110       28,880
Notes payable to related parties, less current
 maturities..........................................     299,329      123,408
                                                      -----------  -----------
    Total liabilities................................   1,923,214    1,848,678
                                                      -----------  -----------
Commitments and subsequent events
Stockholders' deficit:
 Common stock, no par value, 200,000 shares
  authorized; 84,693 shares issued and outstanding as
  of May 31, 1998 and 1999...........................     367,204      367,204
 Additional paid-in capital..........................         --        90,000
 Accumulated deficit.................................  (2,044,208)  (1,980,846)
                                                      -----------  -----------
    Total stockholders' deficit......................  (1,677,004)  (1,523,642)
                                                      -----------  -----------
                                                      $   246,210  $   325,036
                                                      ===========  ===========
</TABLE>

                See accompanying notes to financial statements.

                                      F-28
<PAGE>

                              PSI-Med Corporation

                            STATEMENTS OF OPERATIONS
                    Years Ended May 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
                                              1997        1998        1999
                                           ----------  ----------  ----------
<S>                                        <C>         <C>         <C>
Revenue:
  Software................................ $  651,119  $  122,199  $  102,500
  Service and support.....................  1,939,766   2,128,828   2,151,167
                                           ----------  ----------  ----------
    Total revenue.........................  2,590,885   2,251,027   2,253,667
                                           ----------  ----------  ----------
Cost of revenue:
  Software................................    162,465     118,812     179,721
  Service and support.....................  1,602,554   1,188,153   1,241,428
                                           ----------  ----------  ----------
    Total cost of revenue.................  1,765,019   1,306,965   1,421,149
                                           ----------  ----------  ----------
Gross profit..............................    825,866     944,062     832,518
Operating expense--selling, general and
 administrative...........................  1,676,594   1,459,107     743,457
                                           ----------  ----------  ----------
Operating income (loss)...................   (850,728)   (515,045)     89,061
Other income (expense), net...............    (61,106)     63,604     (24,899)
                                           ----------  ----------  ----------
Earnings (loss) before income taxes.......   (911,834)   (451,441)     64,162
Income tax expense........................        800         800         800
                                           ----------  ----------  ----------
Net earnings (loss)....................... $ (912,634) $ (452,241) $   63,362
                                           ==========  ==========  ==========
Basic net earnings (loss) per share....... $   (11.88) $    (5.34) $     0.75
                                           ==========  ==========  ==========
Weighted average number of shares
 outstanding..............................     76,813      84,693      84,693
                                           ==========  ==========  ==========
Diluted net earnings (loss) per share..... $   (11.88) $    (5.34) $     0.70
                                           ==========  ==========  ==========
Weighted average number of shares
 outstanding..............................     76,813      84,693      90,884
                                           ==========  ==========  ==========
</TABLE>


                See accompanying notes to financial statements.

                                      F-29
<PAGE>

                              PSI-Med Corporation

                      STATEMENTS OF STOCKHOLDERS' DEFICIT
                    Years Ended May 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
                            Common stock   Additional
                           ---------------  paid-in   Accumulated
                           Shares  Amount   capital     deficit       Total
                           ------ -------- ---------- -----------  -----------
<S>                        <C>    <C>      <C>        <C>          <C>
Balances at May 31,
 1996....................  54,118 $  5,086  $   --    $  (679,333) $  (674,247)
Issuance of common
 stock...................  30,575  362,118      --            --       362,118
Net loss.................     --       --       --       (912,634)    (912,634)
                           ------ --------  -------   -----------  -----------
Balances at May 31,
 1997....................  84,693  367,204      --     (1,591,967)  (1,224,763)
Net loss.................     --       --       --       (452,241)    (452,241)
                           ------ --------  -------   -----------  -----------
Balances at May 31,
 1998....................  84,693  367,204      --     (2,044,208)  (1,677,004)
Contribution of executive
 compensation ...........     --       --    90,000           --        90,000
Net earnings.............     --       --       --         63,362       63,362
                           ------ --------  -------   -----------  -----------
Balances at May 31,
 1999....................  84,693 $367,204  $90,000   $(1,980,846) $(1,523,642)
                           ====== ========  =======   ===========  ===========
</TABLE>


                See accompanying notes to financial statements.

                                      F-30
<PAGE>

                              PSI-Med Corporation

                            STATEMENTS OF CASH FLOWS
                    Years Ended May 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
                                                  1997       1998       1999
                                                ---------  ---------  --------
<S>                                             <C>        <C>        <C>
Cash flows from operating activities:
 Net earnings (loss)........................... $(912,634) $(452,241) $ 63,362
 Adjustments to reconcile net earnings (loss)
  to net cash provided by (used in) operating
  activities:
  Depreciation and amortization................    47,871     45,677    59,414
  Contribution of executive compensation.......       --         --     90,000
  Provision for deferred employee
   compensation................................    45,756        --        --
  Changes in operating assets and liabilities:
   Accounts receivable.........................   (23,016)    67,943   (14,303)
   Other assets................................    (7,621)     3,118    (6,806)
   Accounts payable............................   347,015     39,118   (95,380)
   Accrued liabilities.........................   230,655    (88,804)   (1,171)
   Advance from affiliates.....................       --       8,000    14,000
   Unearned revenue............................    58,702      9,785    (1,680)
   Sales taxes payable.........................   168,182   (160,529)   (2,938)
                                                ---------  ---------  --------
    Net cash (used in) provided by operating
     activities................................   (45,090)  (527,933)  104,498
                                                ---------  ---------  --------
Cash flows from investing activities:
 Purchase of furniture, fixtures and
  equipment....................................  (134,483)   (30,371)  (29,313)
 Acquisition of Physicians Management Services,
  Inc..........................................       --         --     (6,000)
                                                ---------  ---------  --------
    Net cash used in investing activities......  (134,483)   (30,371)  (35,313)
                                                ---------  ---------  --------
Cash flows from financing activities:
 Proceeds from issuance of capital stock.......   362,118        --        --
 Increase in borrowings from related parties...   (48,306)   320,264   (12,431)
 Net increase in borrowings....................    60,050    (31,911)  (21,180)
 Principal payments on lease obligations.......    10,077     47,493   (13,882)
                                                ---------  ---------  --------
    Net cash provided by (used in) financing
     activities................................   383,939    335,846   (47,493)
                                                ---------  ---------  --------
    Increase (decrease) in cash and cash
     equivalents...............................   204,366   (222,458)   21,692
                                                ---------  ---------  --------
Cash and cash equivalents at beginning of
 year..........................................    35,250    239,616    17,158
                                                ---------  ---------  --------
Cash and cash equivalents at end of year....... $ 239,616  $  17,158  $ 38,850
                                                =========  =========  ========
Supplemental disclosure of cash flow
 information:
 Cash paid for income taxes.................... $     800  $     800  $    800
 Cash paid for interest........................    29,952     24,286    37,234
                                                =========  =========  ========
Supplemental disclosure of noncash investing
 activities:
 Promissory note issued in exchange for the
  acquisition of Physical Management Services,
  Inc.......................................... $     --   $     --   $ 77,116
                                                =========  =========  ========
</TABLE>

                See accompanying notes to financial statements.

                                      F-31
<PAGE>

                              PSI-Med Corporation

                         NOTES TO FINANCIAL STATEMENTS
                          May 31, 1997, 1998 and 1999

(1) Organization and Summary of Significant Accounting Policies

 Business Description

   We are a California corporation which develops and distributes medical
accounting software for medical facilities such as health maintenance
organizations, independent physicians associations, medical groups, and medical
accounting service bureaus located throughout the United States. The software
has been sold as stand alone systems with customers maintaining the HP3000
hardware required to run the software at their site.

   We also maintain our own computer system at our corporate offices in order
to service physicians requiring complete accounts receivable management and
collection services. Additionally, we offer local clients the use of our
medical accounting software through our computer system in a time share mode.
These models have been the prevailing methods because of the high cost of
communication lines and equipment.

 Use of Estimates

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

 Cash and Cash Equivalents

   Cash and cash equivalents include cash on deposit with banks with original
maturities of three months or less.

 Furniture, Fixtures and Equipment

   Furniture, fixtures and equipment are stated at cost. Depreciation of
furniture, fixtures and equipment is provided using the straight-line method
over the estimated useful lives of the assets of three to five years.

 Revenue Recognition

   The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2,
"Software Revenue Recognition." Under SOP 97-2, if a software sales arrangement
does not require significant modification or customization of the software,
revenue from the sale of the software is recognized when evidence of an
arrangement exists, the fee is fixed and determinable, the license agreement
has been delivered and collection of any resulting receivable is probable.

   As a result of certain issues raised in applying SOP 97-2, in March 1998,
the AICPA issued an SOP which delayed for one year the effective date of
certain provisions of SOP 97-2 with respect to what constitutes vendor-specific
objective evidence of fair value of the delivered software element in certain
multiple-element arrangements that include service elements entered into by
entities that never sell the software elements separately. In December 1998,
the AICPA issued SOP 98-9, which amended certain paragraphs of SOP 97-2 to
require recognition of revenue using the residual method under certain
circumstances, and is effective for fiscal

                                      F-32
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

years beginning after March 15, 1999. We do not expect the adoption of this SOP
to have a material impact on our financial statements.

   Revenue from the sales of software is recognized when delivery has occurred,
the fee is fixed and determinable and collection of any resulting receivable is
probable. Revenue from servicing and support is recognized as the related
services are performed.

 Adoption of Accounting Pronouncements

   In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 130 and SFAS No. 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information," respectively (collectively, the Statements). The
Statements are effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting of comprehensive income and
its components in annual financial statements. SFAS No. 131 establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its annual financial statements and selected
segment information in interim financial reports. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS No. 130 and SFAS No. 131,
respectively. For the years ended May 31, 1997, 1998 and 1999, comprehensive
income (loss) is equal to our net earnings (loss). The Company operates in one
segment and all operations and customers are within the United States.
Application of the Statements' requirements did not have a material impact on
our financial position or results of operations.

   In 1998, the American Institute of Certified Public Accountants' Accounting
Standards Executive Committee ("AcSEC) issued SOP No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires certain costs incurred in connection with developing or obtaining
internal-use software to be capitalized and other costs to be expensed.
Application of this SOP's requirements did not have a material impact on our
financial position or results of operations.

 Stock-Based Compensation

   We adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the service period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, and provide pro forma net income
(loss) disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. We have elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS No. 123.

 Fair Value of Financial Instruments

   Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. The carrying amounts of cash and
cash equivalents, accounts receivable, unbilled accounts receivable, other
assets, notes payable, notes payable to related parties, advances from
affiliate, accounts payable and accrued expenses, approximate fair value
because of the short maturity of these instruments. We use market prices, when
available, or discounted cash flows to calculate these fair values. The fair
value of our notes payable is estimated based on the current rates offered to
us for notes payable of the same remaining maturities and approximates its
carrying value.

                                      F-33
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


 Year 2000

   We recognize the need to ensure our operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. We are addressing this risk to the availability and integrity of
financial systems and products and the reliability of operational systems. We
have tested our Integrated Provider Network System and have completed the Year
2000 conversion of this system. We are in the process of assessing the system's
Year 2000 compliance identifying Year 2000 remaining compliance issues in its
other systems, equipment and processes. In addition to a review of internal
systems, we have initiated formal communications with third parties with which
we do business in order to determine whether or not they are Year 2000
compliant and the extent to which we may be vulnerable to third parties'
failure to become Year 2000 compliant. Additionally, we are making changes to
such systems, updating or replacing such equipment and modifying such processes
to make them Year 2000 compliant. The total cost of compliance and its effect
on our future results of operations are not expected to be material. However,
due to the complexities of estimating the cost of modifying applications to
become Year 2000 compliant and the difficulties in assessing third parties'
ability to become Year 2000 compliant, estimates may be subject to change.

   We have not developed a Year 2000 contingency plan and believe that our
information systems will be Year 2000 compliant; however, there can be no
assurance that all of our systems will be Year 2000 compliant, that the costs
to be Year 2000 compliant will not exceed our current expectations, or that the
failure of such systems to be Year 2000 compliant will not have a material
adverse effect on our business.

 Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

   Long-lived assets and certain identifiable intangibles (including goodwill)
are 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 undiscounted net 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.

 Capitalized Software Development Costs

   Software development costs incurred after the establishment of technological
feasibility are capitalized and later amortized using the greater of the
straight-line method or based on the estimated revenue distribution over the
remaining estimated economic life of the products. Such policy results in our
amortizing our capitalized software development costs over an estimated
economic life of three to seven years. Software development costs were fully
amortized as of May 31, 1996.

 Goodwill

   Goodwill is the excess of the purchase price paid over the fair value of the
net assets of the acquired company at the date of acquisition. Goodwill is
amortized on a straight-line basis over two years. The Company periodically
assesses the recoverability of goodwill based on an analysis of the cash flows
generated by the underlying assets. In the opinion of management, no impairment
of goodwill has occurred as of May 31, 1999.

 Income Taxes

   We account for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 provides that deferred tax assets and liabilities
be recognized for temporary differences between the

                                      F-34
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

financial reporting basis and the tax basis of our assets and liabilities and
expected benefits of utilizing net operating loss and 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 impact on deferred
taxes of changes in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled and reflected in the
financial statements in the period enacted.

 Concentration of Credit Risk

   Financial instruments that potentially subject us to concentrations of
credit risk consist principally of accounts receivable. Revenue from one
customer accounted for 19% and 13% of total revenues for the year ended May 31,
1998 and 1999, respectively.

 Net Earnings (loss) Per Share

   We compute net earnings (loss) per share based upon SFAS No. 128, "Earnings
per Share." The basic net earnings (loss) per share is computed by dividing the
net earnings (loss) available to common stockholders by the weighted-average
number of common shares outstanding. Potential common shares relating to stock
options have been included in the calculation of diluted net earnings per share
in the year ended May 31, 1999. Potential common shares relating to stock
options in each of the years ended May 31, 1997 and 1998 are anti-dilutive,
thus the diluted net earnings (loss) per share in these years is the same as
the basic net earnings (loss) per share.

(2) Acquisition of Physician Management Services, Inc.

   On January 15, 1999, we acquired the fixed assets and customer base of
Physician Management Services, Inc. (PMS). The PMS purchase price totaled
$83,116, payable in $6,000 in cash and $77,116 evidenced by an unsecured
promissory note. The acquisition was accounted for as a purchase. PMS is an
accounts receivable management company which performs the total collection
process for doctors and medical groups. The primary client's of PMS are the
University of California, Irvine (UCI) departments and doctors affiliated with
UCI. The purchase price of $83,116 will be reduced if 12% of the collections
for 24 months, related to the acquired customer base, are less than $83,116.
The goodwill recorded in conjunction with the purchase is being amortized over
two years, the life of the purchase contract.

   Select unaudited pro forma financial data for the years ended May 31, 1998
and 1999, assuming the PMS acquisition occurred on June 1, 1997, are presented
as follows:

<TABLE>
<CAPTION>
                                                              Unaudited
                                                       ------------------------
                                                          1998         1999
                                                       -----------  -----------
   <S>                                                 <C>          <C>
   Revenue............................................ $ 2,761,306  $ 2,564,768
                                                       ===========  ===========
   Net earnings (loss)................................ $  (392,102) $   159,785
                                                       ===========  ===========
   Stockholders' deficit.............................. $(1,634,516) $(1,474,832)
                                                       ===========  ===========
</TABLE>

   These pro forma results of operations and equity have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations and equity which actually would have resulted had the acquisition
occurred on the date indicated, or which may result in the future.

                                      F-35
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


(3) Furniture, Fixtures and Equipment

   Furniture, fixtures and equipment consist of the following:

<TABLE>
<CAPTION>
                                                             1998       1999
                                                           ---------  ---------
   <S>                                                     <C>        <C>
   Furniture and fixtures................................. $  70,004  $  78,320
   Computer equipment.....................................   375,489    393,911
   Office equipment.......................................     1,177      3,752
                                                           ---------  ---------
                                                             446,670    475,983
   Accumulated depreciation...............................  (343,768)  (390,769)
                                                           ---------  ---------
                                                           $ 102,902  $  85,214
                                                           =========  =========
</TABLE>

(4) Commitments

   We lease office space and equipment under noncancelable operating and
capital leases with various expiration dates through the year 2002.

   Future minimum lease payments under noncancelable leases are as follows:

<TABLE>
<CAPTION>
                                                           Capital   Operating
                                                            leases    leases
                                                           --------  ---------
   <S>                                                     <C>       <C>
   Period ending May 31:
     2000................................................. $ 26,834  $117,877
     2001.................................................   20,460     4,009
     2002.................................................    7,994       --
                                                           --------  --------
       Total minimum lease payments.......................   55,288  $121,886
                                                                     ========
   Less amounts representing interest.....................   (9,387)
                                                           --------
       Present value of minimum lease payments............   45,901
   Less current portion of obligations under capital
    leases................................................  (17,021)
                                                           --------
   Obligations under capital leases, excluding current
    portion............................................... $ 28,880
                                                           ========
</TABLE>

   Rent expense for the years ended May 31, 1997, 1998 and 1999 was $169,196,
$143,487 and $130,967, respectively.

                                      F-36
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


(5) Notes Payable

<TABLE>
<CAPTION>
                                                              1998      1999
                                                            --------  --------
   <S>                                                      <C>       <C>
   Notes payable to related parties consist of the
      following (see note 10):

    Note payable to stockholder for $25,000; bearing fixed
     interest rate of 12%; principal and interest payable
     at maturity; due on demand...........................  $ 29,166  $ 32,864

    Note payable to affiliate for $14,000; bearing fixed
     interest rate of 12%; principal and interest payable
     at maturity; due on demand...........................    14,317    16,014

    Note payable to affiliate for $32,000; bearing fixed
     interest rate of 12%; principal and interest payable
     at maturity; due on demand...........................    32,483    36,240

    Notes payable to related party for $90,000; bearing
     interest rate of 8% until December 31, 1997 and 12%
     thereafter; principal and interest payable at
     maturity; due on demand..............................   106,155   119,618

    Note payable to related party for $30,000; bearing
     fixed interest rate of 12%; interest payable monthly;
     due on demand........................................    30,000    30,000

    Note payable to majority stockholder for $147,284;
     bearing fixed interest rate of 11%; interest payable
     quarterly; due June 1, 2000..........................    85,629    60,506

    Note payable to related party for $162,996; bearing
     fixed interest rate of 10%; principal and interest
     due monthly; due February 16, 2004...................   159,699   138,725

    Unsecured note payable to PMS for $77,116; bearing no
     interest rate; principal payable monthly calculated
     as 12% of gross billings collected; due January 15,
     2001.................................................       --     66,684
    Note payable to related party for $150,000; bearing no
     interest; due October 11, 1999.......................   150,000   150,000
                                                            --------  --------

    Note payable to stockholder for $15,000; bearing fixed
     interest rate of 10%; interest and principal payable
     at maturity; due on demand...........................    44,937    49,430

   Note payable to a bank secured by the Company's assets
    and a personal guarantee by an officer of the Company;
    bearing interest rate of prime plus 6.25% (14% at May
    31, 1999); principal and interest due monthly; due
    June 15, 2000.........................................    67,639    46,459
                                                            --------  --------
                                                             720,025   746,540
   Less current portion...................................  (420,696) (623,132)
                                                            --------  --------
     Total notes payable, less current maturities.........  $299,329  $123,408
                                                            ========  ========
</TABLE>

       Total notes payable to related parties.............   652,386   700,081


   Principal maturities of the notes payable at May 31, 1999 are as follows:

<TABLE>
     <S>                                                                <C>
     1999.............................................................. $623,132
     2000..............................................................   56,684
     2001..............................................................   36,000
     2002..............................................................   30,724
                                                                        --------
                                                                        $746,540
                                                                        ========
</TABLE>

                                      F-37
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


(6) Related Party Transactions

 Accounts Payable to Related Parties

   At May 31, 1998 and 1999, we had the following accounts payable to related
parties recorded within accounts payable in the accompanying balance sheet:

<TABLE>
<CAPTION>
                                                                 1998    1999
                                                               -------- -------
   <S>                                                         <C>      <C>
     Accounts payable to related parties...................... $116,595 $73,129
                                                               ======== =======
</TABLE>

 Deferred Compensation Payable to Related Parties

   At May 31, 1998 and 1999, we had the following deferred compensation payable
to related parties:

<TABLE>
   <S>                                                        <C>      <C>
     Deferred compensation payable to related parties........ $300,000 $300,000
                                                              ======== ========
</TABLE>

 Executive Compensation

   Since June 7, 1998, OrganicNet, Inc. has committed to fund the salary of our
President. The portion of the President's salary attributable to the Company's
business totals $90,000 and has been charged to expense in the accompanying
1999 financial statements and credited to additional paid-in capital.

(7) Income Taxes

   Income tax expense for the years ended May 31, 1997, 1998 and 1999,
respectively, consists of the following:

<TABLE>
<CAPTION>
                                                                  1997 1998 1999
                                                                  ---- ---- ----
   <S>                                                            <C>  <C>  <C>
   Current:
     Federal..................................................... $--  $--  $--
     State and local.............................................  800  800  800
   Deferred:
     Federal.....................................................  --   --   --
     State and local.............................................  --   --   --
                                                                  ---- ---- ----
                                                                  $800 $800 $800
                                                                  ==== ==== ====
</TABLE>


                                      F-38
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The following table summarizes the tax effects of temporary differences
which give rise to significant portions of the deferred tax assets and
liabilities as of May 31, 1998 and 1999, respectively:

<TABLE>
<CAPTION>
                                                            1998       1999
                                                          ---------  ---------
   <S>                                                    <C>        <C>
   Deferred tax assets:
     Current assets:
       Accrued liabilities and other deferred tax
        assets..........................................  $ 331,645  $ 283,768
                                                          ---------  ---------
         Total..........................................    331,645    283,768
       Less valuation allowance for current deferred tax
        assets..........................................   (331,645)  (283,768)
                                                          ---------  ---------
         Net current deferred tax assets................        --         --
                                                          ---------  ---------
     Noncurrent assets:
       Net operating loss carryforward..................    402,286    386,458
       Depreciation and amortization....................      7,422     16,722
                                                          ---------  ---------
         Total..........................................    409,708    403,180
     Less valuation allowance for non-current deferred
      tax assets........................................   (409,708)  (403,180)
                                                          ---------  ---------
     Net noncurrent deferred tax assets.................        --         --
                                                          ---------  ---------
     Net deferred tax assets............................  $     --   $     --
                                                          =========  =========
</TABLE>

   Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as operating
loss carryforward.

   Realization of the deferred tax assets is dependent on generating future
taxable income. For financial reporting purposes, a valuation allowance was
recorded at May 31, 1998 and 1999 to reflect the uncertainty of generating
taxable income sufficient to utilize the gross deferred tax asset. In addition,
the utilization of the net operating loss carryforwards may be limited due to
restrictions imposed under applicable Federal and state tax law due to a change
in ownership. The valuation allowance decreased by $239,809 and increased by
$54,405 for the years ended May 31, 1998 and 1999, respectively.

   As of May 31, 1999, we have net operating loss carryforwards for federal and
state income tax purposes of approximately $1,038,000 and $470,000,
respectively, which are available to offset future taxable income, if any,
through 2019.

   Due to the uncertainty surrounding the realization of the benefits of our
favorable tax attributes in future tax returns, we have fully reserved our
deferred tax assets as of May 31, 1998 and 1999, respectively. In assessing the
potential realization of deferred tax assets, we considered 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 the
generation of future taxable income during the periods in which those temporary
differences become deductible.

(8) Liquidity

   OrganicNet, Inc. has expressed its intent to provide continuing support to
us such that we can meet our obligations as they come due during the next
twelve months.

                                      F-39
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


(9) Stock Options

   A summary of the activity of our stock options are as follows:

<TABLE>
<CAPTION>
                                                                    Weighted-
                                                                     average
                                                        Shares of exercise price
                                                         options    per option
                                                        --------- --------------
   <S>                                                  <C>       <C>
   Outstanding as of May 31, 1996......................   3,000       $20.00
   Granted during the year ended May 31, 1997..........   5,278        44.47
                                                          -----
   Outstanding at May 31, 1997.........................   8,278        35.60
   Granted during the year ended May 31, 1998..........     --           --
                                                          -----
   Outstanding at May 31, 1998.........................   8,278        35.60
   Granted during the year ended May 31, 1999..........     --           --
                                                          -----
   Outstanding at May 31, 1999.........................   8,278        35.60
                                                          -----
</TABLE>

   The following table summarizes information about stock options exercisable
at May 31, 1999:

<TABLE>
<CAPTION>
                           Number of Options Weighted-average Weighted-average
            Range of        Exercisable at    exercise price     remaining
         exercise prices     May 31, 1999    at date of grant contractual life
         ---------------   ----------------- ---------------- ----------------
         <S>               <C>               <C>              <C>
             $ 20.00             3,000            $20.00            9 yrs.
               39.71             1,939             39.71            4 yrs.
               47.23             3,339             47.23         4.75 yrs.
                                 -----
                                 8,278
                                 =====
</TABLE>

   The Company applies APB No. 25 in accounting for its employee stock based
compensation plan and uses the intrinsic value method in accounting for options
granted to employees. Accordingly, no compensation costs have been recognized
in the accompanying statements of operations for any of its stock options
granted to employees because the exercise price of each option equaled or
exceeded the fair value of the underlying common stock. Had we determined
compensation costs based on the fair value at the grant date for our stock
options under SFAS No. 123, pro forma net earnings (loss) would have been as
follows:

<TABLE>
<CAPTION>
                                                   1997        1998      1999
                                                -----------  ---------  -------
   <S>                                          <C>          <C>        <C>
   Net earnings (loss):
     As reported............................... $  (912,634) $(452,241) $63,362
     Assumed stock compensation cost...........     119,252        --       --
                                                -----------  ---------  -------
       Pro forma, adjusted..................... $(1,031,886) $(452,241) $63,362
                                                ===========  =========  =======
   Basic net earnings (loss) per share:
     As reported............................... $    (11.88) $   (5.34) $  0.75
                                                -----------  ---------  -------
       Pro forma, adjusted..................... $    (13.43) $   (5.34) $  0.75
                                                -----------  ---------  -------
   Diluted net earnings (loss) per share:
     As reported............................... $    (11.88) $   (5.34) $  0.70
                                                -----------  ---------  -------
       Pro forma, adjusted..................... $    (13.43) $   (5.34) $  0.70
                                                ===========  =========  =======
</TABLE>

   The above pro forma results assume we began recording compensation expense
for options granted to employees subsequent to June 1, 1996 and may not be
indicative of pro forma results to be expected in future

                                      F-40
<PAGE>

                              PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

periods. The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                                 1997  1998 1999
                                                                 ----  ---- ----
   <S>                                                          <C>    <C>  <C>
   Expected volatility.........................................  40%    --   --
   Average life................................................ 7 yrs.  --   --
   Weighted-average risk-free rate.............................  6.80%  --   --
   Dividends...................................................   --    --   --
</TABLE>

   The weighted-average fair value of options granted for the year ended May
31, 1997 was $22.59.

(10) Subsequent Events

   As part of our plans to replace our debt obligations, agreements were signed
to convert obligations to common stock at $30 per share:

<TABLE>
<CAPTION>
                                                          Debt to
                                                Contract    be        Shares
                                                  Date   Converted   of stock
                                                -------- --------- ------------
   <S>                                          <C>      <C>       <C>
   Accounts payable to stockholder............. 06/16/99 $ 25,000    833 shares
   Note payable to stockholders................ 06/28/99   32,864  1,095 shares
   Deferred compensation to related party...... 06/16/99  200,000  6,666 shares
   Note payable to related party............... 08/05/99  150,000  5,000 shares
   Deferred compensation to related party...... 08/16/99   50,000  1,667 shares
</TABLE>

   Additionally, management negotiated the following settlements to reduce the
Company's obligations:

<TABLE>
<CAPTION>
                                                                        Final
                                                                        amount
                                                                       paid by
                                                     Date     Total      the
                                                   settled  obligation Company
                                                   -------- ---------- --------
   <S>                                             <C>      <C>        <C>
   Accounts payable to vendors.................... 08/10/99  $ 66,674  $ 39,474
   Accounts payable to employees.................. 08/25/99    52,083    27,415
   Note payable to related party.................. 09/13/99   133,147    70,151
                                                             --------  --------
                                                             $251,904  $137,040
                                                             ========  ========
</TABLE>

   Subsequent to June 30, 1999, our shareholders exchanged all of their shares
of our common stock for 16,667 shares of Series A-II preferred stock of
OrganicNet, Inc.

                                      F-41
<PAGE>

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

   Through and including     , 1999 (the 25th day after the date of this
prospectus), 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 underwriter and with respect to its unsold allotments or
subscriptions.

                                        Shares

                               [ORGANICNET LOGO]

                                  Common Stock

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

                             Preliminary Prospectus

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

                             Punk, Ziegel & Company

                                        , 1999

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                    PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

   The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the registration fee and the NASD filing fee.

<TABLE>
   <S>                                                               <C>
   Registration fee................................................. $14,386.50
   NASD filing fee..................................................   5,675.00
   Nasdaq National Market listing fee............................... *
   Printing and engraving........................................... *
   Legal fees and expenses.......................................... *
   Accounting fees and expenses..................................... *
   Transfer agent fees.............................................. *
   Blue sky fees and expenses....................................... *
   Miscellaneous.................................................... *
                                                                     ----------
     Total.......................................................... *
                                                                     ==========
</TABLE>
--------
* To be filed by amendment.

Item 14. Indemnification of Directors and Officers

   Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI of the Registrant's Amended and Restated
Certificate of Incorporation provides for indemnification of its directors to
the maximum extent permitted by the Delaware General Corporation Law and
Section 43 of Article XI of the Registrant's Bylaws provides for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
the Registrant intends to enter into Indemnification Agreements with each
director and certain officers containing provisions which are in some respects
broader than the specific indemnification provisions contained in the Delaware
General Corporation Law. The indemnification agreements may require the
Company, among other things, to indemnify its directors against certain
liabilities that may arise by reason of their status or service as directors
(other than liabilities arising from willful misconduct of culpable nature),
to advance their expenses incurred as a result of any proceeding against them
as to which they could be indemnified, and to obtain directors' insurance if
available on reasonable terms. Reference is also made to indemnifying officers
and directors of the Company against certain liabilities. Reference is made to
the following documents filed as exhibits to this Registration Statement
regarding relevant indemnification provisions described above and elsewhere
herein: (1) the form of Underwriting Agreement, filed as Exhibit 1.1; (2) the
Amended and Restated Certificate of Incorporation, filed as Exhibit 3.1; (3)
the Bylaws of the Registrant, filed as Exhibit 3.2; (4) the form of
Indemnification Agreement entered into by the Registrant with each of its
directors and executive officers, filed as Exhibit 10.25; and (5) the
Indemnity and Subrogation Agreement, filed as Exhibit 10.7.

Item 15. Recent Sales of Unregistered Securities

   Since August 1996, the Registrant issued and sold the following
unregistered securities:

    (1)  From August 1996 through August 1999, the Registrant granted stock
options to employees and directors covering an aggregate of 1,210,053 shares
of common stock, at a weighted average exercise price of $1.61 per share. The
Registrant sold an aggregate of 38,082 shares of its common stock to employees
and

                                     II-1
<PAGE>

directors for consideration in the aggregate amount of $36,815 pursuant to the
exercise of stock options granted under the Registrant's stock option plans.

    (2)  From August 1996 to August 1999, the Registrant issued and sold an
aggregate of 1,202,470 shares of Series B Preferred Stock at a price of $2.25
per share to a group of investors for an aggregate purchase price of
approximately $2,705,558. Such shares of Series B preferred stock will convert
into shares of common stock of the Registrant upon completion of this
offering.

    (3)  On December 20, 1996, the Registrant issued 5,416 shares of Series A-
II preferred stock and 5,416 shares of Series A-III preferred stock to
Velocity Healthcare Informatics, Inc. in exchange for substantially all of the
assets of Velocity Healthcare Informatics, Inc. Such shares of Series A-II and
Series A-III preferred stock will convert into 216,640 shares of common stock
of the Registrant upon the closing of this offering.

    (4)  On June 4, 1997, the Registrant issued 6,668 shares of Series A-II
preferred stock to the shareholders of Intedata, Inc. for the acquisition of
100% of the voting securities of Intedata, Inc. Such shares of Series A-II
preferred stock will convert into 133,360 shares of common stock of the
Registrant upon the closing of this offering.

    (5)  On June 23, 1997, the Registrant issued 13,333 shares of Series A-II
preferred stock to the sole shareholder of L.I.N.C., Inc. For the acquisition
of 100% of the voting securities of L.I.N.C., Inc. Such shares of Series A-II
preferred stock will convert into 266,660 shares of common stock of the
Registrant upon the closing of this offering.

    (6)  On May 14, 1997, the Registrant issued 23,333 shares of Series A-II
preferred stock to the shareholders of MMS, Inc. for the acquisition of 100%
of the voting securities of MMS, Inc. Such shares of Series A-II preferred
stock will convert into 466,660 shares of common stock of the Registrant upon
the closing of this offering.

    (7)  From October 1997 to August 1999, the Registrant issued and sold an
aggregate of 4,000,000 shares of Series C preferred stock at a price of $2.75
per share to a group of investors for an aggregate purchase price of
$11,000,000. Such shares of Series C preferred stock will convert into
4,000,000 shares of common stock of the Registrant upon completion of this
offering.

    (8)  On November 14, 1997, the Registrant issued 8,624 shares of Series A-
II preferred stock to the shareholders of Healthcheck, Inc. for the
acquisition of 100% of the voting securities of Healthcheck, Inc. Such shares
of Series A-II preferred stock will convert into 172,480 shares of common
stock of the Registrant upon the closing of this offering.

    (9)  On September 9, 1998, the Registrant issued 37,775 shares of common
stock to the former shareholders of Comprehensive Providers Credentialing
Services, Inc. pursuant to an adjustment provision contained in the merger
agreement by and between such shareholders and the Registrant, dated May 23,
1996.

   The issuances described in Items 2 through 9 were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
In addition, the issuances described in Item 1 were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and
contracts relating to compensation. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.

                                     II-2
<PAGE>

               INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED
                         FINANCIAL STATEMENT SCHEDULE

The Board of Directors
OrganicNet, Inc.:

   The audits referred to in our report dated August 27, 1999, except as to
note 14 which is as of September 20, 1999, included the related consolidated
financial statement schedule for each of the years in the three-year period
ended December 31, 1998, and for the six month period ended June 30, 1999,
included in the registration statement. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement schedule
based on our audits. In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                          /s/ KPMG LLP

San Francisco, California
August 27, 1999

                                     II-3
<PAGE>

                                OrganicNet, Inc.
                  SCHEDULE II-VALUATION & QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                   Balance at  Charged to            Balance at
                                  Beginning of Costs and               End of
           Description               Period     Expenses  Deductions   Period
           -----------            ------------ ---------- ---------- ----------
<S>                               <C>          <C>        <C>        <C>
Year Ended 1996:
  Allowance for Doubtful
   Accounts......................   $    --     $    --     $ --      $    --
Year Ended 1997:
  Allowance for Doubtful
   Accounts......................   $    --     $113,000    $ --      $113,000
Year Ended 1998:
  Allowance for Doubtful
   Accounts......................   $113,000    $ 15,800    $ --      $128,800
Six Months Ended June 30, 1999:
  Allowance for Doubtful Accounts
   ..............................   $128,800    $ 68,145    $ --      $196,945
</TABLE>

                                      II-4
<PAGE>

Item 16. Exhibit and Financial Statement Schedule

<TABLE>
<CAPTION>
 Exhibit
 Number    Description of Document
 -------   -----------------------
 <C>       <S>
  1.1*     Form of Underwriting Agreement
  3.1(1)*  Amended and Restated Certificate of Incorporation of Registrant
  3.2(1)*  Bylaws of Registrant
  4.1*     Specimen Certificate for shares of Common Stock, $.001 par value, of
           the Registrant
  5.1*     Legal Opinion of Cooley Godward LLP
  8.1*     Tax Opinion of Cooley Godward LLP
 10.1      Amended and Restated Investor Rights Agreement, dated October 31,
           1997, between Registrant and the Series A, B and C Investors
 10.2      Indemnity and Subrogation Agreement, dated January 1, 1998, between
           the registrant and Michael Meisel
 10.3      1996 Stock Option/Stock Issuance Plan
 10.4      1997 Stock Option/Stock Issuance Plan
 10.5      Employment Agreement with Jack D. Anderson dated January 1, 1996
 10.6      Employment Agreement with Robert L. Anderson dated January 1, 1996
 10.7      Employment Agreement with William W. Shaw, III dated June 1, 1996
 10.8      Employment Letter Agreement with William H. Matthews dated June 17,
           1999
 10.9      Employment Agreement with M. Jan Roughan dated January 1, 1997
 10.10     Employment Agreement with Michael J. Barry dated January 1, 1996
 10.11*    Form of Indemnification Agreement
 10.12     Promissory Note, dated April 1, 1999, between Michael E. Meisel and
           the Registrant
 10.13*    Promissory Note, dated June 1, 1997 between M. Jan Roughan and the
           Registrant
 10.14*    Promissory Note, dated December 1, 1997 between M. Jan Roughan and
           the Registrant
 10.15     Lease Agreement, dated January 5, 1999 between 1301 Evans Street
           Associates, LLC and the Registrant
 10.16+    Dedicated Server Agreement between Conxion and the Registrant dated
           April 8, 1999
 10.17+    Dedicated Server Agreement between Conxion and the Registrant dated
           May 3, 1999
 10.18+    T1 Service Agreement between Conxion and the Registrant dated May
           23, 1999
 10.19+    Dedicated Server Agreement between Conxion and the Registrant dated
           June 1, 1999
 10.20+    T1 Service Agreement between Conxion and the Registrant dated
           September 1, 1999
 10.21*    Application Infrastructure Provider Agreement between Conxion and
           the Registrant dated September 17, 1999
 10.22*    Distribution and Services Agreement between Superior Consultant
           Holdings Corporation and the Registrant dated September 20, 1999
 21.1      Subsidiaries of Registrant
 23.1      Consent of KPMG LLP, independent auditors
 23.2      Consent of KPMG LLP, independent auditors
 24.1      Power of Attorney (see signature page)
 27.1      Financial Data Schedule
</TABLE>
--------
(1) As proposed to be filed with the Secretary of State of the State of
    Delaware prior to the effectiveness of this offering.
*  To be filed by amendment.
+  Confidential treatment requested on portions of this exhibit. Unredacted
   versions of this exhibit have been filed separately wih the Commission.

                                      II-5
<PAGE>

Item 17. Undertakings

   Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities 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 hereunder, the Registrant will, unless in the opinion of its
counsel the matters have 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.

   The undersigned Registrant hereby undertakes for the purpose of determining
any liability under the Securities Act, 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.

   For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 479(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

   The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter or
permit prompt delivery to each purchaser.

                                     II-6
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of the Securities Act, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, State of California, on October 1, 1999.

                                          ORGANICNET, INC.

                                                    /s/ Jack D. Anderson
                                          By: _________________________________
                                                     Jack D. Anderson,
                                                  Chief Executive Officer

                               POWER OF ATTORNEY

   KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jack D. Anderson and William W. Shaw,
III as his attorney-in-fact, with full power of substitution for him in any
and all capacities, to sign any and all amendments to this registration
statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute or
substitutes, may do or cause to be done by virtue hereof.

   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:


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

<S>                                    <C>                        <C>
         /s/ Jack D. Anderson          Chairman of the Board and    October 1, 1999
______________________________________  Chief Executive Officer
           Jack D. Anderson             (Principal Executive
                                        Officer)

       /s/ William W. Shaw, III        President                    October 1, 1999
______________________________________
         William W. Shaw, III

       /s/ William H. Matthews         Chief Financial Officer      October 1, 1999
______________________________________  (Principal Financial
         William H. Matthews            Officer)

        /s/ Gail E. Oldfather          Director                     October 1, 1999
______________________________________
          Gail E. Oldfather

        /s/ Michael A. Wilson          Director                     October 1, 1999
______________________________________
          Michael A. Wilson

         /s/ Robert S. Garvie          Director                     October 1, 1999
______________________________________
           Robert S. Garvie

        /s/ Robert L. Anderson         Director                     October 1, 1999
______________________________________
          Robert L. Anderson

          /s/ M. Jan Roughan           Director                     October 1, 1999
______________________________________
            M. Jan Roughan

         /s/ David W. McComb           Director                     October 1, 1999
______________________________________
           David W. McComb
</TABLE>

                                     II-7
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                       Description of Document                      Page
 -------                      -----------------------                      ----
 <C>       <S>                                                             <C>
  1.1*     Form of Underwriting Agreement
  3.1(1)*  Amended and Restated Certificate of Incorporation of
           Registrant
  3.2(1)*  Bylaws of Registrant
  4.1*     Specimen Certificate for shares of Common Stock, $.001 par
           value, of the Registrant
  5.1*     Legal Opinion of Cooley Godward LLP
  8.1*     Tax Opinion of Cooley Godward LLP
 10.1      Amended and Restated Investor Rights Agreement, dated October
           31, 1997, between Registrant and the Series A, B and C
           Investors
 10.2      Indemnity and Subrogation Agreement, dated January 1, 1998,
           between the registrant and Michael Meisel
 10.3      1996 Stock Option/Stock Issuance Plan
 10.4      1997 Stock Option/Stock Issuance Plan
 10.5      Employment Agreement with Jack D. Anderson dated January 1,
           1996
 10.6      Employment Agreement with Robert L. Anderson dated January 1,
           1996
 10.7      Employment Agreement with William W. Shaw, III dated June 1,
           1996
 10.8      Employment Letter Agreement with William H. Matthews dated
           June 17, 1999
 10.9      Employment Agreement with M. Jan Roughan dated January 1,
           1997
 10.10     Employment Agreement with Michael J. Barry dated January 1,
           1996
 10.11*    Form of Indemnification Agreement
 10.12     Promissory Note, dated April 1, 1999, between Michael E.
           Meisel and the Registrant
 10.13*    Promissory Note, dated June 1, 1997 between M. Jan Roughan
           and the Registrant
 10.14*    Promissory Note, dated December 1, 1997 between M. Jan
           Roughan and the Registrant
 10.15     Lease Agreement, dated January 5, 1999 between 1301 Evans
           Street Associates, LLC and the Registrant
 10.16+    Dedicated Server Agreement between Conxion and the Registrant
           dated April 8, 1999
 10.17+    Dedicated Server Agreement between Conxion and the Registrant
           dated May 3, 1999
 10.18+    T1 Service Agreement between Conxion and the Registrant dated
           May 23, 1999
 10.19+    Dedicated Server Agreement between Conxion and the Registrant
           dated June 1, 1999
 10.20+    T1 Service Agreement between Conxion and the Registrant dated
           September 1, 1999
 10.21*    Application Infrastructure Provider Agreement between Conxion
           and the Registrant dated September 17, 1999
 10.22*    Distribution and Services Agreement between Superior
           Consultant Holdings Corporation and the Registrant dated
           September 20, 1999
 21.1      Subsidiaries of Registrant
 23.1      Consent of KPMG LLP, independent auditors
 23.2      Consent of KPMG LLP, independent auditors
 24.1      Power of Attorney (see signature page)
 27.1      Financial Data Schedule
</TABLE>
--------
(1) As proposed to be filed with the Secretary of State of the State of
    Delaware prior to the effectiveness of this offering.
*  To be filed by amendment.
+  Confidential treatment requested on portions of this exhibit. Unredacted
   versions of this exhibit have been filed separately wih the Commission.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 460132}]
{"company-data": {"conformed-name": "ORGANICNET INC", "cik": "0001092693", "assigned-sic": ""}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-88277", "film-number": "99721735"}, "business-address": {"street1": "330 TOWNSEND STREET", "street2": "SUITE 206", "city": "SAN FRANCISCO", "state": "CA", "zip": "94107"}, "mail-address": {"street1": "330 TOWNSEND STREET", "street2": "SUITE 206", "city": "SAN FRANCISCO", "state": "CA", "zip": "94107"}}
As filed with the Securities and Exchange Commission on October 1, 1999
                                                      Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549
                                ---------------
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933
                                ---------------
                               ORGANICNET, INC.
            (Exact name of registrant as specified in its charter)
                                ---------------
         Delaware                    7372                    68-0347739
     (State or other     (Primary Standard Industrial     (I.R.S. Employer
     jurisdiction of      Classification Code Number)   Identification No.)
      incorporation             ---------------
     or organization)   330 Townsend Street, Suite 206
                         San Francisco, CA 94107-1630
                                (415) 495-4741
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                                ---------------
                               Jack D. Anderson
                            Chief Executive Officer
                               OrganicNet, Inc.
                        330 Townsend Street, Suite 206
                         San Francisco, CA 94107-1630
                                (415) 495-4741
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                                ---------------
                                  Copies to:
 Patrick A. Pohlen, Esq.                   Rodd M. Schreiber, Esq.
    Cooley Godward LLP         Skadden, Arps, Slate, Meagher & Flom (Illinois)
  Five Palo Alto Square                     333 West Wacker Drive
   3000 El Camino Real                        Chicago, IL 60606
 Palo Alto, CA 94306-2155
                                ---------------
   Approximate date of commencement of the proposed sale to the public: as
soon as practicable after the effective date of the Registration Statement.
   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. [_]
   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. [_]
   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. [_]
   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. [_]
   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                        CALCULATION OF REGISTRATION FEE

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Proposed
                                                        Maximum
                                                       Aggregate     Amount of
               Title of Each Class of                Offering Price Registration
            Securities to be Registered                   (1)           Fee
--------------------------------------------------------------------------------
Common Stock, $.001 par value per share............   $51,750,000    $14,386.50
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
    Registration Fee in accordance with Rule 457(o) of the Securities Act of
    1933, as amended.
                                ---------------
   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 of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed.        +
+OrganicNet 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 October 1, 1999

Preliminary Prospectus

                                       Shares

                                OrganicNet, Inc.

                                 [COMPANY LOGO]

                                  Common Stock

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

  This is OrganicNet, Inc.'s initial public offering of common stock.

  We expect the public offering price to be between $    and $    per share.
Currently, no public market exists for the shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the
symbol "OGNT."

  Investing in our common stock involves risks which are described in the "Risk
Factors" section beginning on page 5 of this prospectus.

                                 ------------
Per Share Total
                                                               --------- -----
Public offering price....................................      $      $
     Underwriting discounts...................................      $      $
     Proceeds, before expenses, to OrganicNet.................      $      $
The underwriter may also purchase up to an additional      shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments.

  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.

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

                             Punk, Ziegel & Company

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

                  The date of this prospectus is       , 1999
Description of Artwork:

   1. Inside cover. Five overlapping circles. The circles are labelled Clinic
Management, Practice Management, Credentialing, Clinical Drug Trials and
Disease Management. The words The CoreModel appear in the center.

   2. Gatefold. There is a box with three screens of the Organic Browser on the
left side of the gatefold. On the right side of the gatefold is a diagram of
the interaction of the Internet, our customers and our solutions.
TABLE OF CONTENTS
Page
                                                                          ----
Prospectus Summary.......................................................   1
Risk Factors.............................................................   5
Forward-Looking Statements...............................................  16
Use of Proceeds..........................................................  17
Dividend Policy..........................................................  17
Dilution.................................................................  18
Capitalization...........................................................  19
Selected Consolidated Financial Data.....................................  20
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  22
Business.................................................................  32
Management...............................................................  46
Certain Relationships and Related Transactions...........................  57
Principal Stockholders...................................................  61
Description of Capital Stock.............................................  63
Shares Eligible for Future Sale..........................................  66
Underwriting.............................................................  68
Legal Matters............................................................  70
Experts..................................................................  70
Available Information....................................................  70
Index to Financial Statements............................................ F-1
----------------

   The terms "OrganicNet", "company", "we", "our" and "us" refer to
OrganicNet, Inc. and its subsidiaries unless the context suggests otherwise.
The term "you" refers to a prospective investor.

   OrganicNet, the OrganicNet logo, Organic Architecture, Object Products,
CoreModel and Organic Browser are trademarks of OrganicNet, Inc. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.

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

   You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.
PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in the common stock of OrganicNet.
Investors should read the entire prospectus carefully.

                                   OrganicNet

   We are an application services provider (ASP) that develops software
solutions for healthcare clinics and physician group practices using our
proprietary technology platform. Our customers can access and use our solutions
over the Internet or their local or wide area networks. We are developing
integrated solutions designed to manage all elements of the business and
clinical processes of our customers within a single system. We currently have
developed and implemented solutions in three areas: disease management,
clinical drug trials recruitment and workers' compensation. We charge our
customers a monthly subscription fee for our solutions.

   Our software solutions are built using our object-oriented Organic
Architecture, which we believe is a significant advancement over traditional
technologies. Central to our Organic Architecture is our CoreModel, which is
comprised of objects that represent a universal set of clinical and business
processes. This proprietary technology provides a platform for rapid
development and deployment of codeless software solutions to meet our
customers' specific needs. To develop our CoreModel and solutions, we
selectively acquired companies with healthcare domain expertise and enabling
technologies. These acquisitions also provided near-term products, customers
and revenues.

   The growth of the managed care, risk sharing and other alternative payment
and reimbursement mechanisms, increased government regulation and the rise of
healthcare delivery networks have increased the need for information technology
products and services. In order to reduce unnecessary spending and manage costs
while delivering quality care, healthcare providers are increasingly demanding
software solutions that enable them to effectively extract and analyze data
located throughout their enterprises, measure clinical results, evaluate
operational efficiency and support process improvement. The Internet has
emerged as an accessible, low-cost and flexible means of accessing and
distributing information, making it particularly well-suited for deploying
software solutions for the healthcare industry. We believe that the ASP model
addresses many of the shortcomings of traditional healthcare information
technology solutions. Customers rent, rather than own the applications they
require, reducing the capital commitment necessary for information technology
and reducing the need for a dedicated staff of information technology
personnel.

   Our objective is to become the leading ASP serving clinics and group
practices by capitalizing on our early market entrance, extending our
technology and implementing a subscription-based business model that generates
recurring revenue. We intend to achieve this objective by:

  .  leveraging our proprietary technology platform by rapidly developing
     additional solutions, functions and features;

  .  achieving rapid market penetration by focusing on customers within our
     target market segments and cross-selling our ASP software solutions to
     our existing installed base of customers; and

  .  enhancing our capabilities by forming strategic alliances that provide
     us with specific expertise and access to new customer channels.

                                       1
Our ASP software solutions provide the following advantages:

   Comprehensive. Our solutions are designed to enable our customers to rely on
us as the single source for their software solutions, whether these solutions
are deployed over the Internet or their local or wide area network.

   Cost-effective. Our solutions eliminate the need for our customers to incur
significant capital expenditures for hardware, operating systems and
application software and significantly reduce the costs for technical support
and training.

   Adaptable. Our solutions are built with data instead of code, which makes
them easier and less expensive to tailor to accommodate the practice variation
and workflow of each user.

   Integrated. Information and applications are stored on a single remote
database and can be accessed simultaneously by multiple users in geographically
dispersed locations.

   As part of our strategy, we have entered into relationships with strategic
partners for distribution, consulting and implementation services, Internet
infrastructure and application hosting. Our initial ASP software solution,
which manages patient-reported health and clinical data, is being distributed
as part of our strategic relationship with Pfizer Health Solutions Inc, with
whom we have had a relationship since 1997. We also have entered into an
alliance with Superior Consultant Holdings Corporation. Under this agreement,
Superior will introduce and outline the advantages of our ASP software
solutions based on client interests, as well as provide systems integration,
process improvement, consulting and implementation services to healthcare
organizations. Superior is a leading provider of business solutions, including
consulting, systems integration, e-Health and outsourcing to the healthcare
industry. Superior serves clients nationally and internationally and has over
1,500 professionals located throughout the United States. We also have entered
into agreements with Conxion Corporation, which provides us with application
hosting, Internet infrastructure and data centers. Conxion invested $550,000 in
our preferred stock in April 1999.

   We were incorporated in California in January 1995 under the name Object
Products, Inc. and reincorporated in Delaware in April 1996. The company
changed its name to OrganicNet, Inc. in May 1999. Our principal executive
offices are located at 330 Townsend Street, Suite 206, San Francisco,
California, 94107-1630. Our telephone number is (415) 495-4741. Our website is
www.organic-net.com. Information contained on our website is not a part of this
prospectus.

                                       2
The Offering
Shares offered by OrganicNet..................         shares
 Total shares outstanding after this offering..         shares
 Use of proceeds............................... To repay short-term debt,
                                                including amounts owed to or
                                                guaranteed by certain of our
                                                directors, officers and
                                                stockholders, to continue
                                                development of our solutions
                                                and architecture, expand our
                                                sales and marketing efforts,
                                                expand our administrative
                                                infrastructure, and for working
                                                capital and other general
                                                corporate purposes.
 Proposed Nasdaq National Market symbol........ OGNT
The common stock to be outstanding after this offering is based on the shares
outstanding as of August 31, 1999 and excludes:

  .  1,619,168 shares of common stock issuable as of August 31, 1999 upon the
     exercise of outstanding stock options issued at a weighted average
     exercise price of $1.16 per share under our stock option plans;

  .  821,263 shares of common stock reserved for issuance under our stock
     option plans as of August 31, 1999;

  .  16,667 shares of our preferred stock issued in connection with the
     acquisition of PSI-Med Corporation after August 31, 1999, which will
     convert into 333,340 shares of our common stock upon the closing of this
     offering; and

  .  200,000 shares of common stock issuable upon the exercise of outstanding
     options issued at an exercise price of $6.00 per share to Superior
     Consultant Holdings Corporation on September 17, 1999 in connection with
     the formation of our strategic alliance with Superior.

Except as otherwise indicated, information in this prospectus assumes the
following:

  .  the conversion of all outstanding shares of preferred stock into common
     stock upon consummation of this offering;

  .  the filing of our amended and restated certificate of incorporation, the
     provisions of which are summarized in "Description of Capital Stock;"
     and

  .  no exercise of the underwriter's over-allotment option.

                                  Risk Factors

   You should consider the risk factors before investing in OrganicNet's common
stock and the impact from various events which could adversely affect our
business.

                                       3
Summary Financial Data

   The following table summarizes our consolidated statements of operations for
the years ended December 31, 1996, 1997 and 1998 and the six months ended June
30, 1998 and 1999, as well as our unaudited pro forma combined statements of
operations for the year ended December 31, 1998 and the six months ended June
30, 1999 that gives effect to our acquisition of PSI-Med Corporation as if the
acquisition occurred at the beginning of the periods. The unaudited pro forma
information is not necessarily indicative of the results that would have
occurred had the acquisition taken place as of the beginning of the periods
presented, nor is it necessarily indicative of results that may occur in the
future. The table also includes our consolidated balance sheet as of June 30,
1999 on an actual and pro forma as adjusted basis. See the consolidated
financial statements and related notes included elsewhere in this prospectus.
Years Ended December 31,             Six Months Ended June 30,
                          -------------------------------------- --------------------------------
                                                      Pro Forma                        Pro Forma
                           1996     1997     1998       1998        1998      1999       1999
                          -------  -------  -------  ----------- ----------- -------  -----------
                                                     (unaudited) (unaudited)          (unaudited)
                                     (in thousands, except per share information)
Consolidated Statement
 of Operations:
Revenue:
 License................  $   --   $   424  $   571    $ 1,087     $   113   $   370    $   654
 Product development....      --     1,238      565        565         530       227        227
 Service................      371    1,310    3,488      5,182       2,053     2,112      2,938
                          -------  -------  -------    -------     -------   -------    -------
 Total revenue..........      371    2,972    4,624      6,834       2,696     2,709      3,819
                          -------  -------  -------    -------     -------   -------    -------
Cost of revenue:
 License................      --       475      756        756         387       336        336
 Product development....      --       320      209        209         128        63         63
 Service................      238      892    2,314      3,850       1,249     1,230      1,928
                          -------  -------  -------    -------     -------   -------    -------
 Total cost of revenue..      238    1,687    3,279      4,815       1,764     1,629      2,327
                          -------  -------  -------    -------     -------   -------    -------
Gross profit............      133    1,285    1,345      2,019         932     1,080      1,492
                          -------  -------  -------    -------     -------   -------    -------
Operating expense:
 Sales and marketing....       24    1,395    1,644      1,812         834       672        734
 Research and
  development...........      724    1,345    1,833      2,070         783     1,204      1,321
 General and
  administrative........    1,690    3,332    3,768      4,597       1,663     1,762      2,001
                          -------  -------  -------    -------     -------   -------    -------
 Total operating
  expense...............    2,438    6,072    7,245      8,479       3,280     3,638      4,056
                          -------  -------  -------    -------     -------   -------    -------
Operating loss..........   (2,305)  (4,787)  (5,900)    (6,460)     (2,348)   (2,558)    (2,564)
Interest expense........       (2)     (20)     (93)       (93)        (43)      (76)       (76)
Other income (expense)..      --        14       (9)       (95)         (6)       (5)       (56)
                          -------  -------  -------    -------     -------   -------    -------
Loss before income
 taxes..................   (2,307)  (4,793)  (6,002)    (6,648)     (2,397)   (2,639)    (2,696)
Provision for income
 taxes..................        4        6        4          5           2         4          5
                          -------  -------  -------    -------     -------   -------    -------
Net loss................  $(2,311) $(4,799) $(6,006)   $(6,653)    $(2,399)  $(2,643)   $(2,701)
                          =======  =======  =======    =======     =======   =======    =======
Net loss per share:
 basic and diluted......  $ (0.45) $ (0.88) $ (1.10)   $ (1.22)    $ (0.44)  $ (0.48)   $ (0.49)
                          =======  =======  =======    =======     =======   =======    =======
Weighted average shares
 outstanding: basic and
 diluted................    5,189    5,426    5,448      5,448       5,432     5,485      5,485
                          =======  =======  =======    =======     =======   =======    =======
As of June 30, 1999
                                                            --------------------
                                                                      Pro Forma
                                                            Actual   As Adjusted
                                                            -------  -----------
                                                                     (unaudited)
                                                              (in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................. $ 1,680      $
Working capital (deficit)..................................  (3,704)
Total assets...............................................   3,445
Total stockholders' equity (deficit).......................  (2,733)
The preceding consolidated balance sheet data is shown on a pro forma as
adjusted basis to give effect to:

  .  the acquisition of PSI-Med Corporation as if the acquisition occurred on
     June 30, 1999;

  .  the conversion of all outstanding shares of preferred stock into shares
     of common stock upon consummation of this offering, including shares of
     preferred stock issued in connection with our acquisition of PSI-Med;
     and

  .  the sale of      shares of common stock in this offering at an assumed
     initial public offering price of $   per share, after deducting the
     underwriting discounts and commissions and estimated offering expenses
     and application of the net proceeds therefrom.

                                       4
RISK FACTORS

   You should carefully consider the following risk factors, in addition to the
other information set forth in this prospectus, before purchasing shares of
common stock of OrganicNet. Each of these risk factors could adversely affect
our business, operating results and financial condition, as well as adversely
affect the value of an investment in our common stock. This investment involves
a high degree of risk.

  Risks Related To Our Business

  Our business is difficult to evaluate because we have a limited operating
  history.

   We were incorporated in January 1995 and have a limited operating history,
which makes an evaluation of our business and prospects difficult. Since our
inception, we have been developing our object-oriented technology and marketing
the legacy software products developed by the companies we acquired. In
February 1999, we delivered our first ASP software solution. As a result, we
only have a limited number of ASP software solutions currently in use. Revenue
to date from our ASP software solutions has not been material. You must
consider our business and prospects in light of the risks, uncertainties and
difficulties frequently encountered by companies in their early stages of
development, particularly those in new and rapidly evolving markets such as
ours, which use new and unproven business models. We cannot assure you that our
business strategy will be successful or that we will be able to complete the
development of and sell our ASP software solutions.

  Our historical revenue was derived primarily from products and services
  that we do not expect to be the focus of our business in the future, which
  makes it difficult to evaluate our current and future financial
  performance.

   We currently derive substantially all of our revenue from the sale of our
legacy software products and services. These software products and related
services are substantially different from the ASP software solutions that will
be our focus. We intend to phase out sales of legacy products and related
services and expect the associated revenue to decline substantially. As a
result, our historical financial information does not reflect the results of
the current and future focus of our business and cannot be used to predict our
future revenue or results of operations.

  We expect to continue to incur operating losses and net cash outflow and
  may never achieve profitability, which may cause our stock price to
  decline.

   We have experienced net losses in each quarterly and annual period since
inception. We recorded net operating losses of approximately $4.8 million for
the year ended December 31, 1997, approximately $5.9 million for 1998 and
approximately $2.6 million as of June 30, 1999. As of June 30, 1999, we had an
accumulated deficit of approximately $16.0 million. We intend to increase our
operating expenses substantially, particularly expenses related to development
of our solutions and architecture, expansion of our sales and marketing
efforts, and expansion of our administrative infrastructure. Therefore, we
expect to incur significant operating losses and to record significant net cash
outflow for the foreseeable future. We cannot assure you that we will achieve
significant revenues from our solutions or achieve, sustain or improve
profitability on a quarterly or annual basis in the future.

  Our quarterly operating results are expected to fluctuate and could cause
  our stock price to decline.

   Our quarterly operating results have varied in the past and we expect them
to continue to fluctuate in future periods. These fluctuations depend on a
number of factors described below and elsewhere in this "Risk Factors" section
of the prospectus, many of which are outside our control. In particular, the
sale and implementation of our software solutions are subject to delay due to
our potential customers' internal procedures for approving expenditures and
deploying new technologies within their clinics or group practices.

                                       5
We provide our solutions to customers on a monthly subscription basis. We
cannot predict subscription fees accurately because we have limited experience
selling our solutions. In addition, our customers may decide to stop using our
solutions at any time with very little notice. We may spend substantial time
and resources developing or tailoring solutions for channel partners or
customers prior to the time that we have entered into subscription agreements
with them. If we do not enter into agreements with these channel partners and
customers or if our customers do not subscribe for these solutions for a
sufficient period of time, we will not be able to achieve revenue to recoup our
investment. For these and other reasons, our stock price could decline.

  Our business model is unproven and may not effectively address our market.

   Providing software solutions over the Internet to the healthcare industry is
a business that has only recently begun to develop. It is difficult to value
our business and evaluate our prospects because our business model and our
revenue and income potential are unproven. Our business model depends on our
ability to generate usage by a large number of clinics and group practices.
Growth in demand for and acceptance of business software applications,
including our ASP offerings, by clinics and group practices is highly
uncertain. This uncertainty is due in part to the possibility that customers
using existing systems may refuse to adopt new systems when they have made
extensive investment in hardware, software, and training for existing systems,
or if they perceive that our ASP solutions will not adequately or cost-
effectively address their requirements.

   In order to successfully sell our software solutions, we may need to
convince potential customers that the features and functionality of our
solutions justify their cost, as well as the time and administrative expense
required to switch to our solutions. Achieving market acceptance for our
software solutions will require substantial marketing efforts and expenditure
of significant funds to increase awareness and demand by our target customers.
We cannot assure you that we will be able to succeed in positioning our ASP
offerings as appropriate solutions to address the clinical and business needs
of potential users, or that our ASP model will be economically viable or
acceptable to clinics and group practices. If our strategy does not prove
successful or if the market for our solutions does not grow or grows more
slowly than we currently anticipate, achieving profitability could take longer
than expected or we may never achieve profitability, either of which could harm
our business.

  If we cannot develop additional software solutions, we may be unable to
  achieve or sustain profitability.

   We are unlikely to achieve or sustain profitability unless we offer and
successfully market a broad range of software solutions. Our business strategy
depends on developing solutions to manage the entire clinical and business
process for clinics and group practices. We have only completed development of
solutions for a limited number of applications and have not commenced
development of the full range of applications required to provide such a
solution. We cannot assure you that we will be able to develop the applications
we need to keep our ASP software solutions competitive and to meet our business
plan objectives. If we cannot develop these additional applications, our sales
may suffer and achieving profitability could take longer than expected or we
may never achieve profitability, either of which could cause our stock price to
decline.

  We depend on third parties to provide our Internet infrastructure and
  application hosting.

   We do not intend to develop or maintain Internet infrastructure or
application hosting capabilities to support delivery of our software solutions
over the Internet. Therefore, we are dependent on obtaining those capabilities
from third parties. We currently obtain Internet infrastructure and application
hosting services from Conxion Corporation and include them as part of our ASP
software solutions. The ability to deliver our software solutions over the
Internet is central to our business strategy and depends on the efficient and
uninterrupted operation of the computer and Internet network systems at
Conxion.

   Conxion's operations are vulnerable to damage or interruption from fire,
flood, tornado, hurricane, earthquake, power loss, telecommunications or
Internet failure, viruses, physical and electronic break-ins, or

                                       6
other similar events and they have recently suffered a service disruption at
one of their data centers related to a system upgrade. The ability of Conxion
or any other third party we might use to prevent system failures or manage the
effects of system failures which occur in computer and Internet network systems
is limited. If Conxion or another third party suffers a system failure, it
would prevent us from maintaining our service standards. The occurrence of such
a failure could harm our reputation, business and prospects. If Conxion fails
to perform its obligations under this agreement or if this agreement is
terminated or not renewed and we are unable to obtain comparable services on
favorable financial terms, or at all, our business would be harmed.

  Our systems may be vulnerable to security breaches and viruses.

   Our success depends on the confidence of our customers in our ability to
securely transmit confidential information over the Internet. Any failure to
provide secure online communication services could harm our business and
reputation. Our systems and those of our hosting services provider rely on
encryption, authentication and other security technology licensed from third
parties to achieve secure transmission of confidential information. Neither we
nor any third party may be able to stop unauthorized attempts to gain access to
or disrupt the transmission of communications by our customers. Anyone who is
able to circumvent our security measures could misappropriate confidential user
information or interrupt our, or our customers', operations. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments could result in a compromise or breach of the security
measures taken to protect our systems and the systems we use. In addition, our
servers at Conxion's data centers may be vulnerable to viruses, physical or
electronic break-ins, and similar disruptions. We depend on Conxion to prevent
these disruptions and its failure to do so could limit use of our solutions and
otherwise harm our business. Computer viruses, break-ins and other disruptions
could lead to interruptions, delays or loss of data. In addition to purposeful
security breaches, the inadvertent transmission of computer viruses could
expose us to litigation, damage our reputation or otherwise harm our business.

   Although we generally limit warranties and liabilities relating to security
in our customer contracts, our customers may seek to hold us liable for any
losses suffered as a result of unauthorized access to their information. We may
not have adequate insurance to cover these losses. We may be required to expend
significant capital and other resources to protect against these security
breaches or to alleviate the problems they cause and to defend any lawsuits or
claims. Moreover, concerns over the security of transactions conducted on the
Internet and commercial online services, which may be heightened by publicized
compromises of security, may also deter future customers from using our
solutions or cause current customers to terminate their solution subscriptions.
In either case, this could harm our business and prospects. Our security
measures may not be sufficient to prevent security breaches, and failure to
prevent security breaches could harm our reputation, business and prospects.

  Errors in our Organic Architecture or software solutions may harm our
  reputation and cause us to lose customers.

   Our Organic Architecture and software solutions may contain undetected
errors resulting in performance problems. Such errors are most frequently found
during the period immediately following introduction of new software solutions
or enhancements to existing solutions. Despite extensive product testing prior
to introduction, our software has in the past contained errors that were
discovered after commercial introduction. We cannot assure you that errors or
performance problems will not be discovered in the future with respect to any
of our products. Errors and mistakes in the processing of client data may
result in loss of data, inaccurate information and delays. Such errors could
cause us to lose clients and incur liability. Any errors in our Organic
Architecture and software solutions could harm our reputation, business and
prospects.

  We plan to expand rapidly and it may be difficult to manage our growth.

   We intend to rapidly grow our business. However, we cannot be sure that we
will successfully manage our growth. In order to successfully manage our
growth, we must:

  .  expand and enhance our administrative infrastructure;

                                       7
.  improve our management, financial and information systems and controls;
     and

  .  expand, train and manage our employees effectively.

   Continued growth could place a further strain on our management, operational
and financial resources. There will also be additional demands on our sales,
marketing and administrative resources as we increase our solutions offerings
and expand our target markets and customers. We cannot assure you that our
operating and financial control systems, administrative infrastructure,
facilities and personnel will be adequate to support our future operations or
to effectively adapt to future growth. If we cannot manage our growth
effectively, our business may be harmed.

  We may undertake additional acquisitions which may pose risks to our
  business.

   Our strategy contemplates the possibility of completing additional
acquisitions. There are risks and uncertainties associated with our completing
additional acquisitions, including:

  .  we might pay more than the acquired company is worth;

  .  we might not fully understand the business we acquire;

  .  we might be entering markets in which we have little or no direct prior
     experience;

  .  our ongoing business may be disrupted and resources and management time
     may be diverted;

  .  our accounting for acquisitions could require us to amortize substantial
     goodwill, which would adversely affect our reported results of
     operations;

  .  we might issue equity or debt securities that are dilutive to our
     stockholders; and

  .  we might incur debt or contingent liabilities in connection with
     acquisitions.

In addition, once we have made an acquisition we will face additional risks and
uncertainties, including:

  .  it may be difficult to assimilate acquired operations and personnel;

  .  we may not be able to retain the management and other key personnel of
     the acquired business;

  .  we may not be able to maintain uniform standards, controls, procedures
     and policies; and

  .  changing management may impair relationships with an acquired business'
     employees or customers.

Any of these risks and uncertainties associated with completing additional
acquisitions could harm our business.

  Others may seize the market opportunity we have identified because we may
  not effectively execute our strategy.

   If we fail to execute our strategy in a timely or effective manner, our
competitors may be able to seize the marketing opportunities we have
identified. Our strategy is complex and requires that we successfully and
simultaneously complete many tasks, including:

  .  developing and protecting our technology;

  .  developing economically attractive solutions;

  .  negotiating and maintaining effective channel partnerships;

  .  selling and marketing our solutions;

  .  attracting and retaining highly skilled employees; and

  .  integrating acquired companies into our operations.

                                       8
We cannot assure you that we will be able to successfully execute any or all
elements of our strategy. If we are unable to do so, our business could be
harmed and our stock price could decline.

  We may be unable to attract and retain qualified personnel and we depend on
  certain personnel.

   We believe that our success depends largely on our ability to attract and
retain highly skilled technical, managerial and marketing personnel.
Individuals with information technology skills are in short supply and
competition for qualified personnel is particularly intense. We may not be able
to hire the necessary personnel to implement our business strategy, or we may
need to pay higher compensation for employees than we currently expect. We
cannot assure you that we will succeed in attracting and retaining the
personnel we need to continue to grow and to implement our business strategy.
If we are unable to do so, our business could be harmed.

   We depend on the performance of our executive officers and other key
employees. The loss of any member of our senior management or other key
employees could negatively impact our ability to execute our strategy. We do
not maintain "key person" life insurance policies on any of our employees.

  We are dependent upon a third party database management system.

   We use a database management system to store our data and software
solutions, which we license from a third party. If we change our database
management system or if the license of our current database management system
is terminated, we would need to secure a license to use another database
management system. If we were to use a different database management system, we
would need to modify the interface with our application server to recognize
that system, which could take several weeks. If modifying that interface took
longer than expected or if there was insufficient time to obtain and implement
the new system before we lost the use of our current system, we would be unable
to provide uninterrupted service to our customers, and our business and
reputation would be harmed.

  If we are unable to protect our intellectual property rights from third
  party challenges, it may significantly impair our competitive position.

   We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We cannot assure you that the patent applications we have filed on
aspects of our technology will be successful. We also enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and control access to and distribution of our software,
documentation and other proprietary information. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Monitoring use of our products is
difficult, and we cannot assure you that the steps we have taken will prevent
unauthorized use of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.

  Intellectual property infringement claims against us could cost a
  significant amount of money to defend and could divert management's
  attention away from our business.

   As the number of software products in our target markets increases and as
the functionality of these products further overlaps, software industry
participants may become increasingly subject to infringement claims. Any
infringement claims alleged against us, even if without merit, can be time
consuming and expensive to defend. Any such claims may divert management's
attention and resources, and could also cause service implementation delays.
Settlement of any such claims could also require us to enter into costly
royalty or licensing agreements. If such a claim of product infringement
against us was successful and we were unable to license the infringing or
similar technology, our business, financial condition and results of operations
could be harmed and our stock price could decline.

                                       9
Risks Related To Our Industry

  Our success depends on Internet acceptance.

   Our success depends, in part, on the adoption of Internet solutions by
commercial users. Our business could suffer dramatically if Internet solutions
are not accepted or are not perceived to be effective. The recent growth in
Internet use has resulted in frequent periods of poor performance. Internet
service providers and other organizations with links to the Internet have
responded by upgrading routers and switches, telecommunications links and other
components forming the Internet infrastructure. Any perceived degradation in
the performance of the Internet as a whole could undermine the value of the
solutions we provide over the Internet. Performance improvements in our
solutions partly depend upon, and are ultimately limited by, the speed and
reliability of networks. In order for the market for our solutions to emerge
and grow, improvements must be made to the entire Internet infrastructure to
ease overloading and congestion.

   Several telecommunications carriers are supporting regulation of the
Internet by the Federal Communications Commission (FCC) in the same manner that
the FCC regulates other telecommunications services. If the FCC regulates the
Internet in the manner it regulates other telecommunications services and
imposes fees, it could increase the cost of doing business on or through the
Internet, slow the growth of the Internet and adversely affect the demand for
our products and services or increase our cost of doing business.

  Technology solutions may change faster than we are able to update our
  technology.

   The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, emerging competition and the frequent
introduction of new services, software and other products. Our success depends
partly on our ability to:

  .  develop new or enhance existing solutions, software and services that
     meet changing customer needs in a timely and cost-effective way;

  .  respond effectively to technological changes and new product offerings
     of our competitors; and

  .  maintain and continue to develop relationships with providers of
     Internet infrastructure and application hosting capabilities.

We cannot assure you that we will be able to accomplish any or all of these
goals. Many of our competitors may develop products or technologies that are
better or more attractive than ours or that may render our technology or
solutions obsolete. If we do not succeed in adapting our technology, our
business could be harmed.

  Our business may be harmed if our software solutions are not compatible
  with other products and services.

   Our ability to compete successfully also depends on the continued
compatibility of our software solutions with products, services and
architectures offered by other software vendors, particularly for customers who
have installed software applications. We cannot assure you that other products
will be compatible with our software solutions. Although we currently plan to
support emerging standards, we cannot anticipate what new industry standards
will develop. In addition, we cannot assure you that we will be able to conform
to these new standards quickly enough to stay competitive. If our software
solutions are not compatible with other products and services, our business
could be harmed and our stock price could decline.

  The markets we serve are highly competitive and many of our competitors
  have much greater resources.

   The business of providing application software and services to clinics and
group practices is extremely competitive. In addition, the market for Internet-
based application service providers is relatively new and

                                       10
evolving, and we anticipate that competition will continue to intensify as the
use of the Internet grows. Our competitive position in the healthcare software
application market is difficult to evaluate due to the variety of current and
potential competitors and the evolving nature of our market and the ASP model.

   Our primary competitors include legacy software vendors, application service
providers, and healthcare e-commerce and portal companies. Each of these types
of companies either competes or in the future can be expected to compete with
us in delivering software solutions to the clinic and group practice markets,
including the delivery of software applications over the Internet. Furthermore,
major software companies and other entities, including those specializing in
the healthcare industry that are not currently offering applications, products
or services that compete with our solutions, may enter our markets. In
addition, our existing and future strategic partners may compete with us from
time to time by selling, consulting on or hosting other software that competes
with our software solutions.

   Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have. We cannot assure you that we will have the resources or expertise to
compete successfully in the future. Our competitors may be able to:

  .  develop and expand their service offerings more quickly;

  .  develop products or services that are more attractive to customers;

  .  adapt to new or emerging technologies and changing customer needs more
     effectively;

  .  take advantage of acquisitions and other opportunities more readily;

  .  devote greater resources to the marketing and sales of their products;
     and

  .  adopt more aggressive pricing policies.

   Finally, there are few barriers to entry in our market. The principal
competitive factors in our market include:

  .  features and functionality;

  .  fit with the user's practice, processes and needs;

  .  cost;

  .  ease of implementation and use;

  .  level of service;

  .  business and technical expertise;

  .  integration of applications;

  .  quality of customer service and support;

  .  reliability; and

  .  scalability.

We cannot assure you that we will have the resources or expertise to compete
successfully in the future based on these or any other criteria or that
competitive pressures we face will not harm our business.

  Government regulation and legal uncertainties could add additional costs to
  doing business on the Internet and could limit our customers' use of the
  Internet.

   Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. Laws and regulations may be adopted
with respect to the Internet or other online services

                                       11
covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics, and quality of products and services. The
adoption of any additional laws or regulations may impede the growth of the
Internet, which could, in turn, decrease the demand for our applications and
services and increase our cost of doing business, or otherwise harm our
business. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could harm our business.

   The confidentiality of patient records and the circumstances under which
records may be released for inclusion in our databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Although compliance with these laws and regulations is at present
principally the responsibility of the healthcare provider, regulations
governing patient confidentiality rights are evolving rapidly. Additional
legislation governing the dissemination of medical record information has been
proposed at both the state and federal level. This legislation may require
holders of this information to implement security measures. Such legislation
might require us to make substantial expenditures to implement such measures.
We cannot assure you that changes to state or federal laws will not materially
restrict the ability of healthcare providers to submit information from patient
records using our applications.

   Legislation currently being considered at the federal level could impact the
manner in which we conduct our business. The Health Insurance Portability and
Accountability Act of 1996 (HIPAA) mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000. We are
designing our solutions to enable compliance with the proposed regulations but
cannot assure you that we will be able to comply with those proposed
regulations in a timely manner or at all. Moreover, until the proposed
regulations become final, they could change, which could require us to expend
additional resources to comply with the revised standards and we may not be
able to comply with the revised standards in a timely manner or at all. Based
on our present business operations, we believe that the HIPAA requirements
related to the maintenance and exchange of electronic health information may
apply to legacy products sold by our wholly owned subsidiary, PSI-Med
Corporation, but not to our other products, services or solutions. If any of
our products, services or solutions are subject to those regulations, we may be
required to incur additional expenses in order to comply with these
requirements and we may not be able to comply with them in a timely manner or
at all. In addition, the success of our compliance efforts may also be
dependent on the success of healthcare participants in dealing with the
standards. If we are unable to comply with regulations implementing HIPAA in a
timely manner or at all, the sale of our solutions and business could be
harmed.

   The United States Food and Drug Administration (FDA) is responsible for
assuring the safety and effectiveness of medical devices under the Federal
Food, Drug and Cosmetic Act. Computer applications and software are considered
medical devices and are subject to regulation by the FDA when they are
indicated, labeled or intended to be used in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment or prevention of disease, or
are intended to affect the structure or function of the body. We do not believe
that any of our current applications or services are subject to FDA regulation
as medical devices; however, we plan to expand our application and service
offerings into areas that may be subject to FDA regulation. We have no
experience in complying with FDA regulations. Our compliance with such FDA
regulations could prove to be time consuming, burdensome and expensive, which
could adversely affect our ability to introduce new applications or services in
a timely manner.

  Changes in the regulatory and economic environment and consolidation in the
  healthcare industry could adversely affect our business.

   The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could require us to make
unplanned enhancements of

                                       12
solutions or services, or result in delays or cancellations of orders or in the
revocation of endorsement of our services by our channel partners and others.
Federal and state legislatures have periodically considered programs to reform
or amend the U.S. healthcare system at both the federal and state level. These
programs may contain proposals to increase governmental involvement in
healthcare, lower reimbursement rates or otherwise change the environment in
which healthcare industry participants operate. Healthcare industry
participants may respond by reducing their investments or postponing investment
decisions, including investments in our solutions and services. We do not know
what effect any of these proposals would have on our business.

   Many healthcare industry participants are consolidating to create integrated
healthcare delivery systems with greater market power. As the healthcare
industry consolidates, competition to provide products and services to industry
participants will become more intense and the importance of establishing a
relationship with each industry participant will become greater. These industry
participants may try to use their market power to negotiate price reductions
for our software solutions and services. If we were forced to reduce our
prices, our operating results could suffer.

  Failure of computer systems and software products to be Year 2000 compliant
  could increase our costs, disrupt our services and reduce demand from our
  clients.

   Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four-digit entries in order for 20th century dates to be
distinguished from 21st century dates. As a result, before the end of this
year, computer systems and software used by many companies may need to be
upgraded to comply with these "Year 2000" requirements.

   We confront the Year 2000 problem in three contexts:

   Our Solutions. Because we sell computer-related solutions, our risk of
lawsuits relating to Year 2000 issues is likely to be greater than that of
companies in other industries. Because computer products and services may
incorporate components from different providers, it may be difficult to
determine which component may cause a Year 2000 problem. As a result, we may be
subjected to Year 2000-related lawsuits whether or not our software solutions
and services are Year 2000 compliant. There can be no assurance as to what the
outcomes or impact of any such lawsuits may be. Our acquired subsidiaries have
several contracts which make Year 2000 warranties. The potential liability
arising from these warranties is not limited. Any Year 2000-related lawsuits or
claims may divert management's attention and resources. If such lawsuits or
claims are resolved against us, our business may be harmed.

   Our Suppliers. We rely on third party network infrastructure providers to
gain access to the Internet. If such providers experience business
interruptions as a result of their failure to achieve Year 2000 compliance, our
ability to provide Internet connectivity could be impaired, which could harm
our reputation and our business. We use and license software and hardware from
third parties. If this software or hardware is not Year 2000 compliant, our
business may suffer. We also rely on third parties for other products and
services required to operate our business. If we cannot obtain products or
services that are Year 2000 compliant, or if vendors and service suppliers
cannot deliver their products or services because of Year 2000 compliance
problems, our business may be harmed.

   Our Customers. Many of our customers and potential customers maintain their
operations on computer hardware that may be impacted by Year 2000
complications. Many of our customers may not be Year 2000 compliant. Customer
difficulties due to Year 2000 issues could interfere with healthcare
transactions or the transmission of information, which might expose us to
significant potential liability. If customer failures result in the failure of
our systems, it could harm our reputation and our business. Furthermore, Year
2000 issues may affect the purchasing patterns of these customers or potential
customers as companies expend significant resources to become Year 2000
compliant. The costs of becoming Year 2000 compliant for current or potential

                                       13
customers may result in reduced funds being available to purchase and implement
our solutions and services, which would harm our sales and our business.

  Risks Related To This Offering

  Our management will have broad discretion to allocate the net proceeds of
  this offering and the proceeds may not be used appropriately.

   Our management will retain broad discretion allocating the proceeds of this
offering. We estimate the net proceeds from this offering to be approximately
$41.1 million, after deducting estimated offering expenses. We plan to use
these proceeds to repay short-term debt, including amounts owed to or
guaranteed by certain of our directors, officers and stockholders, for
development of our solutions and architecture, expansion of our sales and
marketing efforts, and expansion of our administrative infrastructure. We have
no specific allocations for any other net proceeds of this offering.
Consequently, management will retain a significant amount of discretion over
the application of these proceeds. Because of the number and variability of
factors that will determine the use of these proceeds, how we spend the
proceeds may vary substantially from our current intentions.

  We may need additional capital to fund our operations and finance our
  growth, and we may not be able to obtain it on terms acceptable to us or at
  all.

   We will require substantial additional capital to finance our future growth
and solutions development activities. We expect that the net proceeds from this
offering, together with our existing assets, anticipated debt and capital lease
financing, and revenue from operations will be sufficient to fund our
operations for at least the next 18 months. The timing and amount of our
capital requirements will depend on many factors, including:

  .  acceptance and demand for our solutions;

  .  the costs of developing new solutions or enhancing existing solutions;

  .  the costs associated with expanding our operations; and

  .  the number and timing of acquisitions.

   If we issue additional stock to raise capital, your percentage ownership
will be reduced. If funding is insufficient at any time in the future, we may
be unable to develop or enhance our products or services, take advantage of
business opportunities or respond to competitive pressures, any of which could
harm our business.

  Our existing principal stockholders, executive officers and directors will
  continue to control our company and the outcome of proposals put to a vote
  of stockholders after this offering.

   When this offering is completed, our executive officers, directors, existing
5% or greater stockholders and their affiliates will, in the aggregate, own
shares representing approximately  % of our outstanding voting capital stock.
As a result, these persons, acting together, will be able to control all
matters submitted to our stockholders for approval and to control our
management and affairs. For example, these persons, acting together, will
control the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets.

  The market price of our common stock could be affected by the substantial
  number of shares that are eligible for future sale.

   After this offering is completed,     shares of our common stock will be
issued and outstanding, assuming no exercise of the underwriter's over-
allotment option. There can be no assurance as to what effect, if any, future
sales of shares or the availability of shares for future sale will have on the
market price of the common stock. The market price of our common stock could
drop due to sales of a large number of shares in

                                       14
the market after this offering or the perception that sales of large numbers of
shares could occur. These factors could also make it more difficult to raise
funds through future offerings of common stock. All of the shares of common
stock sold in this offering will be freely tradable under the Securities Act of
1933, as amended, unless purchased by our "affiliates," as that term is defined
in the Securities Act. Our officers, directors and stockholders have entered
into lock-up agreements under which they have agreed not to, directly or
indirectly, offer, sell, offer to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of common stock or securities
convertible into or exchange or exerciseable for shares of common stock for a
period of 180 days after the date of this prospectus without the prior written
consent of the underwriter. Upon expiration of this lock-up period and as set
forth in the chart below, the shares owned by these persons prior to completion
of this offering may be sold into the public market without a registration
statement under the Securities Act in compliance with the volume limitations
and other applicable restrictions of Rule 144 under the Securities Act. As
these restrictions on resale end, the market price of our common stock could
drop significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
Date of availability for resale
 Number of shares                      into public market
 ----------------                -------------------------------
180 days after the date of this prospectus due to a lock-up
                  agreement our officers, directors and stockholders have with
                  the underwriter. However, the underwriter can waive this
                  restriction at any time and without notice.

                  Between 180 and 365 days after the date of this prospectus
                  due to the requirements of the federal securities laws.
After the date of this prospectus, we intend to file one or more
registration statements under the Securities Act to register all shares of
common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock plans, of which 1,018,594 shares will be
immediately exercisable upon the completion of this offering and an additional
15,933 shares will be exercisable within 60 days of August 31, 1999. Those
registration statements are expected to become effective immediately upon
filing, and subject to the vesting requirements and exercise of the related
options as well as the terms of the lock-up agreements, shares covered by those
registrations statements will be eligible for sale in the public markets,
except for any shares held by our "affiliates."

  Our stock price could be volatile.

   The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and Internet-related companies
in particular, has experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
assure you that an active public market for our common stock will develop or
continue after this offering. Investors may not be able to sell their common
stock at or above our initial public offering price. Prices for the common
stock will be determined in the marketplace and may be influenced by many
factors, including variations in our financial results, changes in earnings
estimates by industry research analysts, investors' perceptions of us and our
financial prospects, and general economic, industry and market conditions.

   We believe that there are relatively few comparable companies that have
publicly-traded equity securities. This may also affect the trading price of
our common stock after this offering. In addition, the stock market has from
time to time experienced extreme price and volume volatility, and this
volatility may adversely affect the market price of our common stock.

  We have certain anti-takeover defenses that could delay or prevent a change
  of control and that could adversely affect the price of our common stock.

   Provisions of our amended and restated certificate of incorporation and
bylaws and the provisions of Delaware law could delay, defer or prevent an
acquisition or change of control of OrganicNet or otherwise

                                       15
adversely affect the price of our common stock. For example, our board of
directors is staggered in three classes, so that only one-third of the
directors could be replaced at any annual meeting. Additionally, our bylaws
limit the ability of stockholders to call a special meeting or act by written
consent. Our certificate of incorporation also permits our board to issue
shares of preferred stock without stockholder approval. In addition to delaying
or preventing an acquisition, the issuance of a substantial number of preferred
shares could adversely affect the price of the common stock.

                           FORWARD-LOOKING STATEMENTS

   This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions about OrganicNet, including, among other
things:

  .  general economic and business conditions, both nationally and in our
     markets;

  .  our expectations and estimates concerning future financial performance,
     financing plans and the impact of competition;

  .  anticipated trends in our business;

  .  existing and future regulations affecting our business; and

  .  other risk factors set forth under "Risk Factors" in this prospectus.

   In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to OrganicNet, our business or our management, are
intended to identify forward-looking statements.

   We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-
looking statements.

                                       16
USE OF PROCEEDS

   Our net proceeds from the sale of the     shares of common stock in this
offering, assuming a public offering price of $    per share, are estimated to
be $41.1 million ($47.3 million if the underwriter's over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses. Approximately $800,000 of the proceeds will be
used to repay short-term debt, including amounts owed to or guaranteed by
certain of our directors, officers and shareholders. See "Certain Relationships
and Related Transactions." We intend to use the remaining net proceeds as
follows:

  .  to continue the development of our solutions and architecture;

  .  to continue the expansion of our sales and marketing efforts;

  .  to continue the expansion of our administrative infrastructure; and

  .  for working capital and other general corporate purposes.

   In addition, the net proceeds may also be used to fund acquisitions or
acquire complementary products, technologies or businesses; however, we
currently have no commitments or agreements and are not involved in any
negotiations to do so.

   Pending these uses, we may invest the net proceeds from this offering
temporarily in short-term, investment-grade, interest bearing securities or
guaranteed obligations of the United States government.

                                DIVIDEND POLICY

   We have not declared or paid, and do not anticipate declaring or paying, any
dividends on our common stock in the near future. We currently intend to retain
future earnings, if any, to fund the expansion and growth of our business. Any
future determination as to the declaration and payment of dividends will be at
the discretion of our board of directors and will depend on then existing
conditions, including our financial condition, results of operations,
contractual restrictions, capital requirements, business prospects and other
factors that our board of directors considers relevant.

                                       17
DILUTION

   Purchasers of our common stock in this offering will experience immediate
and substantial dilution in the pro forma net tangible book value of their
common stock from the initial public offering price. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
on a pro forma basis after giving effect to the conversion of all outstanding
shares of our preferred stock upon the consummation of this offering and the
acquisition of PSI-Med Corporation. The pro forma net tangible book value of
our common stock on June 30, 1999 was $(4,263,220), or approximately $(0.33)
per share. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to the sale of
shares of common stock by us in this offering at an assumed initial public
offering price of $    and after deducting the underwriting discounts and
commissions and estimated offering expenses and the application of the
estimated net proceeds therefrom, our pro forma net tangible book value would
have been $    or approximately $    per share. This represents an immediate
increase in pro forma net tangible book value of $    per share to existing
stockholders and an immediate and substantial dilution of $    per share to new
investors. The following table illustrates this per share dilution.
Assumed initial public offering price.........................         $
     Pro forma net tangible book value as of June 30, 1999....... $(0.33)
     Increase attributable to new investors...................... $
                                                                  ------
   Pro forma net tangible book value after this offering.........
                                                                          ----
   Dilution in pro forma net tangible book value to new
    investors....................................................         $
                                                                          ====
The following table sets forth, as of June 30, 1999, on the same pro forma
basis, the number of shares of common stock purchased from us by existing
stockholders and by the new investors at the assumed initial public offering
price together with the total price and average price per share paid by each of
these groups, before deducting underwriting discounts and commissions and
estimated offering expenses.
Shares Purchased  Total Consideration  Average
                                ------------------ -------------------   Price
                                  Number   Percent Amount (1)  Percent Per Share
                                ---------- ------- ----------- ------- ---------
Existing stockholders....... 12,778,107      %  $13,887,489      %    $1.09
   New investors...............
                                ----------   ---   -----------   ---
     Total.....................              100%                100%
                                ==========   ===   ===========   ===
--------
(1) Includes $11,185,275 of cash consideration paid, $2,052,209 of stock issued
    in connection with acquisitions, including the PSI-Med acquisition, and
    $650,005 of stock issued for services, compensation and repayment of a
    loan.

   Except as noted above, the foregoing discussions and tables assume no
exercise of any outstanding stock options or warrants. As of August 31, 1999,
there were options outstanding to purchase 1,619,168 shares of common stock
pursuant to our stock option plans at a weighted average exercise price of
$1.16 per share. In addition, on September 17, 1999, we granted Superior
Consultant Holdings Corporation an option to purchase 200,000 shares of common
stock at $6.00 per share in connection with the formation of our strategic
alliance with Superior. To the extent that any of these options are exercised,
there will be further dilution to the new investors.

                                       18
CAPITALIZATION

   The following table sets forth as of June 30, 1999:

  .  our actual capitalization and short-term debt;

  .  our pro forma capitalization after giving effect to the conversion of
     all outstanding shares of our preferred stock into a total of 7,278,494
     shares of common stock upon the consummation of this offering, including
     shares of preferred stock issued in connection with our acquisition of
     PSI-Med Corporation completed after June 30, 1999; and

  .  our pro forma as adjusted capitalization after giving effect to the sale
     of the shares of common stock sold in this offering at the assumed
     initial public offering price of          per share, after deducting the
     underwriting discounts and commissions and the estimated offering
     expenses and the application of the estimated net proceeds therefrom.

   You should read the following table in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
As of June 30, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                        (in thousands)
Short-term debt, including line of credit,
 notes payable, advances from employees and
 current portion of capital leases............. $  1,998  $  2,413      $
Capital lease obligations, less current
 portion.......................................       40       186
                                                --------  --------      -----
                                                   2,038     2,599
                                                --------  --------      -----
Stockholders' equity (deficit):
 Convertible preferred stock, all $0.01 par
  value, none pro forma and pro forma as
  adjusted:
  Series A, 1,500,000 shares authorized;
   1,418,270 shares issued and outstanding
   actual......................................       14       --
  Series A-II, 115,000 shares authorized;
   61,490 shares issued and outstanding
   actual......................................        1       --
  Series A-III, 5,416 shares authorized; 5,416
   shares issued and outstanding actual .......      --        --
  Series B, 1,250,000 shares authorized;
   1,202,470 shares issued and outstanding
   actual......................................       12       --
  Series C, 4,000,000 shares authorized;
   2,986,294 shares issued and outstanding
   actual......................................       30       --
  Receivable for shares purchased..............     (550)     (550)
 Common stock, $0.001 par value, 29,500,000
  shares authorized actual and pro forma,
  shares authorized pro forma as adjusted;
  5,499,613 shares issued and outstanding
  actual, 12,778,107 shares issued and
  outstanding pro forma and     shares issued
  and outstanding pro forma as adjusted........        6        13
 Additional paid-in capital....................   13,815    14,531
 Deferred compensation.........................      (89)      (89)
 Accumulated deficit...........................  (15,972)  (15,972)
                                                --------  --------      -----
Total stockholders' equity (deficit)...........   (2,733)   (2,067)
                                                --------  --------      -----
Total capitalization........................... $   (695) $    532      $
                                                ========  ========      =====
The shares of common stock outstanding in the actual, pro forma and pro
forma adjusted columns exclude:

  .  1,619,168 shares of common stock issuable as of August 31, 1999 upon the
     exercise of outstanding stock options issued at a weighted average
     exercise price of $1.16 per share under our stock option plans;

  .  821,263 shares of common stock reserved for issuance under our stock
     option plans as of August 31, 1999; and

  .  200,000 shares of common stock issuable upon the exercise of outstanding
     options issued at an exercise price of $6.00 per share to Superior
     Consultant Holdings Corporation on September 17, 1999 in connection with
     the formation of our strategic alliance with Superior.

                                       19
SELECTED CONSOLIDATED FINANCIAL DATA

   The selected data presented below under the captions "Consolidated Statement
of Operation" and "Consolidated Balance Sheet Data" for, and as of the end of,
each of the years in the four years ended December 31, 1995, 1996, 1997 and
1998, and for and as of the six months ended June 30, 1999, are derived from
the consolidated financial statements of OrganicNet, Inc. and subsidiaries,
which consolidated financial statements have been audited by KPMG LLP,
independent certified public accountants. The consolidated financial statements
as of December 31, 1997 and 1998 and June 30, 1999, and for each of the years
in the three-year period ended December 31, 1998 and the six months ended June
30, 1999, and the independent auditors' report thereon, are included elsewhere
in this prospectus.

   The pro forma selected data presented below for the year ended December 31,
1998 and the six months ended June 30, 1998 and 1999 are derived from the
unaudited pro forma condensed combined financial statements of OrganicNet, Inc.
and its subsidiaries, including PSI-Med Corporation, included elsewhere in this
prospectus and give effect to our acquisition of PSI-Med Corporation as if such
acquisition had occurred as of the beginning of the periods presented. The
unaudited pro forma information is not necessarily indicative of the combined
results that would have occurred had such acquisition taken place as of the
beginning of the periods presented, nor is it necessarily indicative of results
that may occur in the future.

   The selected data presented below for the six months ended June 30, 1998,
and as of June 30, 1998, are derived from the unaudited consolidated financial
statements of OrganicNet, Inc. and its subsidiaries included elsewhere in this
prospectus.
Years Ended December 31,                 Six Months Ended June 30,
                           ---------------------------------------------- --------------------------------
                                                               Pro Forma                        Pro Forma
                            1995    1996     1997     1998       1998        1998      1999       1999
                           ------  -------  -------  -------  ----------- ----------- -------  -----------
                                                              (unaudited) (unaudited)          (unaudited)
                                          (in thousands, except per share information)
Consolidated Statement of
Operations:
Revenue:
 License................   $  --   $   --   $   424  $   571   $  1,087     $   113   $   370    $   654
 Product development....      --       --     1,238      565        565         530       227        227
 Service................      525      371    1,310    3,488      5,182       2,053     2,112      2,938
                           ------  -------  -------  -------   --------     -------   -------    -------
 Total revenue..........      525      371    2,972    4,624      6,834       2,696     2,709      3,819
                           ------  -------  -------  -------   --------     -------   -------    -------
Cost of revenue:
 License................      --       --       475      756        756         387       336        336
 Product development....      --       --       320      209        209         128        63         63
 Service................      --       238      892    2,314      3,850       1,249     1,230      1,928
                           ------  -------  -------  -------   --------     -------   -------    -------
 Total cost of revenue..      --       238    1,687    3,279      4,815       1,764     1,629      2,327
                           ------  -------  -------  -------   --------     -------   -------    -------
 Gross profit...........      525      133    1,285    1,345      2,019         932     1,080      1,492
                           ------  -------  -------  -------   --------     -------   -------    -------
Operating expense:
 Sales and marketing....        7       24    1,395    1,644      1,812         834       672        734
 Research and
  development...........      508      724    1,345    1,833      2,070         783     1,204      1,321
 General and
  administrative........      212    1,690    3,332    3,768      4,597       1,663     1,762      2,001
                           ------  -------  -------  -------   --------     -------   -------    -------
 Total operating
  expense...............      727    2,438    6,072    7,245      8,479       3,280     3,638      4,056
                           ------  -------  -------  -------   --------     -------   -------    -------
Operating loss..........     (202)  (2,305)  (4,787)  (5,900)    (6,460)     (2,348)   (2,558)    (2,564)
Interest expense........       (9)      (2)     (20)     (93)       (93)        (43)      (76)       (76)
Other income (expense)..        1      --        14       (9)       (95)         (6)       (5)       (56)
                           ------  -------  -------  -------   --------     -------   -------    -------
Loss before income
 taxes..................     (210)  (2,307)  (4,793)  (6,002)    (6,648)     (2,397)   (2,639)    (2,696)
Provision for income
 taxes..................        1        4        6        4          5           2         4          5
                           ------  -------  -------  -------   --------     -------   -------    -------
Net loss................   $ (211) $(2,311) $(4,799) $(6,006)  $(6,653)     $(2,399)  $(2,643)   $(2,701)
                           ======  =======  =======  =======   ========     =======   =======    =======
Net loss per share:
 basic and diluted......   $(0.05) $ (0.45) $ (0.88) $ (1.10)  $  (1.22)    $ (0.44)  $ (0.48)   $ (0.49)
                           ======  =======  =======  =======   ========     =======   =======    =======
Weighted average shares
 outstanding: basic and
 diluted................    4,000    5,189    5,426    5,448      5,448       5,432     5,485      5,485
                           ======  =======  =======  =======   ========     =======   =======    =======
20
As of December 31,                      As of June 30,
                         ---------------------------  -------------------------------------------
                                                                                       Pro Forma
                                                                           Pro Forma  As Adjusted
                         1995  1996    1997    1998      1998      1999      1999        1999
                         ----  -----  ------  ------  ----------- ------  ----------- -----------
                                                      (unaudited)         (unaudited) (unaudited)
Consolidated Balance
Sheet Data:                                        (in thousands)
Cash and cash
  equivalents........... $ 25  $  --  $   47  $   41    $  109    $1,680    $1,726       $
 Working capital
  (deficit).............  223   (524) (3,149) (6,290)   (3,842)   (3,704)   (4,610)
 Total assets...........  144    754   2,904   2,215     2,650     3,445     5,245
 Total stockholders'
  equity (deficit)...... (205)   (55) (1,257) (5,047)   (2,181)   (2,733)   (2,066)
The preceding consolidated balance sheet data is shown on a pro forma basis
to give effect to:

  .  the acquisition of PSI-Med Corporation as if the acquisition occurred on
     June 30, 1999; and

  .  the conversion of all outstanding shares of preferred stock into shares
     of common stock upon consummation of this offering, including shares of
     preferred stock issued in connection with our acquisition of PSI-Med.

   The preceding consolidated balance sheet data is shown on a pro forma as
adjusted basis to give effect to:

  .  the acquisition of PSI-Med Corporation as if the acquisition occurred on
     June 30, 1999;

  .  the conversion of all outstanding shares of preferred stock into shares
     of common stock upon consummation of this offering, including shares of
     preferred stock issued in connection with our acquisition of PSI-Med;
     and

  .  the sale of      shares of common stock in this offering at an assumed
     initial public offering price of $   per share, after deducting the
     underwriting discounts and commissions and estimated offering expenses
     and application of the net proceeds therefrom.

                                       21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

   The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the accompanying financial
statements and related notes included elsewhere in this prospectus. The
following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in these forward-looking statements. Factors that could cause
or contribute to such differences include but are not limited to, those
discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."

Overview

   We are an application services provider that develops software solutions for
clinics and group practices using our proprietary technology platform. Our
customers can access and use our solutions over the Internet or their local or
wide area networks. We charge our customers a monthly subscription fee for our
ASP software solutions. We also market and support legacy software products
that were developed by the companies we acquired, as discussed below. Our
software solutions and acquired legacy products are sold by our own direct
sales force and through third parties. We currently provide the following range
of services principally related to our acquired legacy products: post-contract
customer support, maintenance, technical support, consulting, software
customization, training, credentialing and case management services.

   Historically, we derived substantially all of our revenue from the sale of
legacy software products and services. Our legacy products address
credentialing, scheduling, resource management, case management and
disease/outcomes management. From our inception in January 1995, we have been
developing our Organic Architecture, a flexible platform for creating codeless
software applications. As a part of our development strategy, we have acquired
companies which provided us with enabling technologies and domain expertise, as
well as near-term products, customers and revenues. In February 1999, we
delivered our first ASP software solution using our Organic Architecture to
customers, and in April 1999, we deployed our first ASP software solution over
the Internet. With the introduction of our ASP software solutions, we are de-
emphasizing the sale of legacy systems and expect sales of these systems and
related service revenue to substantially decline in future periods. We will
market these ASP software solutions as an upgrade to our existing legacy
products. Due to the anticipated substantial decline in revenue associated with
these legacy systems and the costs associated with the development and
commercialization of our ASP software solutions, as well as the development of
sales and marketing support for these solutions, we expect that our operating
losses will increase substantially in future periods and continue for at least
the next several years. Our ability to achieve profitability will depend on our
successful development and marketing of our solutions. With our strategy, we
are subject to the risks inherent in both the ASP business model and the entry
into a new and uncertain market. Our solutions may not achieve market
acceptance. Accordingly, the extent of future losses and the time required to
achieve profitability, if any, is highly uncertain.

   We have generated and will continue to generate revenue from software
license, product development and service fees from our legacy products.
Software license fees are derived from the licensing of acquired legacy
products and are expected to decline substantially in future periods. Product
development fees have been and will continue to be generated from co-
development agreements with Pfizer Health Solutions Inc, but we expect these
revenues and their related costs to substantially decline in the future.
Revenue received under these co-development agreements with Pfizer Health
Solutions Inc represented 46% of total revenue in 1997, 14% of total revenue in
1998 and 31% of total revenue for the six months ended June 30, 1999. Service
fees are derived from post-contract software support, case management,
credentialing, training, installation and software application customization
for legacy products, which we expect to decline substantially as sales of our
legacy systems decline.

   In the future, we expect to generate revenue from subscription and service
fees from the sale of our ASP software solutions. Subscription fees will be
derived from our ASP software solutions on a monthly basis. We

                                       22
will generate subscription fees for these solutions beginning in the third
quarter of 1999. We cannot predict subscription fees accurately because we have
limited experience selling our solutions. In addition, our customers may decide
to stop using our solutions at any time with very little notice. We may spend
substantial time and resources developing or tailoring solutions for channel
partners or customers prior to the time we have entered into subscription
agreements with them. If we do not enter into agreements with these channel
partners and customers do not subscribe for these solutions for a sufficient
period of time, we will not be able to achieve revenue to recoup our
investment. Service fees related to our solutions will increase as we deploy
them.

   License revenue is recognized when the related contract has been executed,
the product has been shipped, collectibility is probable and the software
license fees are fixed and determinable. In the event that the contract
provides for multiple elements (e.g., training, application customization or
post-contract customer support), the total fee is allocated to these elements
based on vendor-specific objective evidence of fair value. If any portion of
the license fee is subject to forfeiture, refund or other contractual
contingencies, we will postpone revenue recognition until these contingencies
have been removed.

   Subscription fees for our ASP software solutions will be recognized on a
monthly basis. We recognize product development revenue from our co-development
agreements using a percentage-of-completion method based on meeting key
milestone events over the term of the contracts. Service revenue from post-
contract customer support and maintenance is recognized ratably over the term
of the maintenance period. Revenue from case management, credentialing,
training, installation and customization services is recorded as the services
are performed.

   Historically, cost of revenue consisted of the cost of license, product
development and service. In the future, we expect cost of revenue to consist of
the cost of subscription, license and service related to our ASP software
solutions. Cost of subscription revenue will include the charges paid to our
Internet service, application host and data center provider, as well as the
amortization of the costs of third party database licenses and ongoing annual
fees for these licenses. Cost of license revenue consists of personnel
salaries, benefits and related overhead expenses, as well as the amortization
of acquired technologies. Cost of service revenue includes direct costs, such
as salaries and benefits, and related overhead expenses, such as occupancy
charges. As we focus on our ASP solutions, we expect the cost of subscription
revenue and services related to our ASP solutions to increase and the cost of
license revenue and services related to our legacy products to decrease.

   Sales and marketing expense consists of salaries, related benefits,
commissions, printing of promotional material, public relations, attendance at
industry trade shows, advertising and other costs associated with our sales and
marketing efforts. We expect to incur substantial expenditures related to sales
and marketing as we build our direct sales force and expand our distribution
channels.

   Research and development expense consists primarily of salaries, related
benefits, third party consultant fees and other costs. With respect to software
development, we establish technological feasibility once a working model has
been created. The time between establishment of a working model and general
release is short. Development costs incurred subsequent to technological
feasibility have not been material. We expect to continue to make substantial
investments in research and development activities as we seek to advance our
technology and broaden our ASP software solutions.

   General and administrative expense consists primarily of salaries and
related benefits, amortization of goodwill and workforce-in-place, and fees for
professional services, such as legal and accounting. We expect general and
administrative expense to increase as we add personnel, including select senior
management personnel, and incur additional costs related to the anticipated
growth of our business and operation as a public company.

   We were incorporated in January 1995 as a California corporation and
reincorporated in Delaware in 1996. Since our inception, we have incurred
significant losses and as of June 30, 1999, had an accumulated deficit of
approximately $16.0 million.

                                       23
Acquisitions

   As a result of our experience with healthcare information systems, we
concluded that the legacy software applications used by the healthcare industry
could not provide the adaptable, cost-effective solutions needed by clinics and
group practices. To develop solutions that could address these needs, we
decided to pursue a strategy of selectively acquiring companies with healthcare
domain expertise and enabling technologies. In April 1996, we completed our
first acquisition, a company with technology tools for the development of
object-oriented software. With our second acquisition, we acquired a company
with expertise in modeling and business process reengineering methodology.
Using this methodology, we created a map of the core processes involved in
managing a clinic or group practice. This map became the process map of the
Organic Clinic and it was used to identify the tasks needed to deliver a
software solution that could manage the entire clinical and business process.
We then targeted and acquired six small software and service companies, each
representing specialized healthcare domains that had been identified in the
process map.

   In our first three years of operations, we completed the following
acquisitions:
Company                       Acquisition date            Expertise
-------                       ----------------- ------------------------------
First Principles, Inc. ...... April 22, 1996    Object Technology
RiteLine Systems, Inc. ...... April 30, 1996    Business Methodology
Comprehensive Provider
 Credentialing Services,
 Inc. ....................... May 23, 1996      Credentialing Service
Velocity Healthcare
 Informatics, Inc. .......... December 20, 1996 Outcomes/Disease Management
Res-Q, Inc., formerly MMS,
 Inc. ....................... May 14, 1997      Scheduling/Resource Management
Intedata, Inc. .............. June 4, 1997      Marketing Service
L.I.N.C., Inc. .............. June 23, 1997     Case Management
Healthcheck, Incorporated ... November 14, 1997 Credentialing Service
All of our acquisitions were accounted for using the purchase method of
accounting and, accordingly, the results of the acquired companies' operations
are included in our consolidated financial statements from their respective
effective dates forward. Under terms of the acquisition agreements, the
consideration included preferred shares, notes payable, common shares and cash.
We acquired all of the outstanding common stock for each of the acquired
companies except for Velocity Healthcare Informatics. This acquisition was
structured as an asset purchase. Total consideration for our acquisitions,
completed through December 31, 1998, was approximately $1.7 million.

   For each of the acquired companies, the purchase price was allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed
based on their fair values on the acquisition date. Amounts allocated to
acquired technology and workforce-in-place are amortized on a straight-line
basis over an approximately three-year period. Amounts allocated to goodwill
are amortized on a straight-line basis over seven years.

PSI-Med Corporation

   Subsequent to June 30, 1999, we completed our acquisition of PSI-Med
Corporation, which sells and services practice management software and is
engaged as a full service provider of medical insurance billing and accounts
receivable collection services. The PSI-Med acquisition will become effective
upon the acceptance of the Certificate of Merger filed with the California
Secretary of State on September 7, 1999. We have acquired all of the capital
stock of PSI-Med Corporation in exchange for 16,667 shares of preferred stock,
which will convert into 333,340 shares of our common stock upon the closing of
this offering. These shares have been valued at approximately $667,000. Our
acquisition was accounted for using the purchase method of accounting,
resulting in approximately $1.6 million of goodwill to be amortized using the
straight-line method over its estimated life of seven years.

                                       24
Results of Operations

 Six Months Ended June 30, 1999 and 1998

 License revenue

   License revenue includes fees from the licensing of our acquired legacy
products. License revenue increased 227% to approximately $370,000 for the six
months ended June 30, 1999 from approximately $113,000 for the six months ended
June 30, 1998. The increase in license revenue was primarily the result of
increased sales and installation of our legacy products.

 Product development revenue

   Product development revenue is primarily generated from co-development
agreements addressing outcomes, credentialing and survey software and services
with Pfizer Health Solutions Inc. Product development revenue decreased 57% to
approximately $227,000 for the six months ended June 30, 1999 from
approximately $530,000 for the six months ended June 30, 1998 due to having
earned less milestone revenue under our co-development agreements with Pfizer
Health Solutions Inc in the six months ended June 30, 1999.

 Service revenue

   Service revenue is comprised of fees from post-contract software support,
case management services, credentialing services, training, installation and
software application customization. Service revenue increased 3% to
approximately $2.1 million for the six months ended June 30, 1999 from
approximately $2.0 million for the six months ended June 30, 1998. The increase
in service revenue was primarily the result of increases in the volume of
credentialing services and development of patient surveys.

 Cost of license revenue

   Cost of license revenue consists of personnel salaries, benefits and related
overhead expenses, as well as the amortization of acquired technologies. Cost
of license revenue decreased 13% to approximately $336,000 for the six months
ended June 30, 1999 from approximately $387,000 for the six months ended June
30, 1998 due to the redirection of our resources from our legacy products to
the development of our ASP software solutions.

 Cost of product development revenue

   Cost of product development includes direct costs, such as personnel
salaries and benefits, and related overhead expenses, such as occupancy
charges. Cost of product development revenue decreased 51% to approximately
$63,000 for the six months ended June 30, 1999 from approximately $128,000 for
the six months ended June 30, 1998, primarily due to a decreased level of
development efforts associated with the Pfizer Health Solutions Inc co-
development agreements.

 Cost of service revenue

   Cost of service revenue includes direct costs, such as personnel salaries
and benefits, and related overhead expenses, such as occupancy charges. Cost of
service revenue decreased 2% to approximately $1.2 million in the six months
ended June 30, 1999 from approximately $1.3 million for the six months ended
June 30, 1998, primarily due to two of our subsidiaries merging operations.

 Sales and marketing expense

   Sales and marketing expense consists primarily of salaries, related
benefits, commissions, printing of promotional material, public relations,
attendance at industry trade shows, advertising and other costs associated

                                       25
with our sales and marketing efforts. Sales and marketing expenses decreased
19% to approximately $672,000 for the six months ended June 30, 1999 from
approximately $834,000 for the six months ended June 30, 1998, primarily due to
decreased spending for trade show and third party marketing activities.

 Research and development expense

   Research and development expense consists primarily of salaries, related
benefits, third party consultant fees and other costs. Research and development
expense increased 54% to approximately $1.2 million for the six months ended
June 30, 1999 from approximately $783,000 for the six months ended June 30,
1998, primarily due to increasing development costs associated with our ASP
software solutions.

 General and administrative expense

   General and administrative expense consists primarily of salaries and
related benefits, amortization of intangible assets for goodwill and workforce-
in-place, and fees for professional services, such as legal and accounting.
General and administrative expense increased 6% to approximately $1.8 million
for the six months ended June 30, 1999 from approximately $1.7 million for the
six months ended June 30, 1998, primarily due to professional fees associated
with our acquisition and financing activities.

 Interest expense

   Interest expense increased 78% to approximately $76,000 for the six months
ended June 30, 1999 from approximately $43,000 for the six months ended June
30, 1998, primarily due to increased borrowings used to fund our operations.

 Income taxes

   Income taxes paid to state taxing authorities consisted of minimum payments
of $4,000 for the six months ended June 30, 1999 and $2,000 for the six months
ended June 30, 1998. As a result of operating losses, no provision or benefit
for income taxes has been recorded for either period. Deferred tax assets
associated with net operating losses generated have not been recognized as
there is substantial uncertainty as to the likelihood of the realization of
those net operating losses.

 Years Ended December 31, 1998 and 1997

 License revenue

   License revenue increased 34% to approximately $571,000 in 1998 from
approximately $424,000 in 1997, primarily due to the increased volume of sales
of our scheduling, resource management and case management products.

 Product development revenue

   Product development revenue decreased 54% to approximately $565,000 in 1998
from approximately $1.2 million in 1997, due to the completion of Outcomes
Partners III under our co-development agreements with Pfizer Health Solutions
Inc in 1998.

 Service revenue

   Service revenue increased 166% to approximately $3.5 million in 1998 from
approximately $1.3 million in 1997, primarily due to increased sales of service
and support contracts and, to a lesser extent, an increase in consulting and
training services.

 Cost of license revenue

   Cost of license revenue increased 59% to approximately $756,000 in 1998 from
approximately $475,000 in 1997, primarily due to 1998 being the first full year
of amortization of our acquired technologies.

                                       26
Cost of product development revenue

   Cost of product development revenue decreased 35% to approximately $209,000
in 1998 from approximately $320,000 in 1997 due to the decreased level of
development under our Pfizer Health Solutions Inc co-development agreements.

 Cost of service revenue

   Cost of service revenue increased 159% to approximately $2.3 million in 1998
from approximately $892,000 in 1997, primarily due to the full year impact of
acquisitions made in 1997 and to growth in credentialing service and additional
services, such as customer support and maintenance, training, installation and
customization, which were delivered.

 Sales and marketing expense

   Sales and marketing expense increased 18% to approximately $1.6 million in
1998 from approximately $1.4 million in 1997, primarily due to the inclusion of
a full year of salaries and benefits associated with sales and marketing
personnel gained through our acquisitions made in 1997.

 Research and development expense

   Research and development expense increased 36% to approximately $1.8 million
in 1998 from approximately $1.3 million in 1997, primarily due to the growth in
personnel costs through additional headcount and facilities expense for the
development of our Organic Architecture and ASP software solutions. In
addition, 1998 includes a full year of salaries and benefits associated with
the development activities of the companies we acquired in 1997.

 General and administrative expense

   General and administrative expense increased 13% to approximately $3.8
million in 1998 from approximately $3.3 million in 1997, primarily due to
increased personnel and facility costs as a result of a full year of operations
from the businesses we acquired in 1997.

 Interest expense

   Interest expense increased 371% to approximately $93,000 in 1998 from
approximately $20,000 in 1997, primarily due to increased borrowings used to
fund our operations.

 Income taxes

   Income taxes paid to state tax authorities consisted of minimum payments of
$4,000 in 1998 and $6,400 in 1997. As a result of operating losses, no
provision or benefit for income taxes has been recorded. Deferred tax assets
associated with net operating losses generated have not been recognized as
there is substantial uncertainty as to the likelihood of the realization of
those net operating losses.

 Years Ended December 31, 1997 and 1996

 License revenue

   License revenue of approximately $424,000 in 1997 was attributable to the
software products of the companies we acquired in 1997. We had no license
revenue in 1996.

 Product development revenue

   Product development revenue was approximately $1.2 million in 1997, the
first year of our co-development agreements with Pfizer Health Solutions Inc.

                                       27
Service revenue

   Service revenue increased 253% to approximately $1.3 million in 1997 from
approximately $371,000 in 1996. This increase was primarily due to the
inclusion of a full year of credentialing revenue associated with a 1996
acquisition and the acquisition of a second credentialing company in 1997, as
well as an increase in the service and support contracts associated with the
acquisition of our legacy software products.

 Cost of license revenue

   Cost of license revenue was approximately $475,000 in 1997. We had no cost
of license revenue in 1996.

 Cost of product development revenue

   Cost of product development revenue was approximately $320,000 in 1997, the
first year of our co-development agreements with Pfizer Health Solutions Inc.

 Cost of service revenue

   Cost of service revenue increased 274% to approximately $892,000 in 1997
from approximately $238,000 in 1996, primarily due to the full year impact of
acquisitions made in 1997 and to growth in credentialing service and
additional services, such as customer support and maintenance, training,
installation and customization, which were delivered.

 Sales and marketing expense

   Sales and marketing expense increased to approximately $1.4 million in 1997
from approximately $24,000 in 1996, primarily due to the increase in salaries
and benefits of the sales and marketing personnel acquired through our 1997
acquisitions.

 Research and development expense

   Research and development expense increased 86% to approximately $1.3
million in 1997 from approximately $724,000 in 1996. This increase was
primarily due to the growth in personnel costs as a result of increased
headcount and facilities expense for the development of Organic Architecture
and ASP software solutions, as well as an increase in salaries and benefits of
personnel, third party development efforts and facility charges associated
with the development activities of the companies we acquired in 1997.

 General and administrative expense

   General and administrative expense increased 97% to approximately $3.3
million in 1997 from approximately $1.7 million in 1996, primarily due to
increased personnel and facility costs as a result of a full year of
operations from the businesses we acquired in 1996.

 Interest expense

   Interest expense increased to approximately $20,000 in 1997 from
approximately $2,000 in 1996, primarily due to increased borrowings used to
fund our operations.

 Income taxes

   Income taxes paid to state tax authorities consisted of minimum payments of
$6,400 in 1997 and $4,000 in 1996. As a result of operating losses, no
provision or benefit for income taxes has been recorded. Deferred tax assets
associated with net operating losses generated have not been recognized as
there is substantial uncertainty as to the likelihood of the realization of
those net operating losses.

                                      28
Pro Forma Financial Information

   The unaudited condensed combined financial statements included elsewhere
herein give effect to our business combination with PSI-Med Corporation. See
"Unaudited Pro Forma Condensed Combined Financial Information, OrganicNet, Inc.
and PSI-Med Corporation."

 Pro Forma Six Months Ended June 30, 1999

   On a pro forma basis, our revenue for the six months ended June 30, 1999 was
approximately $3.8 million, compared to actual revenue of approximately $2.7
million. Pro forma total revenue of PSI-Med includes sales of medical
accounting software and service revenue from post-contract customer support
agreements, accounts receivable management and collection services, and rental
arrangements for medical accounting software on a shared computer system
maintained at PSI-Med.

   Our pro forma operating loss for the six months ended June 30, 1999 was
approximately $2.6 million, compared to actual operating loss of approximately
$2.6 million. The operating loss remained unchanged as a result of PSI-Med's
operating income of $115,000 being offset by the additional goodwill
amortization from the business combination of approximately $121,000.

   Our pro forma net loss for the six months ended June 30, 1999 was
approximately $2.7 million, which reflects the increase in the operating loss
from the additional goodwill amortization resulting from the business
combination.

 Pro Forma Year Ended December 31, 1998

   Our pro forma total revenue for 1998 was approximately $6.8 million compared
to our actual revenue of approximately $4.6 million.

   Our pro forma operating loss in 1998 was approximately $6.5 million compared
to our actual operating loss of approximately $5.9 million. The increase in our
operating loss on a pro forma basis was primarily the result of the addition of
approximately $317,000 in pro forma PSI-Med operating losses and the additional
goodwill amortization of approximately $241,000 resulting from the business
combination.

   Our pro forma net loss for 1998 was approximately $6.7 million compared to
our actual net loss of approximately $6.0 million. The increase in our net loss
was for the same reasons as the increase in our operating loss.

Liquidity and Capital Resources

   Since inception, we have spent approximately $11.1 million primarily for the
development of our Organic Architecture and ASP software solutions. We have
financed these operating and development activities through approximately $12.9
million raised from the sale of our capital stock and the issuance of notes to
employees and stockholders. Investing activities included receipt of an
aggregate approximately $191,000 in cash from acquired businesses offset by an
aggregate approximately $371,000 investment in capital assets. As of June 30,
1999, we have approximately $1.7 million in cash reserves and a working capital
deficit of approximately $3.7 million.

   Net cash used in operating activities was approximately $2.5 million for the
six months ended June 30, 1999, approximately $3.2 million in 1998,
approximately $3.3 million in 1997 and approximately $2.1 million in 1996. Cash
used in operating activities for the six months ended June 30, 1999 resulted
primarily from the funding of our operations and our payment of current
liabilities.

   Our investing activities used approximately $58,000 for the six months ended
June 30, 1999, used approximately $32,000 in 1998, provided approximately
$6,000 in 1997 and used approximately $97,000 in 1996. Investing activities
during those periods consisted primarily of the cash obtained from acquisitions
of

                                       29
approximately $191,000 and capital expenditures of approximately $58,000 for
the six months ended June 30, 1999, approximately $32,000 in 1998,
approximately $207,000 in 1997 and approximately $75,000 in 1996. We have no
significant capital spending or purchase commitments other than normal
commitments under facilities and equipment leases.

   Financing activities provided cash of approximately $4.2 million during the
six months ended June 30, 1999, approximately $3.3 million in 1998,
approximately $3.3 million in 1997 and approximately $2.2 million in 1996,
primarily from the aggregate net proceeds from sales of capital stock and the
issuance of notes to stockholders. We used cash from financing activities to
make aggregate payments under lease obligations of approximately $51,000 during
these periods.

   As of June 30, 1999, we had net operating loss carryforwards for federal
income tax purposes of approximately $14.4 million expiring in the years 2013
through 2019. We had net operating loss carryforwards for state income tax
purposes of approximately $8.0 million expiring primarily in 2003. The
difference between federal and state net operating loss carryforwards is due
primarily to a 50% limitation on net operating loss carryforwards for
California income tax purposes. Due to the "change in ownership" provisions of
the Tax Reform Act of 1986, utilization of the net operating loss carryforwards
will be subject to an annual limitation regarding their utilization against
taxable income in future periods.

   We expect that the net proceeds from this offering, together with our
existing assets, anticipated debt and capital lease financing, and revenue from
operations will be sufficient to fund our operations for at least the next 18
months. Thereafter, we may seek to raise additional funds through public or
private equity financings or from other sources. If we raise additional funds
by issuing equity securities, dilution to stockholders may result. There can be
no assurance that additional financing will be available on favorable terms or
at all. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products or services, take advantage of business
opportunities or respond to competitive pressures, any of which could harm our
business.

Year 2000 Preparedness

   Many currently installed computer systems and software products are written
using two digits rather than four to define the applicable year. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in systems failures or miscalculations causing disruptions of
operations for any company using such computer systems or software, including,
among other things, a temporary inability to process transactions, send
invoices or engage in normal business activities. As a result, many companies'
computer systems may need to be upgraded or replaced in order to avoid this
"Year 2000" issue.

   The majority of the software and hardware we use to manage our business has
been purchased or developed in the last five years. Generally, hardware and
software design within the current decade and the past several years in
particular have addressed the Year 2000 issue. All of the solutions we have
developed are written with four digits to define the applicable year. Testing
has been completed on our internal information technology systems and based on
that testing, we believe that our information technology systems are Year 2000
compliant.

   In addition to our internally developed software, we use and license
software and hardware from third parties. We have obtained certifications from
our key suppliers of hardware and networking equipment for our data centers
that such hardware and networking equipment is Year 2000 compliant. Based upon
an initial evaluation of our broader list of software and hardware providers,
we are aware that all of these providers are in the process of reviewing and
implementing their own Year 2000 compliance programs, and we are working with
these providers to address and remediate any exposure to the Year 2000 issue
and continue to seek assurances from them that their products are Year 2000
compliant.

   We also rely on third party network infrastructure providers to gain access
to the Internet. If such providers experience business interruptions as a
result of their failure to achieve Year 2000 compliance, our ability to provide
Internet connectivity and deliver our ASP software solutions could be impaired,
which could harm our reputation and our business.

                                       30
Many of our customers may not be Year 2000 compliant. Customer difficulties
due to Year 2000 issues could interfere with healthcare transactions or the
transmission of information, which might expose us to significant potential
liability. If customer failures result in the failure of our systems, it could
harm our reputation and business. Furthermore, Year 2000 issues may affect the
purchasing patterns of customers or potential customers as companies expend
significant resources to become Year 2000 compliant. The costs of becoming Year
2000 compliant for current or potential customers may result in reduced funds
being available to purchase and implement our software solutions.

   We have not incurred any significant costs to date with respect to our Year
2000 compliance efforts, and we do not anticipate that future costs associated
with Year 2000 remediation efforts will be material. However, if our customers,
our providers of hardware and software, our third party network providers or we
fail to remedy any Year 2000 issues, our services and certain transactions
could be interrupted and we could experience a material loss of revenue that
could harm our business, financial condition and operating results. We would
consider such an interruption to be the most reasonably likely unfavorable
result of any failure by us, or failure by the third parties upon which we
rely, to achieve Year 2000 compliance. Presently, we believe we are unable to
reasonably estimate the duration and extent of any such interruption or
quantify the effect it may have on our future revenue.

   We have yet to develop a comprehensive contingency plan to address the
issues that could result from Year 2000 issues. We are prepared to develop such
a plan if our ongoing assessment leads us to conclude we have significant
exposure based upon the likelihood of such an event. For more information about
Year 2000 risks, see "Risk Factors--Failure of computer systems and software
products to be Year 2000 compliant could increase our costs, disrupt our
services and reduce demand from our clients."

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial
Accounting Standard No. 137, "Accounting For Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement
No. 133" (SFAS 137). SFAS 137 delayed the effective date for SFAS 133 to fiscal
years beginning after
June 15, 2000. We do not believe that the impact of this statement will have a
material effect on our financial position or results of operations upon the
adoption of this accounting standard.

Quantitative and Qualitative Disclosure about Market Risk

   We have considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Investments and
Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity Instruments."
We had no holdings of derivative financial or commodity instruments at June 30,
1999, nor has the Company had any foreign currency denominated sales. However,
we are exposed to financial market risks associated with interest rates. This
exposure is directly related to our normal operating and funding activities.

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

                                       31
BUSINESS

Overview

   We are an application services provider (ASP) that develops proprietary
software solutions for clinics and group practices using our proprietary
technology platform. Our customers can access and use our solutions over the
Internet or their local or wide area networks. We are developing integrated
solutions designed to manage all elements of the business and clinical
processes of our customers within a single system. We currently have developed
and implemented solutions in three areas: disease management, clinical drug
trials recruitment and workers' compensation. We charge our customers a monthly
subscription fee for our solutions.

Industry Background

   According to the Health Care Financing Administration, the healthcare
industry is the largest sector of the United States economy with annual
expenditures reaching approximately $1.3 trillion by the year 2000. Rising
costs have driven employers, insurers and the government sector to attempt to
control expenses through managed care. Rising costs have also led to the
creation of new payment mechanisms, including fixing fees, lowering
reimbursement rates, restricting coverage for services, limiting access to a
select group of providers, negotiating discounts and shifting the economic risk
for the delivery of care through alternative reimbursement modes, such as
capitation and risk pools. As a result, healthcare providers are bearing
greater financial risk and need to contain costs and deliver care efficiently
in order to operate profitably and remain competitive. Pressures to control
costs have also contributed to the movement of care from relatively expensive
inpatient settings to less costly outpatient settings. These outpatient care
providers, particularly clinics and group practices, deliver the majority of
healthcare services and are responsible for a substantial portion of total
healthcare spending.

   In order to provide quality and cost-efficient healthcare while managing
costs, hospitals and other large healthcare organizations, as well as
individual physicians, physician groups and other outpatient care providers are
forming affiliations with one another to take advantage of economies of scale.
Although these affiliations have enhanced economies of scale, they have
generally not addressed the inefficient delivery of healthcare services.
Substantial resources are wasted in the healthcare industry through the
delivery of unnecessary care, performance of redundant procedures and tests, or
excessive administrative costs. We believe that a portion of this wasteful
spending is attributable to the inefficient collection, management, sharing and
storage of data. To operate efficiently, healthcare delivery networks must be
able to manage patient care and workflow processes which may extend across
multiple locations and member organizations. We anticipate that process and
information management will become even more critical to healthcare
organizations as new governmental regulations requiring greater documentation
are adopted. For example, the Health Insurance Portability and Accountability
Act of 1996 (HIPAA) imposes additional regulatory compliance responsibilities
on the healthcare industry relating to the storage, maintenance and
transmission of healthcare information. Proposed regulations implementing HIPAA
would impose new requirements on the healthcare industry to maintain the
security of healthcare information.

 Demand for Information Services in Healthcare

   The growth of managed care, the increase in government regulation and the
rise of healthcare delivery networks have increased the need for information
technology products and services. Annual healthcare information systems
expenses are expected to reach approximately $18 billion by the year 2000
according to industry sources. Healthcare providers increasingly demand
integrated solutions that offer the core functions required to manage
healthcare clinical and business processes. In addition, geographically
dispersed healthcare delivery networks require central databases and analysis
tools that permit them to effectively extract and analyze data located
throughout the enterprise, measure clinical results, control costs, evaluate
operational efficiency and support process improvement.

                                       32
Traditional Healthcare Information Systems

   Traditional healthcare information systems, known as legacy systems, were
built with specialized computer languages using "code." The first legacy
systems were introduced in the 1970s. Building systems out of code requires
highly trained technicians and can take anywhere from several months to several
years to complete. Users' needs frequently change before code-based systems are
completed from the initial design. Modifying the original code is a time-
consuming and expensive process. As a result, legacy systems cannot be adapted
easily to the changing functional requirements of end-users, such as the need
to address practice variations within clinics and group practices. These
factors contribute to the high cost of legacy systems, which often requires a
significant commitment of capital for the initial acquisition of hardware and
system infrastructure. In addition, healthcare providers may incur additional
capital expenditures in expanding installed systems when increasing their
internal capacity.

   Most legacy systems were originally developed to address the financial
aspects of information management, such as capturing charges and generating
bills. Most hospitals and managed care organizations have installed legacy
systems that continue to perform the functions for which they were originally
designed. As end-user information requirements expanded to include the need to
manage clinical information, legacy vendors introduced code-based legacy
applications that were either built by those legacy vendors or acquired from
other software developers. Because these new applications generally were not
included in the design of the original systems, these legacy vendors are
required to develop complex system interfaces that permit the integrated
exchange of information between applications and systems. The time and expense
associated with building interfaces make legacy systems less adaptable to
structural and organizational changes within healthcare organizations.

 The Emergence of the Internet and the ASP Model in Healthcare

   The Internet has emerged as an important means of accessing and distributing
information, as well as a medium to facilitate the transfer of secure
information between organizations. We believe the Internet's key attributes as
an open, accessible, low-cost and flexible network make it particularly well-
suited for the information technology and communication needs of the healthcare
industry. We believe that the Internet will ultimately become the primary
method of communication and commerce in the healthcare industry.

   The increasing acceptance of the Internet as a medium to access and exchange
data has contributed to the development of a new business model for the
delivery of mission-critical healthcare software solutions--the application
service provider model. ASPs offer software applications deployed over the
Internet from a remote facility. This eliminates the need for a customer to
invest in complex and expensive software and hardware, such as installing
network servers. Industry analysts estimate that the total cost of hosted
applications under the ASP model can be significantly less than traditional
licensing and internally managed software.

 Designing a Comprehensive Information Technology Solution

   Healthcare entities' information technology needs vary greatly and are
dependent upon their range of operating activities, which can be impacted by
frequent government and regulatory changes, ongoing margin pressures and Year
2000 challenges. Large, self-contained healthcare entities with significant
information technology budgets have been able to keep up with the changing
requirements. However, smaller healthcare entities, such as clinics and group
practices, need sophisticated information technology solutions that can be
accessed cost-effectively. We believe that a comprehensive information
technology solution for the smaller healthcare provider should:

  .  manage the entire clinical and business process in a single system;

  .  expand easily to accommodate more users and applications;

                                       33
.  enable the creation of fully integrated solutions;

  .  allow trained users to quickly and easily tailor solutions to
     accommodate their different needs;

  .  offer a cost-effective alternative to currently available software
     applications;

  .  permit Internet delivery or on-site installation;

  .  provide different users simultaneous access and the ability to modify
     data in real time;

  .  contain the requisite healthcare domain expertise; and

  .  facilitate easy use.

The OrganicNet Solution

   Our proprietary technology provides a platform for the rapid development and
deployment of codeless software solutions designed to manage the entire
clinical and business process for clinics and group practices. These processes
include patient enrollment and patient health assessment, scheduling,
diagnosis, selecting and monitoring treatment plans, billing and contract
management. We design our software solutions to be deployed over the Internet
or the user's intranet or local or wide area network with our ASP model. As an
ASP, we charge our customers on a monthly subscription basis for the delivery
of our software solutions. We provide integrated solutions that can be
implemented incrementally, extended easily and tailored rapidly for each user's
needs. Our solutions offer the following benefits:

   Comprehensive. We provide our customers with a comprehensive solution that
combines our software applications with Internet infrastructure, application
hosting, and consulting and implementation services provided by our strategic
partners. Our software applications address a range of business and clinical
processes, such as billing and claims, scheduling, credentialing and disease
management. Our solutions are designed to enable our customers to rely on us as
the single source for their software solutions, whether these solutions are
deployed over the Internet or their local or wide area network.

   Cost-effective. We believe that our ASP model allows users to access
sophisticated software solutions for a lower start-up cost and reduced
operating cost. Our technology enables most customers to run our solutions
using their existing computer equipment. Each user needs only a relatively
modest desktop computer and a modem that allows the computer to connect to our
remote servers over standard telephone lines. As a result, our solutions
eliminate the need for the user to incur significant capital expenditures for
hardware, operating systems, application software. In addition, our solutions
are designed to significantly reduce the costs for technical support and
training, thereby reducing the need for in-house information technology
experts.

   Adaptable. Our applications are built with data instead of code. As a
result, we can avoid many of the limitations of code-based software systems and
more easily tailor any component of a solution to meet the needs of each user.
Trained clients can quickly modify our software to adapt to practice variation
and practice changes. Our clients do not have to conform their clinical and
business processes to the fixed features and functions of rigidly-coded legacy
systems.

   Scalable. Our solutions run on an object-oriented database management system
designed to manage large and complex databases. In addition, we have partnered
with Conxion Corporation to provide application hosting services, Internet
infrastructure and data centers. The combination of our proprietary
architecture and technology, the bandwidth capacity of Conxion's data centers
and the storage capacity of our database management system minimizes the cost
of adding incremental users and applications.

                                       34
Integrated. Our software solutions are built on a single, integrated
database so that information and applications are stored centrally and shared
simultaneously by all users. As a result, data is entered once and shared
across all applications on the system. We believe the single entry of patient
and other data will increase efficiency and lower costs while reducing the
errors that result from duplicative data entry. Changes to data made by a
single user in one application are immediately shared by all authorized users
across applications.

   Internet accessible. Our solutions can be provided over the Internet.
Multiple users can simultaneously and continuously access the same software
applications and data from geographically dispersed locations. Users access our
software solutions using our Organic Browser, a proprietary, thin client
browser that provides the interface between the user, the applications and the
database.

   Easy to use. We design our software solutions in consultation with users to
accommodate their workflow and processes. The appearance of the computer screen
and the information that is displayed can be designed so that users see only
those features that they need. Users are not required to navigate through
features and applications they do not need or use. For example, schedulers will
see only the scheduling tools and information they need on their screens.

   Embedded domain expertise. Our solutions incorporate the collective
healthcare knowledge and experience of our personnel. We are highly experienced
in each of the following domains:

  .  outcomes and disease management;

  .  clinical drug trials;

  .  practice management;

  .  credentialing and provider profiling;

  .  scheduling and resource management;

  .  business process reengineering; and

  .  case management.

We use our expertise in these areas to create comprehensive, integrated
software solutions for our customers and to continually refine those solutions
as the needs of our customers evolve.

   Security. To safeguard user data, we have designed our solutions to support
the security options necessary to meet our user's requirements on an
application by application basis. We offer the following security options:

  .  client authentication: proprietary communication protocols that generate
     a public key infrastructure based key to uniquely identify each client;

  .  user authentication: standard login ID/password identification and other
     more secure means to identify and authenticate users;

  .  access control: system mechanisms to restrict a user's access to only
     the data they have clearance to see;

  .  channel security: proprietary transmission protocol makes it difficult
     to intercept data during transmission;

  .  database security: data in the database can be encrypted; and

  .  physical site security: Conxion hosts our data and applications at
     government rated Class A data centers. To be rated as a Class A data
     center, Conxion must conform to government security requirements and be
     able to guarantee 72 hours of independent continuous operations.

                                       35
Our Strategy

   Our objective is to become the leading ASP serving clinics and group
practices. We believe that we are one of the first ASPs to deliver software
solutions to clinics and group practices over the Internet. Our strategy is to
capitalize upon our early market entrance, extend our technology and implement
a subscription-based business model focused on recurring revenue. Elements of
our strategy include:

   Leverage our proprietary technology platform. Our proprietary, object-
oriented technology provides a platform for the rapid, codeless development of
ASP software solutions for clinics and group practices. Our platform combines a
universal set of clinical and business processes with the capability to quickly
create a solution that can be easily tailored to meet the specific needs of
each customer. Using this platform, we have delivered solutions for the disease
management, clinical drug trials and workers' compensation markets. We are
using our platform to complete development of a software solution that manages
the entire clinical and business process for clinics and group practices. The
scalable, adaptable and interactive design of our software solutions enables us
to offer a customer an initial solution targeting a specific business or
clinical need, with the opportunity to easily sell additional functions and
features.

   Achieve rapid market penetration. We are using a sales and marketing
strategy that focuses on identifying channels of customers with common needs
and cross-selling our solutions to our existing installed customer base. We
intend to establish relationships with specialty healthcare industry groups who
will endorse and co-market our solutions to their customers and members in
these channels. In addition, we have an existing base of over 500 customers
using the legacy systems sold by the companies we have acquired. To capitalize
on our installed customer base, we are developing ASP software solutions that
will be sold as an upgrade to our existing systems. We use our Internet sales
team to quickly reach many customers and increase our market penetration.

   Enhance our capabilities by forming strategic alliances. We believe that our
ability to offer a complete, integrated and adaptable software solution to our
customers will be an important element in their selection of us as their
solutions provider. In order to continue to specialize in software solution
development, we have formed and will continue to form strategic alliances with
leading companies that can provide us with specific expertise in areas
important to providing complete solutions, such as Internet infrastructure,
application hosting, and consulting and implementation services. Given the
significant time and financial and human resources required to internally
develop our own Internet connectivity and data storage requirements, we believe
that we can offer cost-effective software solutions by partnering with
recognized leaders in these areas. Our strategic alliance with Conxion
Corporation, a leader in network hosting, is an example of such a partnership.

   Selectively acquire complementary businesses and technologies. Historically,
we have grown through acquisitions that brought us new personnel with domain
knowledge of the healthcare industry, additional customers, software products
and technology. In the future, we will continue to acquire businesses and
domain knowledge, product lines or technologies that will enhance our solutions
and domain expertise, and increase our customer base.

   Protect our intellectual property. We believe that our technology
incorporates a unique approach to the codeless development of software
applications. We believe that our software technology is a significant asset
which we intend to actively protect. We have filed five patent applications
relating to key elements of our architecture and intend to seek appropriate
intellectual property protection for the technologies that we develop in the
future.

Our Technology

   Our solutions embody object-oriented technology. Object-oriented software is
written using objects that represent components of real-world settings, such as
a doctor or a clinic. Each component is represented by one object that is
shared by all applications. Software applications are built by linking objects
in various configurations. Because objects can be used simultaneously in
multiple configurations, models representing

                                       36
complex systems can be built easily. The self-contained nature of objects
allows them to be tested, modified and maintained independently from the rest
of the system.

   Historically, objects and the links between them have been built using code.
After five years of development, we believe that we have achieved a significant
advancement in object-oriented technology by building both objects and the
links between them with data instead of code. We believe this advancement
enables us to build, link and modify objects without the significant
development time associated with code-based software. In February 1997, we
filed patent applications on these advancements.

   Our CoreModel encompasses the classes of objects and relationships that
represent the general elements and flow of the clinical and business processes
in healthcare. The specialized knowledge of healthcare required to build the
CoreModel originated from the experience of our employees as well as extensive
interviews with our users and other healthcare professionals. If a customer
chooses to deploy our solutions over the Internet, the CoreModel, user data and
the applications are accessed on our servers at Conxion Corporation.

   The Organic Browser is our application browser that resides on the user's
computer. Applications are delivered to the user by the interaction between our
proprietary application server software and the Organic Browser. When a user
logs on to the system and enters a user name and password, the Organic Browser
requests the data required to display the user's software solutions from the
application server. The application server communicates that request to our
database management system, which retrieves the data required and delivers it
to the application server. The application server then assembles the user's
software solution and delivers it to the Organic Browser which renders it on
the user's screen. Our Organic Browser is able to do this as quickly as
traditional systems with modest computers and an Internet connection over
standard telephone lines.

   The Organic Browser and our application server require relatively little
hard disk space on the user's computer regardless of the size of the software
applications they are running because of our data-based and object-oriented
architecture. As a result, most users can run our software solutions on their
existing computers and do not have to invest in additional hardware. The
Organic Browser requires only four megabytes of hard disk space on the user's
computer to run, which is less computing power than general purpose Internet
browsers, which typically require about 80 megabytes. Applications, such as our
browser, that require little disk space and are used to access applications
stored on a server are referred to as "thin clients." Our software solutions
can run on a thin client because they are built using data, which can be stored
in a database on a server instead of on the user's computer. In contrast,
typical software applications built with code must be stored and executed on
the user's computer and therefore cannot be run with a thin client. Because our
CoreModel is stored in the database, we can increase the total number of
software applications and the functionality of any software application running
on our system without changing the Organic Browser or the rest of the user's
system.

   Our application server software requires only one megabyte of hard disk
space. Typically, application server software requires at least 10 megabytes of
storage space, but can require up to several hundred megabytes for more complex
applications. Our application server software requires less disk space because
the processes, generally referred to as "server side processes," are written in
data rather than code and stored in the database. Server side processes
generally include:

  .  queries: used to locate and retrieve data elements from the database;

  .  triggers: used to activate particular processes upon the occurrence of
     another process; and

  .  constraints: used to limit acceptance of data entry to defined
     parameters.

   Our ability to store server side processes as data, instead of code, enables
us to quickly and easily modify the server side processes for increased
adaptability. We have applied for patents on our technology for storing
processes as data. In September 1999, we received a Notice of Allowance from
the United States Patent and Trademark Office on one of these applications.

                                       37
Our Software Solutions

   We are in the process of developing the Organic Clinic, a software solution
that will manage the entire clinical and business process for clinics and group
practices. We are designing the Organic Clinic to be deployed over the Internet
or the user's intranet or area network using our ASP model. In the interim, we
are providing software solutions for use in specific practice areas, such as
disease management, clinical drug trials recruitment and workers' compensation.
We have targeted these areas to accelerate adoption of our technology based on
our domain knowledge, the strength of our channel partner contacts and the
potential of these markets.

   To build our solutions, we begin by spending a few days in a clinic
interviewing users and modeling and mapping the processes of that clinic. We
assemble a solution by using the library of healthcare tasks built by our
domain experts as extensions of the CoreModel. These tasks share the same data
objects and are integrated with all of our solutions. We have built and can
utilize hundreds of healthcare specific tasks such as "enroll a patient,"
"schedule a patient" or "bill a patient." These tasks comprise the templates we
use to tailor a solution for a particular clinic. Providing a tailored solution
generally takes three to six weeks, depending on the complexity of the process
and practice variation.

   We are delivering the following solutions to customers:

   Disease Management. Healthcare providers are increasingly employing disease
management solutions to achieve favorable patient outcomes while controlling
costs. Annually, an aggregate of over $50 billion is spent in the United States
to treat the disease states of asthma, diabetes and congestive heart failure. A
number of specialty healthcare providers have targeted the treatment of these
specific disease states. These providers often contract to treat patients at a
fixed cost and therefore depend on strict patient compliance with treatment
plans to manage their costs and to deliver quality care to their patients. We
have designed effective disease management solutions that have the following
attributes:

  .  Improved patient selection. Our solutions use patient questionnaires and
     clinical data to identify and select patients with specific chronic
     conditions who are most at risk for poor clinical outcomes.

  .  Automated clinical process. Our solutions link all network users,
     including doctors, laboratories and pharmacies, track compliance, and
     provide real time and updated information.

  .  Customized care plans. Our solutions allow healthcare providers to
     design and monitor care plans that meet the specific needs of individual
     at-risk patients using guidelines and predictive outcomes established at
     the clinic.

   We delivered our first disease management solution in February 1999. As of
September 15, 1999, we deployed seven of our ASP software solutions for the
disease management market.

   As part of our disease management solutions, we developed Outcomes Partner
III, a healthcare outcomes management software solution. This solution was
developed in collaboration with Pfizer Health Solutions Inc, a subsidiary of
Pfizer Inc. that provides information technology solutions to Pfizer Inc.
clients. Outcomes Partner III combines patient-reported health and functional
status with outcomes program administration and reporting tools that evaluate
the effectiveness of disease management. Through our relationship with Pfizer
Inc., we have installed Outcomes Partner III at the American Medical Group
Association's headquarters. The American Medical Group Association is a trade
association representing over 230 medical groups composed of approximately
48,000 physicians. In conjunction with Pfizer Inc., we intend to market
Outcomes Partner III to the American Medical Group Association's member
clinics.

   Clinical Drug Trials Recruitment. We believe there is a significant market
for a software solution that improves the efficiency of clinical drug trials
management based on the level of expenditures spent on clinical trials to
support drug development efforts. We believe there is not an adequate system
for managing patient recruitment and enrollment in the clinical drug trials
process.

                                       38
A clinic's participation in the clinical drug trial process begins with
patient recruitment and enrollment. Participation in clinical drug trials can
be a significant revenue source for clinics and group practices. Pharmaceutical
companies set compensation for investigators based on the number of patients
enrolled and the time taken to complete recruitment.

   Clinical drug trials recruitment is conducted by various types of healthcare
organizations including clinics and group practices. These organizations must
conduct broad searches of their practice management systems to identify
patients who meet general criteria. They then review patients' medical charts
to find individuals who meet the trial's requirements. Manual chart review is a
time consuming and expensive process. Even for simple studies, it can take a
clinic site several months to identify, screen, recruit and enroll its target
number of patients. We believe an effective patient recruitment solution can
significantly reduce the time required to complete these tasks.

   Our patient recruitment solution provides a comprehensive set of easy-to-use
tools for efficient patient screening, recruitment and enrollment. Our first
solution was delivered in February 1999. Our solution offers clinics and group
practices several important benefits, such as:

  .  Simplified data management. Interfaces with a practice management system
     to eliminate the need to duplicate data entry.

  .  Reduced number of chart reviews. Quickly queries system data to
     prioritize patients that are most likely to meet the inclusion criteria
     for a trial.

  .  Customized patient screening. Uses adaptable tools to enable customized
     follow-up screening interviews and medical history questionnaires with
     no additional programming, and provides survey administration over the
     Internet.

  .  Reduced enrollment time. Facilitates quick and efficient enrollment of
     patients who meet the inclusion criteria for a trial.

  .  Integrated patient contact tracking. Includes user-friendly tools to
     help track and manage all contacts with patients from initial screening
     through the completion of their participation in a clinical drug trial.

  .  Reduced computer hardware costs. Permits data input using scan forms,
     which enables clinic staff to interact with the system without a
     computer on their desk.

   Workers' Compensation. Annually, approximately $24 billion is spent to treat
workers' compensation claims in the United States. Workers' compensation is a
separate healthcare delivery system for employment-related injury and health
issues. Patient treatment is funded through insurance premiums paid by the
employer. When a job-related injury occurs, the employee is sent to either an
industrial medicine clinic or a network of doctors contracted to treat workers'
compensation injuries. We believe there is currently no clinical management
software solution to handle these claims across a network of clinics and group
practices. Moreover, we believe no reporting system is available to employers
who are funding the system and want to track employee status and compliance
with treatment protocols.

   Our clinical management solution links doctors, clinics and group practices
to a single database and to a single and unique patient record. In addition, we
are developing a solution with American Medical Information Systems, Inc. to
integrate the management of clinical and business processes in occupational
medicine. This solution would enable us to track progress and compliance during
the course of a patient's treatment. Our solution will capture patient medical
histories, help physicians determine diagnoses and suggest appropriate
treatment protocols at the point of care. The criteria for diagnosis and
treatment protocols will be established by the physicians at the treatment
clinic.

                                       39
The Internet enables different organizations, such as physical therapy
centers, laboratories and pharmacies, to inexpensively link to the same system.
Our solution allows employers to track the treatment of their employees on
their desktop. Employers are linked to the same database the clinic network is
using. The use of standard methods of treatment can then be monitored by all
parties connected to the network, including employers.

   We have installed our first workers' compensation solution in a clinic
running on a remote server over the Internet under an agreement with American
Medical Information Systems. We expect that we will have the final version of
this solution installed and that AMIS will accept it by the end of 1999. AMIS
plans to offer employers a network of existing clinics that can treat those of
their employees with workers' compensation claims and allow the employer to
track the treatment of their employees using the Internet. AMIS is in the
process of building this network and as of September 15, 1999, one clinic has
agreed to participate in this network. Under our agreement with AMIS, they have
the exclusive rights for 12 months from acceptance of the system to use and
market the solution in California and in the United States with AMIS clinics
and affiliate clinics so long as AMIS has paid us for a minimum number of AMIS
clinics and affiliate clinics for a period of 12 months. If AMIS has not paid
us for at least half of the minimum number of required users by the end of the
first six months, then we may cancel the exclusive arrangement. Similarly, we
may cancel the exclusive arrangement if AMIS has not paid us for an increased
minimum number of users during each subsequent year.

   Our Software Solutions in Development. As part of our strategy of completing
the Organic Clinic and targeting markets in which we have domain knowledge,
channel partners or existing customers, we are currently developing the
following solutions:

  .  Patient Management. We are developing a patient management solution that
     will streamline claims processing by making eligibility information
     obtained at a clinic available to the billing service over the Internet.
     In September 1999, we entered into a letter of intent with California
     Medical Billing Association, an association of billing service bureaus,
     to market this solution to its 200 member billing services and their
     clinic customers. We cannot assure you that this letter of intent will
     result in a definitive agreement.

  .  Medical Record Management. We are developing a medical record management
     solution to expand the process of managing clinical data by making
     electronic medical records available over the Internet to the
     association's entire network. This solution is covered by our letter of
     intent with California Medical Billing Association.

  .  Practice Management. This solution will provide scheduling, billing and
     contract management features. We will initially market this solution as
     an upgrade to the traditional legacy products sold by PSI-Med
     Corporation, one of the companies we acquired.

  .  Case Management. This solution will provide tracking, management and
     analysis of case-specific information required to manage a patient's
     treatment. We will initially market this solution as an upgrade to the
     traditional application sold by L.I.N.C., Inc., one of the companies we
     acquired.

  .  Credentialing. We are developing this solution to provide credentialing
     capabilities to healthcare organizations over the Internet.

  .  Urology Management. We are developing a clinical management solution for
     urology clinics and have a letter of intent with a urology association
     to market the solution.

   Our Legacy Software Products. We currently market traditional legacy
software products for credentialing, scheduling, resource management, case
management and outcomes management applications. These products were developed
by the companies we have acquired since our inception in 1995. We acquired
these companies primarily for their specific domain expertise and enabling
technologies. Our acquired domain

                                       40
expertise is incorporated into our CoreModel and has been used to build our
current solutions and solutions in development. We intend to continue to market
these legacy products until we have completed development of a comparable
solution that can be delivered using our ASP model. As each of these solutions
is completed, we will market it as an upgrade to our existing legacy products.
For more information concerning our acquisitions, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Strategic Relationships and Alliances

   We have entered into strategic relationships and alliances with companies to
expand our sales distribution capabilities and improve our ability to deliver
reliable, scalable ASP software solutions. We will continue to consider
strategic relationships and alliances that enable us to leverage our core
competencies in the development of advanced technologies and software
solutions. These strategic relationships and alliances include the following:

   Pfizer Health Solutions Inc. We have had a strategic relationship with
Pfizer Health Solutions Inc, a subsidiary of Pfizer Inc., since 1997. We have
entered into agreements with Pfizer Health Solutions Inc that provide it with
non-exclusive distribution rights to the solutions described below. Pursuant to
these agreements, we cannot enter into distribution agreements for the same
solutions with any competitor of Pfizer Inc. Since 1997, we have received over
$2.9 million in revenue through this relationship. The solutions covered by
these agreements include:

  .  Outcomes Partner III. We are working to implement this quality
     measurement tool in innovative pilot projects, including several
     designed to use outcomes in support of disease management. This is a
     three-year agreement which expires on May 27, 2000. This agreement may
     be renewed by mutual agreement of the parties for additional periods of
     12 months.

  .  Surveys. We also collaborate with Pfizer Health Solutions Inc in
     marketing and implementing standard and tailored surveys for managed
     care organizations. This is a two-year agreement which expires on June
     15, 2000. This agreement may be renewed by mutual agreement of the
     parties for additional periods of 12 months.

  .  Credentialing. Along with Pfizer Health Solutions Inc, we offer
     credentialing services and software on a contract basis. This is a
     three-year agreement which expires on January 15, 2002, unless testing
     of the final version of the software extends beyond January 15, 2000, in
     which case the term of the agreement will be extended by the period by
     which such testing is extended. This agreement may be renewed by mutual
     agreement of the parties for additional periods of 12 months.

   Superior Consultant Holdings Corporation. In September 1999, we entered into
a Distribution and Services Agreement, as amended, with Superior Consultant
Holdings Corporation under which Superior agreed to introduce and outline the
advantages of our ASP software solutions based on client interests, as well as
providing systems integration, process improvement, consulting and
implementation services to healthcare organizations. We agreed to market
Superior's healthcare consulting services and business integration services, to
promote Superior as our exclusive alliance partner for the provision of
healthcare consulting services and not to offer distribution rights to our
Organic Architecture and solutions to any direct competitor of Superior without
Superior's prior written approval. Under the agreement, Superior has a non-
exclusive worldwide license to market, use, install and display our Organic
Architecture and solutions. We have also appointed Superior as our
international provider of healthcare consulting services to our clients. The
agreement entitles Superior to appoint a member to our board of directors and
to receive a vested non-statutory stock option grant exercisable for 200,000
shares of our common stock at an exercise price of $6.00 per share. The initial
term of the agreement runs through August 31, 2002 and may be renewed by
Superior for up to two additional two-year terms.

   Conxion Corporation. We have entered into several agreements with Conxion
Corporation, under which they supply us with application hosting services and
Internet infrastructure for our ASP software solutions. Conxion houses the
equipment for these services in government rated Class A data centers from
which our ASP software solutions are deployed and run. We have been using
Conxion's services to deploy our ASP

                                       41
solutions since May 1999 and have been using them as our Internet service
provider since June 1998. These agreements typically have terms of one year.
Conxion has agreed to enter into extensions of these agreements and to enter
into supplemental service agreements, as required by us on terms not less
favorable to us as they offer to any of their customers. Conxion cannot
terminate or suspend the services provided under these agreements even if a
bona fide dispute exists so long as undisputed payments are paid. If we
withhold an undisputed payment, Conxion must notify us of the breach in writing
and provide us thirty days to cure the breach. In connection with these
agreements, Conxion invested $550,000 in our Series C Preferred Stock.

Sales and Marketing

   Our sales and marketing strategy is to increase acceptance of our ASP
solutions in clinics and group practices by (1) entering into partnerships with
specialty industry groups and associations who provide us access to customer
channels and (2) selling our ASP solutions as upgrades to our installed base of
over 500 customers that currently use legacy systems. We believe that our
channel partner relationships will enable us to identify customers with common
needs as a channel for our sales efforts. Our current channel partners,
American Medical Information Systems and Pfizer Health Solutions Inc, endorse
our ASP software solutions and provide for co-marketing to their members and
customers.

   Our sales force is divided into Internet, strategic and tactical teams. The
Internet team sells services and products over the Internet and telephone,
which makes more efficient use of their time. The strategic sales team is
focused on selling through our channel partners as well as through our
strategic relationships with Superior and Pfizer Health Solutions Inc. The
tactical sales team focuses on selling our legacy software products and
services. Our tactical sales force is also responsible for selling our ASP
software solutions as upgrades to our installed legacy products. We currently
have nine employees in our sales force, five of which are in the tactical sales
team. We intend to expand the Internet and strategic sales teams significantly
following this offering.

   We market our solutions and services through our website, articles in
industry publications, direct mail and participation in trade shows. From our
website, prospective customers can obtain product information, and download and
run demonstration software. We also use our website to identify and qualify
prospective customers who request information. We believe that publication of
relevant articles in key trade journals is an important method of building
industry awareness. Since 1998, we have published 13 articles under the bylines
of our staff.

Research and Development

   Our research and development organization is comprised of development
engineers who work on system architecture and solution development teams who
work with our domain experts to build solutions for each domain incorporated in
the CoreModel. As of September 15, 1999, we had 25 professionals dedicated to
architecture and solutions development. We will continue to make substantial
investments in research and development to enhance our proprietary architecture
and support the development of additional solutions.

Competition

   The business of providing application software and services to clinics and
group practices is extremely competitive. In addition, the market for Internet-
based ASPs is relatively new and evolving, and we anticipate that competition
will continue to intensify as the use of the Internet grows.

   Our competitive position in the healthcare software application market is
difficult to evaluate due to the variety of current and potential competitors
and the evolving nature of our market and the ASP model. However, we believe
that our ability to provide tailored, integrated and adaptable solutions to our
customers over the Internet on a monthly subscription basis is a competitive
advantage. Our primary competitors include:

  .  Legacy software vendors such as Cerner Corporation, Eclipsys
     Corporation, IDX Systems Corporation, McKesson HBOC, Inc. and Medical
     Manager Corporation;

                                       42
.  Application service providers such as Confer Software, Inc.,
     MedicaLogic, Inc. and The Trizetto Group, Inc.; and

  .  Healthcare e-commerce and portal companies such as CareInsite, Inc. and
     Healtheon Corporation.

   Each of these types of companies either is or in the future can be expected
to compete with us in delivering software solutions to the clinic and group
practice markets, including the delivery of software applications over the
Internet. Furthermore, major software companies and other entities, including
those specializing in the healthcare industry that are not currently offering
applications, products or services that compete with our products and services,
may enter our markets. In addition, our existing and future strategic partners
may compete with us from time to time by selling, consulting on or hosting
other software that competes with our software solutions.

   We believe the principal differentiating characteristics upon which we
compete are:

  .  features and functionality;

  .  fit with the user's practice, processes and needs;

  .  cost;

  .  ease of implementation and use;

  .  business and technical expertise;

  .  integration of applications;

  .  quality of customer service and support;

  .  reliability; and

  .  scalability.

   To remain competitive, we must continue to enhance our software solutions,
as well as expand our sales, marketing and distribution channels to respond
promptly and effectively to:

  .  changing needs of clinics and group practices;

  .  advances in the delivery of software applications over the Internet;

  .  technological innovation and change;

  .  our competitors' new products, services and pricing models; and

  .  challenges of hiring and retaining qualified information technology
     professionals.

   For additional information concerning risks associated with competition, see
"Risk Factors--The markets we serve are highly competitive and many of our
competitors have much greater resources."

Intellectual Property Rights

   Our success and ability to compete are dependent in part upon our
proprietary technology. We rely upon a combination of copyright, patent,
trademark and trade secret laws and other means to protect our technology.
However, the steps we have taken may not prevent the misappropriation of our
products or technology. In addition, effective proprietary rights protection
may be unavailable or limited in some foreign countries. We have five U.S.
patent applications pending and have received a Notice of Allowance from the
United States Patent and Trademark Office on one of them. In addition, we have
five registered trademarks and have 13 trademark applications pending.

   We retain ownership of our CoreModel and the software applications we
develop. In addition, we have entered into agreements for the right to use
third party software components, such as our database program, in

                                       43
our products on a non-exclusive basis. Our breach of these agreements could
result in our loss of these rights and would harm our business. Our success
will depend in part on our ability to continue to license additional third
party software and upgrades to existing third party software in order to
enhance our products. However, we may not be able to license additional rights
for this software on commercially reasonable terms or at all. If we cannot
obtain required licenses, we could encounter delays or unanticipated
development expense while we attempt to internally develop substitute
technology.

   We may become the target of intellectual property litigation. Although we
have not been notified that any of our products infringe third party
intellectual property rights, we may receive notices of these claims in the
future. Any litigation to determine the validity of such claims, including
claims arising from our contractual indemnification obligations to our
customers, regardless of its merit or resolution, would likely be costly and
may divert management's attention and resources, or cause service
implementation delays. In the event of an adverse ruling in any such
litigation, we could be required to pay substantial damages, cease the sale of
infringing products or obtain a license of the intellectual property rights of
the third party claiming infringement. There can be no assurance that such a
license would be available to us on reasonable terms or at all.

   We also seek to protect our trade secrets and proprietary technology through
confidentiality agreements with employees, customers, consultants and other
appropriate parties. However, we may not have an adequate remedy in the event
these agreements are breached or any remedy if our trade secrets are
independently developed by others.

   For information concerning risks associated with intellectual property
rights, see "Risk Factors."

Government Regulation

   Government Regulation and Healthcare Reform. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more
prevalent. Laws and regulations may be adopted with respect to the Internet
covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services. The
adoption of any additional laws or regulations may impede the growth of the
Internet or other online services, which could, in turn, decrease the demand
for our applications and services and increase our cost of doing business, or
otherwise have an adverse effect on our business, financial condition and
results of operations. Moreover, the applicability to the Internet of existing
laws in various jurisdictions governing issues such as property ownership,
sales and other taxes, libel and personal privacy is uncertain and may take
years to resolve. Any such new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and other online services could harm our business.

   The confidentiality of patient records and the circumstances under which
records may be released for inclusion in our databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Although compliance with these laws and regulations is at present
principally the responsibility of the hospital, physician or other healthcare
provider, regulations governing patient confidentiality rights are evolving
rapidly. Additional legislation governing the dissemination of medical record
information has been proposed at both the state and federal level. This
legislation may require holders of this information to implement security
measures. Such legislation might require us to make substantial expenditures to
implement such measures. We cannot assure you that changes to state or federal
laws will not materially restrict the ability of healthcare providers to submit
information from patient records using our applications.

   Legislation currently being considered at the federal level could impact the
manner in which we conduct our business. The Health Insurance Portability and
Accountability Act of 1996 (HIPAA) mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000. We are
designing our applications to enable compliance with the proposed regulations,
but cannot assure you that we will be able to

                                       44
comply with those proposed regulations in a timely manner or at all. Moreover,
until the proposed regulations become final, they could change, which could
require us to expend additional resources to comply with the revised standards
and we may not be able to comply with the revised standards in a timely manner
or at all. Based on our present business operations, we believe that the HIPAA
requirements related to the maintenance and exchange of electronic health
information may apply to legacy products sold by our wholly owned subsidiary,
PSI-Med Corporation, but not to our other products, services or solutions. If
any of our products, services or solutions are subject to those regulations, we
may be required to incur additional expenses in order to comply with these
requirements and we may not be able to comply with them in a timely manner or
at all. In addition, the success of our compliance efforts may also be
dependent on the success of healthcare participants in dealing with the
standards. If we are unable to comply with regulations implementing HIPAA in a
timely manner or at all, the sale of our solutions and business could be
harmed.

   The United States Food and Drug Administration is responsible for assuring
the safety and effectiveness of medical devices under the Federal Food, Drug
and Cosmetic Act. Computer applications and software are considered medical
devices and subject to regulation by the FDA when they are indicated, labeled
or intended to be used in the diagnosis of disease or other conditions, or in
the cure, mitigation, treatment or prevention of disease, or are intended to
affect the structure or function of the body. We do not believe that any of our
current applications or services are subject to FDA regulation as medical
devices; however, we plan to expand our application and service offerings into
areas that may subject it to FDA regulation. We have no experience in complying
with FDA regulations. Our compliance with such FDA regulations could prove to
be time consuming, burdensome and expensive, which could have a material
adverse effect on our ability to introduce new applications or services in a
timely manner.

Employees

   As of September 15, 1999, we had approximately 130 employees. Our employees
are not subject to any collective bargaining agreements and we generally have
good relationships with our employees.

Facilities

   We lease eight facilities, all of which are located within the United
States. Our principal executive and corporate offices are located in San
Francisco, California. In addition, we maintain offices in Berkeley, Santa Ana
and Calabasas, California, Denver, Wheat Ridge and Ft. Collins, Colorado and
Golden Valley, Minnesota. Our leases have expiration dates ranging from January
2000 to August 2002. We believe that our facilities are adequate for our
current operations and that additional leased space can be obtained if needed.

Legal Proceedings

   There are no legal proceedings pending to which we are a party and our
management is unaware of any contemplated actions against us.

                                       45
MANAGEMENT

Directors and Executive Officers

   The following table presents information regarding each of our directors and
executive officers as of September 15, 1999.
Name                                   Age             Position
   ----                                   ---             --------
Jack D. Anderson......................  55 Chairman of the Board; Chief
                                              Executive Officer
   William W. Shaw, III..................  42 President, Secretary and
                                              Treasurer
   William H. Matthews...................  45 Chief Financial Officer
   Robert L. Anderson....................  54 Director; Senior Vice President
   Michael J. Barry......................  38 Chief Information Officer
   David W. McComb.......................  46 Director; Vice President,
                                              Research and Development
   Michael E. Meisel.....................  45 Chief Sales Officer; President
                                              and CEO of Res-Q, Inc., a wholly
                                              owned subsidiary of OrganicNet
   M. Jan Roughan........................  53 Director; President and CEO of
                                              L.I.N.C., Inc., a wholly owned
                                              subsidiary of OrganicNet
   Robert S. Garvie......................  50 Director
   Gail E. Oldfather.....................  64 Director
   Michael A. Wilson.....................  52 Director
Jack D. Anderson co-founded OrganicNet in January 1995. He has been Chairman
of the Board and Chief Executive Officer since inception. Mr. Anderson has
approximately 28 years of experience in healthcare management and approximately
20 years of experience in healthcare information systems. From 1993 to 1994,
Mr. Anderson served as a Business Development Consultant for Velocity
Healthcare Informatics, Inc., which was purchased by OrganicNet in December
1996. In 1978, he co-founded Cost Containment Systems, Inc., a healthcare
software company, which was subsequently merged with Serving Software, Inc. Mr.
Anderson served as a director of Serving Software from 1992, when it became a
public company, until it was acquired by HBO & Company in 1994.

   William W. Shaw, III has been President of OrganicNet since February 1997
and Secretary and Treasurer since July 1996. From July 1996 to June 1999, he
also served as Chief Financial Officer of OrganicNet. Mr. Shaw was a consultant
to the Company from October 1995 to July 1996. Mr. Shaw has approximately 16
years of management experience in the healthcare industry. From February 1993
to July 1995, he was Executive Vice President, Vice President of Marketing and
Research and Development for Aesculap, Inc., a surgical products company and
wholly owned subsidiary of Aesculap AG. From 1983 to February 1993, Mr. Shaw
held several other positions at Aesculap including Chief Operating Officer,
Vice President Finance, Treasurer and Controller. From 1980 to 1983, Mr. Shaw
was an Audit Supervisor with Coopers & Lybrand.

   William H. Matthews has been the Chief Financial Officer of OrganicNet since
June 1999. He joined OrganicNet in February 1999 as a financial and accounting
consultant. From October 1994 to February 1999, Mr. Matthews was the Chief
Financial Officer for Imagicast, Inc., formerly Telescan Systems, Inc., a
developer of software and hardware for interactive retail point of sale
applications. From 1993 to 1994, Mr. Matthews served as the controller for
Ravenswood Winery. From 1988 to 1992, Mr. Matthews was the Chief Financial
Officer for Ocean Colony Partners, a real estate development firm. From 1981 to
1987, Mr. Matthews held financial management positions for various companies.
From 1977 to 1981, he was a Senior Auditor for Coopers & Lybrand.

   Robert L. Anderson co-founded OrganicNet in January 1995 and has been Senior
Vice President of OrganicNet since January 1996. He has served as a director
since inception. Mr. Anderson has approximately 20 years of experience in the
development of solutions for complex project and program management
engagements. From August 1993 to October 1994, he served as Director of
Practice Development of BSW Advanced Technology, Inc., an object-oriented
project management software company.

                                       46
Michael J. Barry joined OrganicNet as Chief Information Officer in January
1996. Mr. Barry has approximately 20 years of software development experience.
From June 1993 to January 1996, he served as Vice President of Research and
Development at Velocity Healthcare Informatics, Inc. From 1991 to 1993, Mr.
Barry served as the Information Systems Manager for the Carlson Companies,
Inc., a relationship marketing company. From 1985 to 1991, he was an
independent software consultant.

   David W. McComb co-founded OrganicNet in January 1995. He has been Vice
President of Research and Development and a director since June 1995. Mr.
McComb has approximately 20 years of experience in software project management.
From 1989 to 1994, he was President of First Principles, Inc., which he founded
to develop an object-oriented business application framework. First Principles
was acquired by OrganicNet in April 1996. From June 1993 to January 1995, Mr.
McComb also served as Vice President of Research and Development for BSW
Advanced Technology, where he developed object-oriented project management
systems. From 1976 to 1989, he managed client software projects at Andersen
Consulting. He is a frequent lecturer for systems development groups and has
published numerous articles on the subject of systems development.

   Michael E. Meisel was appointed Chief Sales Officer of the Company in
February 1999. Since 1987, Mr. Meisel has served as the President of Res-Q,
Inc., formerly MMS, Inc., which became a wholly owned subsidiary of OrganicNet
in May 1997. Mr. Meisel has approximately 20 years of experience in healthcare
systems product development.

   M. Jan Roughan has been a director of OrganicNet since December 1998. She
joined OrganicNet as the President and Chief Executive Officer of L.I.N.C.,
Inc. in connection with OrganicNet's acquisition of L.I.N.C. in June 1997.
Ms. Roughan founded L.I.N.C. in 1987. From 1982 to 1987, she worked for the
Equitable Life Assurance Society in various capacities including Vice President
and Business Manager. Ms. Roughan is a Registered Nurse, a Certified Disability
Management Specialist, a Certified Rehabilitation Registered Nurse, a Certified
Case Manager and a Certified Developmental Disabilities Nurse.

   Robert S. Garvie has been a director of OrganicNet since March 1996. Mr.
Garvie has served as a director for various private companies in the medical
device and healthcare industries. In 1993, Mr. Garvie founded ArthroCare, a
medical device company. From 1992 to 1993, Mr. Garvie served as the Vice
President of Sales and Marketing for Citation Caliber, Inc., a diagnostic
medical device company. From 1991 to 1992, Mr. Garvie was a consultant for Shaw
Medical Management Group, an electrosurgical products company. From 1986 to
1991, Mr. Garvie served as Vice President, Surgical Products Division for
Haemonetics, a medical device company. Prior to Haemonetics, Mr. Garvie co-
founded Cost Containment Systems, Inc., a healthcare software company.

   Gail E. Oldfather has been a director of OrganicNet since October 1995.
Since 1985, Mr. Oldfather has held various positions for GEO Communications, a
financial consulting company. Mr. Oldfather is currently the President of GEO
Communications.

   Michael A. Wilson has been a director of OrganicNet since March 1998. He is
currently an independent healthcare consultant. From September 1997 to July
1999, he was President and Chief Executive Officer of the CHW Medical
Foundation in San Francisco, a division of Catholic Healthcare West. Before
joining CHW in September 1997, Mr. Wilson served for eight years as President
and Chief Administrative Officer of the Dean Medical Clinic in Madison,
Wisconsin. He is also a former president of the Medical Group Management
Association and is a member of the board of directors of Physician Insurance
Company of Wisconsin.

Board Composition

   The board of directors currently consists of seven members. OrganicNet's
Amended and Restated Certificate of Incorporation, as in effect immediately
prior to the consummation of this offering, divides the board of directors into
three classes. The members of each class of directors serve for staggered
three-year terms. The board of directors is composed of (1) two Class II
directors, Messrs. Robert S. Garvie and Gail E.

                                       47
Oldfather, whose terms expire upon the election and qualification of directors
at the annual meeting of stockholders to be held in 1999; (2) three Class I
directors, Messrs. Jack D. Anderson, Robert L. Anderson and David W. McComb,
whose terms expire upon the election and qualification of directors at the
annual meeting of stockholders to be held in 2000; and (3) two Class III
directors, Mr. Michael A. Wilson and Ms. M. Jan Roughan, whose terms expire
upon the election and qualification of directors at the annual meeting of
stockholders to be held in 2001.

   Pursuant to our agreement with Superior Consultant Holdings Corporation,
Superior has the right to appoint a member to our board of directors prior to
this offering.

   Our executive officers are appointed by the board of directors and serve
until their successors are qualified and appointed. There are no family
relationships among any of our directors or executive officers.

Director Compensation

   Directors who are also executive officers do not receive additional
compensation for serving on the board or any board committee. Directors are
reimbursed for reasonable travel expenses incurred in attending meetings. There
are no formal arrangements for compensating non-employee directors. We have
compensated non-employee directors with stock options for their service on the
board. In December 1996, Robert S. Garvie received an option to purchase 10,000
shares of common stock at an exercise price of $.50 per share and Gail E.
Oldfather received an option to purchase 18,000 shares of common stock at an
exercise price of $.50 per share. In March 1998, Mr. Garvie and Mr. Oldfather
each received options to purchase 4,500 shares of common stock at an exercise
price of $1.50 per share. All of Mr. Garvie's and Mr. Oldfather's options are
fully vested. Michael A. Wilson received an option in March 1998 to purchase
2,500 shares of common stock at an exercise price of $1.50, half of which are
fully vested.

   In addition, the following directors received the following options to
purchase common stock in consideration for granting bridge loans to us:

  .  In October 1998, Robert S. Garvie received an option to purchase 1,000
     shares of common stock at an exercise price of $2.00 per share;

  .  In October 1998, Gail E. Oldfather received an option to purchase 1,200
     shares of common stock at an exercise price of $2.00 per share; and

  .  In December 1998, Gail E. Oldfather received an option to purchase 1,000
     shares of common stock at an exercise price of $2.00 per share.

   See "Certain Relationships and Related Transactions" for a description of
these bridge loans.

Committees of the Board Of Directors

   In September 1999, the board of directors established an audit committee to
review our internal accounting procedures and consult with, and review the
services provided by, our independent auditors. The audit committee currently
consists of Messrs. Oldfather, McComb and Wilson.

   In July 1997, the board of directors established a compensation committee.
The compensation committee reviews and recommends to the board the compensation
and benefits of all of our executive officers and establishes and reviews
general policies relating to compensation and benefits of our employees and its
subsidiaries. The compensation committee currently consists of Messrs. Garvie,
Oldfather and Shaw.

Compensation Committee Interlocks and Insider Participation

   Prior to July 1997, we did not have a separate compensation committee or
other board committee performing equivalent functions. These functions were
performed by Jack D. Anderson and William W. Shaw, III. No interlocking
relationships exist between our board of directors or compensation committee
and the board of directors or compensation committee of any other company, nor
has any other interlocking relationship existed in the past.

                                       48
Executive Compensation

   The following table sets forth the total compensation for services rendered
by our Chief Executive Officer and each of our seven other most highly
compensated executive officers including Ms. Roughan, who is an executive
officer of one of our wholly owned subsidiaries during the fiscal year ended
December 31, 1998. These individuals are referred to as the "named executive
officers." The titles listed below are the titles of the named executive
officers as of June 30, 1999. William H. Matthews joined OrganicNet in June
1999 and will be compensated at an annual base salary of $125,000 during the
fiscal year ending on December 31, 1999.

                           Summary Compensation Table
Long-Term
                                 Annual Compensation           Compensation
                                 ------------------------ ----------------------
                                                                Securities
Name and Principal Position        Salary         Bonus   Underlying Options (#)
---------------------------      ----------     --------- ----------------------
Jack D. Anderson, Chairman of
 the Board and Chief Executive
 Officer.......................  $  120,000 (1) $     --             --
William W. Shaw, III,
 President, Secretary and
 Treasurer.....................     120,000 (1)       --          10,000
William H. Matthews, Chief
 Financial Officer.............         --            --             --
Robert L. Anderson, Senior Vice
 President.....................     120,000 (1)       --             --
Michael J. Barry, Chief
 Information Officer...........     120,000 (1)       --          10,000
David W. McComb, Vice
 President, Research and
 Development...................     120,000 (2)       --             --
Michael E. Meisel, Chief Sales
 Officer; President and CEO of
 Res-Q, Inc....................     150,000 (3)    11,877          5,000
M. Jan Roughan, President and
 Chief Executive Officer of
 L.I.N.C., Inc.................     175,000        12,472            --
--------
(1)  Includes $85,000 of salary accrued during fiscal year 1998 but has not yet
     been paid.
(2)  Includes $40,000 of salary accrued during fiscal year 1998 but has not yet
     been paid.
(3)  Includes $12,000 of salary accrued during fiscal year 1998 but has not yet
     been paid.

Option Grants in Last Fiscal Year and the Six Months Ended June 30, 1999

   The following table sets forth grants of stock options to each of the named
executive officers during the fiscal year ended December 31, 1998. The
potential realizable value is calculated by assuming that the initial public
offering price appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price on the last day
at the appreciated price. The 5% and 10% assumed annual rates of stock price
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future common
stock prices.
Potential Realizable
                                                                                Value at Assumed
                                                                                 Annual Rates of
                                                                                   Stock Price
                                                                                Appreciation for
                                          Individual Grants                      Option Term (2)
                         ---------------------------------------------------- ---------------------
                         Number of    Percent of
                         Securities  Total Options
                         Underlying   Granted to
                          Options    Employees in                  Expiration
Name                      Granted   Fiscal Year (1) Exercise Price    Date        5%        10%
----                     ---------- --------------- -------------- ---------- ---------- ----------
Jack D. Anderson........     --           --              --             --          --         --
William W. Shaw, III....   5,000         1.26%          $1.50       01/13/08
                           5,000         1.26%           2.00       09/25/08
William H. Matthews.....     --           --              --             --          --         --
Robert L. Anderson......     --           --              --             --          --         --
Michael J. Barry........   5,000         1.26%           1.50       01/13/08
                           5,000         1.26%           2.00       09/25/08
David W. McComb.........     --           --              --             --          --         --
Michael E. Meisel.......   5,000         1.26%           1.50       01/13/08
M. Jan Roughan..........     --           --              --             --          --         --
49
--------
(1) In 1998, we granted options to purchase an aggregate of 398,183 shares of
    common stock.
(2) The potential realizable value is calculated by assuming that the initial
    public offering price of $    per share appreciates at the indicated rate
    for the entire term of the option and that the option is exercised at the
    exercise price and sold on the last day of its term at the appreciated
    price. The potential realizable value computation is net of the applicable
    exercise price, but does not take into account applicable federal or state
    income tax consequences and other expenses of option exercises or sales of
    appreciated stock. The values shown do not consider non-transferability or
    termination of the options upon termination of such employee's employment
    with OrganicNet.

   The following table sets forth option grants to the named executive officers
for the time period of January 1, 1999 to June 30, 1999.
Individual Grants
                             -----------------------------------
                             Number of Securities
                              Underlying Options
Name                               Granted        Exercise Price Expiration Date
----                         -------------------- -------------- ---------------
Jack D. Anderson............           --               --               --
William W. Shaw, III........         7,500            $2.00         03/02/09
William H. Matthews.........         4,000             2.50         04/21/09
                                     2,465             2.50         06/22/09
                                    90,000             2.50         06/22/09
Robert L. Anderson..........           --               --               --
Michael J. Barry............         7,500             2.00         03/02/09
David W. McComb.............           --               --               --
Michael E. Meisel...........         4,000             2.00         03/02/09
M. Jan Roughan..............         3,500             2.00         03/02/09
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

   The following table sets forth summary information with respect to
exercisable and unexercisable stock options held as of December 31, 1998 by
each of the named executive officers and with respect to the fiscal year ended
December 31, 1998. None of the named executive officers exercised options in
the fiscal year ended December 31, 1998.
Number of Securities
                                  Underlying             Value of Unexercised
                              Unexercised Options       In-the-Money Options at
                             at December 31, 1998        December 31, 1998 (2)
                         ----------------------------- -------------------------
Name                     Exercisable (1) Unexercisable Exercisable Unexercisable
----                     --------------- ------------- ----------- -------------
Jack D. Anderson........         --            --          --           --
William W. Shaw, III....     171,666        88,334
William H. Matthews.....         --            --          --           --
Robert L. Anderson......         --            --          --           --
Michael J. Barry........     171,666        88,334
David W. McComb.........         --            --          --           --
Michael E. Meisel.......         --          5,000
M. Jan Roughan..........         --            --          --           --
--------
(1) Exercisable refers to those options which will be vested and exercisable
    immediately upon completion of this offering, while "unexercisable" refers
    to those options which will be unvested at such time.
(2) Value is determined by subtracting the exercise price from the fair market
    value of the common stock based on an assumed initial public offering price
    of $  , multiplied by the number of shares underlying the options.

                                       50
Employment Agreements and Change of Control Arrangements

   Jack D. Anderson entered into an employment agreement with OrganicNet on
January 1, 1996. Mr. Anderson's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Anderson or the company. Under the terms of his employment
agreement, Mr. Anderson receives a base salary of $120,000, subject to change
at the sole discretion of the board of directors. In addition, the board of
directors, or a duly appointed committee thereof will, no less than once
annually, determine if the award of a bonus is warranted and the amount of such
bonus, if any. If we terminate Mr. Anderson's employment without cause or if
Mr. Anderson resigns for good reason, upon a change of control or due to
disability or death, he would be entitled to receive his then existing base
salary for a period of 18 months from the date of termination. In addition, Mr.
Anderson would be entitled to his annual bonus, prorated to his date of
termination, and immediate and full vesting of all outstanding stock options
granted through any termination date. The terms of Mr. Anderson's employment
agreement also provide that Mr. Anderson will not, during the course of his
employment and the 18 months following the date of the termination of his
employment with us: (1) engage or otherwise have a financial interest in any
business activity which is in competition with us or (2) solicit our employees.

   William W. Shaw, III entered into an employment agreement with OrganicNet on
June 1, 1996. Mr. Shaw's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Shaw or the company. Under the terms of his employment agreement,
Mr. Shaw receives a base salary of $120,000, subject to change at the sole
discretion of the board of directors. In addition, the board of directors, or a
duly appointed committee thereof will, no less than once annually, determine if
the award of a bonus is warranted and the amount of such bonus, if any.
Pursuant to his employment agreement, we issued Mr. Shaw options to purchase up
to 250,000 shares of our common stock and he is eligible for future issuances
at the discretion of the board of directors. If we terminate Mr. Shaw's
employment without cause or if Mr. Shaw resigns for good reason, upon a change
of control or due to disability or death, he would be entitled to receive his
then existing base salary for a period of 18 months from the date of
termination. In addition, Mr. Shaw would be entitled to his annual bonus,
including the cash value of shares issued, prorated to his date of termination,
and immediate and full vesting of all outstanding stock options granted through
the termination date. The terms of Mr. Shaw's employment agreement also provide
that Mr. Shaw will not, during the course of his employment and the 18 months
following the date of the termination of his employment with us: (1) engage or
otherwise have a financial interest in any business activity which is in
competition with us or (2) solicit our employees.

   William H. Matthews entered into an employment agreement with OrganicNet on
June 17, 1999. Mr. Matthew's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Matthews or the company. Under the terms of his employment
agreement, Mr. Matthews receives a base salary of $125,000 which will be
adjusted by the compensation committee within 45 days of the closing of this
offering to an amount that represents a market range salary for a public
company of our size and in our industry. Pursuant to his employment agreement,
we issued to Mr. Matthews options to purchase up to 90,000 shares of our common
stock at an option price of $2.50 per share and he is eligible for future
issuances. Upon the occurrence of a change of control before June 20, 2000,
fifty percent of Mr. Matthews' remaining unvested options will vest. Should a
change of control occur after June 20, 2000, all of his remaining options will
vest.

   Robert L. Anderson entered into an employment agreement with OrganicNet on
January 1, 1996. Mr. Anderson's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Anderson or the company. Under the terms of his employment
agreement, Mr. Anderson receives a base salary of $120,000, subject to change
at the sole discretion of the board of directors. In addition, the board of
directors, or a duly appointed committee thereof will, no less than once
annually, determine if the award of a bonus is warranted and the amount of such
bonus, if any. If we terminate Mr. Anderson's employment without cause or if
Mr. Anderson resigns for good reason, upon a change of control or due to
disability or death, he would be entitled to receive his then existing base
salary for

                                       51
a period of 18 months from the date of termination. In addition, Mr. Anderson
will be entitled to his annual bonus, including the cash value of shares
issued, prorated to his date of termination, and immediate and full vesting of
all outstanding stock options granted through the termination date. The terms
of Mr. Anderson's employment agreement also provide that Mr. Anderson will
not, during the course of his employment and the 18 months following the date
of the termination of his employment with us: (1) engage or otherwise have a
financial interest in any business activity which is in competition with us or
(2) solicit our employees.

   Michael J. Barry entered into an employment agreement with OrganicNet on
January 1, 1996. Mr. Barry's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Barry or the company. Under the terms of his employment agreement,
Mr. Barry receives a base salary of $120,000, subject to change at the sole
discretion of the board of directors. In addition, the board of directors, or
a duly appointed committee thereof will, no less than once annually, determine
if the award of a bonus is warranted and the amount of such bonus, if any.
Pursuant to his employment agreement, we issued to Mr. Barry options to
purchase up to 250,000 shares of our common stock and he is eligible for
future issuances at the discretion of the board of directors. If we terminate
Mr. Barry's employment without cause or if Mr. Barry resigns for good reason,
upon a change of control or due to disability or death, he would be entitled
to receive his then existing base salary for a period of 18 months from the
date of termination. In addition, Mr. Barry would be entitled to his annual
bonus, including the cash value of shares issued, prorated to his date of
termination, and immediate and full vesting of all outstanding stock options
granted through the termination date. The terms of Mr. Barry's employment
agreement also provide that Mr. Barry will not, during the course of his
employment and the 18 months following the date of the termination of his
employment with us: (1) engage or otherwise have a financial interest in any
business activity which is in competition with us or (2) solicit our
employees.

   M. Jan Roughan entered into an employment agreement with OrganicNet on
January 1, 1997. Ms. Roughan's employment agreement ends on December 31, 1999.
Under the terms of her employment agreement, Ms. Roughan receives a base
salary of $175,000. In addition, incentive bonuses will be awarded to Ms.
Roughan based upon net revenue realized from the sale of L.I.N.C., Inc.
software products during the preceding year. Either OrganicNet or Ms. Roughan
may terminate this agreement by giving written notice to the other party.
Pursuant to the terms of her employment agreement, if Ms. Roughan is
terminated for cause, as specified in the agreement, or upon her death, the
company is obligated to pay her base salary and benefits through the effective
date of termination, or the date of her death, as applicable, plus an
additional 12 months of base salary and benefits. If Ms. Roughan is terminated
without cause upon a majority vote of the board of directors, she is entitled
to the greater of her base salary and benefits through the term of the
agreement or 12 months of her then base salary and benefits. The terms of Ms.
Roughan's employment agreement also provide that she will not, during the
course of her employment and the 12 months following the date of the
termination of her employment with us: (1) engage or otherwise have a
financial interest in any business activity which is in competition with us or
(2) solicit our employees.

Limitation of Liability and Indemnification Matters

   Our bylaws limit the personal liability of our directors to the fullest
extent permitted by Delaware law.

   Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and
officers, provided that this provision does not eliminate or limit the
liability of a director for the following:

  .  any breach of the director's duty of loyalty to us or our stockholders;

  .  acts or omissions not in good faith or which involve intentional
     misconduct or a knowing violation of law;

  .  unlawful payments of dividends or unlawful stock repurchases or
     redemptions;

  .  any transaction from which the director derived an improper personal
     benefit;

                                      52
.  if the officer or director did not act in good faith and in a manner
     reasonably believed to be in, or not opposed to, our best interests; or

  .  with respect to any criminal action or proceeding, if the officer or
     director had reasonable cause to believe his conduct was unlawful.

   We believe that indemnification provisions under our bylaws covers at least
negligence and gross negligence on the part of indemnified parties.

1997 Stock Option/Stock Issuance Plan

   In November 1997, the board of directors adopted, and the stockholders
approved, the 1997 Stock Option/Stock Issuance Plan. An aggregate of 1,478,513
shares of common stock currently are authorized for issuance under the
incentive plan and the share reserve will automatically be increased on the
first business day of each calendar year by an amount equal to 2% of the total
outstanding shares of common stock on the last business day of the immediately
preceding calendar year. No incentive stock option may be granted on the basis
of the annual share increases. When a stock award expires, is terminated before
it is exercised or is cancelled, the shares set aside for that award are
returned to the pool of shares available for future awards. Shares that are
issued when an award is exercised and that are subsequently repurchased by us
will again become available for future awards.

   The 1997 Plan permits the grant of options to employees, non-employee
directors, and consultants and other independent advisors to the company.
Options may be either ISOs within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or nonstatutory stock options. In addition,
the 1997 Plan permits the grant of stock bonuses and rights to purchase
restricted stock.

   The 1997 Plan is administered by the board of directors. The board of
directors may delegate its authority to administer the 1997 Plan to a committee
of two or more board members appointed by the board of directors. The
administrator has the authority to select the eligible persons to whom award
grants are to be made, to designate the number of shares to be covered by each
award, to determine whether an option is to be an ISO or nonstatutory stock
option, to establish vesting schedules, to specify the exercise price of
options and the type of consideration to be paid upon exercise and to specify
other terms of awards.

   In general, the stock options granted under the 1997 Plan may not exceed 10
years. An optionholder may not transfer a stock option other than by will or
the law of descent or distribution. The exercise price for an ISO cannot be
less than 100% of the fair market value of the common stock on the date of
grant. The exercise price for nonstatutory stock options cannot be less than
85% of the fair market value of the common stock on the date of grant. In the
event the optionholder is a 10% stockholder, then the exercise price per share
shall not be less than 110% of the fair market value of common stock on the
date of grant.

   Unless the terms of an optionholder's stock option agreement provide for
earlier termination, in the event an optionholder's service relationship with
us, or any affiliate of ours, ceases due to disability or death, the
optionholder (or his beneficiary) may exercise any vested options up to 12
months after the date such service relationship ends. If an optionholder's
relationship with us, or any affiliate of ours, ceases for any reason other
than disability or death, the optionholder may (unless the terms of the stock
option agreement provide for earlier termination) exercise any vested options
up to three months from cessation of service. Should an optionholder's
relationship with us be terminated for misconduct, then all outstanding options
held by the optionholder will terminate immediately and cease to remain
outstanding.

   ISOs may be granted only to our employees. The aggregate fair market value,
determined at the time of grant, of shares of our common stock with respect to
which ISOs are exercisable for the first time by an optionholder during any
calendar year under all of our stock plans may not exceed $100,000. If any ISO
is granted to any employee who at the time of the grant owns or is deemed to
own stock possessing more than

                                       53
10% of the total combined voting power of the Company or any of its affiliates,
the term of the ISO award may not exceed five years from the date of grant.

   In the event of certain changes in control, all outstanding options under
the incentive plan either may be assumed, continued or substituted for by any
surviving entity. If the surviving entity determines not to assume, continue or
substitute for such awards, the vesting provisions of such stock options will
be accelerated and such stock options will be terminated upon the change in
control if not previously exercised. The portion of any ISO accelerated by a
change in control will remain exercisable as an ISO only to the extent the
$100,000 limitation is not exceeded. To the extent this dollar limitation is
exceeded, the accelerated portion of such option will be exercisable as a
nonstatutory stock option under the Federal tax laws. Even if the surviving
entity does assume or substitute outstanding stock awards, if the holder of an
award is terminated other than for misconduct, or constructively terminated,
within a specified period not more than 18 months following the change in
control, the holder's award will vest in full.

   The terms of any stock bonuses or restricted stock purchase awards granted
under the 1997 Plan will be determined by the administrator. However, the
administrator may not impose a vesting schedule which is more restrictive than
20% per year, with initial vesting to occur no later than one year after the
issuance date. Such limitation shall not apply to any common stock issuance
made to officers, non-employee directors or consultants. The administrator may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the 1997 Plan may be subject to
repurchase by us. The purchase price of restricted stock under any restricted
stock purchase agreement will not be less than 85% of the fair market value of
the company's common stock on the date of grant. However, the purchase price
per share of common stock for a 10% stockholder shall not be less then 110% of
the fair market value on the date of grant.

   Upon a change in control, all outstanding repurchase rights will terminate
and the shares of common stock subject to those rights will immediately vest in
full, except to the extent the repurchase rights are assigned to the successor
entity or such accelerated vesting is precluded by limitations imposed by the
administrator at the time the repurchase right was issued. In addition, the
administrator will have full and complete discretion with regard to outstanding
shares to provide that repurchase rights will automatically terminate on an
accelerated basis and that the shares shall immediately vest in the event the
participant's relationship with the company should terminate by reason of the
change in control within no more than 18 months following the effective date of
the change in control.

   The board of directors may amend or modify the 1997 Plan at any time.
However, no such amendment or modification shall adversely affect the right and
obligations with respect to options or unvested awards unless the participant
consents to such an amendment or modification. In addition, certain amendments
may require stockholder approval.

   As of August 31, 1999, the Company had issued and outstanding under the 1997
Plan options to purchase 792,732 shares of common stock.

1996 Stock Option/Stock Issuance

   On April 30, 1996, the board of directors adopted, and the stockholders
approved, the 1996 Stock Option/Stock Issuance Plan. On April 22, 1997, the
board of directors adopted, and on November 21, 1997, the stockholders
approved, an amendment and restatement of the incentive plan. A maximum of
1,000,000 shares are authorized under the 1996 Plan. The authorized share
reserve is comprised of (1) 750,000 shares originally available under the
incentive plan and (2) an additional 250,000 shares of common stock authorized
by the board on April 22, 1997, subject to stockholder approval. When a stock
award expires, is terminated before it is exercised or is cancelled, the shares
set aside for that award are returned to the pool of shares available for
future awards. Awards may be granted in excess of the number of shares of
common stock then available for issuance under the 1996 Plan, provided any
excess shall be held in escrow until stockholder approval is obtained
increasing the number of shares of common stock available for issuance. If
approval is not obtained

                                       54
within 12 months after the issuance of the excess is made, then (1) any
unexercised options granted on the basis of the excess will terminate and cease
to be outstanding and (2) the company will refund the exercise or purchase
price plus interest.

   The 1996 Plan permits the grant of options to employees, non-employee
directors and consultants. Options may be either ISOs within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, or nonstatutory
stock options. In addition, the 1996 Plan permits the grant of stock bonuses
and rights to purchase restricted stock.

   The 1996 Plan is administered by the board of directors. The board of
directors may delegate its authority to administer the 1996 Plan to a committee
of two or more board members appointed by the board of directors. The
administrator has the authority to select the eligible persons to whom award
grants are to be made, to designate the number of shares to be covered by each
award, to determine whether an option is to be an ISO or nonstatutory stock
option, to establish vesting schedules, to specify the exercise price of
options and the type of consideration to be paid upon exercise and to specify
other terms of awards.

   In general, the stock options granted under the 1996 Plan may not exceed 10
years. An optionholder may not transfer a stock option other than by will or
the law of descent or distribution. However, a nonstatutory option may be
assigned in whole or in part during optionholder's lifetime in accordance with
the terms of a qualified domestic relations order. The exercise price for an
ISO cannot be less than 100% of the fair market value of the common stock on
the date of grant. The exercise price for nonstatutory stock options cannot be
less than 85% of the fair market value of the common stock on the date of
grant. In the event the optionholder is a 10% stockholder, then the exercise
price per share will not be less than 110% of the fair market value of common
stock on the date of grant.

   Unless the terms of an optionholder's stock option agreement provide for
earlier termination, in the event an optionholder's service relationship with
us, or any affiliate of ours, ceases due to death, the optionholder's
beneficiary may exercise any vested options up to 12 months after the date such
service relationship ends. In the event an optionholder's service relationship
with us, or any affiliate of ours, ceases due to disability, the optionholder
may exercise any vested option up to six months (12 months for permanent
disability) after the cessation of service. If an optionholder's relationship
with us, or any affiliate of ours, ceases for any reason other than disability
or death, the optionholder may (unless the terms of the stock option agreement
provide for earlier termination) exercise any vested options up to three months
from cessation of service. Should an optionholder's relationship with us be
terminated for misconduct, then all outstanding options held by the
optionholder will terminate immediately and cease to remain outstanding.

   ISOs may be granted only to our employees. The aggregate fair market value,
determined at the time of grant, of shares of our common stock with respect to
which incentive stock options are exercisable for the first time by an
optionholder during any calendar year under all of our stock plans may not
exceed $100,000. If any ISO is granted to any employee who at, the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of the Company or any of its affiliates, the term of the
ISO award may not exceed five years from the date of grant.

   In the event of certain changes in control, all outstanding options under
the incentive plan may be assumed by any surviving entity. If the surviving
entity determines not to assume the options, they will terminate and no longer
be outstanding on the effective date of such change in control.

   The terms of any stock bonuses or restricted stock purchase awards granted
under the 1996 Plan will be determined by the administrator. However, the
administrator may not impose a vesting schedule which is more restrictive than
20% per year, with initial vesting to occur no later than one year after the
issuance date. Such limitation shall not apply to any common stock issuance
made to officers, non-employee directors or consultants. The administrator may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the 1996 Plan may be subject to
repurchase by the company. The

                                       55
purchase price of restricted stock under any restricted stock purchase
agreement will not be less than 85% of the fair market value of the company's
common stock on the date of grant. However, the purchase price per share of
common stock for a 10% stockholder will not be less then 110% of the fair
market value on the date of grant.

   Upon a change in control, all outstanding repurchase rights will terminate
to the extent the surviving entity does not accept the assignment of the
repurchase rights.

   The board of directors may amend or modify the 1996 Plan at any time.
However, no such amendment or modification shall adversely affect the right and
obligations with respect to options or unvested awards unless the participant
consents to such an amendment or modification. In addition, the board of
directors will not without the approval of the stockholders (1) increase the
maximum number of shares issuable under the 1996 Plan (except for permissible
adjustments in the event of certain changes in the Company's capitalization),
(2) materially modify the eligibility requirements for participation or (3)
materially increase the benefits accruing to participants.

   As of August 31, 1999, the Company had issued and outstanding under the 1996
Plan options to purchase 826,436 shares of common stock.

401(k) Plan

   We sponsor a 401(k) plan, a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code of 1986, as amended. All
employees who exceed 20 hours per week and 1,000 hours per year and who
complete one month of service are eligible to participate. Participants may
make pre-tax contributions to the 401(k) plan of up to 20% of their eligible
earnings, subject to a statutorily prescribed annual limit ($10,000 in calendar
year 1999). Under the 401(k) plan, each employee is fully vested in his or her
deferred salary contributions. Employee contributions are held and invested by
the 401(k) plan's trustee. The 401(k) plan also permits us to make matching
contributions and profit-sharing contributions, subject to established limits.

   Each participant's contributions and the corresponding investment earnings
are generally not taxable to the participants until withdrawn. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives.

                                       56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Since January 1, 1998, some of our directors, executive officers and
affiliates have entered into transactions with us as follows:

                           Purchase Of Capital Stock
Date of                                           Number of
Name                     Purchase     Type of Security     Price per Share  Shares
----                     -------- ------------------------ --------------- ---------
Jack D. Anderson (1).... 08/10/99 Series C Preferred Stock      $2.75       51,789
William H. Matthews..... 04/17/98 Series C Preferred Stock       2.75       10,909
                         01/06/99 Series C Preferred Stock       2.75        7,143
                         06/30/99 Series C Preferred Stock       2.75        5,000
                         08/02/99 Series C Preferred Stock       2.75       20,000
Michael E. Meisel....... 04/01/99 Series C Preferred Stock       2.75        5,000
Robert S. Garvie (2).... 02/19/99 Series C Preferred Stock       2.75       31,110
                         04/05/99 Common Stock (4)               0.50       10,000
                         04/05/99 Common Stock (4)               1.50        4,500
                         04/05/99 Common Stock (4)               2.00        1,000
                         04/05/99 Series C Preferred Stock       2.75       11,581
                         08/05/99 Series C Preferred Stock       2.75       36,363
Gail E. Oldfather (3)... 03/10/98 Series C Preferred Stock       2.75       17,945
                         11/25/98 Series C Preferred Stock       2.75       29,753
                         12/28/98 Series C Preferred Stock       2.75        1,800
                         03/31/99 Series C Preferred Stock       2.75       10,000
                         07/20/99 Series C Preferred Stock       2.75       75,000
--------
(1) Includes shares purchased on behalf of Mr. Anderson's spouse.
(2) Includes shares purchased by Omeah Ltd. Partnership. Mr. Garvie is a
    General Partner of Omeah Ltd. Partnership.
(3) Includes shares purchased on behalf of Mr. Oldfather's spouse and
    relatives.
(4) Shares purchased pursuant to the exercise of stock options.

                                       57
Since January 1, 1998, we have granted options to purchase common stock to
some of our directors, executive officers and affiliates as follows:

                           Issuance Of Stock Options
Name                                         Date Granted Exercise Price Options
----                                         ------------ -------------- -------
William W. Shaw, III........................   01/13/98       $1.50       5,000
                                               09/25/98        2.00       5,000
                                               03/02/99        2.00       7,500
                                               08/06/99        2.50      10,000
William E. Matthews.........................   04/21/99        2.50       4,000
                                               06/22/99        2.50       2,465
                                               06/22/99        2.50      90,000
Michael J. Barry............................   01/13/98        1.50       5,000
                                               09/25/98        2.00       5,000
                                               03/02/99        2.00       7,500
                                               08/06/99        2.50      10,000
Michael E. Meisel...........................   01/13/98        1.50       5,000
                                               03/02/99        2.00       4,000
M. Jan Roughan..............................   03/02/99        2.00       3,500
Robert S. Garvie............................   03/12/98        1.50       2,500
                                               03/12/98        1.50       2,000
                                               10/29/98        2.00       1,000
Gail E. Oldfather...........................   03/12/98        1.50       2,500
                                               03/12/98        1.50       2,000
                                               10/29/98        2.00       1,200
                                               12/10/98        2.00       1,000
                                               08/06/99        2.50      27,000
Michael A. Wilson...........................   03/12/98        1.50       2,500
Lock-Up Agreements

   Each of the individuals listed above have entered into lock-up agreements
pursuant to which they have agreed not to, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of common stock, preferred stock or any
substantially similar securities or securities convertible into or exchangeable
or exercisable for shares of common stock, preferred stock or any substantially
similar securities for a period of 180 days from the date of this prospectus
without the prior written consent of the underwriter. The underwriter may, at
any time and without notice, waive the terms of these lock-up agreements.

ASP Agreement with Conxion Corporation

   We have entered into several agreements with Conxion Corporation under which
Conxion supplies us with application hosting services and Internet
infrastructure for our ASP software solutions. In connection with these
agreements, Conxion invested $550,000 in our Series C preferred stock. See
"Business--Strategic Relationships and Alliances" for a description of these
agreements.

Loan From Jack D. Anderson and Peggy L. Anderson to OrganicNet

   On September 30, 1997, Mr. and Mrs. Anderson loaned $60,000 to us at an
interest rate of 6.5% per annum. As of September 15, 1999, the Company has
repaid a total of approximately $56,371 of the loan, approximately $31,453 of
which was repaid in cash and approximately $24,917 of which was repaid in the
form of 9,061 shares of Series C preferred stock. The remaining balance on this
loan is approximately $10,994.

                                       58
Agreement with Superior Consultant Holdings Corporation

   We entered into a marketing alliance with Superior Consulting Holdings
Corporation in September 1999, under which Superior will introduce, promote and
demonstrate our ASP software solutions. Pursuant to this agreement, we granted
Superior an option to purchase 200,000 shares of our common stock at an
exercise price of $6.00 per share. See "Business--Strategic Relationships and
Alliances" for a description of this agreement.

Indemnity and Subrogation Agreement between Michael E. Meisel and OrganicNet

   On January 1, 1998, Michael E. Meisel entered into an Indemnity and
Subrogation Agreement with us in connection with a line of credit agreement
between our wholly owned subsidiary Res-Q, Inc. (formerly MMS, Inc.) and Wells
Fargo Bank. This line of credit was assigned to and assumed by us upon the
acquisition of MMS, Inc. In connection with this line of credit, Mr. Meisel
provided a personal guaranty. OrganicNet agreed to indemnify Mr. Meisel for a
maximum amount of $200,000, the current amount of Mr. Meisel's guaranty plus
accrued interest, for any deficiency in repayment that he may suffer after
making a claim for reimbursement from the principal borrower.

Promissory Note dated April 1, 1999 between Michael E. Meisel and OrganicNet

   In connection with our acquisition of Res-Q, Inc. (formerly MMS, Inc.),
OrganicNet and Mr. Meisel executed two $50,000 promissory notes on April 4,
1997 and December 1, 1997, respectively. These notes were consolidated on April
1, 1999. Under this consolidated promissory note, we were obligated to pay Mr.
Meisel approximately $105,187, plus interest at the rate of 10% per annum,
compounded monthly. This note becomes due and payable on December 31, 1999 and
can be prepaid at any time in whole or in part without premium or penalty. As
of June 30, 1999, the outstanding balance of this note was approximately
$107,832. In August 1999, we repaid $5,000 of this note. We will repay the
entire outstanding balance of this note from the proceeds of this offering.

Line of Credit Agreement between First National Bank and Jack D. Anderson,
David W. McComb and Robert L. Anderson

   On October 28, 1997, First National Bank extended a line of credit in the
amount of $100,000 to three of our executive officers and directors, Jack D.
Anderson, David W. McComb and Robert L. Anderson. The terms of the line of
credit are for a term for one year at a variable rate of interest, currently
10%. The line of credit has been extended to September 30, 1999. Messrs.
Anderson, McComb and Anderson have borrowed $100,000 under this line of credit
for our benefit. We have assumed the obligation to repay this loan. Messrs.
Anderson, McComb and Anderson have executed promissory notes with First
National Bank and have personally guaranteed this loan.

Promissory Notes dated June 1, 1997 and December 1, 1997 between M. Jan Roughan
and OrganicNet

   In connection with our acquisition of L.I.N.C., Inc. on June 23, 1997,
OrganicNet and Ms. Roughan executed two promissory notes in the amount of
$50,000 each on June 1, 1997 and December 1, 1997. As of June 30, 1999, the
total balance of these notes was approximately $120,045. In August 1999, we
repaid a total of $5,000 of these notes. We will repay the entire outstanding
balance of these notes from the proceeds of this offering.

Promissory Note dated October 2, 1998 between Robert S. Garvie and OrganicNet

   On October 2, 1998, Mr. Garvie loaned us $20,000 at an interest rate of 12%
per annum. As consideration for this loan, we granted Mr. Garvie options to
purchase 1,000 shares of common stock at an exercise price of $2.00 per share.
We have repaid this loan.

                                       59
Promissory Note dated November 25, 1998 between Gail B. Oldfather and
OrganicNet

   On November 25, 1998, Mr. Oldfather loaned us $20,000 at an interest rate of
12% per annum. As consideration for this loan, we granted Mr. Oldfather options
to purchase 1,000 shares of common stock at an exercise price of $2.00 per
share. We have repaid this loan.

Promissory Note dated October 19, 1998 between Gail B. Oldfather and OrganicNet

   On October 19, 1998, Mr. Oldfather loaned us $24,000 at an interest rate of
12% per annum. As consideration for this loan, we granted Mr. Oldfather options
to purchase 1,200 shares of common stock at an exercise price of $2.00 per
share. We have repaid this loan.

Other Related Party Transactions

   We have entered into an employment agreement with William H. Matthews, a
named executive officer. See "Management--Employment Agreements and Change of
Control Arrangements."

Indemnification Agreements

   We intend to enter into indemnification agreements with our officers and
directors containing provisions that require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.

   We believe that all transactions described in this section "Certain
Relationships and Related Transactions" were made on terms no less favorable to
us than would have been obtained from unaffiliated third parties. All future
transactions, if any, with our executive officers, directors and affiliates
will be on terms no less favorable to us than could be obtained from unrelated
third parties and will be approved by a majority of the board of directors and
by a majority of the disinterested members of the board of directors.

                                       60
PRINCIPAL STOCKHOLDERS

   The following table sets forth information with respect to beneficial
ownership of our common stock as of August 31, 1999 and as adjusted to reflect
the sale of common stock offered by us pursuant to this offering. The following
table lists:

  .  each person known by us to beneficially own more than 5% of our
     outstanding common stock;

  .  each director;

  .  each named executive officer; and

  .  all directors and executive officers as a group.

   Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address for each listed director and officer is
OrganicNet, Inc., 330 Townsend Street, Suite 206, San Francisco, California,
94107-1630. Except as indicated by footnote, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares
of common stock underlying options that are exercisable within 60 days of
August 31, 1999, but excludes shares of common stock underlying options held by
any other persons and the preferred stock issued in the acquisition of PSI-Med
Corporation. Percentage of beneficial ownership prior to the offering is based
on 13,460,389 shares of common stock outstanding as of August 31, 1999 after
giving effect to the conversion of our currently outstanding preferred stock.
Percentage of beneficial ownership after the offering is based on     shares
outstanding after the offering.
Percentage of Shares
                                Shares               Beneficially Owned
                             Beneficially     --------------------------------
Name of Beneficial Owner        Owned         Prior to Offering After Offering
------------------------     ------------     ----------------- --------------
Jack D. Anderson............  2,287,813 (1)         17.00%
William W. Shaw, III........    343,889 (2)          2.51%
William H. Matthews.........     90,160 (3)             *
Robert L. Anderson..........  1,353,986 (4)         10.06%
Michael J. Barry............    330,505 (5)          2.41%
David W. McComb.............    923,139 (6)          6.86%
Michael E. Meisel...........    517,658 (7)          3.85%
M. Jan Roughan..............    260,233              1.93%
Robert S. Garvie............    236,904 (8)          1.76%
Gail E. Oldfather...........    701,812 (9)          5.19%
Michael A. Wilson...........      1,250 (10)            *
All directors and executive
 officers as a group (11
 persons)...................  7,047,349 (11)        50.14%
--------
*  Represents beneficial ownership of less than one percent of the common
   stock.

(1)  Includes 228,170 shares of common stock owned by Mr. Anderson's spouse and
     held in trust for the benefit of Mr. Anderson and his spouse.
(2)  Includes 266,667 shares of common stock beneficially owned as a result of
     options that become exercisable within 60 days of August 31, 1999.
(3)  Includes 6,465 shares of common stock beneficially owned as a result of
     options that become exercisable within 60 days of August 31, 1999.
(4)  Includes 46,000 shares of common stock owned by Mr. Anderson's spouse and
     children and held in trust for the benefit of Mr. Anderson's children.
(5)  Includes 266,667 shares of common stock beneficially owned as a result of
     options that become exercisable within 60 days of August 31, 1999.
(6)  Includes 28,652 shares of common stock owned by Mr. McComb's spouse.

                                       61
(7)  Includes 213,966 shares of common stock owned by Mr. Meisel's spouse and
     held in trusts established for the benefit of Mr. Meisel's children, and
     1,667 shares of common stock beneficially owned as a result of options
     that become exercisable within 60 days of August 31, 1999.
(8)  Includes 3,636 shares of common stock held in trust for the benefit of Mr.
     Garvie's family and 233,268 shares owned by Omeah Ltd. Partnership. Mr.
     Garvie is a General Partner of Omeah Ltd. Partnership.
(9)  Includes 367,112 shares held in trusts established for the benefit of Mr.
     Oldfather's family, and 51,700 shares of common stock beneficially owned
     as a result of options that become exercisable within 60 days of August
     31, 1999.
(10)  Includes 1,250 shares of common stock beneficially owned as a result of
      options that become exercisable within 60 days of August 31, 1999.
(11)  Includes shares described in the notes above, as applicable.

                                       62
DESCRIPTION OF CAPITAL STOCK

   Following the closing of the sale of the shares offered by this prospectus,
our authorized capital stock will consist of     shares of common stock, $0.001
par value, and     shares of preferred stock, $0.01 par value.

Common Stock

   As of August 31, 1999, there were 13,460,389 shares of common stock
outstanding held of record by approximately 460 stockholders, on an as-
converted basis. There will be     shares of common stock outstanding after
giving effect to the sale of the shares of common stock offered in this
prospectus. This number assumes no exercise of the underwriter's over-allotment
option and no exercise of options after August 31, 1999.

   The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred
stock, the holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of legally available
funds. In the event of our liquidation, dissolution or winding up, holders of
the common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preferences of any outstanding
shares of preferred stock. Holders of common stock have no preemptive rights or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.

Preferred Stock

   Effective upon the closing of this offering, we will be authorized to issue
    shares of undesignated preferred stock. Our board of directors will have
the authority to issue the undesignated preferred stock in one or more series
and to determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of undesignated preferred stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the stockholders. The issuance of preferred stock may have
the effect of delaying, deferring or preventing any change in control may
adversely affect the voting and other rights of holders of common stock, and
the likelihood that the holders will receive dividend payments and payments
upon liquidation. At present, we have no plans to issue any shares of preferred
stock.

Registration Rights

   The Amended and Restated Investor Rights Agreement dated October 31, 1997,
provides holders of the preferred stock rights to register shares of our
capital stock. At any time after the later of six months after the effective
date of the first registration statement that we file under the Securities Act
or December 31, 2001, holders of a majority of the registrable securities, as
defined in the Investor Rights Agreement, may require us to effect registration
under the Securities Act of their Registrable Securities, subject to the board
of directors' right to defer the registration for a period of up to 120 days.
The investors also have the right, upon demand made by 25% of the holders of
registrable securities, to cause us to register their securities on Form S-3
when it becomes available to us if they propose to register securities having a
value of at least $1 million. In addition, if we propose to register securities
under the Securities Act, other than registrations on Form S-4 or Form S-8,
then any of the investors has a right, subject to quantity limitations, as
determined by the underwriter if the offering is underwritten to request that
we register such holder's registrable securities. We will bear all registration
expenses incurred in connection with registrations. We have agreed to indemnify
the investors against liabilities related to the accuracy of the registration
statement used in connection with any registration effected pursuant to the
foregoing.

                                       63
Effect of Selected Provisions of the Certificate of Incorporation and Bylaws,
and the Delaware Anti-takeover Statute

 Amended and Restated Certificate of Incorporation and Bylaws

   Upon the closing of this offering, our amended and restated certificate of
incorporation will provide that our board of directors be classified into three
classes of directors and all stockholder action must be effected at a duly
called meeting of stockholders and not by a consent in writing. The amended and
restated certificate of incorporation and bylaws provide that only our Chief
Executive Officer, the Chairman of the board of directors or a majority of the
members of the board of directors may call a special meeting of the
stockholders. Directors may not be removed without cause. The amended and
restated bylaws establish procedures including advance notice with regard to
the nomination of directors and stockholder proposals. These provisions of the
amended and restated certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control.
These provisions also may have the effect of preventing changes in our
management.

   The board of directors has authority to issue up to     shares of preferred
stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the common stock will be subject
to, and may be harmed by, the rights of the holders of any preferred stock that
may be issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control.

 Delaware Takeover Statute

   We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:

  .  prior to that date, the board of directors of the corporation approved
     either the business combination or the transaction that resulted in the
     stockholder becoming an interested stockholder;

  .  upon consummation of the transaction that resulted in the stockholder
     becoming an interested stockholder, the interested stockholder owned at
     least 85% of the voting stock of the corporation outstanding at the time
     the transaction commenced, excluding for purposes of determining the
     number of shares outstanding those shares owned:

    . by persons who are directors and also officers; and

    .  by employee stock plans in which employee participants do not have
       the right to determine confidentially whether shares held subject to
       the plan will be tendered in a tender or exchange offer; or

  .  on or subsequent to that date, the business combination is approved by
     the board of directors of the corporation and authorized at an annual or
     special meeting of stockholders and not by written consent, by the
     affirmative vote of at least 66 2/3% of the outstanding voting stock
     that is not owned by the interested stockholder.

   Section 203 defines "business combination" to include the following:

  .  any merger or consolidation involving the corporation and the interested
     stockholder;

  .  any sale, transfer, plan or other disposition of 10% or more of the
     assets of the corporation involving the interested stockholder;

                                       64
.  subject to certain exceptions, any transaction that results in the
     issuance or transfer by the corporation of any stock of the corporation
     to the interested stockholder;

  .  any transaction involving the corporation that has the effect of
     increasing the proportionate share of the stock of any class or series
     of the corporation beneficially owned by the interested stockholder; and

  .  the receipt by the interested stockholder of the benefit of any loans,
     advances, guarantees, pledges or other financial benefits provided by or
     through the corporation.

   In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.

Transfer Agent and Registrar

   The transfer agent and registrar for the common stock is      .

Listing

   We have applied for our common stock to be quoted on the Nasdaq National
Market under the trading symbol "OGNT."

                                       65
SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.

   After this offering,     shares of common stock will be outstanding,
shares if the underwriter exercises its over-allotment options in full. Of
these shares, the     shares sold in this offering,    shares if the
underwriter's over-allotment options are exercised in full, will be freely
tradable without restriction under the Securities Act except for shares
purchased by our "affiliates" as defined in Rule 144 under the Securities Act.
The remaining 13,793,729 shares are "restricted securities" within the meaning
of Rule 144 under the Securities Act. The restricted securities generally may
not be sold unless they are registered under the Securities Act or are sold
pursuant to an exemption from registration, such as the exemption provided by
Rule 144 under the Securities Act.

   Our officers, directors and stockholders holding     shares of common stock
have entered into lock-up agreements under which they have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose of, any shares of
common stock, preferred stock or any substantially similar securities or
securities convertible into or exchangeable or exercisable for shares of common
stock, preferred stock or any substantially similar securities for a period of
180 days after the date of this prospectus without the prior written consent of
the underwriter. Following the lock-up period and as set forth in the chart
below, these shares will be eligible for sale in the public market without
registration under the Securities Act if such sales meet the applicable
conditions and restrictions of Rule 144 as described above. As these
restrictions on resale end, the market price of our common stock could drop
significantly if the holders of these restricted shares sell them, or are
perceived by the market as intending to sell them.
Date of availability for resale
 Number of shares                      into public market
 ----------------                -------------------------------
180 days after the date of this prospectus due to a lock-up
                  agreement our officers, directors and stockholders have with
                  the underwriter. However, the underwriter can waive this
                  restriction at any time and without notice.

                  Between 180 and 365 days after the date of this prospectus
                  due to the requirements of the federal securities laws.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, any person, or persons whose shares are
aggregated, including an affiliate, who has beneficially owned shares for a
period of at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:

  .  1% of the then-outstanding shares of common stock; and

  .  the average weekly trading volume in the common stock during the four
     calendar weeks immediately preceding the date on which the notice of
     such sale on Form 144 is filed with the Securities and Exchange
     Commission.

   Sales under Rule 144 are also subject to provisions relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person or persons whose shares are aggregated who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale,
and who has beneficially owned the shares for at least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above. The above summary of Rule 144
is not intended to be a complete description.

                                       66
In addition, our employees, directors, officers, advisors or consultants who
were issued shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits affiliates to sell their Rule 701 shares without having
to comply with Rule 144's holding period restrictions, in each case commencing
90 days after the date of this prospectus.

   As soon as practicable following the closing of this offering, we intend to
file a registration statement under the Securities Act to register     shares
of common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock option plans and our stock purchase
plans, of which 1,018,594 shares subject to options under our stock option
plans will be exercisable immediately upon the closing of this offering and an
additional 15,933 shares subject to options under our stock option plans will
be exercisable within 60 days of August 31, 1999. After the effective date of
such registration statement, these shares will be available for sale in the
open market subject to the lock-up agreements described above and, for our
affiliates, to the conditions and restrictions of Rule 144.

                                       67
UNDERWRITING

   We have entered into an underwriting agreement with the underwriter named
below. We are obligated to sell, and the underwriter is obligated to purchase,
all of the shares offered on the cover page of this prospectus, if any are
purchased. Subject to certain conditions of the underwriting agreement, the
underwriter has agreed to purchase the shares indicated opposite its name:
Number
Underwriter                                                            of Shares
-----------                                                            ---------
Punk, Ziegel & Company, L.P...........................................
                                                                         ----
  Total...............................................................
                                                                         ====
The underwriter may sell more shares than the total number of shares offered
on the cover page of this prospectus and it has for a period of 30 days from
the date of this prospectus, an over-allotment option to purchase up to
additional shares from us. If any additional shares are purchased, the
underwriter will purchase the shares in the same proportion as per the table
above.

   The underwriter has advised us that the shares will be offered to the public
at the offering price indicated on the cover page of this prospectus. The
underwriter may allow selected dealers a concession not in excess of $    per
share and such dealers may reallow a concession not in excess of $    per share
to certain other dealers. After the shares are released for sale to the public,
the underwriter may change the offering price and the concessions. The
underwriter has informed us that it does not intend to sell shares to any
investor who has granted it discretionary authority.

   We have agreed to pay to the underwriter the following fees, assuming both
no exercise and full exercise of the underwriter's over-allotment option to
purchase additional shares:
Total Fees
                                     -------------------------------------------
                              Fee     Without Exercise of    Full Exercise of
                           Per Share Over-Allotment Option Over-Allotment Option
                           --------- --------------------- ---------------------
Fees paid by us...........   $               $                     $
In addition, we estimate that we will spend approximately $    in expenses
for this offering. We have agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments that the underwriter may be required to make in respect of these
liabilities.

   We, our officers and directors, and our stockholders have entered into lock-
up agreements pursuant to which we and they have agreed not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose of any shares of common stock,
preferred stock or any substantially similar securities or securities
convertible into or exchangeable or exercisable for shares of common stock,
preferred stock or any substantially similar securities for a period of 180
days from the date of this prospectus without the prior written consent of the
underwriter. The underwriter may, at any time and without notice, waive the
terms of these lock-up agreements as specified in such agreements.

   Prior to this offering, there has been no public market for the common stock
of OrganicNet. The initial public offering price, negotiated between OrganicNet
and the underwriter, will be based upon various

                                       68
factors such as our financial and operating history and condition, our
prospects, the prospects for our industry and prevailing market conditions.

   The underwriter, may engage in the following activities in accordance with
applicable securities rules:

  .  Over-allotments involving sales in excess of the offering size, creating
     a short position. The underwriter may elect to reduce this short
     position by exercising some or all of the over-allotment option.

  .  Stabilizing and short covering; stabilizing bids to purchase the shares
     are permitted if they do not exceed a specified maximum price. After the
     distribution of shares has been completed, short covering purchases in
     the open market may also reduce the short position. These activities may
     cause the price of the shares to be higher than would otherwise exist in
     the open market.

  .  Penalty bids permitting the underwriter to reclaim concessions from a
     syndicate member for the shares purchased in the stabilizing or short-
     covering transactions.

   Such activities, which may be commenced or discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.

   The underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:

  .  the Public Offers of Securities Regulation 1995;

  .  the Financial Services Act 1986; and

  .  the Financial Services Act 1986, (Investment Advertisements)
     (Exemptions) Order 1996 (as amended).

   In March 1998, certain entities and persons affiliated with Punk, Ziegel &
Company, L.P. purchased an aggregate of 60,227 shares of our Series C preferred
stock at a purchase price of $2.75 per share for an aggregate amount of
approximately $165,624. Such shares will convert into 60,227 shares of common
stock upon the closing of this offering.

   We have asked the underwriter to reserve shares for sale at the offering
price to our officers, directors, employees and other business affiliates or
related third parties. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase the
reserved shares.

                                       69
LEGAL MATTERS

   The validity of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal matters
will be passed upon for the underwriter by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois.

                                    EXPERTS

   The consolidated financial statements and the related consolidated financial
statement schedule of OrganicNet, Inc. as of December 31, 1997 and 1998 and as
of June 30, 1999, and for each of the years in the three-year period ended
December 31, 1998 and for the six months ended June 30, 1999, and the financial
statements of PSI-Med Corporation as of May 31, 1998 and 1999, and for each of
the years in the three-year period ended May 31, 1999, have been included
herein and in the registration statement in reliance upon the reports of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.

                             AVAILABLE INFORMATION

   We have filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form S-1, including the exhibits and
schedules thereto, under the Securities Act of 1933, as amended, with respect
to the common stock offered hereby. This prospectus does not contain all of the
information contained in the registration statement and the exhibits and
schedules to the registration statement. Some items are omitted in accordance
with the rules and regulations of the Commission. For further information about
OrganicNet and the common stock offered under this prospectus, you should
review the registration statement and the exhibits and schedules filed as a
part of the registration statement. Descriptions of contracts or other
documents referred to in this prospectus are not necessarily complete. If the
contract or document is filed as an exhibit to the registration statement, you
should review that contract or document. You should be aware that when we
discuss these contracts or documents in the prospectus we are assuming that you
will read the exhibits to the registration statement for a more complete
understanding of the contract or document. The registration statement and its
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C., 20549, and the Commission's regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661 and Seven World Trade Center, 13th Floor, New York, New York, 10048.
Copies of all or any portion of the registration statement may be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington D.C. 20549, or by calling the Commission at
1-800-SEC-0330, at prescribed rates. The Commission also maintains a website at
www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants, such as OrganicNet, that make electronic
filings with the Commission.

   We intend to furnish to our stockholders annual reports containing financial
statements audited by an independent public accounting firm.

                                       70
INDEX TO FINANCIAL STATEMENTS
Page
                                                                           ----
Consolidated Financial Statements, OrganicNet, Inc.
  Independent Auditors' Report...........................................  F-2
  Consolidated Balance Sheets............................................  F-3
  Consolidated Statements of Operations..................................  F-4
  Consolidated Statements of Stockholders' Deficit.......................  F-5
  Consolidated Statements of Cash Flows..................................  F-6
  Notes to Consolidated Financial Statements.............................  F-7
Unaudited Pro Forma Condensed Combined Financial Information, OrganicNet,
 Inc. and PSI-Med Corporation
  Financial Information..................................................  F-23
  Condensed Combined Balance Sheet.......................................  F-23
  Condensed Combined Statement of Operations.............................  F-24
  Notes to Pro Forma Condensed Combined Financial Statements.............  F-26
Financial Statements, PSI-Med Corporation
  Independent Auditors' Report...........................................  F-27
  Balance Sheets.........................................................  F-28
  Statements of Operations...............................................  F-29
  Statements of Stockholders' Deficit....................................  F-30
  Statements of Cash Flows...............................................  F-31
  Notes to Financial Statements..........................................  F-32
F-1
INDEPENDENT AUDITORS' REPORT

  The Board of Directors
  OrganicNet, Inc.:

     We have audited the accompanying consolidated balance sheets of
  OrganicNet, Inc. (a Delaware Corporation) and subsidiaries (the Company) as
  of December 31, 1997 and 1998 and June 30, 1999, and the related
  consolidated statements of operations, stockholders' deficit and cash flows
  for each of the years in the three-year period ended December 31, 1998, and
  for the six-month period ended June 30, 1999. These consolidated financial
  statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these consolidated financial
  statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
  present fairly, in all material respects, the financial position of
  OrganicNet, Inc. and subsidiaries as of December 31, 1997 and 1998 and June
  30, 1999, and the results of their operations and their cash flows for each
  of the years in the three-year period ended December 31, 1998, and for the
  six-month period ended June 30, 1999, in conformity with generally accepted
  accounting principles.

                                             /s/ KPMG LLP

  San Francisco, California
  August 27, 1999, except as to note 14  which is as of September 20, 1999

                                      F-2
OrganicNet, Inc.

                          CONSOLIDATED BALANCE SHEETS
December 31,                 June 30, 1999
                          -------------------------  ------------------------------
                                                                      Pro forma
                                                                    stockholders'
                             1997          1998         Actual     deficit (note 1)
                          -----------  ------------  ------------  ----------------
                                                                     (unaudited)
         ASSETS
         ------
Current assets:
  Cash and cash
   equivalents..........  $    46,558  $     41,104  $  1,680,135
  Accounts receivable,
   net of allowance for
   doubtful accounts of
   $113,000, $128,800
   and $196,945 in 1997,
   1998 and 1999,
   respectively.........      805,687       732,370       647,523
  Prepaids and other
   current assets.......      119,340       158,186       105,578
                          -----------  ------------  ------------
   Total current
    assets..............      971,585       931,660  $  2,433,236
Property and equipment,
 net of accumulated
 depreciation of
 $426,475, $615,402 and
 $711,580 in 1997, 1998
 and 1999,
 respectively...........      504,867       348,134       309,483
Intangible assets, net
 of accumulated
 amortization of
 $364,110, $928,094 and
 $1,242,560 in 1997,
 1998 and 1999,
 respectively...........    1,392,291       884,970       570,504
Other noncurrent
 assets.................       35,598        50,284       131,407
                          -----------  ------------  ------------
                          $ 2,904,341  $  2,215,048  $  3,444,630
                          ===========  ============  ============
Current liabilities:
  Accounts payable......  $ 1,289,354  $  2,359,263  $  1,416,523
  Deferred revenue......    1,589,817     2,372,162     2,329,020
  Advances from
   employees............      516,180     1,162,895       971,711
  Notes payable to
   employees............      331,373       444,124       552,948
  Notes payable to
   stockholders.........      133,106       474,768       405,356
  Current portion of
   capital leases.......       39,342        19,506        10,801
  Other current
   liabilities..........      221,912       388,592       450,877
                          -----------  ------------  ------------
   Total current
    liabilities.........    4,121,084     7,221,310     6,137,236
Long-term portion of
 capital leases.........       40,742        40,742        40,117
                          -----------  ------------  ------------
   Total liabilities....    4,161,826     7,262,052     6,177,353
Commitments,
 contingencies and
 subsequent events
Stockholders' deficit:
  Series A, A-II, A-III,
   B and C preferred
   stock, $0.01 par
   value, authorized
   14,000,000 shares;
   issued and
   outstanding
   2,904,712, 3,679,446
   and 5,673,940 shares
   in 1997, 1998 and
   1999, respectively;
   none pro forma; with
   an aggregate
   liquidation
   preference of
   $4,725,880,
   $6,856,398 and
   $12,341,257 in 1997,
   1998 and 1999,
   respectively.........       29,047        36,794        56,739    $        --
  Common stock, $0.001
   par value, 29,500,000
   shares authorized;
   5,425,672, 5,463,447
   and 5,499,613 shares
   issued and
   outstanding in 1997,
   1998 and 1999,
   respectively;
   12,778,107 shares pro
   forma................        5,426         5,464         5,500          12,778
  Additional paid-in
   capital..............    6,030,273     8,238,670    13,815,209      14,531,350
  Receivable related to
   sale of stock........          --            --       (550,000)       (550,000)
  Deferred
   compensation.........          --            --        (88,635)        (88,635)
  Accumulated deficit...   (7,322,231)  (13,327,932)  (15,971,536)    (15,971,536)
                          -----------  ------------  ------------    ------------
   Total stockholders'
    deficit.............   (1,257,485)   (5,047,004)   (2,732,723)   $ (2,066,043)
                          -----------  ------------  ------------    ============
                          $ 2,904,341  $  2,215,048  $  3,444,630
                          ===========  ============  ============
[CAPTION]
     LIABILITIES AND
  STOCKHOLDERS' DEFICIT
  ---------------------

          See accompanying notes to consolidated financial statements.

                                      F-3
OrganicNet, Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June
                               Years Ended December 31,                    30,
                          -------------------------------------  ------------------------
                             1996         1997         1998         1998         1999
                          -----------  -----------  -----------  -----------  -----------
                                                                 (unaudited)
Revenue:
  License...............  $       --   $   424,340  $   570,694  $   113,092  $   369,769
  Product development...          --     1,237,500      564,560      530,245      227,402
  Service...............      371,054    1,309,645    3,488,397    2,052,986    2,112,049
                          -----------  -----------  -----------  -----------  -----------
    Total revenue.......      371,054    2,971,485    4,623,651    2,696,323    2,709,220
                          -----------  -----------  -----------  -----------  -----------
Cost of revenue:
  License...............          --       474,849      756,156      387,129      336,031
  Product development...          --       319,974      208,533      128,163       63,072
  Service...............      238,431      892,183    2,314,026    1,249,097    1,230,311
                          -----------  -----------  -----------  -----------  -----------
    Total cost of
     revenue............      238,431    1,687,006    3,278,715    1,764,389    1,629,414
                          -----------  -----------  -----------  -----------  -----------
Gross profit............      132,623    1,284,479    1,344,936      931,934    1,079,806
                          -----------  -----------  -----------  -----------  -----------
Operating expense:
  Sales and marketing...       24,335    1,394,852    1,643,868      833,592      672,109
  Research and
   development..........      724,231    1,344,640    1,832,783      782,991    1,204,494
  General and
   administrative.......    1,689,723    3,332,443    3,768,388    1,662,940    1,761,776
                          -----------  -----------  -----------  -----------  -----------
    Total operating
     expense............    2,438,289    6,071,935    7,245,039    3,279,523    3,638,379
                          -----------  -----------  -----------  -----------  -----------
Operating loss..........   (2,305,666)  (4,787,456)  (5,900,103)  (2,347,589)  (2,558,573)
Interest expense........       (2,068)     (19,752)     (92,955)     (42,772)     (76,018)
Other income (expense)..          --        13,596       (8,643)      (5,509)      (5,013)
                          -----------  -----------  -----------  -----------  -----------
Loss before income
 taxes..................   (2,307,734)  (4,793,612)  (6,001,701)  (2,395,870)  (2,639,604)
Provision for income
 taxes..................        4,000        6,400        4,000        2,000        4,000
                          -----------  -----------  -----------  -----------  -----------
Net loss................  $(2,311,734) $(4,800,012) $(6,005,701) $(2,397,870) $(2,643,604)
                          ===========  ===========  ===========  ===========  ===========
Loss per share:
  Basic and diluted.....  $     (0.45) $     (0.88) $     (1.10) $     (0.44) $     (0.48)
                          ===========  ===========  ===========  ===========  ===========
Weighted average shares
 outstanding:
  Basic and diluted.....    5,188,513    5,425,672    5,447,820    5,431,968    5,484,663
                          ===========  ===========  ===========  ===========  ===========
See accompanying notes to consolidated financial statements.

                                      F-4
OrganicNet, Inc.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

Years Ended December 31, 1996, 1997 and 1998 and Six Months Ended June 30, 1999
Receivable
                     Preferred Stock     Common Stock   Additional                             related to      Total
                    ------------------ ----------------   paid-in     Deferred   Accumulated    sale of    stockholders'
                     Shares    Amount   Shares   Amount   capital   compensation   deficit       stock        deficit
                    --------- -------- --------- ------ ----------- ------------ ------------  ----------  -------------
Balances at
 December 31,
 1995.............        --  $    --  4,000,000 $4,000 $     6,000   $    --    $   (210,485) $   (5,000)  $  (205,485)
Issuance of Series
 A preferred
 stock............  1,333,270   13,333       --     --    1,319,937        --             --          --      1,333,270
Issuance of Series
 B preferred
 stock............    401,182    4,012       --     --      898,648        --             --          --        902,660
Paydown of notes
 receivable.......        --       --        --     --          --         --             --        5,000         5,000
Common stock
 issued upon the
 acquisition of
 FPI..............        --       --  1,385,533  1,386     158,220        --             --          --        159,606
Series A-II
 preferred stock
 issued upon the
 acquisition of
 CPCS ............      1,783       18       --     --        3,951        --             --          --          3,969
Common stock
 issued upon the
 acquisition of
 CPCS.............        --       --     40,139     40       3,974        --             --          --          4,014
Series A-II and A-
 III preferred
 stock issued upon
 the acquisition
 of Velocity......     10,832      108       --     --       48,636        --             --          --         48,744
Series A-II
 preferred stock
 issued upon the
 acquisition of
 RiteLine.........      2,333       23       --     --        5,109        --             --          --          5,132
Net loss..........        --       --        --     --          --         --      (2,311,734)        --     (2,311,734)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at
 December 31,
 1996.............  1,749,400   17,494 5,425,672  5,426   2,444,475        --      (2,522,219)        --        (54,824)
Issuance of Series
 A preferred stock
 in lieu of
 compensation.....     85,000      850       --     --       84,150        --             --          --         85,000
Issuance of Series
 B preferred
 stock............    761,288    7,613       --     --    1,710,361        --             --          --      1,717,974
Issuance of Series
 B preferred stock
 in lieu of
 compensation.....     40,000      400       --     --       89,600        --             --          --         90,000
Issuance of Series
 C preferred
 stock............    217,066    2,171       --     --      594,805        --             --          --        596,976
Series A-II
 preferred stock
 issued upon the
 acquisition of
 Res-Q............     23,333      233       --     --      497,227        --             --          --        497,460
Series A-II
 preferred stock
 issued upon the
 acquisition of
 LINC.............     13,333      133       --     --      284,393        --             --          --        284,526
Series A-II
 preferred stock
 issued upon the
 acquisition of
 Healthcheck......      8,624       86       --     --      183,055        --             --          --        183,141
Series A-II
 preferred stock
 issued upon the
 acquisition of
 Intedata.........      6,668       67       --     --      142,207        --             --          --        142,274
Net loss..........        --       --        --     --          --         --      (4,800,012)        --     (4,800,012)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at
 December 31,
 1997.............  2,904,712   29,047 5,425,672  5,426   6,030,273        --      (7,322,231)        --     (1,257,485)
Issuance of Series
 C preferred
 stock............    774,734    7,747       --     --    2,122,771        --             --          --      2,130,518
Stock options
 granted to non-
 employees........        --       --        --     --       29,001        --             --          --         29,001
Common shares
 issued for
 purchase price
 adjustment for
 CPCS.............        --       --     37,775     38      56,625        --             --          --         56,663
Net loss..........        --       --        --     --          --         --      (6,005,701)        --     (6,005,701)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at
 December 31,
 1998.............  3,679,446   36,794 5,463,447  5,464   8,238,670        --     (13,327,932)        --     (5,047,004)
Issuance of Series
 C preferred
 stock............  1,621,765   16,218       --     --    4,346,447        --             --          --      4,362,665
Issuance of Series
 C preferred stock
 to Conxion.......    200,000    2,000       --     --      548,000        --             --          --        550,000
Receivable related
 to sale of
 stock............        --       --        --     --          --         --             --     (550,000)     (550,000)
Issuance of Series
 C preferred stock
 in exchange for
 legal services...    150,000    1,500       --     --      411,000        --             --          --        412,500
Issuance of Series
 C preferred stock
 in exchange for
 other services...     12,729      127       --     --       34,878        --             --          --         35,005
Issuance of Series
 C preferred stock
 to repay loan to
 related parties..     10,000      100       --     --       27,400        --             --          --         27,500
Issuance of common
 stock pursuant to
 exercise of stock
 options..........        --       --     36,166     36      33,987        --             --          --         34,023
Stock options
 granted to non-
 employees........        --       --        --     --       58,192        --             --          --         58,192
Deferred
 compensation
 related to stock
 option grants....        --       --        --     --      116,635   (116,635)           --          --            --
Amortization of
 deferred
 compensation.....        --       --        --     --          --      28,000            --          --         28,000
Net loss..........        --       --        --     --          --         --      (2,643,604)        --     (2,643,604)
                    --------- -------- --------- ------ -----------   --------   ------------  ----------   -----------
Balances at June
 30, 1999.........  5,673,940 $ 56,739 5,499,613 $5,500 $13,815,209   $(88,635)  $(15,971,536) $(550,000)   $(2,732,723)
                    ========= ======== ========= ====== ===========   ========   ============  ==========   ===========
See accompanying notes to consolidated financial statements.

                                      F-5
OrganicNet, Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
                               Years Ended December 31,                 June 30,
                          -------------------------------------  ------------------------
                             1996         1997         1998         1998         1999
                          -----------  -----------  -----------  -----------  -----------
                                                                 (unaudited)
Cash flows from
 operating activities:
 Net loss...............  $(2,311,734) $(4,800,012) $(6,005,701) $(2,397,870) $(2,643,604)
 Adjustments to
  reconcile net loss to
  net cash used in
  operating activities:
  Depreciation and
   amortization.........       76,535      522,506      752,911      399,762      410,644
  Provision for bad
   debts................          --       113,000       15,800       12,000       68,145
  Noncash compensation
   expense..............          --       175,000       29,001       16,600       86,192
  Changes in operating
   assets and
   liabilities:
  Accounts receivable...      154,699      (61,920)      57,517       49,012       16,702
  Prepaid expenses and
   other current and
   non-current assets...      (16,450)     (28,079)     (53,532)      15,476      (28,515)
  Accounts payable and
   other current
   liabilities..........      (78,060)       5,645    1,184,988      782,927     (326,009)
  Deferred revenue......       78,030      805,558      782,345     (121,073)     (43,142)
                          -----------  -----------  -----------  -----------  -----------
   Net cash used in
    operating
    activities..........   (2,096,980)  (3,268,302)  (3,236,671)  (1,243,166)  (2,459,587)
                          -----------  -----------  -----------  -----------  -----------
Cash flows from
 investing activities:
 Capital expenditures...      (74,752)    (206,916)     (32,194)     (83,706)     (57,527)
 Cash (paid for)
  received from
  acquisitions..........      (22,032)     212,822          --           --           --
                          -----------  -----------  -----------  -----------  -----------
   Net cash (used in)
    provided by
    investing
    activities..........      (96,784)       5,906      (32,194)     (83,706)     (57,527)
                          -----------  -----------  -----------  -----------  -----------
Cash flows from
 financing activities:
 Proceeds from notes
  payable to and
  advances from related
  parties...............      (71,720)     903,492    1,101,128        8,428     (124,272)
 Borrowings (payments)
  under line of credit,
  net...................          --        92,790       71,107           --     (106,941)
 Proceeds from preferred
  stock issued in
  private placements....    2,235,930    2,314,950    2,130,518    1,400,694    4,362,665
 Repayment of note
  receivable............        5,000          --           --           --           --
 Proceeds from exercise
  of stock options......          --           --           --           --        34,023
 Repayment of capital
  lease obligations.....          --        (2,278)     (39,342)     (20,164)      (9,330)
                          -----------  -----------  -----------  -----------  -----------
   Net cash provided by
    financing
    activities..........    2,169,210    3,308,954    3,263,411    1,388,958    4,156,145
                          -----------  -----------  -----------  -----------  -----------
Net (decrease) increase
 in cash and cash
 equivalents............      (24,554)      46,558       (5,454)      62,086    1,639,031
Cash and cash
 equivalents at
 beginning of period....       24,554          --        46,558       46,558       41,104
                          -----------  -----------  -----------  -----------  -----------
Cash and cash
 equivalents at end of
 period.................  $       --   $    46,558  $    41,104  $   108,644  $ 1,680,135
                          ===========  ===========  ===========  ===========  ===========
Supplemental disclosure
 of cash flow
 information:
  Cash paid during the
   period for income
   taxes................  $     4,000  $     6,400  $     4,000  $     2,000  $     4,000
Supplemental schedule of
 noncash investing and
 financing activities:
 Summary of the
  acquisitions described
  in note 2:
  Fair value of assets
   acquired.............  $   781,900  $ 2,435,357  $       --   $       --   $       --
  Net cash (paid)
   received.............      (22,032)     212,822          --           --           --
  Stock issued..........     (221,465)  (1,107,401)     (56,663)         --           --
  Notes issued..........          --      (200,000)         --           --           --
                          -----------  -----------  -----------  -----------  -----------
   Liabilities assumed..  $   538,403  $ 1,340,778  $   (56,663) $       --   $       --
                          ===========  ===========  ===========  ===========  ===========
  Receivable related to
   sale of stock........  $       --   $       --   $       --   $       --   $   550,000
  Stock issued in
   exchange for legal
   services.............          --           --           --           --       412,500
  Stock issued in
   exchange for other
   services.............          --           --           --           --        35,005
  Stock issued to repay
   loan to related
   parties..............          --           --           --           --        27,500
  Assets acquired under
   capital lease
   obligations..........          --       114,524       33,620       19,019          --
See accompanying notes to consolidated financial statements.

                                      F-6
OrganicNet, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          December 31, 1996, 1997 and 1998, and June 30, 1998 and 1999
  (Information as of and for the Six Months Ended June 30, 1998 is unaudited)

(1) Nature of Business and Summary of Significant Accounting Policies

 Business of the Company

   We are an application services provider (ASP) that develops proprietary
software solutions for healthcare clinics and physician group practices using
our proprietary technology platform. Our customers can access and use our
solutions over the Internet or their local or wide area networks. We are
developing integrated solutions designed to manage all elements of the business
and clinical processes of our customers within a single system. Our software
solutions are built using our object-oriented Organic Architecture. Central to
our Organic Architecture is our CoreModel, which is comprised of objects that
represent a universal set of clinical and business processes. To develop our
CoreModel and solutions, we selectively acquired companies with healthcare
domain expertise and enabling technologies. These acquisitions also provided
near term products, customers and revenues. We were incorporated in January
1995 as a California corporation and reincorporated in Delaware in April 1996.
We changed our name to OrganicNet, Inc. in May 1999. We are headquartered in
San Francisco, California.

 Basis of Presentation

   Our consolidated financial statements include the accounts of OrganicNet,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

 Interim Financial Information

   The consolidated financial statements and related notes for the six months
ended June 30, 1998 are unaudited, but include all adjustments (consisting
solely of normal recurring adjustments) which are, in our opinion, necessary
for a fair presentation. The results of operations for the six months ended
June 30, 1998 and 1999 are not necessarily indicative of operating results to
be expected in any future period.

 Accounting Estimates

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

 Revenue Recognition

   License revenue includes fees from the licensing of our acquired legacy
products. Product development revenue consists of revenue derived from
development of customer requested software or customer satisfaction surveys and
development of the related database. Service revenue is composed of post-
contract software support, case management, credentialing, training,
installation and software application customization for legacy products.

   Beginning January 1, 1998, we have recognized revenue in accordance with the
American Institute of Certified Public Accountants' Statement of Position (SOP)
No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9, Software
Revenue Recognition with Respect to Certain Transactions. Revenue is recognized
from licenses of our software application products when the contract has been
executed, the product has been shipped, collectibility is probable and the
software license fees are fixed and determinable. In the

                                      F-7
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

event that the contract provides for multiple elements (e.g., training,
application customization or post-contract customer support), the total fee is
allocated to these elements based on vendor-specific objective evidence of fair
value. If any portion of the license fee is subject to forfeiture, refund or
other contractual contingencies, we will postpone revenue recognition until
these contingencies have been removed. We recognize product development revenue
from co-development contracts using a percentage-of-completion method based on
meeting key milestone events over the term of the contracts. Service revenue
from post-contract customer support and maintenance is recognized ratably over
the term of the maintenance period. Revenue from case management,
credentialing, training, installation and customization services is recorded as
the services are performed.

   Our adoption of SOP 97-2 did not have a material effect on our revenue
recognition or our results of operations. Prior to adoption of SOP 97-2, we
accounted for software and related revenues in accordance with SOP 91-1,
Software Revenue Recognition.

 Research and Development

   Research and development expenditures are charged to expense in the period
incurred.

 Advertising Costs

   All costs associated with advertising and promoting products are charged to
expense in the period incurred.

 Income Taxes

   We account for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS
No. 109, 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. 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.

 Net Loss per Share

   We compute net loss per share based upon SFAS No. 128, Earnings per Share.
The basic net loss per share is computed by dividing the net loss available to
common stockholders by the weighted-average number of common shares
outstanding. Potential common shares relating to stock options of 590,333,
860,936, 1,243,769 and 1,569,309 in 1996, 1997 and 1998, and for the six months
ended June 30, 1999 are anti-dilutive due to the net losses sustained by us.
Convertible preferred stock of 1,749,400, 2,904,712, 3,679,446 and 5,673,940
shares in 1996, 1997, 1998 and for the six months ended June 30, 1999 has also
been excluded from the calculation of net loss per share as the impact would be
anti-dilutive. Thus, the diluted net loss per share in these years is the same
as the basic net loss per share.

 Stock-Based Compensation

   We account for our stock option plans under SFAS No. 123, Accounting for
Stock-Based Compensation. This statement establishes financial accounting and
reporting standards for stock-based compensation, including employee stock
purchase plans and stock option plans. As allowed by SFAS No. 123, we continue
to measure compensation expense for options granted to employees under the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations.

                                      F-8
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   We have recorded deferred compensation for the difference between the
exercise price and the deemed fair market value for financial reporting
purposes of stock options granted to employees. The compensation expense
related to such grants is amortized over the vesting period of the related
stock options.

 Comprehensive Loss

   We have no components of other comprehensive loss other than our net loss
and, accordingly, our comprehensive loss is equivalent to our net loss for all
periods presented.

 Cash and Cash Equivalents

   We consider all highly liquid investments purchased with an original
maturity of three months or less from the date of purchase to be cash
equivalents.

 Long-Lived Assets, Including Intangible Assets

   We account for long-lived assets under SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
SFAS No. 121 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 the assets 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 undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment loss 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. We estimate fair value based on the best
information available, making judgments and projections as considered
necessary.

   Intangible assets consist of items related to our business combinations
during the years ended December 31, 1996 and 1997. Goodwill is amortized over a
seven-year period. Acquired technology is being amortized over its estimated
useful life of approximately three years. Workforce-in-place is being amortized
over the lesser of the employment tenure of the employee or the agreement term.

 Software Development Costs

   Software development costs are accounted for in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. This statement provides for capitalization of certain software
development costs once technological feasibility is established. We establish
technological feasibility once a working model has been created. The time
between establishment of a working model and general release is short.
Therefore, we believe that software development costs incurred subsequent to
technological feasibility have not been material.

 Property and Equipment

   Property and equipment is stated at cost. Computer and related equipment is
depreciated over a useful life of three years using the straight-line method.
Office furniture and fixtures are depreciated over useful lives ranging from
three to five years using the straight-line method. Leasehold improvements are
amortized on a straight-line basis over the shorter of the useful life or
remaining lease term.

 Concentrations of Credit Risk

   Financial instruments, which potentially subject us to concentrations of
credit risk, consist principally of trade receivables. We control credit risk
through credit approvals, credit limits, a reserve for doubtful accounts, and
monitoring procedures.

                                      F-9
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   We have several product development and collaborative agreements with Pfizer
Health Solutions Inc to co-develop, market, license and distribute various
OrganicNet products and services. Co-development and marketing agreements to
date include development of OrganicNet's Outcomes Partner III, care management
and credentialing applications. Additionally, we have together co-developed and
marketed several survey products including the National Committee for Quality
Assurance Member Satisfaction Survey, disenrollment and patient satisfaction
surveys. Sales to Pfizer Health Solutions Inc amounted to approximately $0,
$1,375,000, $652,000, $598,000 and $837,000 for the years ended December 31,
1996, 1997 and 1998, and the six months ended June 30, 1998 and 1999,
respectively. These sales represented approximately 0%, 46%, 14%, 22% and 31%,
respectively, of our total revenue for those periods.

   A different customer accounted for 15% and 10% of total revenue and accounts
receivable for the six months ended and as of June 30, 1999, respectively.

 Fair Value of Financial Instruments

   The carrying amounts of cash, trade receivables, accounts payable and other
current liabilities approximate fair value due to the short maturities of these
instruments. The advances and loans from employees and stockholders are not
traded on any public market and approximate our best estimate of fair value.

 Pro Forma Stockholders' Deficit (Unaudited)

   The unaudited pro forma stockholders' deficit gives effect to the issuance
of 16,667 shares of our Series A-II preferred stock in conjunction with the
purchase of PSI-Med Corporation, the conversion of these PSI-Med shares into
333,340 shares of common stock at a conversion rate of 20 common shares for
each preferred share, and the conversion of 5,673,940 shares of Series A, A-II,
A-III, B and C convertible preferred stock outstanding as of June 30, 1999 into
6,945,154 shares of common stock, at a conversion rate of 20 common shares for
each preferred share of Series A-II and A-III and at a conversion rate of one
common share for each preferred share of Series A, B and C, upon closing of our
initial public offering.

(2) Business Combinations

   During the years ended December 31, 1996 and 1997, we completed the
following acquisitions:
Company                        Acquisition Date            Expertise
-------                        ----------------- ------------------------------
First Principles, Inc.
 (FPI).......................  April 22, 1996    Object Technology
RiteLine Systems, Inc.
 (RiteLine)..................  April 30, 1996    Business Methodology
Comprehensive Provider
 Credentialing Services, Inc.
 (CPCS)......................  May 23, 1996      Credentialing Service
Velocity Healthcare
 Informatics, Inc.
 (Velocity)..................  December 20, 1996 Outcomes/Disease Management
Res-Q, Inc., formerly MMS,
 Inc. (Res-Q)................  May 14, 1997      Scheduling/Resource Management
Intedata, Inc. (Intedata)....  June 4, 1997      Marketing Service
L.I.N.C., Inc. (LINC)........  June 23, 1997     Case Management
Healthcheck, Incorporated
 (Healthcheck)...............  November 14, 1997 Credentialing Service
F-10
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   We acquired all of the outstanding stock of each of the above companies,
with the exception of Velocity. We purchased certain assets of Velocity,
including all of its intellectual property. Under terms of the acquisition
agreements, we paid cash and issued notes payable and the following shares of
common, Series A-II preferred and Series A-III preferred stock, valued at the
fair market value of the stock on the respective acquisition dates:
Series A-II Series A-III
                                               Common    preferred   preferred
   Acquired company                             stock      stock       stock
   ----------------                           --------- ----------- ------------
FPI....................................... 1,596,066      --           --
   RiteLine..................................       --     2,333          --
   CPCS......................................    77,914    1,783          --
   Velocity..................................       --     5,416       5,416
   Intedata..................................       --     6,668          --
   LINC......................................       --    13,333          --
   Res-Q.....................................       --    23,333          --
   Healthcheck...............................       --     8,624          --
The acquisitions were accounted for using the purchase method of accounting
and, accordingly, the results of the companies' operations are included in our
consolidated financial statements from their respective acquisition dates
forward.

   Summaries of the consideration paid and the allocation of the purchase price
to the assets acquired and liabilities assumed are as follows:
Common stock.................................................... $   220,283
   Series A-II preferred stock.....................................   1,140,874
   Series A-III preferred stock....................................      24,372
   Cash paid (CPCS)................................................      74,900
   Notes payable (LINC and Res-Q)..................................     200,000
                                                                    -----------
                                                                    $ 1,660,429
                                                                    ===========

   The purchase price was allocated to the assets acquired and liabilities
assumed as follows:

   Cash............................................................ $   265,690
   Accounts receivable.............................................     874,855
   Other current assets............................................     145,719
   Property and equipment..........................................     440,283
   Goodwill........................................................     492,964
   Workforce-in-place..............................................     142,274
   Acquired technology.............................................   1,177,826
   Liabilities.....................................................    (761,456)
   Customer deposits and deferred maintenance......................  (1,117,726)
                                                                    -----------
                                                                    $ 1,660,429
                                                                    ===========
In conjunction with the Intedata acquisition, we entered into two employment
agreements with the former founders of Intedata. As there were no assets to be
acquired or liabilities to be assumed in the Intedata acquisition, the full
purchase price has been allocated to those agreements as workforce-in-place and
is being amortized over the lesser of the employment tenure of the employee or
the agreement term of three years from the acquisition date.

                                      F-11
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   We acquired certain software technology in the LINC and Res-Q acquisitions.
The fair value of this technology was determined using a discounted cash flow
analysis of the revenue stream to be derived from such technology. Acquired
software technology is being amortized on a straight-line basis over its
expected economic life of approximately three years, which is when we expect to
release our ASP software version of the legacy product.

   Goodwill, which arose from the FPI, CPCS and Healthcheck acquisitions,
represents the excess of the purchase price over the fair value of the assets
acquired and liabilities assumed, and is amortized using the straight-line
method over its estimated life of seven years.

   The above purchase price includes $56,663 of contingent payments made in
September 1998 for CPCS through the issuance of 37,775 shares of our common
stock. This amount has been allocated to goodwill and is being amortized using
the straight-line method over five years, which is the remaining estimated life
of the goodwill.

   Effective March 1998, the operations of CPCS were combined with Healthcheck.
Effective December 31, 1996, the operations of FPI and RiteLine were combined
with our Corporate Headquarters.

   We issued four $50,000 notes to the former shareholders of LINC and Res-Q in
conjunction with the LINC and Res-Q acquisitions. The notes are due on December
31, 1999 and bear interest at 10% per year.

   The results of operations for all of the acquired entities are included in
the 1998 results of operations of the Company for the full year. The following
table presents unaudited pro forma results of operations as if the acquisitions
had occurred on the first day of the earliest period presented. The unaudited
pro forma information is not necessarily indicative of the combined results
that would have occurred had the acquisitions taken place on the first day of
the period presented, nor is it necessarily indicative of results that may
occur in the future:
Years Ended December
                                                                 31,
                                                       ------------------------
                                                          1996         1997
                                                       -----------  -----------
                                                             (unaudited)
Pro forma basis:
     Total net revenues............................... $ 4,480,048  $ 5,040,332
     Net loss.........................................  (2,877,036)  (4,980,815)
     Net loss per share basic and diluted.............       (0.53)       (0.92)
   Weighted average shares outstanding:
     Basic and diluted................................   5,425,672    5,425,672
(3) Property and Equipment

   Property and equipment consists of the following:
December 31,
                                             --------------------   June 30,
                                               1997       1998        1999
                                             ---------  ---------  ----------
Computers and related equipment.......... $ 746,195  $ 752,400  $  801,278
   Furniture and fixtures...................   176,114    201,076     209,725
   Leasehold improvements...................     9,033     10,060      10,060
                                             ---------  ---------  ----------
                                               931,342    963,536   1,021,063
   Less accumulated depreciation and
    amortization............................  (426,475)  (615,402)   (711,580)
                                             ---------  ---------  ----------
                                             $ 504,867  $ 348,134  $  309,483
                                             =========  =========  ==========
Depreciation and amortization expense on property and equipment was
approximately $60,000, $175,000, $189,000, $121,000 and $96,000 for the years
ended December 31, 1996, 1997 and 1998, and for the six months ended June 30,
1998 and 1999, respectively.

                                      F-12
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(4) Intangible Assets

   Intangible assets consist of the following:
December 31,
                                          ------------------------   June 30,
                                             1997         1998         1999
                                          -----------  -----------  -----------
Goodwill.............................. $   436,301  $   492,964  $   492,964
   Acquired technology...................   1,177,826    1,177,826    1,177,826
   Workforce-in-place....................     142,274      142,274      142,274
                                          -----------  -----------  -----------
                                            1,756,401    1,813,064    1,813,064
   Less accumulated amortization.........    (364,110)    (928,094)  (1,242,560)
                                          -----------  -----------  -----------
                                          $ 1,392,291  $   884,970  $   570,504
                                          ===========  ===========  ===========

(5) Other Current Liabilities

  The following items are
  included in other current
  liabilities:
December 31,
                                          ------------------------   June 30,
                                             1997         1998         1999
                                          -----------  -----------  -----------
Accounts payable, non-trade........... $       --   $    15,000  $    15,000
   Line of credit........................      92,790      163,897       56,956
   Bank overdraft........................     119,596       62,025          --
   Accrued payroll taxes.................         --           --       304,642
   Other accrued expenses................       9,526      147,670       74,279
                                          -----------  -----------  -----------
                                          $   221,912  $   388,592  $   450,877
                                          ===========  ===========  ===========
We have a $200,000 revolving line of credit with Wells Fargo Bank, which
bears interest at a rate of 1.0% above the prime rate. The weighted average
interest rate was approximately 9.50%, 8.75% and 7.75% for the years ended
December 31, 1997 and 1998, and for the six months ended June 30, 1999,
respectively. We are required to make regular monthly payments of accrued
interest. The line of credit is collateralized by all accounts receivable,
inventory and furniture and equipment of Res-Q. In addition, an officer of Res-
Q has provided a guaranty in connection with this line of credit. We agreed to
indemnify the officer for a maximum amount of $200,000.00 (the amount of the
officer's guaranty plus accrued interest) for any deficiency that may be
suffered after making a claim for reimbursement from the principal borrower.

(6) Notes Payable to Employees and Stockholders

   The notes payable to employees and stockholders consist of notes with
interest rates generally ranging from 9% to 12%. One note to a stockholder for
$85,000 bears a 3% interest rate. All notes are due on December 31, 1999.
Certain of the notes to stockholders provided for the borrower to receive
options for shares of the Company's common stock at a rate of 10% times the
principal loaned divided by $2.00, which was the fair market value of our
common stock when the notes were issued. Options to purchase 10,400 shares of
the Company's common stock were granted in conjunction with this provision. A
portion of the proceeds of the notes was allocated to the value of the options
based on the Black-Scholes option pricing model and was amortized into the
statement of operations during the year ended December 31, 1998.

                                      F-13
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(7) Commitments and Contingencies

 Leases

   We lease office facilities and equipment under noncancelable operating and
capital leases. The leases provide for us to pay property taxes, insurance and
other operating costs of the leased property and generally contain renewal
provisions.

   Future minimum lease payments under all noncancelable capital and operating
leases as of June 30, 1999 are as follows:
Capital  Operating
                                                              leases    leases
                                                              -------  ---------
Year ending December 31:
    1999..................................................... $13,873  $219,444
    2000.....................................................  27,747   293,113
    2001.....................................................  15,530   226,280
    2002.....................................................   4,502   162,630
    2003 and thereafter......................................     --        --
                                                              -------  --------
   Total minimum payments....................................  61,652  $901,467
                                                                       ========
   Less amount representing interest......................... (10,734)
                                                              -------
   Present value of capital lease obligations................  50,918
   Less current portion...................................... (10,801)
                                                              -------
   Lease obligations, long term.............................. $40,117
                                                              =======
Equipment recorded under capital leases is included in property and
equipment as follows:
June
                                                       December 31,       30,
                                                     -----------------  -------
                                                       1997     1998     1999
                                                     --------  -------  -------
Computers and related equipment.................. $114,524  $62,968  $62,968
   Accumulated depreciation.........................  (32,991) (31,540) (38,721)
                                                     --------  -------  -------
                                                     $ 81,533  $31,428  $24,247
                                                     ========  =======  =======
Rent expense for operating leases totaled approximately $33,000, $248,000,
$428,000, $193,000 and $201,000 for the years ended December 31, 1996, 1997 and
1998, and for the six months ended June 30, 1998 and 1999, respectively.

                                      F-14
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(8) Capital Stock

   We are authorized to issue 14,000,000 shares of preferred stock. The
preferred shares are automatically convertible into common shares upon an
initial public offering of our common stock. A summary of preferred stock
follows:
December 31,       June 30,
                                             --------------------- -----------
                                                1997       1998       1999
                                             ---------- ---------- -----------
Series A, 1,500,000 shares designated,
    $.01 par value per share, 1,418,270
    shares issued and outstanding,
    liquidation preference of $1,418,270 in
    1997, 1998 and 1999....................  $1,418,270 $1,418,270 $ 1,418,270

   Series A-I, 1,500,000 shares designated,
    $.01 par value per share, none issued
    and outstanding........................         --         --          --

   Series A-II, 115,000 shares designated,
    $.01 par value per share, 61,490 shares
    issued and outstanding in 1997, 1998
    and 1999...............................   1,140,874  1,140,874   1,140,874

   Series A-III, 5,416 shares designated,
    $.01 par value per share, 5,416 shares
    issued and outstanding in 1997, 1998
    and 1999...............................      24,372     24,372      24,372

   Series B, 1,250,000 shares designated,
    $.01 par value per share, 1,202,470
    shares issued and outstanding,
    liquidation preference of $2,710,634 in
    1997, 1998 and 1999....................   2,710,634  2,710,634   2,710,634

   Series B-I, 1,250,000 shares designated,
    $.01 par value per share, none issued
    and outstanding........................         --         --          --
   Series C-I, 4,000,000 shares designated,
    $.01 par value per share, none issued
    and outstanding........................         --         --          --
                                             ---------- ---------- -----------
                                             $5,891,126 $8,021,644 $13,409,314
                                             ========== ========== ===========
Series C, 4,000,000 shares designated,
    $.01 par value per share, 217,066,
    991,800 and 2,986,294 shares issued and
    outstanding in 1997, 1998 and 1999,
    respectively, liquidation preference of
    $596,976, $2,727,494 and $8,212,353 in
    1997, 1998 and 1999, respectively, net
    of transaction costs of $97,189 in
    1999...................................     596,976  2,727,494   8,115,164

   The Series A-II and Series A-III preferred shares have been issued in
conjunction with our acquisitions as discussed in note 2. Series A shares were
issued at $1.00 per share, Series B shares were issued at $2.25 per share, and
Series C shares were issued at $2.75 per share.

                                      F-15
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The rights, preferences, and privileges of preferred stockholders are as
follows:

  . Series A, B and C stockholders are entitled to cumulative dividends, if
    declared by the Board of Directors, of $.08 per share per annum, payable
    in preference to the payment of any dividends on the common stock (other
    than a common stock dividend). No such dividends have been declared.
    Series A-II and A-III stockholders are not entitled to receive dividends.

  . Series, A, B and C stockholders have a liquidation preference of an
    amount equal to the original price of the preferred stock plus any
    declared but unpaid dividends. Any remaining liquidation proceeds are
    distributed pro rata to the common, Series A-II and Series A-III
    stockholders.

  . Each share of Series A, A-II, B and C votes equally with shares of common
    stock. Series A-III shares have no voting rights.

  . Each share of Series A, A-II, A-III, B and C is convertible at any time
    into common stock at the original issue price, with automatic conversion
    upon an initial public offering, upon the consolidation or merger of the
    Company, or upon the sale of substantially all of the assets of the
    Company. The conversion rate is one for one for Series A, B and C shares
    and 20 shares of common stock for each share of Series A-II and A-III.
    The conversion price will be equal to the issue price of the shares.

(9) Stock Option Plans

   We have been authorized to issue options to purchase up to 1,000,000 and
1,478,513 shares of our common stock in connection with our 1996 and 1997 stock
option plans (the Plans) to employees, directors, and consultants. The number
of shares of common stock available for issuance under the 1997 stock option
plan automatically increases on the first business day of each calendar year
during the term of the 1997 stock option plan, beginning with the 1999 calendar
year, by an amount equal to two percent (2%) of the shares of common stock
outstanding on the last business day of the immediately preceding calendar
year. The Plans provide for the issuance of stock purchase rights, incentive
stock options, or nonstatutory stock options.

   Under the Plans, the exercise price for incentive stock options is at least
100% of the stock's fair market value on the date of the grant for employees
owning less than 10% of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonqualified stock
options, the exercise price is also at least 110% of the fair market value on
the date of grant for employees owning more than 10% of the voting power of all
classes of stock and no less than 85% for employees owning less than 10% of the
voting power of all classes of stock.

   Options granted under the Plans generally expire in 10 years. However, the
term of the options may be limited to 5 years if the optionee owns stock
representing more than 10% of the voting power of all classes of stock. Vesting
periods are determined by the Board of Directors and generally provide for
shares to vest at a rate of 1/3 of the shares at the end of each subsequent
anniversary of the initial vesting date, subject to continued service as an
employee.

   As of June 30, 1999, options to purchase 827,436 and 741,873 shares of our
common stock were outstanding under the 1996 and 1997 stock option plans,
respectively. As of June 30, 1999, there were 873,038 additional shares
available for grant under the 1997 stock option plan. With the creation of the
1997 stock option plan, no further issuance of options under the 1996 stock
option plan are allowed.

                                      F-16
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Stock-Based Compensation

   We continue to apply APB Opinion No. 25 in accounting for our employee
stock-based compensation plans and use the intrinsic-value method in accounting
for options granted to employees. Accordingly, compensation cost has only been
recognized in the accompanying consolidated statements of operations for any
stock options granted to employees where the exercise price of the option was
less than the fair value of the underlying common stock as of the grant date.
Had we determined compensation cost based on the fair value at the grant date
for stock options under SFAS No. 123 for our stock-based compensation plans,
net loss and basic and diluted net loss per share would have been as follows:
Years Ended December
                                             31,
                                   -------------------------  Six Months Ended
                                    1996     1997     1998     June 30, 1999
                                   -------  -------  -------  ----------------
                                                (in thousands)
Net loss:
  As reported..................... $(2,312) $(4,800) $(6,006)     $(2,644)
  Pro forma.......................  (2,319)  (4,837)  (6,116)      (2,745)
Basic and diluted net loss per
 share:
  As reported..................... $ (0.45) $ (0.88) $ (1.10)     $ (0.48)
  Pro forma.......................   (0.45)   (0.89)   (1.12)       (0.50)
These pro forma results assume that we began recording compensation expense
for option grants to employees subsequent to January 1, 1995 and may not be
indicative of pro forma results to be expected in future periods. The fair
value of each option was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
Years Ended December
                                                  31,
                                        ----------------------- Six Months Ended
                                         1996    1997    1998    June 30, 1999
                                        ------- ------- ------- ----------------
Expected volatility....................   40%     40%     40%          40%
Average life........................... 5 years 5 years 5 years     5 years
Risk-free interest rate................  6.82%   6.89%   5.64%        6.27%
Dividends..............................   --      --      --          --
Compensation cost recognized in the accompanying consolidated statements of
operations for stock options granted to nonemployees was $0, $0, $29,001 and
$58,192 for the years ended December 31, 1996, 1997, 1998, and for the six
months ended June 30, 1999, respectively.

   Compensation cost recognized in the accompanying consolidated statements of
operations for stock options granted to employees at less than the fair market
value of the underlying common stock was $28,000 for the six months ended June
30, 1999.

                                      F-17
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   A summary of the activity within our stock option plans is as follows:
Years Ended December 31,
                          ---------------------------------------------------------  Six Months Ended
                                1996              1997                1998             June 30, 1999
                          ----------------- ------------------ -------------------- --------------------
                                  Weighted-          Weighted-            Weighted-            Weighted-
                                   average            average              average              average
                                  exercise           exercise             exercise             exercise
                          Shares    price   Shares     price    Shares      price    Shares      price
                          ------- --------- -------  --------- ---------  --------- ---------  ---------
Outstanding at beginning
 of period..............      --    $ --    590,333    $0.15     860,936    $0.42   1,243,769    $0.78
Granted.................  590,333    0.15   286,256     1.00     398,183     1.56     379,472     2.19
Exercised...............      --      --        --       --          --       --      (36,166)    0.94
Canceled................      --      --    (15,653)    0.69     (15,350)    1.24     (17,766)    1.80
                          -------   -----   -------    -----   ---------    -----   ---------    -----
Outstanding at end of
 period.................  590,333   $0.15   860,936    $0.42   1,243,769    $0.78   1,569,309    $1.10
                          =======   =====   =======    =====   =========    =====   =========    =====
Options exercisable at
 end of period..........   67,333   $0.50   234,602    $0.24     539,466    $0.46     919,952    $0.68
                          =======   =====   =======    =====   =========    =====   =========    =====
Weighted average fair
 value of options
 granted at fair value
 during the period......            $0.06              $0.46                $0.68                $1.19
                                    =====              =====                =====                =====
Weighted average fair
 value of options
 granted below fair
 value during the
 period.................            $ --               $ --                 $ --                 $0.95
                                    =====              =====                =====                =====
The following table summarizes information about stock options outstanding
as of June 30, 1999:
Options
                    Options Outstanding                       Exercisable
     -----------------------------------------------------------------------
                                Weighted-                          Weighted-
                                 average  Weighted-average          average
                                exercise     remaining             exercise
     Option price     Shares      price   contractual life Shares    price
     ------------   ----------  --------- ---------------- ------- ---------
$     0.10        520,000    $0.10         6.8        500,000   $0.10
           0.50         43,062     0.50         7.4         43,562    0.50
           1.00        264,374     1.00         7.7        174,702    1.00
           1.50        322,800     1.50         8.6         86,986    1.50
           2.00        278,870     2.00         9.5         81,000    2.00
           2.50        140,203     2.50         9.9         33,702    2.50
      ----------    ----------    -----         ---        -------   -----
     $0.10-2.50      1,569,309    $1.10         8.1        919,952   $0.68
                    ==========    =====         ===        =======   =====
(10) Employee Retirement and Savings Plan

   We sponsor an employee savings plan (the Plan) pursuant to Section 401(k) of
the Internal Revenue Code. All employees who work at least 20 hours per week
with one month of service may defer a portion of their salary. The Plan allows
us to make discretionary contributions. However, we have not made any
discretionary contributions for the periods presented.

(11) Internet Hosting Agreements

   In fiscal year 1999, we have entered into several agreements with Conxion
Corporation under which it will supply us with application hosting services and
Internet infrastructure for our ASP software solutions. These agreements
typically have terms of one year. Conxion has agreed to enter into extensions
of these agreements and to enter into supplemental service agreements, as
required by us on terms not less favorable to us as they

                                      F-18
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

offer to any of their customers. In addition, they have agreed not to terminate
or suspend the services provided under these agreements in the event of a bona
fide dispute so long as undisputed payments are not withheld. In connection
with these agreements, we have issued 200,000 shares of our Series C preferred
stock to Conxion and recorded a receivable in the amount of $550,000. In
addition, we have agreed to purchase $550,000 of future application hosting
services from Conxion.

(12) Income Taxes

   The provision for income taxes consists of the following components:
Years Ended December
                                                   31,
                                           -------------------- Six Months Ended
                                            1996   1997   1998   June 30, 1999
                                           ------ ------ ------ ----------------
Current portion:
     Federal.............................. $  --  $  --  $  --       $  --
     State................................  4,000  6,400  4,000       4,000
   Deferred portion.......................    --     --     --          --
                                           ------ ------ ------      ------
                                           $4,000 $6,400 $4,000      $4,000
                                           ====== ====== ======      ======
A reconciliation from the federal tax assuming the statutory rate to the
total provision for the income taxes is as follows:
Years Ended December 31,
                             -----------------------------------  Six Months Ended
                               1996        1997         1998       June 30, 1999
                             ---------  -----------  -----------  ----------------
Tax at statutory rate...  $(784,629) $(1,629,828) $(2,040,578)    $(897,465)
   State income taxes, net
    of federal taxes.......      2,640        4,224        2,640         2,640
   Permanent differences,
    including goodwill.....      5,327       35,449       59,310        44,493
   Net operating losses not
    benefited..............    780,662    1,596,555    1,982,628       854,332
                             ---------  -----------  -----------     ---------
                             $   4,000  $     6,400  $     4,000     $   4,000
                             =========  ===========  ===========     =========
The components of our net deferred tax asset are as follows:
December 31,
                                         ------------------------   June 30,
                                            1997         1998         1999
                                         -----------  -----------  -----------
Deferred tax liabilities:
  Property and equipment................ $    58,460  $    26,617  $    40,338
  Intangibles...........................     172,819       48,982          --
  State taxes...........................     139,074      253,107      286,725
                                         -----------  -----------  -----------
    Total deferred tax liabilities......     370,353      328,706      327,063
                                         -----------  -----------  -----------
Deferred tax assets:
  Various accruals and reserves not
   deductible for tax purposes..........     222,032      790,659      724,725
  Intangibles...........................         --           --        11,342
  Net operating loss carryforwards......   3,101,362    4,696,158    5,591,650
  Tax credit carryforwards..............      16,073       16,073       16,073
                                         -----------  -----------  -----------
    Total deferred tax assets...........   3,339,467    5,502,890    6,343,790
                                         -----------  -----------  -----------
  Net deferred tax assets...............   2,969,114    5,174,184    6,016,727
  Valuation allowance...................  (2,969,114)  (5,174,184)  (6,016,727)
                                         -----------  -----------  -----------
    Net deferred tax assets after
     valuation allowance................ $       --   $       --   $       --
                                         ===========  ===========  ===========
F-19
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The net changes in the valuation allowance for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30, 1999 were increases
of $1,950,719, $2,205,070 and $842,543, respectively. We believe sufficient
uncertainty exists regarding our ability to realize our deferred tax assets
and, accordingly, a valuation allowance has been established against the net
deferred tax assets.

   As of June 30, 1999, we had approximately $14,400,000 and $8,000,000 of net
operating loss carryforwards for federal and state purposes, respectively. The
federal net operating loss carryforwards expire between 2013 and 2019 and the
state net operating loss carryforwards expire primarily in 2003. The difference
between the federal and state net operating loss carryforwards is due primarily
to a 50% limitation on net operating loss carryforwards for California income
tax purposes.

   Federal and state laws impose substantial restrictions on the utilization of
net operating loss carryforwards in the event of an "ownership change," as
defined in Section 382 of the Internal Revenue Code. We have not yet determined
whether an ownership change occurred due to significant stock transactions in
each of the reported years. If an ownership change has occurred, utilization of
the net operating loss carryforwards could be significantly reduced.
Additionally, the utilization of the net operating loss carryforwards of
approximately $1.0 million acquired in the acquisition of Healthcheck is
limited to the taxable income generated by the operations of Healthcheck.

(13) Segment Information

   We have adopted the provisions of SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes standards
for the reporting by public business enterprises of information about operating
segments, products and services, geographic areas and major customers.

   Our chief operating decision maker is considered to be the Company's
President. The President reviews discrete financial information regarding
profitability of our five segments: Corporate Headquarters, Healthcheck,
Velocity, LINC, and Res-Q. The corporate headquarters manages the corporate
business, oversees all of the segments and performs research and development
for our organic product. Healthcheck specializes in a service that researches
the history and credentials of healthcare professionals. LINC offers software
used by hospitals to monitor costs of patient care and offers expert testimony
services related to management of medical cases. Velocity provides services
that survey and track the effectiveness of medical procedures as well as
services related to development of customized software and patient satisfaction
surveys. Res-Q offers scheduling software to hospitals. We do all of our
business in the United States.

                                      F-20
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in the accompany notes to the
consolidated financial statements. Information about our segments as of and for
the years ended December 31, 1996, 1997, and 1998, and as of and for the six
months ended June 30, 1999 are as follows:
Corporate
                            Head-
                          quarters     Velocity   Healthcheck    Res-Q       LINC     Consolidated
                         -----------  ----------  -----------  ----------  ---------  ------------
1996
Revenue from external
 customers:
  Service............... $       --   $    3,755  $  367,299   $      --   $     --   $   371,054
Depreciation and
 amortization...........      33,218       1,392      41,925          --         --        76,535
Interest expense........       2,017         --           51          --         --         2,068
Income tax expense......       4,000         --          --           --         --         4,000
Net loss................  (1,994,958)    (41,851)   (274,925)         --         --    (2,311,734)
Total assets............     300,476     319,706     133,585          --         --       753,767
1997
Revenue from external
 customers:
  License............... $       --   $   15,693  $      --    $  347,166  $  61,481  $   424,340
  Product development...         --    1,237,500         --           --         --     1,237,500
  Service...............         --      491,018     171,721      497,597    149,309    1,309,645
Depreciation and
 amortization...........     133,161      60,159      40,326      135,797    153,063      522,506
Interest expense........      18,605         --        1,147          --         --        19,752
Income tax expense......       6,400         --          --           --         --         6,400
Net loss................  (4,037,950)    289,569    (308,826)    (284,200)  (458,605)  (4,800,012)
Total assets............     673,289     354,953     649,612      736,730    489,757    2,904,341
1998
Revenue from external
 customers:
  License............... $       --   $   25,460  $      --    $  421,395  $ 123,839  $   570,694
  Product development...         --      564,560         --           --         --       564,560
  Service...............      73,000     637,067   1,022,937    1,024,324    731,069    3,488,397
Depreciation and
 amortization...........     219,489      65,453      17,155      216,176    234,638      752,911
Interest expense........      90,344         --          --         2,611        --        92,955
Income tax expense......       4,000         --          --           --         --         4,000
Net loss................  (4,674,652)   (443,703)   (113,242)    (372,191)  (401,913)  (6,005,701)
Total assets............     380,061     450,414     558,704      465,208    360,661    2,215,048
1999
Revenue from external
 customers:
  License............... $       --   $    7,995  $      --    $  308,619  $  53,155  $   369,769
  Product development...         --      227,402         --           --         --       227,402
  Service...............      29,765     527,406     818,138      294,599    442,141    2,112,049
Depreciation and
 amortization...........      94,401      33,951      48,591      116,384    117,317      410,644
Interest expense........      71,008         --        5,010          --         --        76,018
Income tax expense......       4,000         --          --           --         --         4,000
Net loss................  (2,363,504)     (9,254)    145,988     (346,912)   (69,922)  (2,643,604)
Total assets............   1,774,696     269,545     533,654      581,363    285,372    3,444,630
F-21
OrganicNet, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   In 1996, we had not acquired LINC and Res-Q and the information for
Healthcheck reflects CPCS only as Healthcheck was not acquired until 1997. The
information for Healthcheck reflects the combined operations of Healthcheck and
CPCS in 1997 and 1998 as those operations were combined in early 1998. CPCS was
also in the business of providing credentialing services.

(14) Subsequent Events

 PSI-Med Corporation Acquisition

   Subsequent to June 30, 1999, we completed our acquisition of PSI-Med in
exchange for 16,667 shares of our Series A-II preferred stock. PSI-Med
Corporation sells and services practice management software and is engaged as a
full service provider of medical insurance billing and accounts receivable
collection services. The Series A-II preferred stock has been valued at
$666,680. We will account for the acquisition under the purchase method of
accounting and, accordingly, the results of PSI-Med's operations will be
included in our consolidated financial statements beginning with the effective
date of the acquisition.

   Since June 7, 1998, we have committed to fund the salary of PSI-Med's
President. The portion of the President's salary attributable to PSI-Med's
business totals $90,000 and has been paid by us and charged to expense by PSI-
Med in the 1999 PSI-Med financial statements.

   The following table shows unaudited pro forma results of operations assuming
the acquisition of PSI-Med had been consummated at the beginning of the
earliest period presented. The unaudited pro forma information is not
necessarily indicative of the combined results that would have occurred had the
acquisitions taken place as of the beginning of the periods presented, nor is
it necessarily indicative of results that may occur in the future:
Year Ended     Six Months
                                                    December 31,  Ended June 30,
                                                        1998           1999
                                                    ------------  --------------
                                                            (unaudited)
Pro forma basis:
     Total net revenues............................ $ 6,834,242    $ 3,819,223
     Net loss......................................  (6,651,008)    (2,701,349)
     Net loss per share: Basic and diluted.........       (1.22)         (0.49)
     Weighted average shares outstanding:
       Basic and diluted...........................   5,447,820      5,484,663
Superior Consultant Holdings Corporation

   In September 1999, we entered into a Distribution and Services Agreement, as
amended, with Superior Consultant Holdings Corporation under which Superior
agreed to market our product as a preferred ASP solution for healthcare
organizations. We agreed to market Superior's healthcare consulting services
and business integration services, to promote Superior as our exclusive
alliance partner for the provision of healthcare consulting services and not to
offer distribution rights to our Organic Architecture and solutions to any
direct competitor of Superior without Superior's prior written approval.
Superior has a non-exclusive worldwide license to market, use, install and
display our Organic Architecture and solutions. We have also appointed Superior
as our exclusive international provider of healthcare consulting services to
our clients. The agreement also entitles Superior to appoint a member to our
board of directors and to receive a vested non-statutory stock option grant
exercisable for 200,000 shares of our common stock at an exercise price of
$6.00 per share. The initial term of the agreement runs through August 31, 2002
and may be renewed by Superior for up to two additional two-year terms.

                                      F-22
OrganicNet, Inc. and PSI-Med Corporation

          UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   The following unaudited pro forma condensed combined financial statements
have been prepared to illustrate the effect of our acquisition of PSI-Med
Corporation and include in this prospectus an Unaudited Pro Forma Condensed
Combined Balance Sheet as of June 30, 1999 and Unaudited Pro Forma Condensed
Combined Statements of Operations for the six months ended June 30, 1999 and
the year ended December 31, 1998. The pro forma condensed combined financial
statements are based on the historical consolidated financial statements of
OrganicNet, Inc. and the historical financial statements of PSI-Med
Corporation.

   The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1999
assumes that the acquisition was consummated on June 30, 1999 and the Unaudited
Pro Forma Condensed Combined Statements of Operations for the six months ended
June 30, 1999 and the year ended December 31, 1998 assume that the acquisition
had been consummated as of the first day of the earliest period presented.

                    OrganicNet, Inc. and PSI-Med Corporation
              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                                 June 30, 1999
Pro forma          Pro forma
                          OrganicNet     PSI-Med    adjustments          combined
                         ------------  -----------  -----------        ------------
ASSETS
         ------
Current assets:
  Cash and cash
   equivalents.......... $  1,680,135  $    46,059  $      --          $  1,726,194
  Accounts receivable,
   net..................      647,523      109,929     (74,777)(E)          682,675
  Prepaids and other
   current assets.......      105,578          804         --               106,382
                         ------------  -----------  ----------         ------------
    Total current
     assets.............    2,433,236      156,792     (74,777)           2,515,251
Property and equipment,
 net....................      309,483       81,824         --               391,307
Intangibles, net........      570,504       51,022   1,575,651 (A)        2,197,177
Other noncurrent
 assets.................      131,407        9,784         --               141,191
                         ------------  -----------  ----------         ------------
                         $  3,444,630  $   299,422  $1,500,874         $  5,244,926
                         ============  ===========  ==========         ============
    LIABILITIES AND
 STOCKHOLDERS' DEFICIT
 ---------------------
Current liabilities:
  Accounts payable and
   accrued expenses..... $  1,416,523  $   373,697  $  (24,668)(C)     $  1,765,552
  Deferred revenue......    2,329,020       70,163         --             2,399,183
  Loans and other
   payables to related
   parties..............    1,930,015    1,020,582    (622,837)(C)(E)     2,327,760
  Current portion of
   long-term obligations
   and other current
   liabilities..........      461,678      171,154         --               632,832
                         ------------  -----------  ----------         ------------
    Total current
     liabilities........    6,137,236    1,635,596    (647,505)           7,125,327
Long-term obligations,
 less current portion...       40,117      145,525         --               185,642
                         ------------  -----------  ----------         ------------
    Total liabilities...    6,177,353    1,781,121    (647,505)           7,310,969
                         ------------  -----------  ----------         ------------
Stockholders' deficit:
  Preferred stock.......       56,739          --          167 (D)           56,906
  Common stock..........        5,500          --          --                 5,500
  Additional paid-in
   capital..............   13,815,209      367,204     299,309 (D)       14,481,722
  Receivable related to
   sale of stock........     (550,000)          --          --             (550,000)
  Deferred
   compensation.........      (88,635)         --          --               (88,635)
  Accumulated deficit...  (15,971,536)  (1,848,903)  1,848,903 (D)      (15,971,536)
                         ------------  -----------  ----------         ------------
    Total stockholders'
     deficit............   (2,732,723)  (1,481,699)  2,148,379           (2,066,043)
                         ------------  -----------  ----------         ------------
                         $  3,444,630  $   299,422  $1,500,874         $  5,244,926
                         ============  ===========  ==========         ============
See accompanying notes to unaudited pro forma condensed combined financial
                                  statements.

                                      F-23
OrganicNet, Inc. and PSI-Med Corporation

         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 1999
Pro forma      Pro forma
                          OrganicNet    PSI-Med    adjustments     combined
                          -----------  ----------  -----------    -----------
Revenue:
  License................ $   369,769  $  283,995   $     --      $   653,764
  Product development....     227,402         --          --          227,402
  Service................   2,112,049     826,008         --        2,938,057
                          -----------  ----------   ---------     -----------
    Total revenue........   2,709,220   1,110,003         --        3,819,223
                          -----------  ----------   ---------     -----------
Cost of revenue:
  License................     336,031         --          --          336,031
  Product development....      63,072         --          --           63,072
  Service................   1,230,311     697,787         --        1,928,098
                          -----------  ----------   ---------     -----------
    Total cost of
     revenue.............   1,629,414     697,787         --        2,327,201
                          -----------  ----------   ---------     -----------
Gross profit ............   1,079,806     412,216         --        1,492,022
                          -----------  ----------   ---------     -----------
Operating Expense:
  Sales and marketing....     672,109      61,996         --          734,105
  Research and
   development...........   1,204,494     116,631         --        1,321,125
  General and
   administrative........   1,761,776     118,894     120,613 (B)   2,001,283
                          -----------  ----------   ---------     -----------
    Total operating
     expense.............   3,638,379     297,521     120,613       4,056,513
                          -----------  ----------   ---------     -----------
Operating loss...........  (2,558,573)    114,695    (120,613)     (2,564,491)
Interest expense.........     (76,018)        --          --          (76,018)
Other expense............      (5,013)    (51,027)        --          (56,040)
                          -----------  ----------   ---------     -----------
Net (loss) income before
 income taxes............  (2,639,604)     63,668    (120,613)     (2,696,549)
Provision for income
 taxes...................       4,000         800         --            4,800
                          -----------  ----------   ---------     -----------
Net loss................. $(2,643,604) $   62,868   $(120,613)    $(2,701,349)
                          ===========  ==========   =========     ===========
Net loss per share:
  Basic.................. $     (0.48) $     0.74                 $     (0.49)
                          ===========  ==========                 ===========
  Diluted................ $     (0.48) $     0.68                 $     (0.49)
                          ===========  ==========                 ===========
Weighted average shares
 outstanding:
  Basic..................   5,484,663      84,693                   5,484,663
                          ===========  ==========                 ===========
  Diluted................   5,484,663      92,971                   5,484,663
                          ===========  ==========                 ===========
See accompanying notes to unaudited pro forma condensed combined financial
                                  statements.

                                      F-24
OrganicNet, Inc. and PSI-Med Corporation

         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1998
Pro forma      Pro forma
                          OrganicNet    PSI-Med    adjustments     combined
                          -----------  ----------  -----------    -----------
Revenue:
License................ $   570,694  $  516,559   $     --      $ 1,087,253
  Product development....     564,560         --          --          564,560
  Service................   3,488,397   1,694,032         --        5,182,429
                          -----------  ----------   ---------     -----------
    Total revenue........   4,623,651   2,210,591         --        6,834,242
                          -----------  ----------   ---------     -----------
Cost of revenue:
  License................     756,156         --          --          756,156
  Product development....     208,533         --          --          208,533
  Service................   2,314,026   1,535,514         --        3,849,540
                          -----------  ----------   ---------     -----------
    Total cost of
     revenue.............   3,278,715   1,535,514         --        4,814,229
                          -----------  ----------   ---------     -----------
Gross profit.............   1,344,936     675,077         --        2,020,013
                          -----------  ----------   ---------     -----------
Operating Expense:
  Sales and marketing....   1,643,868     168,135         --        1,812,003
  Research and
   development...........   1,832,783     237,105         --        2,069,888
  General and
   administrative........   3,768,388     587,077     241,225 (B)   4,596,690
                          -----------  ----------   ---------     -----------
    Total operating
     expense.............   7,245,039     992,317     241,225       8,478,581
                          -----------  ----------   ---------     -----------
Operating loss...........  (5,900,103)   (317,240)   (241,225)     (6,458,568)
Interest expense.........     (92,955)        --          --          (92,955)
Other expense............      (8,643)    (86,042)        --          (94,685)
                          -----------  ----------   ---------     -----------
Loss before income
 taxes...................  (6,001,701)   (403,282)   (241,225)     (6,646,208)
Provision for income
 taxes...................       4,000         800         --            4,800
                          -----------  ----------   ---------     -----------
Net loss................. $(6,005,701) $ (404,082)  $(241,225)    $(6,651,008)
                          ===========  ==========   =========     ===========
Net loss per share:
  Basic and diluted...... $     (1.10) $    (4.77)                $     (1.22)
                          ===========  ==========                 ===========
Weighted average share
 outstanding:
  Basic and diluted......   5,447,820      84,693                   5,447,820
                          ===========  ==========                 ===========
See accompanying notes to unaudited pro forma condensed combined financial
                                  statements.

                                      F-25
OrganicNet, Inc. and PSI-Med Corporation

                     NOTES TO UNAUDITED PRO FORMA CONDENSED
                         COMBINED FINANCIAL STATEMENTS

   (A) To reflect the excess of acquisition costs over the estimated fair value
of net assets acquired (goodwill). The purchase price and purchase-price
allocation are summarized as follows:
Purchase price:
     Stock issued................................................ $   666,680
                                                                  -----------
   Allocated to:
     Cash........................................................      46,059
     Accounts receivable, net....................................      35,152
     Property and equipment......................................      81,824
     Other assets................................................      10,588
     Liabilities assumed and acquisition costs incurred..........  (1,063,453)
     Deferred revenue............................................     (70,163)
                                                                  -----------
       Total allocation..........................................    (959,993)
                                                                  -----------
       Excess of purchase price over identifiable assets and
        liabilities (goodwill)................................... $ 1,626,673
                                                                  ===========
(B) To reflect the amortization expense due to the amortization of goodwill
on a straight-line basis over seven years.

   (C) To reflect the purchase price adjustment for payables which were not
assumed by OrganicNet as part of the acquisition.

   (D) To reflect the issuance of 16,667 shares of Series A-II preferred stock
in exchange for all PSI-Med stock outstanding. The shares have been valued at
$666,680 based on the market price of the stock on the date the two companies
reached agreement on the purchase price and the proposed transaction was
announced.

   (E) To eliminate intercompany financing.

                                      F-26
INDEPENDENT AUDITORS' REPORT

The Board of Directors
PSI-Med Corporation:

   We have audited the accompanying balance sheets of PSI-Med Corporation as
of May 31, 1998 and 1999 and the related statements of operations,
stockholders' deficit and cash flows for each of the years in the three-year
period ended May 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PSI-Med Corporation as of
May 31, 1998 and 1999 and the results of its operations and its cash flows for
each of the years in the three-year period ended May 31, 1999, in conformity
with generally accepted accounting principles.

                                          KPMG LLP

Orange County, California
August 4, 1999, except
 as to note 10, which is as of
 September 7, 1999

                                     F-27
PSI-Med Corporation

                                 BALANCE SHEETS
                             May 31, 1998 and 1999
1998         1999
                                                      -----------  -----------
ASSETS

Current assets:
 Cash and cash equivalents........................... $    17,158  $    38,850
 Accounts receivable, net of allowances for doubtful
  accounts of $182,518 and $56,607 for 1998 and 1999,
  respectively.......................................     112,417      126,720
 Prepaid expenses....................................       2,145       10,801
                                                      -----------  -----------
    Total current assets.............................     131,720      176,371
Furniture, fixtures and equipment, net...............     102,902       85,214
Goodwill, net of accumulated amortization of $12,413
 as of May 31, 1999..................................         --        53,713
Other assets.........................................      11,588        9,738
                                                      -----------  -----------
                                                      $   246,210  $   325,036
                                                      ===========  ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
 Accounts payable.................................... $   491,142  $   395,762
 Accrued liabilities.................................     141,851      140,680
 Advances from affiliate.............................       8,000       22,000
 Current portion of notes payable to related
  parties............................................     353,057      576,673
 Notes payable.......................................      67,639       46,459
 Deferred compensation payable to related parties....     300,000      300,000
 Unearned revenue....................................      68,487       66,807
 Sales taxes payable.................................     133,926      130,988
 Current portion of capital lease obligations........      15,673       17,021
                                                      -----------  -----------
    Total current liabilities........................   1,579,775    1,696,390
Capital lease obligations, excluding current
 portion.............................................      44,110       28,880
Notes payable to related parties, less current
 maturities..........................................     299,329      123,408
                                                      -----------  -----------
    Total liabilities................................   1,923,214    1,848,678
                                                      -----------  -----------
Commitments and subsequent events
Stockholders' deficit:
 Common stock, no par value, 200,000 shares
  authorized; 84,693 shares issued and outstanding as
  of May 31, 1998 and 1999...........................     367,204      367,204
 Additional paid-in capital..........................         --        90,000
 Accumulated deficit.................................  (2,044,208)  (1,980,846)
                                                      -----------  -----------
    Total stockholders' deficit......................  (1,677,004)  (1,523,642)
                                                      -----------  -----------
                                                      $   246,210  $   325,036
                                                      ===========  ===========
See accompanying notes to financial statements.

                                      F-28
PSI-Med Corporation

                            STATEMENTS OF OPERATIONS
                    Years Ended May 31, 1997, 1998 and 1999
1997        1998        1999
                                           ----------  ----------  ----------
Revenue:
  Software................................ $  651,119  $  122,199  $  102,500
  Service and support.....................  1,939,766   2,128,828   2,151,167
                                           ----------  ----------  ----------
    Total revenue.........................  2,590,885   2,251,027   2,253,667
                                           ----------  ----------  ----------
Cost of revenue:
  Software................................    162,465     118,812     179,721
  Service and support.....................  1,602,554   1,188,153   1,241,428
                                           ----------  ----------  ----------
    Total cost of revenue.................  1,765,019   1,306,965   1,421,149
                                           ----------  ----------  ----------
Gross profit..............................    825,866     944,062     832,518
Operating expense--selling, general and
 administrative...........................  1,676,594   1,459,107     743,457
                                           ----------  ----------  ----------
Operating income (loss)...................   (850,728)   (515,045)     89,061
Other income (expense), net...............    (61,106)     63,604     (24,899)
                                           ----------  ----------  ----------
Earnings (loss) before income taxes.......   (911,834)   (451,441)     64,162
Income tax expense........................        800         800         800
                                           ----------  ----------  ----------
Net earnings (loss)....................... $ (912,634) $ (452,241) $   63,362
                                           ==========  ==========  ==========
Basic net earnings (loss) per share....... $   (11.88) $    (5.34) $     0.75
                                           ==========  ==========  ==========
Weighted average number of shares
 outstanding..............................     76,813      84,693      84,693
                                           ==========  ==========  ==========
Diluted net earnings (loss) per share..... $   (11.88) $    (5.34) $     0.70
                                           ==========  ==========  ==========
Weighted average number of shares
 outstanding..............................     76,813      84,693      90,884
                                           ==========  ==========  ==========
See accompanying notes to financial statements.

                                      F-29
PSI-Med Corporation

                      STATEMENTS OF STOCKHOLDERS' DEFICIT
                    Years Ended May 31, 1997, 1998 and 1999
Common stock   Additional
                           ---------------  paid-in   Accumulated
                           Shares  Amount   capital     deficit       Total
                           ------ -------- ---------- -----------  -----------
Balances at May 31,
 1996....................  54,118 $  5,086  $   --    $  (679,333) $  (674,247)
Issuance of common
 stock...................  30,575  362,118      --            --       362,118
Net loss.................     --       --       --       (912,634)    (912,634)
                           ------ --------  -------   -----------  -----------
Balances at May 31,
 1997....................  84,693  367,204      --     (1,591,967)  (1,224,763)
Net loss.................     --       --       --       (452,241)    (452,241)
                           ------ --------  -------   -----------  -----------
Balances at May 31,
 1998....................  84,693  367,204      --     (2,044,208)  (1,677,004)
Contribution of executive
 compensation ...........     --       --    90,000           --        90,000
Net earnings.............     --       --       --         63,362       63,362
                           ------ --------  -------   -----------  -----------
Balances at May 31,
 1999....................  84,693 $367,204  $90,000   $(1,980,846) $(1,523,642)
                           ====== ========  =======   ===========  ===========
See accompanying notes to financial statements.

                                      F-30
PSI-Med Corporation

                            STATEMENTS OF CASH FLOWS
                    Years Ended May 31, 1997, 1998 and 1999
1997       1998       1999
                                                ---------  ---------  --------
Cash flows from operating activities:
 Net earnings (loss)........................... $(912,634) $(452,241) $ 63,362
 Adjustments to reconcile net earnings (loss)
  to net cash provided by (used in) operating
  activities:
  Depreciation and amortization................    47,871     45,677    59,414
  Contribution of executive compensation.......       --         --     90,000
  Provision for deferred employee
   compensation................................    45,756        --        --
  Changes in operating assets and liabilities:
   Accounts receivable.........................   (23,016)    67,943   (14,303)
   Other assets................................    (7,621)     3,118    (6,806)
   Accounts payable............................   347,015     39,118   (95,380)
   Accrued liabilities.........................   230,655    (88,804)   (1,171)
   Advance from affiliates.....................       --       8,000    14,000
   Unearned revenue............................    58,702      9,785    (1,680)
   Sales taxes payable.........................   168,182   (160,529)   (2,938)
                                                ---------  ---------  --------
    Net cash (used in) provided by operating
     activities................................   (45,090)  (527,933)  104,498
                                                ---------  ---------  --------
Cash flows from investing activities:
 Purchase of furniture, fixtures and
  equipment....................................  (134,483)   (30,371)  (29,313)
 Acquisition of Physicians Management Services,
  Inc..........................................       --         --     (6,000)
                                                ---------  ---------  --------
    Net cash used in investing activities......  (134,483)   (30,371)  (35,313)
                                                ---------  ---------  --------
Cash flows from financing activities:
 Proceeds from issuance of capital stock.......   362,118        --        --
 Increase in borrowings from related parties...   (48,306)   320,264   (12,431)
 Net increase in borrowings....................    60,050    (31,911)  (21,180)
 Principal payments on lease obligations.......    10,077     47,493   (13,882)
                                                ---------  ---------  --------
    Net cash provided by (used in) financing
     activities................................   383,939    335,846   (47,493)
                                                ---------  ---------  --------
    Increase (decrease) in cash and cash
     equivalents...............................   204,366   (222,458)   21,692
                                                ---------  ---------  --------
Cash and cash equivalents at beginning of
 year..........................................    35,250    239,616    17,158
                                                ---------  ---------  --------
Cash and cash equivalents at end of year....... $ 239,616  $  17,158  $ 38,850
                                                =========  =========  ========
Supplemental disclosure of cash flow
 information:
 Cash paid for income taxes.................... $     800  $     800  $    800
 Cash paid for interest........................    29,952     24,286    37,234
                                                =========  =========  ========
Supplemental disclosure of noncash investing
 activities:
 Promissory note issued in exchange for the
  acquisition of Physical Management Services,
  Inc.......................................... $     --   $     --   $ 77,116
                                                =========  =========  ========
See accompanying notes to financial statements.

                                      F-31
PSI-Med Corporation

                         NOTES TO FINANCIAL STATEMENTS
                          May 31, 1997, 1998 and 1999

(1) Organization and Summary of Significant Accounting Policies

 Business Description

   We are a California corporation which develops and distributes medical
accounting software for medical facilities such as health maintenance
organizations, independent physicians associations, medical groups, and medical
accounting service bureaus located throughout the United States. The software
has been sold as stand alone systems with customers maintaining the HP3000
hardware required to run the software at their site.

   We also maintain our own computer system at our corporate offices in order
to service physicians requiring complete accounts receivable management and
collection services. Additionally, we offer local clients the use of our
medical accounting software through our computer system in a time share mode.
These models have been the prevailing methods because of the high cost of
communication lines and equipment.

 Use of Estimates

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

 Cash and Cash Equivalents

   Cash and cash equivalents include cash on deposit with banks with original
maturities of three months or less.

 Furniture, Fixtures and Equipment

   Furniture, fixtures and equipment are stated at cost. Depreciation of
furniture, fixtures and equipment is provided using the straight-line method
over the estimated useful lives of the assets of three to five years.

 Revenue Recognition

   The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2,
"Software Revenue Recognition." Under SOP 97-2, if a software sales arrangement
does not require significant modification or customization of the software,
revenue from the sale of the software is recognized when evidence of an
arrangement exists, the fee is fixed and determinable, the license agreement
has been delivered and collection of any resulting receivable is probable.

   As a result of certain issues raised in applying SOP 97-2, in March 1998,
the AICPA issued an SOP which delayed for one year the effective date of
certain provisions of SOP 97-2 with respect to what constitutes vendor-specific
objective evidence of fair value of the delivered software element in certain
multiple-element arrangements that include service elements entered into by
entities that never sell the software elements separately. In December 1998,
the AICPA issued SOP 98-9, which amended certain paragraphs of SOP 97-2 to
require recognition of revenue using the residual method under certain
circumstances, and is effective for fiscal

                                      F-32
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

years beginning after March 15, 1999. We do not expect the adoption of this SOP
to have a material impact on our financial statements.

   Revenue from the sales of software is recognized when delivery has occurred,
the fee is fixed and determinable and collection of any resulting receivable is
probable. Revenue from servicing and support is recognized as the related
services are performed.

 Adoption of Accounting Pronouncements

   In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 130 and SFAS No. 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information," respectively (collectively, the Statements). The
Statements are effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for reporting of comprehensive income and
its components in annual financial statements. SFAS No. 131 establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its annual financial statements and selected
segment information in interim financial reports. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS No. 130 and SFAS No. 131,
respectively. For the years ended May 31, 1997, 1998 and 1999, comprehensive
income (loss) is equal to our net earnings (loss). The Company operates in one
segment and all operations and customers are within the United States.
Application of the Statements' requirements did not have a material impact on
our financial position or results of operations.

   In 1998, the American Institute of Certified Public Accountants' Accounting
Standards Executive Committee ("AcSEC) issued SOP No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires certain costs incurred in connection with developing or obtaining
internal-use software to be capitalized and other costs to be expensed.
Application of this SOP's requirements did not have a material impact on our
financial position or results of operations.

 Stock-Based Compensation

   We adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the service period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, and provide pro forma net income
(loss) disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. We have elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions of SFAS No. 123.

 Fair Value of Financial Instruments

   Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. The carrying amounts of cash and
cash equivalents, accounts receivable, unbilled accounts receivable, other
assets, notes payable, notes payable to related parties, advances from
affiliate, accounts payable and accrued expenses, approximate fair value
because of the short maturity of these instruments. We use market prices, when
available, or discounted cash flows to calculate these fair values. The fair
value of our notes payable is estimated based on the current rates offered to
us for notes payable of the same remaining maturities and approximates its
carrying value.

                                      F-33
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

 Year 2000

   We recognize the need to ensure our operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. We are addressing this risk to the availability and integrity of
financial systems and products and the reliability of operational systems. We
have tested our Integrated Provider Network System and have completed the Year
2000 conversion of this system. We are in the process of assessing the system's
Year 2000 compliance identifying Year 2000 remaining compliance issues in its
other systems, equipment and processes. In addition to a review of internal
systems, we have initiated formal communications with third parties with which
we do business in order to determine whether or not they are Year 2000
compliant and the extent to which we may be vulnerable to third parties'
failure to become Year 2000 compliant. Additionally, we are making changes to
such systems, updating or replacing such equipment and modifying such processes
to make them Year 2000 compliant. The total cost of compliance and its effect
on our future results of operations are not expected to be material. However,
due to the complexities of estimating the cost of modifying applications to
become Year 2000 compliant and the difficulties in assessing third parties'
ability to become Year 2000 compliant, estimates may be subject to change.

   We have not developed a Year 2000 contingency plan and believe that our
information systems will be Year 2000 compliant; however, there can be no
assurance that all of our systems will be Year 2000 compliant, that the costs
to be Year 2000 compliant will not exceed our current expectations, or that the
failure of such systems to be Year 2000 compliant will not have a material
adverse effect on our business.

 Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

   Long-lived assets and certain identifiable intangibles (including goodwill)
are 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 undiscounted net 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.

 Capitalized Software Development Costs

   Software development costs incurred after the establishment of technological
feasibility are capitalized and later amortized using the greater of the
straight-line method or based on the estimated revenue distribution over the
remaining estimated economic life of the products. Such policy results in our
amortizing our capitalized software development costs over an estimated
economic life of three to seven years. Software development costs were fully
amortized as of May 31, 1996.

 Goodwill

   Goodwill is the excess of the purchase price paid over the fair value of the
net assets of the acquired company at the date of acquisition. Goodwill is
amortized on a straight-line basis over two years. The Company periodically
assesses the recoverability of goodwill based on an analysis of the cash flows
generated by the underlying assets. In the opinion of management, no impairment
of goodwill has occurred as of May 31, 1999.

 Income Taxes

   We account for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 provides that deferred tax assets and liabilities
be recognized for temporary differences between the

                                      F-34
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

financial reporting basis and the tax basis of our assets and liabilities and
expected benefits of utilizing net operating loss and 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 impact on deferred
taxes of changes in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled and reflected in the
financial statements in the period enacted.

 Concentration of Credit Risk

   Financial instruments that potentially subject us to concentrations of
credit risk consist principally of accounts receivable. Revenue from one
customer accounted for 19% and 13% of total revenues for the year ended May 31,
1998 and 1999, respectively.

 Net Earnings (loss) Per Share

   We compute net earnings (loss) per share based upon SFAS No. 128, "Earnings
per Share." The basic net earnings (loss) per share is computed by dividing the
net earnings (loss) available to common stockholders by the weighted-average
number of common shares outstanding. Potential common shares relating to stock
options have been included in the calculation of diluted net earnings per share
in the year ended May 31, 1999. Potential common shares relating to stock
options in each of the years ended May 31, 1997 and 1998 are anti-dilutive,
thus the diluted net earnings (loss) per share in these years is the same as
the basic net earnings (loss) per share.

(2) Acquisition of Physician Management Services, Inc.

   On January 15, 1999, we acquired the fixed assets and customer base of
Physician Management Services, Inc. (PMS). The PMS purchase price totaled
$83,116, payable in $6,000 in cash and $77,116 evidenced by an unsecured
promissory note. The acquisition was accounted for as a purchase. PMS is an
accounts receivable management company which performs the total collection
process for doctors and medical groups. The primary client's of PMS are the
University of California, Irvine (UCI) departments and doctors affiliated with
UCI. The purchase price of $83,116 will be reduced if 12% of the collections
for 24 months, related to the acquired customer base, are less than $83,116.
The goodwill recorded in conjunction with the purchase is being amortized over
two years, the life of the purchase contract.

   Select unaudited pro forma financial data for the years ended May 31, 1998
and 1999, assuming the PMS acquisition occurred on June 1, 1997, are presented
as follows:
Unaudited
                                                       ------------------------
                                                          1998         1999
                                                       -----------  -----------
Revenue............................................ $ 2,761,306  $ 2,564,768
                                                       ===========  ===========
   Net earnings (loss)................................ $  (392,102) $   159,785
                                                       ===========  ===========
   Stockholders' deficit.............................. $(1,634,516) $(1,474,832)
                                                       ===========  ===========
These pro forma results of operations and equity have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations and equity which actually would have resulted had the acquisition
occurred on the date indicated, or which may result in the future.

                                      F-35
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(3) Furniture, Fixtures and Equipment

   Furniture, fixtures and equipment consist of the following:
1998       1999
                                                           ---------  ---------
Furniture and fixtures................................. $  70,004  $  78,320
   Computer equipment.....................................   375,489    393,911
   Office equipment.......................................     1,177      3,752
                                                           ---------  ---------
                                                             446,670    475,983
   Accumulated depreciation...............................  (343,768)  (390,769)
                                                           ---------  ---------
                                                           $ 102,902  $  85,214
                                                           =========  =========
(4) Commitments

   We lease office space and equipment under noncancelable operating and
capital leases with various expiration dates through the year 2002.

   Future minimum lease payments under noncancelable leases are as follows:
Capital   Operating
                                                            leases    leases
                                                           --------  ---------
Period ending May 31:
     2000................................................. $ 26,834  $117,877
     2001.................................................   20,460     4,009
     2002.................................................    7,994       --
                                                           --------  --------
       Total minimum lease payments.......................   55,288  $121,886
                                                                     ========
   Less amounts representing interest.....................   (9,387)
                                                           --------
       Present value of minimum lease payments............   45,901
   Less current portion of obligations under capital
    leases................................................  (17,021)
                                                           --------
   Obligations under capital leases, excluding current
    portion............................................... $ 28,880
                                                           ========
Rent expense for the years ended May 31, 1997, 1998 and 1999 was $169,196,
$143,487 and $130,967, respectively.

                                      F-36
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(5) Notes Payable
1998      1999
                                                            --------  --------
Notes payable to related parties consist of the
      following (see note 10):

    Note payable to stockholder for $25,000; bearing fixed
     interest rate of 12%; principal and interest payable
     at maturity; due on demand...........................  $ 29,166  $ 32,864

    Note payable to affiliate for $14,000; bearing fixed
     interest rate of 12%; principal and interest payable
     at maturity; due on demand...........................    14,317    16,014

    Note payable to affiliate for $32,000; bearing fixed
     interest rate of 12%; principal and interest payable
     at maturity; due on demand...........................    32,483    36,240

    Notes payable to related party for $90,000; bearing
     interest rate of 8% until December 31, 1997 and 12%
     thereafter; principal and interest payable at
     maturity; due on demand..............................   106,155   119,618

    Note payable to related party for $30,000; bearing
     fixed interest rate of 12%; interest payable monthly;
     due on demand........................................    30,000    30,000

    Note payable to majority stockholder for $147,284;
     bearing fixed interest rate of 11%; interest payable
     quarterly; due June 1, 2000..........................    85,629    60,506

    Note payable to related party for $162,996; bearing
     fixed interest rate of 10%; principal and interest
     due monthly; due February 16, 2004...................   159,699   138,725

    Unsecured note payable to PMS for $77,116; bearing no
     interest rate; principal payable monthly calculated
     as 12% of gross billings collected; due January 15,
     2001.................................................       --     66,684
    Note payable to related party for $150,000; bearing no
     interest; due October 11, 1999.......................   150,000   150,000
                                                            --------  --------

    Note payable to stockholder for $15,000; bearing fixed
     interest rate of 10%; interest and principal payable
     at maturity; due on demand...........................    44,937    49,430

   Note payable to a bank secured by the Company's assets
    and a personal guarantee by an officer of the Company;
    bearing interest rate of prime plus 6.25% (14% at May
    31, 1999); principal and interest due monthly; due
    June 15, 2000.........................................    67,639    46,459
                                                            --------  --------
                                                             720,025   746,540
   Less current portion...................................  (420,696) (623,132)
                                                            --------  --------
     Total notes payable, less current maturities.........  $299,329  $123,408
                                                            ========  ========
Total notes payable to related parties.............   652,386   700,081

   Principal maturities of the notes payable at May 31, 1999 are as follows:
1999.............................................................. $623,132
     2000..............................................................   56,684
     2001..............................................................   36,000
     2002..............................................................   30,724
                                                                        --------
                                                                        $746,540
                                                                        ========
F-37
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(6) Related Party Transactions

 Accounts Payable to Related Parties

   At May 31, 1998 and 1999, we had the following accounts payable to related
parties recorded within accounts payable in the accompanying balance sheet:
1998    1999
                                                               -------- -------
Accounts payable to related parties...................... $116,595 $73,129
                                                               ======== =======
Deferred Compensation Payable to Related Parties

   At May 31, 1998 and 1999, we had the following deferred compensation payable
to related parties:
Deferred compensation payable to related parties........ $300,000 $300,000
                                                              ======== ========
Executive Compensation

   Since June 7, 1998, OrganicNet, Inc. has committed to fund the salary of our
President. The portion of the President's salary attributable to the Company's
business totals $90,000 and has been charged to expense in the accompanying
1999 financial statements and credited to additional paid-in capital.

(7) Income Taxes

   Income tax expense for the years ended May 31, 1997, 1998 and 1999,
respectively, consists of the following:
1997 1998 1999
                                                                  ---- ---- ----
Current:
     Federal..................................................... $--  $--  $--
     State and local.............................................  800  800  800
   Deferred:
     Federal.....................................................  --   --   --
     State and local.............................................  --   --   --
                                                                  ---- ---- ----
                                                                  $800 $800 $800
                                                                  ==== ==== ====
F-38
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The following table summarizes the tax effects of temporary differences
which give rise to significant portions of the deferred tax assets and
liabilities as of May 31, 1998 and 1999, respectively:
1998       1999
                                                          ---------  ---------
Deferred tax assets:
     Current assets:
       Accrued liabilities and other deferred tax
        assets..........................................  $ 331,645  $ 283,768
                                                          ---------  ---------
         Total..........................................    331,645    283,768
       Less valuation allowance for current deferred tax
        assets..........................................   (331,645)  (283,768)
                                                          ---------  ---------
         Net current deferred tax assets................        --         --
                                                          ---------  ---------
     Noncurrent assets:
       Net operating loss carryforward..................    402,286    386,458
       Depreciation and amortization....................      7,422     16,722
                                                          ---------  ---------
         Total..........................................    409,708    403,180
     Less valuation allowance for non-current deferred
      tax assets........................................   (409,708)  (403,180)
                                                          ---------  ---------
     Net noncurrent deferred tax assets.................        --         --
                                                          ---------  ---------
     Net deferred tax assets............................  $     --   $     --
                                                          =========  =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as operating
loss carryforward.

   Realization of the deferred tax assets is dependent on generating future
taxable income. For financial reporting purposes, a valuation allowance was
recorded at May 31, 1998 and 1999 to reflect the uncertainty of generating
taxable income sufficient to utilize the gross deferred tax asset. In addition,
the utilization of the net operating loss carryforwards may be limited due to
restrictions imposed under applicable Federal and state tax law due to a change
in ownership. The valuation allowance decreased by $239,809 and increased by
$54,405 for the years ended May 31, 1998 and 1999, respectively.

   As of May 31, 1999, we have net operating loss carryforwards for federal and
state income tax purposes of approximately $1,038,000 and $470,000,
respectively, which are available to offset future taxable income, if any,
through 2019.

   Due to the uncertainty surrounding the realization of the benefits of our
favorable tax attributes in future tax returns, we have fully reserved our
deferred tax assets as of May 31, 1998 and 1999, respectively. In assessing the
potential realization of deferred tax assets, we considered 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 the
generation of future taxable income during the periods in which those temporary
differences become deductible.

(8) Liquidity

   OrganicNet, Inc. has expressed its intent to provide continuing support to
us such that we can meet our obligations as they come due during the next
twelve months.

                                      F-39
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

(9) Stock Options

   A summary of the activity of our stock options are as follows:
Weighted-
                                                                     average
                                                        Shares of exercise price
                                                         options    per option
                                                        --------- --------------
Outstanding as of May 31, 1996......................   3,000       $20.00
   Granted during the year ended May 31, 1997..........   5,278        44.47
                                                          -----
   Outstanding at May 31, 1997.........................   8,278        35.60
   Granted during the year ended May 31, 1998..........     --           --
                                                          -----
   Outstanding at May 31, 1998.........................   8,278        35.60
   Granted during the year ended May 31, 1999..........     --           --
                                                          -----
   Outstanding at May 31, 1999.........................   8,278        35.60
                                                          -----
The following table summarizes information about stock options exercisable
at May 31, 1999:
Number of Options Weighted-average Weighted-average
            Range of        Exercisable at    exercise price     remaining
         exercise prices     May 31, 1999    at date of grant contractual life
         ---------------   ----------------- ---------------- ----------------
$ 20.00             3,000            $20.00            9 yrs.
               39.71             1,939             39.71            4 yrs.
               47.23             3,339             47.23         4.75 yrs.
                                 -----
                                 8,278
                                 =====
The Company applies APB No. 25 in accounting for its employee stock based
compensation plan and uses the intrinsic value method in accounting for options
granted to employees. Accordingly, no compensation costs have been recognized
in the accompanying statements of operations for any of its stock options
granted to employees because the exercise price of each option equaled or
exceeded the fair value of the underlying common stock. Had we determined
compensation costs based on the fair value at the grant date for our stock
options under SFAS No. 123, pro forma net earnings (loss) would have been as
follows:
1997        1998      1999
                                                -----------  ---------  -------
Net earnings (loss):
     As reported............................... $  (912,634) $(452,241) $63,362
     Assumed stock compensation cost...........     119,252        --       --
                                                -----------  ---------  -------
       Pro forma, adjusted..................... $(1,031,886) $(452,241) $63,362
                                                ===========  =========  =======
   Basic net earnings (loss) per share:
     As reported............................... $    (11.88) $   (5.34) $  0.75
                                                -----------  ---------  -------
       Pro forma, adjusted..................... $    (13.43) $   (5.34) $  0.75
                                                -----------  ---------  -------
   Diluted net earnings (loss) per share:
     As reported............................... $    (11.88) $   (5.34) $  0.70
                                                -----------  ---------  -------
       Pro forma, adjusted..................... $    (13.43) $   (5.34) $  0.70
                                                ===========  =========  =======
The above pro forma results assume we began recording compensation expense
for options granted to employees subsequent to June 1, 1996 and may not be
indicative of pro forma results to be expected in future

                                      F-40
PSI-Med Corporation

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

periods. The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
1997  1998 1999
                                                                 ----  ---- ----
Expected volatility.........................................  40%    --   --
   Average life................................................ 7 yrs.  --   --
   Weighted-average risk-free rate.............................  6.80%  --   --
   Dividends...................................................   --    --   --
The weighted-average fair value of options granted for the year ended May
31, 1997 was $22.59.

(10) Subsequent Events

   As part of our plans to replace our debt obligations, agreements were signed
to convert obligations to common stock at $30 per share:
Debt to
                                                Contract    be        Shares
                                                  Date   Converted   of stock
                                                -------- --------- ------------
Accounts payable to stockholder............. 06/16/99 $ 25,000    833 shares
   Note payable to stockholders................ 06/28/99   32,864  1,095 shares
   Deferred compensation to related party...... 06/16/99  200,000  6,666 shares
   Note payable to related party............... 08/05/99  150,000  5,000 shares
   Deferred compensation to related party...... 08/16/99   50,000  1,667 shares
Additionally, management negotiated the following settlements to reduce the
Company's obligations:
Final
                                                                        amount
                                                                       paid by
                                                     Date     Total      the
                                                   settled  obligation Company
                                                   -------- ---------- --------
Accounts payable to vendors.................... 08/10/99  $ 66,674  $ 39,474
   Accounts payable to employees.................. 08/25/99    52,083    27,415
   Note payable to related party.................. 09/13/99   133,147    70,151
                                                             --------  --------
                                                             $251,904  $137,040
                                                             ========  ========
Subsequent to June 30, 1999, our shareholders exchanged all of their shares
of our common stock for 16,667 shares of Series A-II preferred stock of
OrganicNet, Inc.

                                      F-41
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

   Through and including     , 1999 (the 25th day after the date of this
prospectus), 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 underwriter and with respect to its unsold allotments or
subscriptions.

                                        Shares

                               [ORGANICNET LOGO]

                                  Common Stock

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

                             Preliminary Prospectus

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

                             Punk, Ziegel & Company

                                        , 1999

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

   The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the registration fee and the NASD filing fee.
Registration fee................................................. $14,386.50
   NASD filing fee..................................................   5,675.00
   Nasdaq National Market listing fee............................... *
   Printing and engraving........................................... *
   Legal fees and expenses.......................................... *
   Accounting fees and expenses..................................... *
   Transfer agent fees.............................................. *
   Blue sky fees and expenses....................................... *
   Miscellaneous.................................................... *
                                                                     ----------
     Total.......................................................... *
                                                                     ==========
--------
* To be filed by amendment.

Item 14. Indemnification of Directors and Officers

   Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI of the Registrant's Amended and Restated
Certificate of Incorporation provides for indemnification of its directors to
the maximum extent permitted by the Delaware General Corporation Law and
Section 43 of Article XI of the Registrant's Bylaws provides for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
the Registrant intends to enter into Indemnification Agreements with each
director and certain officers containing provisions which are in some respects
broader than the specific indemnification provisions contained in the Delaware
General Corporation Law. The indemnification agreements may require the
Company, among other things, to indemnify its directors against certain
liabilities that may arise by reason of their status or service as directors
(other than liabilities arising from willful misconduct of culpable nature),
to advance their expenses incurred as a result of any proceeding against them
as to which they could be indemnified, and to obtain directors' insurance if
available on reasonable terms. Reference is also made to indemnifying officers
and directors of the Company against certain liabilities. Reference is made to
the following documents filed as exhibits to this Registration Statement
regarding relevant indemnification provisions described above and elsewhere
herein: (1) the form of Underwriting Agreement, filed as Exhibit 1.1; (2) the
Amended and Restated Certificate of Incorporation, filed as Exhibit 3.1; (3)
the Bylaws of the Registrant, filed as Exhibit 3.2; (4) the form of
Indemnification Agreement entered into by the Registrant with each of its
directors and executive officers, filed as Exhibit 10.25; and (5) the
Indemnity and Subrogation Agreement, filed as Exhibit 10.7.

Item 15. Recent Sales of Unregistered Securities

   Since August 1996, the Registrant issued and sold the following
unregistered securities:

    (1)  From August 1996 through August 1999, the Registrant granted stock
options to employees and directors covering an aggregate of 1,210,053 shares
of common stock, at a weighted average exercise price of $1.61 per share. The
Registrant sold an aggregate of 38,082 shares of its common stock to employees
and

                                     II-1
directors for consideration in the aggregate amount of $36,815 pursuant to the
exercise of stock options granted under the Registrant's stock option plans.

    (2)  From August 1996 to August 1999, the Registrant issued and sold an
aggregate of 1,202,470 shares of Series B Preferred Stock at a price of $2.25
per share to a group of investors for an aggregate purchase price of
approximately $2,705,558. Such shares of Series B preferred stock will convert
into shares of common stock of the Registrant upon completion of this
offering.

    (3)  On December 20, 1996, the Registrant issued 5,416 shares of Series A-
II preferred stock and 5,416 shares of Series A-III preferred stock to
Velocity Healthcare Informatics, Inc. in exchange for substantially all of the
assets of Velocity Healthcare Informatics, Inc. Such shares of Series A-II and
Series A-III preferred stock will convert into 216,640 shares of common stock
of the Registrant upon the closing of this offering.

    (4)  On June 4, 1997, the Registrant issued 6,668 shares of Series A-II
preferred stock to the shareholders of Intedata, Inc. for the acquisition of
100% of the voting securities of Intedata, Inc. Such shares of Series A-II
preferred stock will convert into 133,360 shares of common stock of the
Registrant upon the closing of this offering.

    (5)  On June 23, 1997, the Registrant issued 13,333 shares of Series A-II
preferred stock to the sole shareholder of L.I.N.C., Inc. For the acquisition
of 100% of the voting securities of L.I.N.C., Inc. Such shares of Series A-II
preferred stock will convert into 266,660 shares of common stock of the
Registrant upon the closing of this offering.

    (6)  On May 14, 1997, the Registrant issued 23,333 shares of Series A-II
preferred stock to the shareholders of MMS, Inc. for the acquisition of 100%
of the voting securities of MMS, Inc. Such shares of Series A-II preferred
stock will convert into 466,660 shares of common stock of the Registrant upon
the closing of this offering.

    (7)  From October 1997 to August 1999, the Registrant issued and sold an
aggregate of 4,000,000 shares of Series C preferred stock at a price of $2.75
per share to a group of investors for an aggregate purchase price of
$11,000,000. Such shares of Series C preferred stock will convert into
4,000,000 shares of common stock of the Registrant upon completion of this
offering.

    (8)  On November 14, 1997, the Registrant issued 8,624 shares of Series A-
II preferred stock to the shareholders of Healthcheck, Inc. for the
acquisition of 100% of the voting securities of Healthcheck, Inc. Such shares
of Series A-II preferred stock will convert into 172,480 shares of common
stock of the Registrant upon the closing of this offering.

    (9)  On September 9, 1998, the Registrant issued 37,775 shares of common
stock to the former shareholders of Comprehensive Providers Credentialing
Services, Inc. pursuant to an adjustment provision contained in the merger
agreement by and between such shareholders and the Registrant, dated May 23,
1996.

   The issuances described in Items 2 through 9 were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
In addition, the issuances described in Item 1 were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and
contracts relating to compensation. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.

                                     II-2
INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED
                         FINANCIAL STATEMENT SCHEDULE

The Board of Directors
OrganicNet, Inc.:

   The audits referred to in our report dated August 27, 1999, except as to
note 14 which is as of September 20, 1999, included the related consolidated
financial statement schedule for each of the years in the three-year period
ended December 31, 1998, and for the six month period ended June 30, 1999,
included in the registration statement. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement schedule
based on our audits. In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                          /s/ KPMG LLP

San Francisco, California
August 27, 1999

                                     II-3
OrganicNet, Inc.
                  SCHEDULE II-VALUATION & QUALIFYING ACCOUNTS
Balance at  Charged to            Balance at
                                  Beginning of Costs and               End of
           Description               Period     Expenses  Deductions   Period
           -----------            ------------ ---------- ---------- ----------
Year Ended 1996:
  Allowance for Doubtful
   Accounts......................   $    --     $    --     $ --      $    --
Year Ended 1997:
  Allowance for Doubtful
   Accounts......................   $    --     $113,000    $ --      $113,000
Year Ended 1998:
  Allowance for Doubtful
   Accounts......................   $113,000    $ 15,800    $ --      $128,800
Six Months Ended June 30, 1999:
  Allowance for Doubtful Accounts
   ..............................   $128,800    $ 68,145    $ --      $196,945
II-4
Item 16. Exhibit and Financial Statement Schedule
Exhibit
 Number    Description of Document
 -------   -----------------------
1.1*     Form of Underwriting Agreement
  3.1(1)*  Amended and Restated Certificate of Incorporation of Registrant
  3.2(1)*  Bylaws of Registrant
  4.1*     Specimen Certificate for shares of Common Stock, $.001 par value, of
           the Registrant
  5.1*     Legal Opinion of Cooley Godward LLP
  8.1*     Tax Opinion of Cooley Godward LLP
 10.1      Amended and Restated Investor Rights Agreement, dated October 31,
           1997, between Registrant and the Series A, B and C Investors
 10.2      Indemnity and Subrogation Agreement, dated January 1, 1998, between
           the registrant and Michael Meisel
 10.3      1996 Stock Option/Stock Issuance Plan
 10.4      1997 Stock Option/Stock Issuance Plan
 10.5      Employment Agreement with Jack D. Anderson dated January 1, 1996
 10.6      Employment Agreement with Robert L. Anderson dated January 1, 1996
 10.7      Employment Agreement with William W. Shaw, III dated June 1, 1996
 10.8      Employment Letter Agreement with William H. Matthews dated June 17,
           1999
 10.9      Employment Agreement with M. Jan Roughan dated January 1, 1997
 10.10     Employment Agreement with Michael J. Barry dated January 1, 1996
 10.11*    Form of Indemnification Agreement
 10.12     Promissory Note, dated April 1, 1999, between Michael E. Meisel and
           the Registrant
 10.13*    Promissory Note, dated June 1, 1997 between M. Jan Roughan and the
           Registrant
 10.14*    Promissory Note, dated December 1, 1997 between M. Jan Roughan and
           the Registrant
 10.15     Lease Agreement, dated January 5, 1999 between 1301 Evans Street
           Associates, LLC and the Registrant
 10.16+    Dedicated Server Agreement between Conxion and the Registrant dated
           April 8, 1999
 10.17+    Dedicated Server Agreement between Conxion and the Registrant dated
           May 3, 1999
 10.18+    T1 Service Agreement between Conxion and the Registrant dated May
           23, 1999
 10.19+    Dedicated Server Agreement between Conxion and the Registrant dated
           June 1, 1999
 10.20+    T1 Service Agreement between Conxion and the Registrant dated
           September 1, 1999
 10.21*    Application Infrastructure Provider Agreement between Conxion and
           the Registrant dated September 17, 1999
 10.22*    Distribution and Services Agreement between Superior Consultant
           Holdings Corporation and the Registrant dated September 20, 1999
 21.1      Subsidiaries of Registrant
 23.1      Consent of KPMG LLP, independent auditors
 23.2      Consent of KPMG LLP, independent auditors
 24.1      Power of Attorney (see signature page)
 27.1      Financial Data Schedule
--------
(1) As proposed to be filed with the Secretary of State of the State of
    Delaware prior to the effectiveness of this offering.
*  To be filed by amendment.
+  Confidential treatment requested on portions of this exhibit. Unredacted
   versions of this exhibit have been filed separately wih the Commission.

                                      II-5
Item 17. Undertakings

   Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities 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 hereunder, the Registrant will, unless in the opinion of its
counsel the matters have 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.

   The undersigned Registrant hereby undertakes for the purpose of determining
any liability under the Securities Act, 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.

   For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 479(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

   The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter or
permit prompt delivery to each purchaser.

                                     II-6
SIGNATURES

   Pursuant to the requirements of the Securities Act, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, State of California, on October 1, 1999.

                                          ORGANICNET, INC.

                                                    /s/ Jack D. Anderson
                                          By: _________________________________
                                                     Jack D. Anderson,
                                                  Chief Executive Officer

                               POWER OF ATTORNEY

   KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jack D. Anderson and William W. Shaw,
III as his attorney-in-fact, with full power of substitution for him in any
and all capacities, to sign any and all amendments to this registration
statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute or
substitutes, may do or cause to be done by virtue hereof.

   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/ Jack D. Anderson          Chairman of the Board and    October 1, 1999
______________________________________  Chief Executive Officer
           Jack D. Anderson             (Principal Executive
                                        Officer)

       /s/ William W. Shaw, III        President                    October 1, 1999
______________________________________
         William W. Shaw, III

       /s/ William H. Matthews         Chief Financial Officer      October 1, 1999
______________________________________  (Principal Financial
         William H. Matthews            Officer)

        /s/ Gail E. Oldfather          Director                     October 1, 1999
______________________________________
          Gail E. Oldfather

        /s/ Michael A. Wilson          Director                     October 1, 1999
______________________________________
          Michael A. Wilson

         /s/ Robert S. Garvie          Director                     October 1, 1999
______________________________________
           Robert S. Garvie

        /s/ Robert L. Anderson         Director                     October 1, 1999
______________________________________
          Robert L. Anderson

          /s/ M. Jan Roughan           Director                     October 1, 1999
______________________________________
            M. Jan Roughan

         /s/ David W. McComb           Director                     October 1, 1999
______________________________________
           David W. McComb
II-7
Exhibit
 Number                       Description of Document                      Page
 -------                      -----------------------                      ----
1.1*     Form of Underwriting Agreement
  3.1(1)*  Amended and Restated Certificate of Incorporation of
           Registrant
  3.2(1)*  Bylaws of Registrant
  4.1*     Specimen Certificate for shares of Common Stock, $.001 par
           value, of the Registrant
  5.1*     Legal Opinion of Cooley Godward LLP
  8.1*     Tax Opinion of Cooley Godward LLP
 10.1      Amended and Restated Investor Rights Agreement, dated October
           31, 1997, between Registrant and the Series A, B and C
           Investors
 10.2      Indemnity and Subrogation Agreement, dated January 1, 1998,
           between the registrant and Michael Meisel
 10.3      1996 Stock Option/Stock Issuance Plan
 10.4      1997 Stock Option/Stock Issuance Plan
 10.5      Employment Agreement with Jack D. Anderson dated January 1,
           1996
 10.6      Employment Agreement with Robert L. Anderson dated January 1,
           1996
 10.7      Employment Agreement with William W. Shaw, III dated June 1,
           1996
 10.8      Employment Letter Agreement with William H. Matthews dated
           June 17, 1999
 10.9      Employment Agreement with M. Jan Roughan dated January 1,
           1997
 10.10     Employment Agreement with Michael J. Barry dated January 1,
           1996
 10.11*    Form of Indemnification Agreement
 10.12     Promissory Note, dated April 1, 1999, between Michael E.
           Meisel and the Registrant
 10.13*    Promissory Note, dated June 1, 1997 between M. Jan Roughan
           and the Registrant
 10.14*    Promissory Note, dated December 1, 1997 between M. Jan
           Roughan and the Registrant
 10.15     Lease Agreement, dated January 5, 1999 between 1301 Evans
           Street Associates, LLC and the Registrant
 10.16+    Dedicated Server Agreement between Conxion and the Registrant
           dated April 8, 1999
 10.17+    Dedicated Server Agreement between Conxion and the Registrant
           dated May 3, 1999
 10.18+    T1 Service Agreement between Conxion and the Registrant dated
           May 23, 1999
 10.19+    Dedicated Server Agreement between Conxion and the Registrant
           dated June 1, 1999
 10.20+    T1 Service Agreement between Conxion and the Registrant dated
           September 1, 1999
 10.21*    Application Infrastructure Provider Agreement between Conxion
           and the Registrant dated September 17, 1999
 10.22*    Distribution and Services Agreement between Superior
           Consultant Holdings Corporation and the Registrant dated
           September 20, 1999
 21.1      Subsidiaries of Registrant
 23.1      Consent of KPMG LLP, independent auditors
 23.2      Consent of KPMG LLP, independent auditors
 24.1      Power of Attorney (see signature page)
 27.1      Financial Data Schedule
--------
(1) As proposed to be filed with the Secretary of State of the State of
    Delaware prior to the effectiveness of this offering.
*  To be filed by amendment.
+  Confidential treatment requested on portions of this exhibit. Unredacted
   versions of this exhibit have been filed separately wih the Commission.