Healthcentral Com · 10-K405 · For 12/31/00

Filed On 4/2/01 3:56pm ET   ·   SEC File 0-27567   ·   Accession Number 929624-1-545

Annual Report -- [X] Reg. S-K Item 405   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K                                             84    415K 
 2: EX-3.5      Amended and Restated Bylaws of the Company            28     94K 
 3: EX-3.8      Certificate of Designation                             7     40K 
 4: EX-4.3      Registration Rights Agreement                         12     53K 
 5: EX-4.4      Registration Rights Agreement                         12     53K 
 6: EX-10.33    Lease                                                 12     58K 
 7: EX-10.34    Lease Agreement                                       36    137K 
 8: EX-10.35    Lease                                                 45    168K 
 9: EX-10.36    Employment Agreement                                   5     24K 
10: EX-10.37    General Assignment                                     2     13K 
11: EX-10.38    General Assignment                                     3     14K 
12: EX-10.39    Common Stock Repurchase Agreement                      6     20K 
13: EX-10.40    Amendment I                                            3     14K 
14: EX-10.41    Severance and Change Agreement                         9     39K 
15: EX-21.1     Subsidiaries of the Company                            1     10K 
16: EX-23.1     Consent of Independent Accountants                     1     10K 
17: EX-23.2     Consent of Independent Public Accountants              1     10K 

10-K405   ·   Form 10-K
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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549  

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

Form 10-K 

(Mark One)                                                                      

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

For the fiscal year ended December 31, 2000 

OR  

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

For the Transition period from to   

Commission File Number: 000-27567 

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

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

HealthCentral.com 
6005 Shellmound Street, Suite 250 
Emeryville, CA 94608  
(Address of principal executive offices, including zip code)  

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

Securities registered pursuant to Section 12(b) of the Act: None  

Securities registered pursuant to Section 12(g) of the Act: 

Common Stock, par value $.001 per share 

Indicate by check mark whether the registrant (1) has filed all reports   
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period than the        
registrant was required to file such reports), and (2) has been subject to      
such filing requirements for the past 90 days.  YES [X]   NO [_]                

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

The aggregate market value of the voting stock held by non-affiliates of  
the registrant was approximately $12,150,729 as of February 28, 2001 based      
upon the closing sale price on the Nasdaq National Market reported for such     
date. Shares of Common Stock held by each officer and director and by each      
person who owns 5% or more of the outstanding Common Stock have been excluded   
in that such persons may be deemed to be affiliates. This determination of      
affiliate status is not necessarily a conclusive determination for other        
purposes.                                                                       

There were 50,661,038 shares of the registrant's Common Stock issued and  
outstanding as of February 28, 2001.                                            

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HEALTHCENTRAL.COM 

                                                                [Download Table]

                                                                           Page
                                                                           ----
                                                                               
                                 PART I                                        

Item 1.  Business.......................................................     1 
Item 2.  Properties.....................................................    18 
Item 3.  Legal Proceedings..............................................    18 
Item 4.  Submission of Matters to a Vote of Security Holders............    19 

                                 PART II                                       

Item 5.  Market for Registrant's Common Equity and Related Stockholder      19 
          Matters.......................................................       
Item 6.  Selected Financial Data........................................    21 
Item 7.  Management's Discussion and Analysis of Financial Condition and    22 
          Results of Operations.........................................       
Item 7a. Qualitative and Quantitative Disclosures About Market Risk.....    43 
Item 8.  Financial Statements and Supplementary Data....................    43 
Item 9.  Changes in and Disagreements with Accountants on Accounting and    43 
          Financial Disclosure..........................................       

                                 PART IV                                       

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-     44 
          K.............................................................       
Signatures...............................................................   47 

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PART I  

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

Item 1. Business                                                                

Company Overview                                                                

HealthCentral.com is a leading provider of online healthcare-related e-   
commerce and content to consumers through our network of websites, which        
includes WebRx.com, ComfortLiving.com, Vitamins.com, DrugEmporium.com,          
HealthCentral.com and RxList.com, and through our Vitamins.com mail order and   
retail operations. We derive revenue from e-commerce, mail order and other      
product sales, which consists of prescription and non-prescription drugs,       
over-the-counter health and beauty aid products, nutraceuticals, vitamins,      
minerals, supplements, back care products, baby care products, maternity care   
products, allergy care products and other specialty health and wellness         
products. We also derive revenue from the sale of the Dr. Dean Edell Eyewear    
brand eyeglasses to our distributor.                                            

We believe our stores and catalog offerings provide an easy way for       
consumers to shop for the healthcare products they use everyday by providing a  
complete source of healthcare products along with a wide range of health-       
related content. Our goal is to become the leader in healthcare related e-      
commerce. We intend to accomplish this goal through:                            

. WebRx.com, our online health superstore, which offers a selection of more 
than 25,000 SKU's of health, beauty, and personal care products, plus a 
 full service pharmacy and a complete vision center at competitive prices;

. Comfort Living.com, our online specialty store, which features personal   
and home products that are designed to address a particular health      
condition. These products are distinctive in quality and not widely     
available from other retailers. They are intended to make some aspect of
the user's life easier, better, more enjoyable or more comfortable.     
Typical product lines include ergonomically correct chairs, products for
back and pain relief, allergy and asthma relief products and beds and   
mattresses;                                                             

. Vitamins.com, our online vitamin store, which offers approximately 4,000  
products representing over 100 health-related national brands as well as
the Vitamins.com brand. Product offerings include vitamins, minerals,   
nutraceuticals, herbs, homeopathic products, body building supplements  
and other healthcare products;                                          

. Our Vitamins catalog, a monthly publication which offers approximately    
8,000 products including nutraceuticals and other healthcare products;  

. Our six Vitamins.com retail stores, which operate in the Maryland and     
 Virginia suburbs of the Washington, DC area. These stores generally stock
approximately 5,000 products;                                           

. Comprehensive information on over-the-counter and prescription drugs      
coupled with in-depth health-related content to help customers make     
better informed purchases of health related products; and               

. Quality customer service assistance, which is designed to attract and     
retain customers, along with systems designed to safeguard client       
confidentiality.                                                        

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We also design, host and maintain healthcare institutions' websites for   
healthcare content and e-commerce. These co-branded and private label websites  
enable our institutional clients to build needed brand loyalty to retain and    
attract members and patients. We receive both development fees for building     
customized websites and an annual license fee for our content and interactive   
tools. Our largest clients are currently Blue Shield of California, Tenet       
Healthcare Corporation, Women's Capital Corporation, Catholic Healthcare West,  
St. Vincent's Hospital, Henry Ford Health System and Scripps Clinic.            

HealthCentral.com is a Delaware corporation. Our principal executive      
offices are located at 6005 Shellmound Street, Suite 250, Emeryville,           
California 94608. Our telephone number at that location is (510) 250-2500. The  
websites of the HealthCentral.com network are www.healthcentral.com,            
www.webrx.com, www.rxlist.com, www.vitamins.com, www.drugemporium.com and       
www.comfortliving.com.                                                          

Recent Events                                                                   

Acquisition of Certain Assets and Liabilities of Comfort Living, Inc. and 
Certain Assets of more.com. On December 14, 2000, we acquired all of the        
assets and properties and assumed certain liabilities associated with           
more.com's Comfort Living subsidiary, and certain related more.com assets,      
including its website, www.comfortliving.com, inventory and a leased 18,000     
square foot warehouse and distribution center in Gaithersburg, Maryland.        

Acquisition of DrugEmporium.com. On September 14, 2000, we completed an   
asset purchase agreement with Drug Emporium, Inc. and its online drugstore      
subsidiary, DrugEmporium.com. Under the terms of the asset purchase agreement,  
we acquired substantially all of the assets of DrugEmporium.com, including a    
leased 60,000 square foot distribution and a prescription fulfillment center    
in Louisville, Kentucky. In connection with this acquisition, we also entered   
into a 10-year services agreement with Drug Emporium, under which we receive    
in-store promotional and advertising support and access to Drug Emporium's      
electronic purchasing system and in-store order pickup capabilities at certain  
Drug Emporium retail stores. Drug Emporium recently filed for Chapter 11        
bankruptcy protection in connection with a buyout by Snyder's Drug Stores.      

Acquisition of Vitamins.com, Inc. On June 16, 2000, we acquired           
Vitamins.com, a retailer that provides dietary supplements and related health   
and wellness products. Through the acquisition of Vitamins.com, we acquired     
Internet, mail order and brick-and-mortar retailing operations.                 

Dr. Dean Edell Eyewear License Agreement. On April 11, 2000, we acquired  
the exclusive licensing rights to "Dr. Dean Edell Eyewear" through 2006.        
Simultaneously, we entered into a distribution agreement with Cable Car         
Eyewear to sell the Dr. Dean Edell Eyewear to brick-and-mortar pharmacies and   
grocery chains. This agreement requires minimum purchases of products by Cable  
Car Eyewear from us for the years 2000 through 2006; we are in negotiations     
with the distributor regarding changes to the existing agreement that may       
result in inventory values not being realized. In addition, we entered into a   
supply agreement with Invision Optical Products through 2006 to source the      
Dr. Dean Edell Eyewear products and supply us with these products, and we are   
in negotiations with the supplier regarding changes to the existing agreement.  

As a result of the DrugEmporium.com and Comfort Living asset purchases, we
have been able to purchase products directly from manufacturers and             
wholesalers, thus we were able to eliminate many of our third party             
fulfillment partnerships which we believe will result in improved product       
margins. These acquisitions have also allowed us direct access to vendor        
promotions and rebates. In October, 2000 we consolidated our Long Island City,  
New York fulfillment operation into our Louisville, Kentucky fulfillment        
center. This consolidation resulted in reduced operating costs, improved        
inventory controls and greater economies of scale. We plan to further           
consolidate our warehouse operations by closing our Gaithersburg, Maryland      
facility on or before June 2001. Further, the acquisitions of                   
ComfortLiving.com, Vitamins.com and the Dr. Dean Edell Eyewear brand have       
allowed us to expand our product lines, gain access to additional online and    
offline customers and establish multiple high margin categories throughout our  
health superstore and our mail order and retail businesses. We are in the       
process of reviewing pharmacy operations and, as a result, may make changes in  
the future.                                                                     

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Industry Background                                                             

The Internet has become an increasingly popular source for healthcare     
information and products. In a November 2000 survey performed by Pew Internet   
and American Life Project (www.pewinter.org), 52 million American adults, or    
55% of those people with Internet access have used the Web to search for        
health or medical information. The number of people retrieving health-related   
information is projected to grow. This growth in demand for online health       
information has been driven by consumers seeking to make better personal        
healthcare decisions.                                                           

 As consumers become more educated about their personal healthcare, they are
also increasingly purchasing healthcare products online. According to June      
2000 data from the research firm International Data Corporation, U.S. sales of  
pharmaceutical, health, and beauty products over the Internet will increase     
from less than $250 million in 1999 to more than $18 billion in 2004. The       
study, "U.S. Online Prescription and Nonprescription Pharmaceutical, Health,    
and Beauty Market: Forecast and Analysis," predicts that the majority of        
revenue, 80% or $14.8 billion, will come from online sales of prescription      
drugs, and Unity Marketing estimates that 89% of U.S. adults were expected to   
take vitamins in 2000.                                                          

HealthCentral.com Solution                                                      

Through our network of websites, mail order operations, brick-and-mortar  
stores, interactive and convenient shopping tools and customer service center,  
HealthCentral.com offers a global solution to satisfy the growing demand for    
healthcare products and health-related content.                                 

WebRx Health Superstore                                                       

Our WebRx Health Superstore is a full service online store that combines  
the convenience and privacy of online shopping with tremendous product          
selection and reasonable prices. WebRx features the health-related products     
that people use everyday, such as over-the-counter remedies, beauty aids,       
cough, cold and pain relief medications. WebRx also features a full service     
pharmacy with a licensed pharmacist to provide information about prescription   
medications concerning correct use and dosage, generic alternatives, potential  
side effects and drug interactions. Our pharmacy department is able to          
crosscheck each prescription received for allergies, therapeutic overlap,       
overuse/underuse and drug interactions with other drugs or foods. We are in     
the process of reviewing pharmacy operations and, as a result, may make         
changes in the future.                                                          

Vitamins, Minerals, Supplements & Herbs                                       

In order to address lifestyle changes and the growing needs of an aging   
population, we offer a large selection of vitamins, nutritional and dietary     
supplements, herbs, homeopathic products, minerals and natural health, sports   
and fitness products. These products may be purchased through three different   
distribution channels:                                                          

. Vitamins.com. Our Vitamins.com Internet website offers over 4,000         
 products, representing over 100 health-related national brands. Customers
may seek out products in four different ways--by specific product,      
product category, health concern or brand name. We carry both national  
brands and private label brands such as Vitamins.com and Drug Emporium. 

. Vitamins Mail Order. The Vitamins.com catalog is a full-color publication 
distributed monthly by mail to catalog shoppers. It typically contains  
between 90 and 100 pages and offers approximately 8,000 products. Each  
issue features up to 100 products at special prices of up to 30% off of 
regular catalog prices and up to 50% off of manufacturers' suggested    
retail prices.                                                          

. Vitamins Retail Stores. We operate six Vitamins.com or Vitamin Superstore 
brick-and-mortar stores in the Maryland and Virginia suburbs of         
Washington, D.C. These retail stores generally stock approximately 5,000
products and are strategically located in high-traffic, high volume     
retail centers. We believe our stores are substantially larger than the 
stores of our major retail competitors. The stores are designed to      

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be comfortable and welcoming and provide the atmosphere typical of an     
upscale bookstore or other specialty store.                               

Specialty Health Products                                                     

ComfortLiving.com is an Internet retailer specializing in non-consumable, 
durable products, which are designed to address personal care, pain relief and  
comfort. The products are organized around three key themes:                    

. Healthy environment--products used primarily in the home and office to    
improve personal comfort, air and water quality, or the overall         
 environment, such as specialty products for allergy and asthma sufferers,
 air and water conditioners, purifiers and filters, and ergonomic supplies
and furniture;                                                          

. Home healthcare--special use or hard-to-find products designed for use in 
the home by people with particular assisted living and healthcare needs,
such as adjustable beds, therapeutic mattresses, lift chairs and        
ergonomic supports; and                                                 

. Baby care and maternity--health, safety and comfort products for the      
expecting mother or new parents and their children.                     

Vision Center                                                                 

Through our vision center, customers can purchase a wide variety of eye   
care products, such as contact lenses, contact solution and Dr. Dean Edell      
Eyewear nonprescription reading glasses.                                        

Interactive and Convenient Shopping Tools                                     

To enhance the shopping experience, the WebRx.com site has a virtual      
shopping bag that keeps a running tab of selected items and prices, allowing    
shoppers to quickly purchase their needed healthcare products. The shopping     
bag remains to the right of their screen while the customer browses so that     
consumers do not have to click to a different page to select each product. To   
quickly find a particular item, shoppers can use our search engine, browsing    
the entire inventory by key word, such as the product name, brand name or       
description. Shoppers may also develop their own shopping lists on the site to  
be saved and used again. The customer can then add or subtract items as they    
continue to shop with us in the future. We also offer a convenient and easy-    
to-use Auto Reorder service, which allows customers to order products that      
will be shipped automatically at any time intervals they choose. Customers can  
also create and store multiple shopping lists to eliminate the task of          
searching for the same products.                                                

Personalized Level of Customer Service                                        

Our customers can have their general questions about account information, 
ordering products and shipping status addressed by HealthCentral.com customer   
care representatives. Our customer service representatives provide responses    
to customer inquiries by e-mail or telephone and are available seven days a     
week, from the hours of 8:00 a.m. to 10:00 p.m., Eastern Time, from Monday      
through Friday, and from 9:00 a.m. to 5:00 p.m., Eastern Time, on Saturday and  
Sunday. We offer our customers various shipping options, including next-day,    
two-day or standard delivery through UPS or the United States Post Office.      

Informative, Trustworthy and Engaging Health Information Content              

In the Winter 2000 Scorecard, HealthCentral.com website was ranked as the 
number one overall health content site on the Internet by Gomez, the Internet   
quality measurement firm. Our reputation in this regard is built on the         
provision of comprehensive and engaging information from medical professionals  
who have established a high degree of trust with consumers through traditional  
media. Currently our original content comes from established media sources      
such as Dr. Dean Edell, one of the leading physician broadcasters in the        
United States for the past twenty years. In addition, RxList.com, our internet  
drug index, provides fast and                                                   

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reliable information to both the consumer and the medical professional. The     
RxList.com database stores information regarding approximately 4,400            
pharmaceuticals and other medicines in addition to Taber's Medical              
Encyclopedia of more than 53,000 medical terms.                                 

Our Strategy                                                                    

Our strategy is to become the world's leading healthcare e-commerce       
company. We intend to accomplish our strategy through multiple revenue          
streams, high margin products, expansive product lines and the acquisition of   
qualified customers at a relatively low cost while maintaining and cultivating  
a relationship with our existing consumer customers:                            

Multiple Revenue Streams. Our strategy is to develop multiple revenue     
streams from our e-commerce websites, catalog sales, Dr. Dean Edell Eyewear     
sales, and sponsorship and advertising fees.                                    

High Margin Products. We intend to focus on high price, high margin       
products such as those offered at ComfortLiving.com and on high margin, high    
volume products such as the vitamins, minerals and supplements sold through     
our Vitamins.com website and mail order business.                               

Expansive Product Lines. We will continue to look for high margin, high   
volume products to expand our range of consumer products and services.          

Large Customer Base. In order to grow and maintain a large customer base, 
we encourage repeat purchases with our emphasis on customer service. We are     
also targeting to acquire new customers at a relatively low cost through        
segmented emails, affiliate marketing programs, healthcare newsletters, and     
engaging and informative content.                                               

Maintain and Cultivate a Relationship of Trust with Consumers. Through our
affiliations with trusted media personalities such as Dr. Dean Edell we enjoy   
a privileged and trusted status with those consumers who seek our               
HealthCentral.com network based on their experience with those personalities.   
We hold that level of trust in high regard and seek to maintain it by           
providing consumers with reliable content and by keeping individual consumer    
information confidential.                                                       

Customers                                                                       

Consumer                                                                      

In January 2001, the HealthCentral.com websites had the following traffic 
levels, according to DoubleClick and internally generated reports.              
ComfortLiving.com traffic levels were reported by WebTrends and reflect         
pageviews, visits and unique visitors for the month of February 2001. "Total    
unique visitors" is calculated as the sum of the unique visitors to each        
individual site, thus, total unique visitors may be overstated due to           
potential multiple counting.                                                    

                                                                [Download Table]

                                      Pageviews   Visits   Unique Visitors
                                      ---------- --------- ---------------
                                                                          
ComfortLiving.com....................  1,063,871   342,573      165,431   
HealthCentral.com....................  5,562,525   905,900      600,066   
RxList.com...........................  5,939,491 1,014,770      709,722   
WebRx.com*...........................  6,410,933 1,380,907      900,139   
TOTAL................................ 18,976,820 3,644,150    2,375,358   

--------                                                                        
* Includes WebRx.com, Vitamins.com and DrugEmporium.com.                        

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Technology                                                                      

Our HealthCentral.com network of websites employs hardware and software   
architectures, which are hosted on third-party web hosting services. We are in  
the process of integrating all of our applications, services and databases into 
the HealthCentral.com network architecture.                                     

Physical Architecture. We employ a server architecture in a mixed LINUX,  
Solaris, UNIX and Windows NT environment. Our HealthCentral.com network sites   
and online stores, as well as our institutional clients' websites, are          
protected by industry standard firewalls. All sensitive data is stored on       
separate, private networks that are not directly accessible from the Internet.  
In addition, there are security systems that include video surveillance of      
critical servers 24 hours a day. There are also well-defined audit mechanisms   
in place. We have implemented a broad array of website management, search       
engine, customer support, order processing and fulfillment systems using a      
combination of commercially available, licensed technologies and selected       
proprietary technologies. The front ends of our online stores are built on      
industry standard technologies, including the Sun Solaris operating system and  
an Oracle database. These technologies are integrated using a variety of        
proprietary computer programs, the majority of which are written in server side 
Java, HTML, JavaScript and Pearl. These programs handle user interface, product 
search, ordering, order tracking and customer communications.                   

HealthCentral.com subcontracts the hosting of its servers to several      
different hosting companies. These hosting companies have agreed to provide     
Internet connections to multiple Internet access points, a secure physical      
environment, climate control, redundant power and 24-hour-a-day, seven-day-a-   
week monitoring services. We believe that all facilities have adequate capacity 
for expansion to support.                                                       

The continued, uninterrupted operation of the HealthCentral.com websites, 
mail order and retail stores and our transaction processing systems is          
essential to our business. We employ system administrators to monitor and       
manage the website, network operations, inventory and fulfillment and           
transaction processing systems to enable their continued operation and          
reliability. The systems include redundant hardware on critical components and  
have been designed to survive a variety of failures with minimal downtime.      

Software Architecture. We employ three-tier software architectures,       
consisting of a user interface layer, an engine layer and a database layer,     
which allow customization, updating and repair of each layer without            
interfering with the operation of the other layers. Our database servers are    
Oracle on Sun Solaris for high end applications and MS SQL servers for low-end  
applications.                                                                   

Sales and Marketing                                                             

Our current sales and marketing strategy is targeted to drive qualified   
customers to our network of e-commerce websites at a low cost. Our online       
marketing efforts are focused on identifying first time customers and repeat    
purchasers, who are typically Internet users aged 35 to 54, with an emphasis on 
women. We reach these groups through:                                           

. Segmented e-Mails                                                         
We have a large customer base that totaled 1.3 million customers as of  
January 2001. We rely heavily on segmented e-mails as a way to cost     
effectively market to our existing customer base, which we believe      
results in improved customer retention and repeat purchases. We attempt 
to maximize repeat purchases through our online Auto Reorder feature. We
also acquire or rent opt-in e-mail lists to market through e-mail-based 
communications. Additionally, through our Vitamins catalog, we employ a 
frequency reward program based upon repeat purchases, which reinforces  
our online marketing efforts through branded giveaway items in our      
product packaging.                                                      

. Co-Marketing Initiatives with Affiliates                                  
We enter into co-marketing agreements with affiliate websites that      
 typically target women's interests, parenting and family, travel planning
 and senior-oriented sites. We share revenue with affiliates for directing
traffic that results in purchases to our site.                          

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. Healthcare Newsletters                                                    
 We target healthy people and people who suffer from chronic conditions by
offering over 70 different topic specific newsletters (i.e., fitness,   
 diabetes, nutrition, hypertension, etc.) to our customers via email. This
 e-mail program is effective and relatively inexpensive to administer, and
each newsletter contains e-commerce promotions.                         

. Search Engine Optimization                                                
 The marketing efforts of our ComfortLiving.com site include search-engine
optimization, an efficient and cost effective technique by which we     
strive to direct Internet shoppers searching for brand name products and
special needs to our site.                                              

. Advertising and Sponsorships                                              
Our advertising campaigns target online consumers and are designed to   
promote repeat purchases as well as result in the acquisition of new    
customers. We employ DoubleClick, Inc. to conduct advertising sales for 
our HealthCentral.com and RxList.com websites. Under the terms of the   
agreement, we cannot sell advertising, with certain exceptions, for our 
HealthCentral.com website through alternate avenues; however, the       
agreement is terminable by either party on 90 days notice. We directly  
develop and generate sponsorship revenues for our e-commerce websites   
through strategic partnerships and selected relationships with key      
vendors and pharmaceutical companies.                                   

Competition                                                                     

  The online e-commerce markets in the health, beauty, wellness, personal care
and pharmacy categories are fragmented and intensely competitive. This          
competition has resulted in price discounting and failure to build brand        
loyalty. Our competitors in these areas can be divided into several groups:     

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

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

. supermarkets and warehouse clubs such as Kroger, Safeway and Sam's Club;  

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

. mail-order pharmacies and prescription benefits managers, such as Advance 
PCS, Express Scripts and Merck-Medco, including their websites;         

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

. health and specialty stores such as General Nutritional Centers,          
Brookstone and Gazoontite, including their websites; and                

. cosmetics departments at major department stores, including their         
websites.                                                               

  Each of these competitors operates within one or more of the health, beauty,
wellness, personal care and pharmacy product categories. In addition, nearly    
all of our competitors have, or have announced their intention to have, the     
capability to accept orders for products online. In particular, Walgreen's,     
CVS, Albertson's and Wal-Mart accept prescription refill or other orders on     
their websites. Additionally, larger, better-established and better-financed    
entities may acquire, invest in or form joint ventures with online competitors  
or suppliers as the use of the Internet increases.                              

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

. greater name recognition;                                                 

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. larger customer and user bases;                                           

. substantially greater financial, technical and other resources;           

. larger production and technical staffs;                                   

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

. more diversified content offerings.                                       

We believe that we compete on the basis of product selection and variety, 
convenience, customer service and satisfaction, quality of search tools, speed  
of fulfillment for products ordered and price. We believe that the key          
competitive factors in this industry are:                                       

. brand recognition;                                                        

. the ability to attract and retain customers;                              

. breadth and depth of product offerings;                                   

. product pricing;                                                          

. the availability and quality of information on nutrition, health and      
wellness topics; and                                                    

. the quality and responsiveness of customer service.                       

We also believe that these competitive factors are significant to our     
traditional brick-and-mortar retail business, as well as our mail order         
operations.                                                                     

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

. health-related websites targeted at consumers, such as WebMD, drkoop.com, 
DiscoveryHealth.com, InteliHealth, and Medscape.com;                    

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

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

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

Intellectual Property Rights                                                    

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

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

Government Healthcare Regulation                                                

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

Regulation of the Practice of Medicine. The practice of medicine is       
generally defined by state law and varies from state to state. Often it is      
defined as engaging in, with or without compensation, diagnosis or treatment    
of a physical or mental condition. The practice of medicine requires a license  
under state law and, depending on state law, engaging in the practice of        
medicine without a license can be a civil or criminal violation. Many states    
have laws prohibiting corporations from engaging in the practice of medicine    
or employing or contracting with licensed medical professionals for the         
provision of medical services. We have endeavored to structure our websites     
and, in particular our personal health evaluation tools and our descriptions    
of various healthcare products, to avoid the implication that we are in any     
way practicing medicine in violation of state licensing requirements or in      
violation of state corporate practice of medicine prohibitions. For example,    
we have included within our websites disclaimers and other notices that we      
have deemed appropriate to advise users that the information provided is not    
intended to be a substitute for consultation with a licensed physician.         
However, the application of this area of the law to Internet services such as   
ours is still in its infancy with no clear guidance from federal or state       
regulatory agencies regarding their interpretation of services such as ours. A  
key element of our strategy is to encourage consumers to identify us with Dr.   
Dean Edell, a physician licensed in the state of California. Confusion by       
consumers regarding the limitations on information received from Dr. Edell and  
the need to consult with their own physician with respect to their medical      
condition is possible. Also, we have not conducted a state by state survey of   
medical personnel licensing requirements and policies. Accordingly, a state     
regulatory authority and/or one or more licensed physicians or physician        
advocacy groups or consumers may now or in the future allege that one or more   
elements of our business requires a license to practice medicine, that we are   
in violation of corporate practice of medicine prohibitions, and/or that our    
disclaimers are ineffective as to particular consumers who claim to rely upon   
advice or information provided by us. Any application of practice of medicine   
regulations to our business could harm our business or require us to change     
our business model. Further, liability based on a determination that we are     
engaged in the practice of medicine without a license may cause us to be        
excluded from coverage under the terms of our current general liability         
insurance policy, and may subject us to a higher standard of care than would    
be applicable to activities that do not require a professional license.         

Regulation of Other Healthcare Professions. We provide general information
regarding pharmacology, nutrition and general mental and physical health        
issues on our websites, including electronically accessible information         
regarding prescription drugs and answers to frequently asked questions about    
prescription drugs. The practice of pharmacology, nutrition, psychology and     
certain personal counseling is defined and regulated by state law, which        
varies from state to state. While we have taken the same precautions to avoid   
the practice of other healthcare professions as we have with the practice of    
medicine, a local professional licensing board, local                           

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professionals, professional advocacy groups, or consumers may seek to impose    
state law licensing requirements on some aspects of our business. Any           
application of the regulation of the practice of another healthcare profession  
to our business could harm our business or require us to change our business    
model. Further, any liability based on a determination that we are engaged in   
the practice of a healthcare profession without a license may cause us to be    
excluded from coverage under the terms of our current general liability         
insurance policy, and may subject us to a higher standard of care than would    
be applicable to activities which do not require a professional license.        

Regulation of Prescription Drug Activities and Pharmacies. Our business of
providing drugs and other medical products pursuant to a prescription is        
subject to federal, state and local laws and regulations, many of which are     
specific to pharmacies. For example, under the Omnibus Budget Reconciliation    
Act of 1990 and related state and local regulations, pharmacists are required   
to offer counseling, without additional charge, to prescription drug customers  
about medication, dosage, delivery systems, common side effects, adverse        
effects or interactions and therapeutic contraindications, proper storage,      
prescription refill, and other information they deem significant. In addition,  
state laws specify how prescription drugs and medical devices may be filled     
and dispensed and which individuals and entities are allowed to fill and        
dispense them. Moreover, while we believe our discussions of drugs and medical  
devices on our websites are not regulated "advertising or promotion" of         
prescription drugs, the FDA and many state agencies which regulate advertising  
and product performance claims for prescription drugs may determine otherwise.  
We are also subject to FDA regulation of product safety, including              
adulteration, misbranding and mishandling of prescription drugs and medical     
devices.                                                                        

Pharmacy operations are also subject to federal, state and local licensing
and registration regulations with respect to the Controlled Substances Act and  
federal Drug Enforcement Agency (DEA) regulations, as well as related state     
and local laws and regulations relating to pharmacy operations, including       
registration, security, recordkeeping, and reporting requirements related to    
the purchase, storage and dispensing of controlled substances and prescription  
drugs, and certain over-the-counter (OTC) drugs. We own, operate and are        
linked to the WebRX website, which is licensed to fill prescriptions in all     
states that require pharmacy licensing, with the exception of Michigan. We      
plan to obtain a license that will enable WebRX to fill prescriptions in        
Michigan in the near future.                                                    

Because we are considered a "pharmacy" under state regulations as well as 
being the subject of Food and Drug Administration (FDA), Federal Trade          
Commission (FTC), DEA and state agency enforcement actions, we could also be    
liable to consumers in connection with adulterated drugs, false or misleading   
advertising or claims or problems with the storage, transport and sale of       
controlled substances. While we have rights against drug manufacturers as to    
adulteration of prescription products and rights against drug and device        
manufacturers as to false advertising for prescription products that are        
provided to us, we may have liability if manufacturers cannot or will not       
indemnify us in a specific situation.                                           

The U.S. Congress and the General Accounting Office (GAO) are currently   
investigating online pharmacies and online prescribing. They are especially     
focused on those who prescribe drugs online and on pharmacies that fill         
invalid prescriptions, including prescriptions that are written online. In      
addition, several state Attorneys General have instituted enforcement actions   
against Internet pharmacies which they believe have dispensed prescription      
drugs without proper prescriptions or without first obtaining the proper state  
licenses. The U.S. House of Representatives' Committee on Commerce has          
requested that the GAO undertake a formal review of a number of issues          
pertaining to online pharmacies, including an assessment of mechanisms to       
ensure that online pharmacies are obeying the various state and federal         
regulations for the industry. Moreover, there is currently before the U.S.      
Congress a proposed law that would require the FDA to oversee the operations    
of all Internet pharmacies. A change in the law with respect to the regulatory  
requirements relating to Internet pharmacies would require our compliance with  
any corresponding rules and regulations.                                        

The National Association of Boards of Pharmacy, a coalition of state      
pharmacy boards, has developed a program, the Verified Internet Pharmacy        
Practice Sites (VIPPS) as a model for self-regulation for online pharmacies.    
We have obtained VIPPS certification. In addition, various state legislatures   
are considering new                                                             

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legislation related to the regulation of Internet pharmacies. The inclusion of  
prescription drugs as a Medicare benefit has been the subject of numerous       
bills in the U.S. Congress. Should legislation on prescription drug coverage    
for Medicare recipients be enacted into law, compliance with any corresponding  
rules and regulations would be required, even though at this time we do not     
accept Medicare prescriptions.                                                  

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

FDA and State Regulation of Computer Software as a Medical Device/Medical 
Practice. Certain computer applications and software may be considered medical  
devices and would, therefore, be subject to regulation by the FDA or by states  
with respect to the practice of pharmacy or the practice of medicine. We do     
not believe that our current applications or services will be regulated by any  
of these entities; however, our applications and services may become subject    
to regulation. Additionally, we may expand our applications and service         
offerings into areas that subject us to regulation. We believe that complying   
with such regulations would be time consuming, burdensome and expensive and     
could delay or prevent our introduction of new applications or services.        

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

Liability for Health Information and Health Products. Due to the nature of
our business, we may become involved in litigation regarding the information    
transmitted from our websites, with the risk of adverse publicity, significant  
defense costs and substantial damage awards. In addition, if we are deemed to   
be engaged in the practice of medicine or another healthcare profession,        
including pharmacy, we could be subject to claims and/or malpractice liability  
exposure for which we may not be insured. We may also be liable for personal    
and property damage from products provided by us, including from prescription   
drugs. Finally, the FDA could look to us first in enforcing a product recall.   
In recent years, participants in the healthcare industry have been subject to   
an increasing number of lawsuits alleging malpractice, product liability and    
related legal theories, many of which involve large claims and significant      
defense costs. We have legal rights against the manufacturer and fulfillment    
companies, with some limits, for their activities related to the products we    
provide. To date, we have not been the subject of any claim involving the       
operation of our site. However, claims may be brought against us. Even if       
these claims ultimately prove to be without merit, defending against them can   
be time-consuming and expensive, and any adverse publicity associated with      
these claims could adversely affect our business. Our liability insurance does  
not provide coverage for professional malpractice, so these claims would not    
come within the scope of or be covered by our insurance. We may not be able to  
maintain existing coverage or expand its scope to address evolving risks, or    
obtain increased amounts of coverage on acceptable terms or at all.             

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

 At present, Medicare does not reimburse outpatient prescription drugs, with
the exception of a few items. However, Medicaid and CHAMPUS do include a        
significant outpatient prescription drug benefit. In addition, Medicare,        
Medicaid, CHAMPUS and other healthcare programs subject to the Federal Anti-    
Kickback Law cover various medical supplies sold through our websites, such as  
slings and splints. While we believe that we have structured our fee            
relationships so that the Federal Anti-Kickback Law is not implicated for any   
items or services covered by it, enforcement agencies may take a contrary       
position, especially if Medicare benefits are expanded to cover prescription    
drugs. Our arrangements with our e-commerce pharmacy, medical supply and        
medical service affiliates, as currently structured, may not qualify as among   
the practices exempted from federal prosecution or other enforcement under the  
Federal Anti-Kickback Law by the regulatory safe harbors promulgated by the     
Department of Health and Human Services (DHHS). Failure to meet a safe harbor,  
however, does not mean that an arrangement violates the statute. Many           
activities engaged in by healthcare providers and related entities fall         
outside the safe harbors yet are not deemed illegal. While we believe that our  
fee arrangements are not illegal as to products and services reimbursable by    
Medicare, Medicaid, CHAMPUS or other programs covered by the Federal Anti-      
Kickback Law, given the breadth of the statute, the limited scope of the        
existing safe harbors and the desire of the agencies to eliminate programs      
that create financial incentives to provide excessive care, we may face         
adverse regulatory positions. The Office of Inspector General is authorized to  
issue advisory opinions regarding the interpretation and applicability of the   
Federal Anti-Kickback Law, including whether an activity or proposed activity   
constitutes grounds for the imposition of civil or criminal sanctions. We have  
not sought this kind of opinion and are aware of no opinion that has been       
issued regarding website sponsorships or planned sales activities.              

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

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

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

Other Governmental Regulation                                                   

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

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

Privacy of Individually Identifiable Health Information and Consumer      
Information. There have recently been increased efforts in both the United      
States and in other countries to safeguard the privacy and security of          
individually identifiable health information and consumer information.          

These efforts are reflected in changing federal and state laws governing  
the storage, transmission and disclosure of medical information and healthcare  
records. In addition to having recently enacted legislation, the U.S. Congress  
is currently considering several bills dealing with privacy of personal health  
information which may create a need for us to modify our practices concerning   
the collection and use of such information. Our database contains personally    
identifiable health information submitted by users in response to questions on  
our personal health evaluation form and in connection with a customer's         
request for a prescription drug and certain healthcare product orders. We       
expect that our websites will also contain information compiled by users for    
their personal healthcare histories. While this information is not intended to  
constitute or be treated as formal medical records, users or regulatory         
agencies may seek to characterize this information as medical records and       
impose requirements and/or sanctions upon us related to the maintenance and     
handling of medical records. We have a stringent privacy policy covering this   
information, and we only grant access to this information as required by        

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law or to third party contractors who are also bound by a stringent privacy     
policy or, as disclosed to our users, to third parties where it is necessary    
for the delivery of goods or services ordered by the user.                      

The FTC has recently promulgated regulations implementing the financial   
privacy provisions of the Gramm-Leach-Bliley Financial Services Reform Act      
(GLB), and has been active in investigating alleged misrepresentations by       
Internet sites regarding their privacy practices. Although the GLB rules do     
not directly apply to us, we have established a set of privacy principles and   
practices based upon those proposed by Health Internet Ethics, of which we are  
a founding member. The FTC, as part of its inquiry into privacy practices by    
e-health sites, looked into our privacy practices last year. The agency         
subsequently closed its inquiry without taking any action after expressing      
satisfaction with the steps we took to clarify our privacy practices and to     
safeguard against any inadvertent disclosure of personal information.           

The Health Insurance Portability and Accountability Act of 1996 (HIPAA)   
requires personally identifiable health information be used and disclosed only  
in compliance with specified rules and regulations, which have not yet been     
finalized. Our pharmacy operations will more likely than not be directly or     
indirectly subject to certain HIPAA requirements. We have not to date           
undertaken an evaluation of the impact of HIPAA on our operations, but intend   
to review such regulations once they are finalized.                             

 In December, 2000 DHHS published privacy regulations under HIPAA, which may
be revised before they are implemented. They describe the permissible uses and  
disclosures of individually identifiable health information by health care      
providers, health plans and health care clearinghouses, known collectively as   
"covered entities." It is possible that we could be considered a covered        
entity if we are deemed to be a health care provider. Covered entities are      
required to enter into agreements with their "business associates," extending   
applicable provisions of the regulations to those business associates.          

 These regulations establish a complex regulatory framework for a variety of
subjects, including (1) disclosure and use of health information, (2)           
individuals' rights to access and amend their health information, and (3)       
individuals' rights to an accounting of disclosures. They generally prohibit    
covered entities and their business associates from disclosing protected        
health information unless they first obtain patient consent or authorization,   
and then only allow the disclosure of the minimum necessary amount of           
protected health information. We will need to comply with these requirements    
if we are deemed to be a covered entity or a business associate of a covered    
entity.                                                                         

In August, 1998 DHHS issued proposed regulations addressing security      
standards for the transmission of protected health information under HIPAA.     
These standards require affected entities to establish and maintain reasonable  
and appropriate administrative procedures, physical safeguards, technical       
security services, and technical security mechanisms to ensure the integrity,   
confidentiality and availability of such information. The proposed regulations  
are designed to protect such information against reasonably anticipated         
threats or hazards to its security or integrity. They require covered entities  
to enter into "chain of trust partner agreements" with all entities with whom   
they share protected health information. We will need to comply with these      
standards if we are deemed to be a health care provider, or if we are required  
to enter into chain of trust partner agreements with any of our customers,      
such as health care providers.                                                  

If third persons were able to penetrate our network security and gain     
access to, or otherwise misappropriate or misuse, our users' personal           
information, we could be subject to liability. This liability could include     
claims for misuses of personal information, such as for unauthorized marketing  
purposes or unauthorized use of credit cards. These claims could result in      
litigation, our involvement in which, regardless of the outcome, could require  
us to expend significant financial resources. Moreover, to the extent any of    
the data constitute or are deemed to constitute individually identifiable       
health information, a breach of privacy could violate federal law. Because      
there are both pharmacy components and consumer components to our websites, we  
may be subject to different requirements and be required to comply with         
different privacy policies for these separate components.                       

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The confidentiality of medical information and the circumstances under    
which such information may be provided to us are also subject to substantial    
regulation by state governments. Many states have laws and regulations that     
govern both the disclosure and use of confidential medical information.         
Although compliance with these requirements is at present principally the       
responsibility of health care providers, it is possible that we could be        
deemed to be a health care provider, and even if we are not the requirements    
are evolving rapidly. The HIPAA privacy regulations do not supercede            
conflicting state laws that are more restrictive. Therefore, we may have to     
comply with various different state requirements depending upon the location    
of our customers.                                                               

The federal Children's Online Privacy Protection Act (COPPA) prohibits    
Internet companies from seeking or obtaining certain information from children  
under the age of thirteen. While we have safeguards in place to comply with     
the provisions of COPPA, we may be unable to detect when an underage person is  
utilizing our services such that we have obtained information prohibited under  
COPPA.                                                                          

It is possible that the use of "cookies" may become subject to laws       
limiting or prohibiting their use. The term cookies refers to information       
keyed to a specific server, file pathway or directory location that is stored   
on a user's hard drive, possibly without the user's knowledge and which is      
used to track demographic information and to target advertising. Cookies do     
not personally identify the user, unless the owner of the cookie also has       
personally identifiable information about the user which can be linked to the   
cookie numerical identifier. Both we and DoubleClick use cookies to             
personalize the websites and to target advertising. Most currently available    
Internet browsers allow users to modify their browser settings to remove        
cookies at any time or prevent cookies from being stored on their hard drives.  
In addition, a number of Internet commentators, advocates and governmental      
bodies in the United States and other countries have urged the passage of laws  
limiting or abolishing the use of cookies. Limitations on or elimination of     
the use of cookies could limit our ability to personalize the websites for the  
user, and could limit the effectiveness of the targeting of advertisements,     
both of which could impair our ability to generate advertising revenue.         

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

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

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

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Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would impose   
additional taxes on the sale of goods and services over the Internet, and some  
states have taken measures to tax Internet-related activities. Although in      
1998 the U.S. Congress placed a moratorium until October 21, 2001 on state and  
local taxes on Internet access and on discriminatory taxes on electronic        
commerce, existing state or local laws were expressly excepted from this        
moratorium. Congress is currently considering extending this moratorium. If it  
were to be lifted, some type of federal and/or state taxes may be imposed upon  
Internet commerce. Attempts at regulating commerce over the Internet may        
substantially impair the growth of commerce on the Internet and, as a result,   
adversely affect our opportunity to derive financial benefit from these         
activities.                                                                     

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

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

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

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

Employees                                                                       

As of February 28, 2001, we employed a total of 228 employees, of whom 20 
were employed in engineering, 23 were employed in marketing and merchandising,  
71 were employed in our warehouses, 24 were employed in general management and  
administration, 25 were employed in customer service, 22 were employed in       
activities related to the catalog business, 38 were employed in activities      
related to the Vitamins.com retail stores and 5 were employed in pharmacy.      
From time to time, independent contractors are employed to supplement our       
staff. None of our employees is represented by a labor union, and we have       
never experienced a work stoppage. We believe our relationship with our         
employees is good.                                                              

Executive Officers                                                              

The following sets forth the name, age and biographical information for   
each of our executive officers as of March 31, 2001:                            

 C. Fred Toney, age 35, has served as Chief Executive Officer since February
2001, as President since November 2000 and as Chief Financial Officer since     
July 1999 when he joined HealthCentral. From August 1992 to July 1999, Mr.      
Toney served as Senior Managing Director, Senior Research Analyst, Medical,     
Technology and Health Care Information Technology and Director of Research at   
Pacific Growth Equities, Inc., an                                               

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investment banking firm. Previously he held investment or research analyst      
positions at Volpe, Welty & Company; Donaldson, Lufkin & Jenrette Securities    
Corporation and RCM Capital Management; and sales and merchandising positions   
at Pharmavite Pharmaceutical Corporation, a pharmaceutical manufacturing and    
distribution company. He also serves on the boards of directors of private      
companies. Mr. Toney received a B.A. in both Economics and English from the     
University of California, Davis.                                                

Jay Hammer, age 45, has served as President of our ComfortLiving division 
since December 2000, when we acquired the Comfort Living business. From         
December 1999 to December 2000, Mr. Hammer served as Chief Executive Office     
and President for ComfortLiving.com. From February 1999 to November 1999, Mr.   
Hammer was a private investor and consultant to internet companies. From        
January 1997 to February 1999, Mr. Hammer served as Director of Stores and      
Corporate Secretary for Urban Outfitters, a retailer of home and fashion        
apparel. From March 1990 to December 1996, Mr. Hammer served as Regional        
Manager for The Gap, an apparel retailer. Mr. Hammer received a B.A. in         
English Literature from the University of Chicago and an M.B.A. from Harvard    
University.                                                                     

Karin Hern, age 50, has served as Vice President and General Counsel since
January 2000. From May 1997 to January 2000, Ms. Hern was a legal and business  
consultant to several non-profit organizations, including Alta Bates Medical    
Center. From September 1984 to May 1997, Ms. Hern served as Western Division    
Counsel for Sutter Health System, a California non-profit healthcare            
organization, and its wholly controlled subsidiary, Alta Bates Health System.   
Ms. Hern received a B.A. in Criminology from the University of California,      
Berkeley and a J.D. from the University of California, Davis.                   

 Miles Munger, age 42, has served as Vice President of Marketing and General
Merchandising Manger since January 2000, when he joined HealthCentral, and      
previously served as a consultant to HealthCentral from November 1999 to        
January 2000. From April 1997 to October 1999, Mr. Munger was Vice President    
of Merchandising for West Marine, a marine retail company. From January 1995    
to April 1997, Mr. Munger was Director of Product Procurement for The North     
Face, an apparel and sports retail company. Mr. Munger received a B.S. in       
Economics and Business Administration from Portland State University.           

Neil Sandow, age 53, has served as Vice President of Pharmacy since       
November 2000. He previously served as Vice President of Drug Information       
Services and Producer and Editor-In-Chief of RxList.com from October 1999,      
when HealthCentral.com acquired RxList.com, to November 2000. From November     
1995 to October 1999, Dr. Sandow was founder, Chairman and Chief Executive      
Officer of RxList.com. From June 1997 to April 1999, Dr. Sandow served as       
Manager of Automated Technologies for Oncology Therapeutics Network, a          
subsidiary of Bristol Myers-Squibb. From December 1991 to April 1997, Dr.       
Sandow served as Director of Pharmacy Services for Brookside Hospital. Dr.      
Sandow received a B.A. in Zoology from the University of California, Berkeley,  
and a Pharm.D. from the University of the Pacific.                              

 James Schanzenbach, age 37, has served as Vice President of Engineering and
Chief Information Officer since September 2000, when HealthCentral acquired     
DrugEmporium.com. From January 1999 to September 2000, Mr. Schanzenbach served  
as Chief Information Officer for DrugEmporium.com. From November 1998 to        
December 1999, Mr. Schanzenbach served as Vice President of Information         
Technology for Smartalk Teleservice, a telecommunications company. From May     
1994 to November 1998, he served in several managerial and vice president       
level technology positions at Banc One Financial, a financial services          
company. Mr. Schanzenbach received a B.A. in Accounting and an M.B.A. from      
Ohio University.                                                                

 Deryk Van Brunt, age 41, has served as Executive Vice President of Business
Development and Chief Privacy Officer since November 2000. He previously        
served as Executive Vice President of Operations from January 2000 to November  
2000 and served as Senior Vice President of Operations from August 1999, when   
HealthCentral acquired Enterprise Web Services (formerly Windom Health,) until  
January 2000. From June 1994 to August 1999, Dr. Van Brunt was Chief Operating  
Officer of Enterprise Web Services. Dr. Van Brunt received a B.S. in Natural    
Resources, an M.P.H. in Epidemiology and a Dr.P.H. in Health Informatics from   
the University of California, Berkeley, and is currently an Assistant Clinical  
Professor, U.C. Berkeley School of Public Health.                               

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Item 2. Properties                                                              

We maintain our corporate headquarters in Emeryville, California where we 
lease three facilities that total approximately 24,000 square feet. The lease   
for approximately 7,300 square feet expires in March 2004, the lease for        
approximately 8,800 feet expires in December 2003, and the lease for            
approximately 7,900 square feet expires in September 2005. We also lease        
approximately 9,900 square feet of office space in Falls Church, Virginia       
under a lease that expires in June 2002, but is subject to two three-year       
renewal options. In addition, we lease approximately 1,360 square feet and      
5,000 square feet of office space in Columbus, Ohio and Long Island City, New   
York under leases that expire in March 2003 and April 2001, respectively. We    
do not intend to renew the Long Island City, New York lease, which is expiring  
in April 2001.                                                                  

We maintain a pharmacy, warehouse and fulfillment center in Louisville    
Kentucky where we lease approximately 64,800 square feet of office and          
warehouse under a lease that expires in July 2004, and we lease a 24,500        
square foot warehouse in Gaithersburg, Maryland under a lease that expires in   
May 2004. We currently intend to terminate the Gaithersburg, Maryland           
warehouse lease.                                                                

We lease all six of our Vitamins.com retail stores, which are in the      
Maryland and Virginia suburbs of Washington, DC. We are currently in the        
process of negotiating lease terminations for three additional stores that      
have been closed. The following table sets forth information about our          
Vitamins.com retail store facilities and the lease applicable to each.          

                                                                [Download Table]

                                                    Lease Term            
                           Approx. Size ----------------------------------
Location                    (Sq. Ft.)      Expiration        Renewal(s)   
--------                   ------------ ----------------- ----------------
                                                                          
Alexandria, VA............    2,362     January 15, 2009  Two 5 Year Terms

Annapolis, MD.............    3,000     June 8, 2003      Two 5 Year Terms

Falls Church, VA..........    2,250     August 20, 2002   Two 5 Year Terms

Gaithersburg, MD..........    3,133     March 13, 2008    None            

Rockville, MD.............    4,041     September 4, 2007 None            

Vienna, VA. ..............    3,769     July 24, 2003     One 5 Year Term 

We believe that the existing facilities are well suited to their current  
use and will remain adequate for our needs for the foreseeable future. We may   
seek to sublease or terminate certain leases if they are not needed for         
current and proposed operations.                                                

Item 3. Legal Proceedings                                                       

On December 28, 2000, Bergen Brunswig Drug Company and its wholly owned   
subsidiary, Medi-Mail, filed an action in Orange County, California Superior    
Court (Case No. 00CC15552) against HealthCentral.com and more.com. The          
complaint alleges inducement of breach of contract and fraudulent conveyance    
by HealthCentral.com and breach of contract by more.com arising out of          
HealthCentral's acquisition of certain of the assets of more.com. The Company   
believes this claim is without merit and has retained the law firm of Rutan &   
Tucker, LLP, to vigorously defend against this claim. The complaint alleges     
monetary damages of approximately $6 million. Bergen has requested a halt in    
document production and the parties have commenced settlement negotiations.     

The Company is involved in litigation from time to time that is routine in
nature and incidental to the conduct of its business.                           

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

No matters were submitted to a vote of security holders during the fourth 
quarter of the year ended December 31, 2000.                                    

PART II 

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

Price Range of Common Stock                                                     

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

                                                                [Download Table]

                                                             High    Low  
                                                              ($)    ($)  
                                                            ------- ------
                                                                          
Stock Price Fiscal Year 2000                                              
  First Quarter............................................ 13.6875 5.4375
  Second Quarter...........................................  6.1870 3.0000
  Third Quarter............................................  4.5000 2.3750
  Fourth Quarter...........................................  2.3750 0.1250
Stock Price Fiscal Year 1999                                              
  IPO date (December 7, 1999) to December 31, 1999......... 12.7500 6.8750

The closing sale price of our Common Stock as reported on the Nasdaq      
National Market on February 28, 2001 was $0.4062 per share. As of that date,    
there were approximately 245 holders of record of our Common Stock. This does   
not include the number of persons whose stock is in nominee or in "street       
name" accounts through brokers.                                                 

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

Dividend Policy                                                                 

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

Unregistered Equity Securities Sold in 2000                                     

Between August 1, 2000 and December 31, 2000, the Company sold and issued 
the following unregistered securities:                                          

On August 2, 2000, we issued 300,000 shares of Common Stock for       
aggregate consideration of $938,000 to a strategic partner in full          
consideration for the satisfaction of our obligations under a commercial    
agreement.                                                                  

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On December 1, 2000, we issued 16,500 shares of Common Stock for      
aggregate consideration of $16,500 to a creditor of Vitamins.com in         
exchange for the cancellation of a debt.                                    

On December 2, 2000, we issued 25,000 shares of Common Stock for      
aggregate consideration of $75,000 to a creditor of Vitamins.com in         
exchange for the cancellation of a debt.                                    

On December 2, 2000, we issued 19,846 shares of Common Stock for      
aggregate consideration of $80,003 to a creditor of Vitamins.com in         
exchange for the cancellation of a debt.                                    

On December 14, 2000, we issued 5,002,525 shares of common stock to   
more.com, Inc. in exchange for certain assets and certain liabilities of    
more.com's Comfort Living subsidiary and certain assets of more.com. The    
aggregate consideration received for these shares was $6.3 million.         

 There were no underwritten offerings employed in connection with any of the
transactions set forth above. The sales and issuances of the unregistered       
securities in the transactions described above were deemed to be exempt from    
registration under the Securities act in reliance upon Section 4(2) of the      
Securities act as transactions by an issuer not involving any public offering.  

Changes in Securities and Use of Proceeds                                       

On December 7, 1999, in connection with our initial public offering, a    
Registration Statement on Form S-1 (File No. 333-88019) was declared effective  
by the Securities and Exchange Commission, pursuant to which 7,500,000 shares   
of our common stock were offered and sold on December 7, 1999 for our account,  
generating net proceeds of approximately $74.6 million. We used $60.4 million   
of the net offering proceeds through December 31, 2000, of which $45.7 million  
was used for funding working capital and operating losses, $6.2 million was     
used for capital expenditures and $5.8 million for acquisition costs. Other     
than $1.4 million paid to Dr. Dean Edell, a director, for the purchase of the   
Dr. Dean Edell Eyewear license, and $1.3 million paid to Neil Sandow, an        
officer, in connection with the purchase of RxList, none of these payments      
represented direct or indirect payments to our directors, officers or other     
affiliates. The remaining initial public offering proceeds have been invested   
in short-term, investment grade, interest bearing securities.                   

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Item 6. Selected Financial Data                                                 

The following selected statement of operations data for the years ended   
December 31, 2000, 1999 and 1998 and the balance sheet data as of December 31,  
2000 and 1999 is derived from the consolidated financial statements included    
elsewhere in the Form 10-K. The selected financial data should be read in       
conjunction with the Company's consolidated financial statements and the notes  
thereto and "Management's Discussion and Analysis of Financial Condition and    
Results of Operations" included elsewhere in the Form 10-K.                     

                                                        [Enlarge/Download Table]

                                                                                 Period from 
                                       Years Ended December 31,                  Inception to
                          -----------------------------------------------------  December 31,
                              2000           1999         1998         1997          1996    
                          -------------  ------------  -----------  -----------  ------------
                                                                                             
Statement of Operations                                                                      
 Data:                                                                                       
Revenues:                                                                                    
 eCommerce and other                                                                         
  product sales.........  $  43,051,726  $ 17,041,760  $ 4,340,297  $   436,406   $      --  
 Advertising, content                                                                        
  and other.............      2,952,974     1,188,753       15,259          --           --  
                          -------------  ------------  -----------  -----------   ---------- 
  Total revenues........     46,004,700    18,230,513    4,355,556      436,406          --  
                          -------------  ------------  -----------  -----------   ---------- 
Operating and other                                                                          
 expenses:                                                                                   
 Cost of eCommerce and                                                                       
  other product sales...     32,301,566    11,793,276    2,646,179      288,751          --  
 Content and product                                                                         
  development...........     10,346,029     4,398,580      136,788          --           --  
 Sales and marketing....     56,435,754    28,671,971    2,318,122      818,218          --  
 General and                                                                                 
  administrative........     10,593,593     4,683,423      914,002      591,188       99,535 
 Amortization of                                                                             
  intangible assets.....     14,799,823     3,657,222          --           --           --  
 Stock compensation.....      1,765,279     6,245,822      104,641          --           --  
 Acquired in-process                                                                         
  research and                                                                               
  development...........            --        804,525          --           --           --  
 Acquisition and                                                                             
  contract termination                                                                       
  costs.................      9,258,375           --           --           --           --  
 Write-off of                                                                                
  intangibles...........     39,134,092           --           --           --           --  
                          -------------  ------------  -----------  -----------   ---------- 
  Total operating and                                                                        
   other expenses.......    174,634,511    60,254,819    6,119,732    1,698,157       99,535 
                          -------------  ------------  -----------  -----------   ---------- 
Loss from operations....   (128,629,811)  (42,024,306)  (1,764,176)  (1,261,751)     (99,535)
Other expense, net......       (343,426)      (32,568)         --           --           --  
Interest income                                                                              
 (expense), net.........      2,477,004       777,867      (20,519)      (2,997)         367 
                          -------------  ------------  -----------  -----------   ---------- 
Net loss................   (126,496,233)  (41,279,007)  (1,784,695)  (1,264,748)     (99,168)
Preferred stock                                                                              
 dividends..............            --    (22,275,542)         --           --           --  
                          -------------  ------------  -----------  -----------   ---------- 
Net loss attributable to                                                                     
 common stockholders....  $(126,496,233) $(63,554,549) $(1,784,695) $(1,264,748)  $  (99,168)
                          =============  ============  ===========  ===========   ========== 
Basic and diluted net                                                                        
 loss per share                                                                              
 attributable to common                                                                      
 stockholders(1)........  $       (3.39) $      (5.67) $     (0.25) $     (0.19)  $    (0.02)
                          =============  ============  ===========  ===========   ========== 
Shares used in computing                                                                     
 basic and diluted net                                                                       
 loss per share                                                                              
 attributable to common                                                                      
 stockholders(1)........     37,359,590    11,204,708    7,016,416    6,724,874    4,162,602 
                          =============  ============  ===========  ===========   ========== 

                                                   December 31,                              
                          -------------------------------------------------------------------
                              2000           1999         1998         1997          1996    
                          -------------  ------------  -----------  -----------  ------------
                                                                                             
Balance Sheet Data:                                                                          
Cash and cash                                                                                
 equivalents............  $  14,208,364  $ 83,690,072  $ 4,102,047  $   124,932   $   12,439 
Working capital.........      7,840,648    80,995,956    3,991,742     (314,377)     (24,403)
Total assets............     45,385,848   148,837,995    8,196,659    1,469,677       15,174 
Long-term obligations...      1,483,966       792,824      343,352      157,404          --  
Total stockholders'                                                                          
 equity.................     23,404,395    97,499,656    6,341,491      484,091      (21,668)

--------                                                                        
(1) See Note 1 of Notes to Consolidated Financial Statements for an             
 explanation of the method employed to determine the number of shares used
to compute per share amounts.                                           

Note: The selected financial data for all periods presented has been restated   
    to reflect the acquisition of Vitamins.com, which was accounted for as a
pooling of interest.                                                

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

The following discussion and analysis should be read in conjunction with  
our "Selected Financial Data" and the Company's consolidated financial          
statements and notes thereto included elsewhere in this Form 10-K. Except for   
historical information, this discussion and analysis and other parts of this    
Form 10-K (including, without limitation, the discussion under the heading      
"Results of Operations") contains forward-looking statements that involve       
risks, uncertainties and assumptions. These forward-looking statements are      
based on our current expectations and are not guarantees of future              
performance. Actual results may differ materially from those anticipated in     
these forward-looking statements, as a result of many factors, including but    
not limited to those discussed in the section entitled "Risk Factors That May   
Affect Future Results and Market Price of Stock." The cautionary statements     
made in this Report should be read as being applicable to all related forward-  
looking statements wherever they appear in this Report. Readers are cautioned   
not to place undue reliance on these forward-looking statements, which reflect  
management's analysis only as of the date hereof. We undertake no obligation    
to revise or publicly release the results of any revision to these forward      
looking statements.                                                             

Overview                                                                        

HealthCentral.com is a leading provider of online healthcare related e-   
commerce and content to consumers through our network of websites, which        
includes WebRx.com, Vitamins.com, HealthCentral.com, RxList.com,                
DrugEmporium.com and ComfortLiving.com, and through our Vitamins.com mail       
order and retail operations. In addition, we design, host and maintain          
healthcare institutions' websites for healthcare content and e-commerce.        
HealthCentral.com offers more than 25,000 SKU's of health, beauty,              
nutraceuticals, home and personal care products in addition to a full service   
pharmacy and a vision center. We also offer user-friendly interactive tools,    
customized health information pages, personalized health risk assessments and   
topical newsletters.                                                            

 On April 11, 2000, we acquired the exclusive licensing rights to market and
sell "Dr. Dean Edell Eyewear" through 2006. Payment for the product license     
was $2.8 million in cash, of which $1.4 million was paid to a related party.    
Simultaneously, we entered into a license and distribution agreement with       
Cable Car Eyewear to sell the Dr. Dean Edell Eyewear to brick-and-mortar        
pharmacies and grocery chains. This agreement requires minimum purchases of     
products from us for the years 2000 through 2006; we are in negotiations with   
the distributor regarding changes to the existing agreement that may result in  
inventory values not being realized. In addition, we entered into a supply      
agreement with Invision Optical Products through 2006 to supply us with the     
Dr. Dean Edell Eyewear products, and we are in negotiations with the supplier   
regarding changes to the existing agreement.                                    

On June 16, 2000, we acquired Vitamins.com, a retailer that provides      
dietary supplements, related health and wellness products and information to    
consumers, for consideration consisting of 22,432,801 shares of our common      
stock. Each share of Vitamins.com stock was exchanged for 0.387 shares of       
HealthCentral.com common stock. We also incurred transaction costs of           
approximately $2.5 million. Vitamins.com is our wholly owned subsidiary. The    
transaction was recorded using the pooling of interests method of accounting    
and was a tax-free reorganization under Section 369 of the Internal Revenue     
Code of 1986, as amended.                                                       

In September 2000, we and Bergen Brunswig terminated our fulfillment      
contracts and entered into a settlement agreement. An expense of $99,000 was    
incurred in association with the termination of this contract. We also amended  
our agreement with AltaVista, an internet portal, to issue 300,000 shares of    
our common stock, valued at $938,000, to AltaVista in exchange for the          
termination of all our payment obligations under the amended agreement dated    
May 15, 2000. Our relationship with AltaVista was formally terminated on        
September 15, 2000.                                                             

 On September 14, 2000, we consummated an asset purchase agreement with Drug
Emporium and its online drugstore subsidiary, DrugEmporium.com. Under the       
terms of the asset purchase agreement, we acquired substantially all of the     
assets and assumed some liabilities, primarily trade payables and               
hardware/software leases, of the DrugEmporium.com business in exchange for the  
issuance of shares of our non-voting preferred stock, which does not carry a    
liquidation preference and is convertible into 2,400,000 shares of common       
stock. Drug Emporium also has an opportunity to receive additional shares of    
our convertible preferred stock, which do not carry a liquidation preference,   
if certain revenue targets are met. In connection with this acquisition,        

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we also entered into a 10-year services agreement with Drug Emporium under      
which we receive in-store promotional and advertising support and access to     
Drug Emporium electronic purchasing system and in-store order pickup            
capabilities at certain Drug Emporium retail stores. The total purchase price   
of $7.8 million consisted of 480,000 shares of preferred stock, convertible     
into 2.4 million shares of common stock, valued at $7.3 million based upon the  
fair market value of our common stock of $3.0312 per share on the date the      
asset purchase agreement was signed as well as transaction costs of $522,000.   
Drug Emporium recently filed for Chapter 11 bankruptcy protection in            
connection with its buyout by Snyder's Drug Stores.                             

 On December 14, 2000, we acquired certain assets and properties and assumed
certain liabilities associated with more.com's Comfort Living subsidiary,       
including its website, inventory and a leased 18,000 square foot warehouse and  
distribution center in Gaithersburg, Maryland, which we intend to close by      
June 2001. We also acquired certain other assets of more.com. The               
consideration for the asset purchase was the issuance of 5,002,525 shares of    
our common stock, and the total purchase price approximated $6.3 million,       
including transaction costs. We have accounted for this acquisition as a        
purchase transaction.                                                           

During the fourth quarter ended December 31, 2000, we performed an        
impairment analysis of the identifiable intangibles and enterprise level        
goodwill recorded in connection with the acquisitions of Enterprise Web         
Services, L&H Vitamins, HealthCentralRx.com, RxList.com, DrugEmporium.com and   
the license agreement with regard to Dr. Dean Edell Eyewear. The analysis was   
performed in response to the sustained decline in our stock price, the overall  
decline in our industry growth rate, the excess of the carrying value of the    
identifiable intangibles and goodwill over our market capitalization and lower  
projected future operating results. As a result of this review, a $39.1         
million impairment charge was recorded to eliminate all of our identifiable     
intangibles and enterprise level goodwill, except for the amounts recorded in   
December 2000 in connection with our acquisition of certain assets of           
more.com, Inc. and its subsidiary, Comfort Living. The charge was determined    
based upon our estimated future discounted cash flows using a discount rate of  
30%. The assumptions supporting the cash flow analysis, including the discount  
rate, were based on management's best estimates. The remaining goodwill and     
identifiable intangibles at December 31, 2000 with a new book value of          
approximately $4.9 million will be amortized over the assets' remaining useful  
lives of three to four years, which we consider appropriate.                    

 E-commerce and other product sales revenues are recognized for prescription
and non-prescription drugs, over-the-counter health and beauty aid products     
and other health-related products, net of discounts, when products are shipped  
to customers or sold through our retail stores. Net sales include outbound      
shipping and handling fees charged to customers. Prior to September 2000, we    
recognized commission revenue for the use of our website related to sales made  
by Medi-Mail for prescription drugs. However, as a result of our acquisition    
of DrugEmporium.com, beginning in September 2000 we began to recognize gross    
sales from the sale of pharmaceuticals products, which we sell and ship         
directly to our customers. We are in the process of reviewing pharmacy          
operations, and, as a result, may make changes in the future. Revenue also      
includes the wholesale revenue from the sales of the "Dr. Dean Edell Eyewear"   
brand eyeglasses to our brick-and-mortar distribution partner. All revenues     
are recognized, net of allowances for product returns, promotional discounts    
and coupons, at the time the products are shipped to the customer for e-        
commerce sales and at the point of sale for retail stores. We are responsible   
for all refunds relating to all sales where a customer is not satisfied with    
the products received. We record an estimated allowance for such returns in     
the period of sale. We also retain the credit risk for all sales.               

Advertising revenues are recognized in the period the advertising         
impressions are delivered to customers. We use an outside vendor to solicit     
customers to use our advertising services, to serve the ads to our website and  
to bill and collect for these services. This outside vendor provides monthly    
reports indicating the impressions delivered, the amounts billed for our        
advertising services and the related administrative fee. We recognize           
advertising revenues, as reported by the outside vendor, net of this            
administrative fee, as we bear no collection risk for the gross amount of the   
advertising fees. Our advertising contracts do not guarantee a minimum number   
of impressions to be delivered. We also enter into sponsorship agreements with  
vendors to provide them with an opportunity to market their products through    
our websites.                                                                   

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Content and other revenues are derived from contracts with healthcare     
providers, health product resellers, and third party organizations and          
principally consist of license fees for website development applications,       
consulting fees from custom website development, and hosting and maintenance    
fees related to the websites' maintenance. We recognize software license        
revenue under Statement of Position ("SOP") 97-2, Software Revenue              
Recognition, and SOP 98-9, Modifications of SOP 97-2, Software Revenue          
Recognition, with Respect to Certain Transactions. When contracts contain       
multiple elements and vendor-specific objective evidence exists for all         
undelivered elements, we account for the delivered elements in accordance with  
the "residual method" prescribed by SOP 98-9. For consulting projects,          
revenues are recognized at the time services are rendered based on charges for  
time and materials. Deferred revenues represent the amount of cash received or  
services performed and billed prior to revenue recognition.                     

We incurred net losses of approximately $126.5 million, $63.6 million, and
$1.8 million for the years ended December 31, 2000, 1999 and 1998,              
respectively. We anticipate incurring additional operating losses through at    
least 2001.                                                                     

Results of Operations                                                           

Years ended December 31, 2000, 1999 and 1998                                  

Revenues                                                                      

E-commerce and Other Products Sales. E-commerce and other product sales   
consist of prescription drug and other health-related product sales online and  
through our mail order business, as well as wholesale sales of Dr. Dean Edell   
brand eyewear. For 2000, e-commerce and other product sales increased from      
$9.1 million to $35.7 million, or 292%, over 1999. The increase was primarily   
attributable to growth in our mail order and e-commerce sales, an increased     
customer base, repeat purchases from existing customers and new product         
offerings. There were no e-commerce or other product sales in 1998. Revenues    
are targeted to increase in 2001 as we target continued growth of our e-        
commerce and mail order customer base and our affiliate relations and as we     
focus our marketing efforts on our existing customer base. However, the future  
level of our sales will continue to depend upon a number of factors, including  
our ability to increase sales with a greatly reduced marketing budget, the      
frequency of customer purchases, the quantity and mix of products sold and the  
price we charge for our products.                                               

Retail Store Sales. Retail store sales, consisting of brick-and-mortar    
sales of healthcare and related over-the-counter products, were $7.3 million    
in 2000, $7.9 million in 1999 and $4.3 million in 1998. Retail sales declined   
7% during 2000 as a result of lower volume, primarily due to a substantial      
decrease in the marketing and advertising budget for the stores as we shifted   
our focus from brick-and-mortar stores to e-commerce and mail order sales. The  
83% growth during 1999 was primarily due to the opening of four new stores in   
1999 and to the inclusion of a full year of results in 1999 from the six        
retail stores in operation as of December 1998. In February 2001, we closed     
four of our unprofitable brick-and-mortar stores. We expect the retail store    
sales for the remaining six stores to remain flat in the future as we continue  
to focus on our other sales channels including Internet and mail order sales.   

Advertising, Content and Other. Advertising, content and other revenues   
consist of advertising and sponsorship revenues, content subscription and       
license revenues. Advertising, content and other revenues were $3.0 million in  
2000, $1.2 million in 1999 and $15,000 in 1998. The increase of 148% from 1999  
to 2000 was primarily attributable to increased advertising and vendor          
sponsorship revenue of $549,000 and an increase in institutional content,       
subscription and license revenue of $1.2 million in 2000 due to additional      
institutional clients. The increase from 1998 to 1999 was also attributable to  
increased vendor sponsorship and advertisement revenues of $886,000 and         
increased institutional content, subscription and license revenue of $287,000.  
We are targeting our vendor sponsorship revenues to continue to increase        
modestly in the future as we focus on providing vendors with opportunities in   
which to communicate their marketing messages to customers on our content and   
e-commerce websites; however institutional content revenues are not expected    
to grow as we have de-emphasized this business and these revenues are targeted  
to decline in the future.                                                       

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Cost of Revenues                                                              

Cost of E-commerce and Other Product Sales. Cost of e-commerce and other  
product sales consist primarily of the cost of products sold to customers,      
certain promotion costs and inbound shipping charges. These costs were $32.3    
million in 2000, $11.8 million in 1999 and $2.6 million in 1998. The 174%       
increase from 1999 to 2000 was attributable to an increase in sales, an         
increase in unit costs of certain products, and increases in inbound shipping   
and promotion costs associated with new customer acquisitions. The 346%         
increase from 1998 to 1999 was attributable to the acquisition of L&H Vitamins  
in August 1999, the relaunch of the Vitamins.com website in October 1999, the   
increase from six to ten Vitamins.com retail stores and promotion costs         
associated with new customer acquisitions. We expect that our cost of e-        
commerce and other product sales will continue to fluctuate ratably with        
changes in e-commerce and other product sales and price discounting and other   
promotion costs.                                                                

Operating Expenses                                                            

Content and Product Development. Content and product development expenses 
consist primarily of payroll and related expenses for website development,      
editorial, engineering and telecommunications operations personnel and          
consultants, systems and telecommunications infrastructure and cost of          
acquired content. Product development costs are generally expensed as           
incurred, except for costs relating to the development of internal-use          
software, which are capitalized and depreciated over their estimated useful     
lives. Content and product development expenses were $10.3 million, $4.4        
million and $137,000 in 2000, 1999 and 1998, respectively. The increase of      
135% from 1999 to 2000 and the 3,116% increase from 1998 to 1999 were           
primarily attributable to an increase of $5.0 million and $2.5 million,         
respectively, in staffing and associated costs related to enhancing and         
maintaining our websites. We expect content and product development expenses    
to decrease in 2001 as we completed most of our significant development         
projects in 2000, which we expect to result in lower consultant expenses. We    
also reduced our editorial and content staff as we are refocusing on            
e-commerce revenues and de-emphasizing advertising revenues, and we wrote-off   
previously capitalized website development costs of $4.5 million.               

Sales and Marketing. Sales and marketing expenses consist primarily of    
advertising and certain promotional expenditures, payroll and related expenses  
for personnel engaged in marketing and customer service activities, outbound    
shipping charges and certain fulfillment costs. Fulfillment costs include the   
external fulfillment fee charged by our third party fulfillment partners prior  
to August 2000 and the internal cost of operating and staffing the              
distribution center. Sales and marketing expenses were $56.4 million in 2000,   
$28.7 million in 1999 and $2.3 million in 1998. The 97% increase in sales and   
marketing expense from 1999 to 2000 was primarily attributable to increases of  
$15.7 million in online and offline advertising expenses incurred to increase   
awareness of our HealthCentral brands, $6.2 million in salary and staff         
expenses and $3.6 million in shipping and fulfillment costs. From 1998 to       
1999, the increase was attributable to increases of $14.9 million in both       
online and offline advertising, $6.3 million in retail store overhead           
expenses, $3.5 million in salary and staff expenses and $1.6 million in         
shipping and fulfillment costs. Sales and marketing expenses are expected to    
decrease as we expect lower headcount through consolidation of facilities, and  
as we shift our marketing efforts toward vendor partnership agreements and      
away from more traditional and expensive marketing, branding and promotional    
efforts, such as print media campaigns, radio and billboards.                   

General and Administrative. General and administrative expenses consist   
primarily of payroll and related expenses for finance, human resources,         
business development, investor relations, executive and administrative          
personnel, as well as professional services and other general corporate         
expenses. General and administrative expenses were $10.6 million in 2000, $4.7  
million in 1999 and $914,000 in 1998. The 126% increase from 1999 to 2000 was   
primarily attributable to an increase of $3.3 million in personnel related      
costs and $1.4 million in professional services related to our operations as a  
public company. The increase from 1998 to 1999 was primarily attributable to    
an increase of $2.1 million in personnel and professional services associated   
with acquisitions and $1.7 million in overhead expense allocation. General and  
administrative expenses are expected to decrease in the future as we expect     
lower headcount, fewer acquisitions and improved operational efficiencies.      

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Amortization of Intangible Assets. Amortization of intangible assets      
relates to the amortization of intellectual property related to domain names    
and intangible assets resulting from acquisitions. For 2000, amortization of    
intangible assets increased from $3.7 million to $14.8 million, or 305%, over   
1999. There were no intangible assets in fiscal 1998. The increase from 1999    
to 2000 was attributable to the acquisitions of the Dr. Dean Edell License      
Agreement, DrugEmporium.com and Comfort Living, as well as recording a full     
year of amortization expense for acquisitions completed throughout 1999. The    
increase from 1998 to 1999 was attributable to the acquisitions of L&H          
Vitamins, our enterprise web services division, RxList and HealthCentralRx.     
Prior to December 31, 2000, goodwill and other intangibles were amortized on a  
straight-line basis over two to ten years, except for the amortization of       
goodwill from L&H Vitamins, which was being amortized over 20 years. After the  
impairment analysis of intangibles and the write-offs discussed below, all      
remaining intangible assets of $4.9 million are being amortized over their      
estimated useful lives of two to four years.                                    

Stock Compensation. Deferred stock compensation is amortized over the     
respective vesting periods of the outstanding options, which is generally       
three to four years. Options granted in the fourth quarter of 1998 and 1999     
have been considered to be compensatory as their deemed value for accounting    
purposes was greater than the exercise prices as determined by the Board of     
Directors on the dates of grant. For 2000, $1.8 million in stock compensation   
was amortized, a decrease of 72% from 1999, as a result of a decrease in the    
number of employees and a decease in the market valuation of our stock. For     
1999, we amortized $6.2 million in stock compensation expense. In 1998, we      
recognized amortization of stock compensation of $105,000.                      

In November 2000, the Board of Directors approved an option exchange      
program under which we offered to all employees and key consultants holding     
outstanding options with per share exercise prices in excess of $0.4062 per     
share, the opportunity to exchange such options for new options with exercise   
prices equal to $0.4062 and with revised vesting schedules. As a result of      
Financial Accounting Standards Board, Interpretation ("FIN") No. 44 , stock     
options exchanged by us on December 11, 2000 are subject to variable plan       
accounting from that date forward. Accordingly, we will continue to remeasure   
compensation cost for the exchanged options until the options are exercised,    
cancelled or forfeited without replacement. The remeasurement will be based on  
any excess of the closing stock price at the end of the reporting period or     
date of exercise, forfeiture or cancellation without replacement, if earlier,   
over the fair value of the our common stock on December 11, 2000, which was     
$0.4062. The resulting non-cash compensation charge will be recorded over the   
three-year vesting schedule of the new options to be issued in the option       
exchange program in accordance with FIN No. 28. There was no effect at          
December 31, 2000 as the fair value of the common stock was less than $0.4062.  

Acquired In-Process Research and Development. Acquired in-process research
and development expense was $805,000 in 1999. There was no in-process research  
and development expense in 2000 or 1998. The valuation of the acquired in-      
process research and development was based on the result of an independent      
appraisal using the income approach. The acquired in-process technology was     
not considered to have reached technological feasibility and had no             
alternative future use.                                                         

Acquisition and Contract Termination Costs. For 2000, acquisition and     
contract termination costs were $9.3 million. We had no acquisition or          
contract termination costs in 1999 or 1998. Of the total costs in 2000,         
approximately $4.5 million was attributable to the write-off of website         
development costs as a result of the DrugEmporium.com asset acquisition, and    
$2.5 million consisted of integration costs, as well as legal, other            
professional and financial advisory fees attributable to the Vitamins.com       
acquisition, which was accounted for as a pooling of interests. Contract        
termination costs totaled $2.3 million, which included $625,000 amortization    
of prepaid expense and $938,000 in common stock issued to AltaVista in          
connection with the cancellation of our payment obligations, $603,000 related   
to the termination of the America Online contract, and $99,000 associated with  
the termination of the Bergen Brunswig contract.                                

Write-off of Intangibles. During the fourth quarter ended December 31,    
2000, we performed an impairment analysis of the identifiable intangibles and   
enterprise level good will recorded in connection with the acquisitions of      
Enterprise Web Services, L&H Vitamins, Inc., HealthCentralrx.com, Inc.,         
RxList.com, DrugEmporium.com                                                    

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and the license agreement with regard to Dr. Dean Edell eyewear. The analysis   
was performed in response to the sustained decline in our stock price, the      
overall decline in Internet industry growth rates, the excess of the carrying   
value of the identifiable intangibles and goodwill over our market              
capitalization, and lower projected future operating results. As a result of    
this review, a $39.1 impairment charge was recorded to eliminate all of our     
identifiable intangibles and enterprise level good will, except for the         
amounts recorded in December 2000 in connection with our acquisition of         
certain assets of more.com, Inc. and its subsidiary, Comfort Living, Inc. The   
charge was determined based upon our estimated future discounted cash flows     
using a discount rate of 30%. The assumptions supporting the cash flows,        
including the discount rate, were based on management's best estimates. The     
remaining goodwill and identifiable intangibles balance of approximately $4.9   
million will be amortized over their remaining useful lives of three to four    
years, which we consider appropriate.                                           

Other Expense, Net. Other expense, net was $343,000 in 2000 and $33,000 in
1999 and in each case was primarily attributable to the loss on disposal of     
property. There were no other net expenses in 1998.                             

 Interest Income (Expense), Net. Interest income (expense), net, consists of
earnings on our cash and cash equivalents partially offset by interest on       
capital lease obligations. Interest income (expense), net was approximately     
$2.5 million for 2000, $778,000 for 1999 and $(21,000) for 1998. The increases  
for both 2000 and 1999 were due to higher interest-bearing asset balances as a  
result of the cash raised in our private placement and our initial public       
offering in 1999.                                                               

Preferred Stock Dividends. We recorded a $22.3 million preferred stock    
dividend in 1999, which consisted of $11.4 million from a beneficial            
conversion feature associated with our issuance of preferred stock and          
$10.9 million as a result of the recapitalization of Vitamins.com from a        
limited liability company to a C corporation. With regard to the $11.4 million  
portion of the dividend, we issued 4,038,455 shares of Series B preferred       
stock in August 1999 for $5.20 per share. The difference between the sales      
price for those shares and the deemed value per share of the common stock on    
the transaction date resulted in the $11.4 beneficial conversion feature.       
There were no preferred stock dividends in 2000 or 1998.                        

Income Taxes. No provision for federal and state income taxes has been    
recorded as we have incurred net operating losses through December 31, 2000.    
As of December 31, 2000, we had approximately $77 million of federal and $49    
million of state net operating loss carryforwards available to offset future    
taxable income. Due to the change in ownership interests in connection with     
our IPO and prior sales of equity securities, our use of these federal and      
state net operating loss carryforwards will be subject to annual limitations.   

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Selected Quarterly Results of Operations                                        

The following table presents HealthCentral.com's results of operations for
each of the last eight quarters. The quarterly information is unaudited, but    
management believes that the information regarding these quarters has been      
prepared on the same basis as the audited financial statements appearing        
elsewhere in this Form 10-K. In the opinion of management, all necessary        
adjustments have been included to present fairly the unaudited quarterly        
results when read in conjunction with the financial statements and related      
notes appearing elsewhere in this Form 10-K.                                    

Selected Quarterly Results of Operations                                      

                                                        [Enlarge/Download Table]

                                       Fiscal 2000                                             Fiscal 1999                        
                   -------------------------------------------------------  ----------------------------------------------------- 
                   December 31,  September 30,    June 30,     March 31,    December 31,  September 30,   June 30,     March 31,  
                       2000          2000           2000          2000          1999          1999          1999         1999     
                   ------------  -------------  ------------  ------------  ------------  -------------  -----------  ----------- 
                                                                                                                                  
Statement of                                                                                                                      
 Operations Data:                                                                                                                 
Revenues:                                                                                                                         
 eCommerce and                                                                                                                    
  other product                                                                                                                   
  sales..........  $ 12,789,034  $ 10,270,240   $ 10,087,490  $  9,904,962  $  8,219,815  $  4,926,930   $ 2,007,056  $ 1,887,959 
 Advertising,                                                                                                                     
  content and                                                                                                                     
  other..........       763,801       799,687        757,577       631,909       700,107       362,100        98,637       27,909 
                   ------------  ------------   ------------  ------------  ------------  ------------   -----------  ----------- 
 Total revenues..    13,552,835    11,069,927     10,845,067    10,536,871     8,919,922     5,289,030     2,105,693    1,915,868 
                   ------------  ------------   ------------  ------------  ------------  ------------   -----------  ----------- 
Operating and                                                                                                                     
 other expenses:                                                                                                                  
 Cost of                                                                                                                          
  eCommerce and                                                                                                                   
  other product                                                                                                                   
  sales..........     9,687,908     7,464,770      7,410,560     7,738,328     6,541,402     2,842,350     1,246,671    1,162,853 
 Content and                                                                                                                      
  product                                                                                                                         
  development....     1,818,778     2,450,399      3,269,415     2,807,437     2,648,334     1,254,048       329,361      166,837 
 Sales and                                                                                                                        
  marketing......     8,643,810     8,332,795     15,256,628    24,202,521    19,168,677     6,528,809     1,893,093    1,081,392 
 General and                                                                                                                      
  administrative.     2,953,898     2,406,521      2,591,899     2,641,275     2,450,069     1,425,796       498,977      308,581 
 Amortization of                                                                                                                  
  intangible                                                                                                                      
  assets.........     3,917,877     3,782,699      3,555,445     3,543,802     3,138,205       519,017           --           --  
 Stock                                                                                                                            
  compensation...       289,072       358,380        530,387       587,440       808,897     3,227,866     1,911,909      297,150 
 Acquired in-                                                                                                                     
  process                                                                                                                         
  research and                                                                                                                    
  development....           --            --             --            --        249,624       554,901           --           --  
 Acquisition and                                                                                                                  
  contract                                                                                                                        
  termination                                                                                                                     
  costs..........           --      6,796,029      2,427,677        34,669           --            --            --           --  
 Write-off of                                                                                                                     
  intangibles....    39,134,092           --             --            --            --            --            --           --  
                   ------------  ------------   ------------  ------------  ------------  ------------   -----------  ----------- 
 Total operating                                                                                                                  
  and other                                                                                                                       
  expenses.......    66,445,435    31,591,593     35,042,011    41,555,472    35,005,208    16,352,787     5,880,011    3,016,813 
                   ------------  ------------   ------------  ------------  ------------  ------------   -----------  ----------- 
Loss from                                                                                                                         
 operations......   (52,892,600)  (20,521,666)   (24,196,944)  (31,018,601)  (26,085,286)  (11,063,757)   (3,774,318)  (1,100,945)
Other expense,                                                                                                                    
 net.............      (323,503)          --         (19,923)          --         (9,356)      (23,212)          --           --  
Interest income                                                                                                                   
 (expense), net..       147,764       538,325        793,813       997,102       555,184       175,414        25,921       21,348 
                   ------------  ------------   ------------  ------------  ------------  ------------   -----------  ----------- 
Net loss.........   (53,068,339)  (19,983,341)   (23,423,054)  (30,021,499)  (25,539,458)  (10,911,555)   (3,748,397)  (1,079,597)
Preferred stock                                                                                                                   
 dividends.......           --            --             --            --            --    (22,275,542)          --           --  
                   ------------  ------------   ------------  ------------  ------------  ------------   -----------  ----------- 
Net loss                                                                                                                          
 attributable to                                                                                                                  
 common                                                                                                                           
 stockholders....  $(53,068,339) $(19,983,341)  $(23,423,054) $(30,021,499) $(25,539,458) $(33,187,097)  $(3,748,397) $(1,079,597)
                   ============  ============   ============  ============  ============  ============   ===========  =========== 
Basic and diluted                                                                                                                 
 net loss per                                                                                                                     
 share                                                                                                                            
 attributable to                                                                                                                  
 common                                                                                                                           
 stockholders....  $      (1.15) $      (0.44)  $      (0.77) $      (1.10) $      (1.08) $      (3.19)  $     (0.44) $     (0.13)
                   ============  ============   ============  ============  ============  ============   ===========  =========== 

The increase in each quarter of 2000 and 1999 in e-commerce and other     
product sales was primarily attributable to growth in our e-commerce and mail   
order sales, an increased customer base, repeat purchases from existing         
customers, new product offerings and an increase in sales of the Dr. Dean       
Edell eyewear. The increase in advertising, content and other revenues in each  
quarter through September 30, 2000 was primarily attributable to increased      
traffic on content websites, the increase in the number of vendor sponsorships  
and institutional websites. The decline in advertising revenue in fourth        
quarter 2000 is attributable to the de-emphasis on this business. The increase  
in cost of e-commerce and other product sales was attributable to costs of      
products, inbound shipping and promotion costs associated with new customer     
acquisitions and is consistent with the increase in revenue.                    

An increase in operating and other expenses from the first quarter 1999   
through the quarter ended March 31, 2000 was primarily due to advertising,      
payroll and related expenses for content and product development, sales and     
marketing, and general and administrative functions, consistent with growth in  
operations and personnel, both internally and through multiple acquisitions.    
These same expenses, excluding the write-off of intangible assets, decreased    
beginning with the quarter ended June 30, 2000, and have continued to decrease  
as we have gained efficiencies, consolidated functions, reduced head count and  
terminated certain contracts.                                                   

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The selected quarterly results of operations has been restated to reflect 
the acquisition of Vitamins.com, which was accounted for as a pooling of        
interest.                                                                       

Liquidity and Capital Resources                                                 

Since inception, we have financed operations primarily through our initial
public offering, the sale of preferred stock and the issuance of notes          
payable. Cash and cash equivalents were $14.2 million at December 31, 2000.     
Net cash used in financing activities was $747,000 in 2000 and net cash         
provided by financing activities was $121.8 million in 1999 and $7.4 million    
in 1998. The increase in use of cash in financing activities in 2000 was        
attributable to $1.2 million in cash payments on capital leases, partially      
offset by $420,000 in proceeds from the issuance of common stock. Net cash      
provided by financing activities in 1999 was primarily the result of            
$75 million from the issuance of common stock in our initial public offering,   
$41.6 million from the issuance of preferred stock, $3.4 million from the       
collection of a related party note receivable and $1.5 million from the         
issuance of notes payable. In 1998, the net cash provided by financing          
activities was primarily from the issuance of preferred and common stock.       

Net cash used in operating activities was $57.1 million in 2000, $29.7    
million in 1999 and $1.9 million in 1998. In 2000, net cash used in operating   
activities was comprised primarily of a $126.5 million net operating loss and   
increases of $2.1 million in accounts receivable. This use of cash was          
partially offset by $44.3 million in the write-off of intangible assets and     
website development costs, $17.3 million in depreciation and amortization       
expense, $1.9 million in stock compensation expense, $966,000 in amortization   
of prepaid contracts, $938,000 in stock issued in connection with the           
termination of the AltaVista contract, an increase of $3.7 million in accounts  
payables and accrued expenses, $1.5 million in prepaid expenses and other       
assets and $869,000 in deferred revenue and other liabilities. In 1999, net     
cash used in operating activities was comprised primarily of a $41.3 million    
net operating loss, and increases of $2.9 million in inventory, $2.6 million    
in prepaid expenses and other assets and $417,000 in accounts and other         
receivables. This use of cash was partially offset by $6.2 million in stock     
compensation expense, $4.4 million in depreciation and amortization expense,    
$805,000 in acquired in-process research and development and an increase of     
$5.6 million in accounts payables and accrued expenses. In 1998, net cash used  
in operating activities was comprised primarily of a $1.8 million net           
operating loss and increases of $940,000 in inventory and $176,000 in prepaid   
expenses and other assets, partially offset by $218,000 in depreciation and     
amortization expense, $105,000 in stock compensation expense and increases of   
$619,000 in accounts payable and accrued expenses and $110,000 in deferred      
revenue and other liabilities.                                                  

Net cash used in investing activities was $11.6 million in 2000, $12.5    
million in 1999 and $1.6 million in 1998. In 2000, net cash used in investing   
activities was comprised primarily of $6.2 million for the purchase of          
property and equipment, $3.3 million in cash paid in connection with            
acquisitions and $2.2 million for payments to related parties. In 1999, net     
cash used in investing activities was $6.2 million for various acquisitions,    
$3.7 million for the purchase of property and equipment, $2.3 million for       
payments to related parties and $291,000 in cash paid for domain names. In      
1998, net cash used in investing activities was $990,000 for the purchase of    
property and equipment and $564,000 for payments to related parties.            

Our capital requirements depend on numerous factors, including our ability
to integrate our acquired technology from acquisitions and improve our          
transaction processing fulfillment systems and our website infrastructure       
without substantial capital expenditures. We have no material commitments for   
capital expenditures at present and we do not anticipate entering into any new  
capital commitments in the foreseeable future. In an effort to realize          
efficiencies from acquisitions, reduce expenses, preserve our cash and improve  
operational efficiencies, we have reduced our workforce, consolidated           
facilities, eliminated duplicate positions, closed unprofitable retail stores   
and reformatted our business model to focus on e-commerce and mail order        
sales. We will continue to look at gaining efficiencies and intend to           
eliminate additional positions.                                                 

We have experienced substantial increases in expenditures since inception,
consistent with growth in operations and personnel, both internally and         
through multiple acquisitions. While we are targeting to reduce our cost        
structure, we currently expect to continue to use cash to fund operating        
losses, to integrate acquisitions, to                                           

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acquire and retain customers and to restructure agreements. We currently are    
targeting that our available cash, cash equivalents and cash flows to be        
generated from operations will be sufficient to meet our targeted cash needs    
through approximately mid-year 2001, provided that we achieve our targeted      
revenues, efficiencies and cost reductions and restructure certain              
partnerships and other relationships. We are currently exploring various        
possibilities with regard to equity and debt financing, as well as possible     
asset sales. If we are unable to obtain this financing on a timely basis, or    
at all, we may have to significantly reduce our operations and our business     
may be jeopardized.                                                             

Any projections of future cash needs and cash flows are subject to        
substantial uncertainty. We may need additional cash sooner than currently      
anticipated. The sale of additional equity or debt securities that include      
warrants could result in dilution to our stockholders. Any debt securities      
issued could have rights senior to holders of common stock and could contain    
convenants that would restrict our operations. Any additional financing may     
not be available in amounts or on terms acceptable to us, or at all. We have    
received a report from our independent accountants for the year ended December  
31, 2000 containing an explanatory paragraph that describes the uncertainty as  
to our ability to continue as a going concern due to our historical net         
operating losses and negative cash flows, and because, as of the date they      
rendered their opinion, we only had cash and cash equivalents on hand           
sufficient to satisfy our liquidity requirements through approximately mid-     
year 2001.                                                                      

Recent Accounting Pronouncements                                                

 In June 1998, the Financial Accounting Standards Board issued SFAS NO. 133,
Accounting for Derivatives and Hedging Activities. SFAS No. 133 establishes     
accounting and reporting standards for derivative instruments, including        
certain derivative instruments embedded in other contracts, and for hedging     
activities. In July 1999, the FASB issued SFAS No. 137, Accounting for          
Derivative Instruments and Hedging Activities-Deferral of the Effective Date    
of FASB Statement No. 133. SFAS No. 137 deferred the effective date of SFAS     
No. 1233 until fiscal years beginning after June 15, 2000. We will adopt SFAS   
No. 133 during our fiscal year ending December 31, 2001, and do not expect      
such adoption to have a material effect on its financial statements. To date,   
we have not engaged in derivative or hedging activities.                        

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

You should carefully consider the following risk factors, in addition to  
the other information in this Report on Form 10K. The risks and uncertainties   
described below are intended to be the ones that are specific to our company    
or industry and that we deem to be material, but are not the only ones that we  
face.                                                                           

We have a limited operating history.                                            

We launched our HealthCentral.com website in November 1998, our           
Vitamins.com website in March 1999, and our WebRx.com website in November       
2000. We merged with Vitamins.com, Inc. in June 2000, and we acquired the       
assets and certain liabilities of DrugEmporium.com, in September 2000 and       
Comfort Living in December 2000. Accordingly, we have a limited operating       
history and are subject to the risks, expenses and difficulties frequently      
encountered by early stage companies in new and rapidly evolving markets such   
as the Internet healthcare market. These challenges include our ability to:     

. implement a successful e-Commerce strategy through our websites;          

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

. compete effectively against other established Internet health companies,  
such as drugstore.com and CVS.com;                                      

. develop and upgrade our technology;                                       

. retain and motivate qualified personnel;                                  

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. manage inventory levels and fulfillment operations effectively;           

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

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

We had an accumulated deficit of approximately $193 million at December 31,     
2000, and we may not achieve our targeted expense reductions or achieve         
profitability.                                                                  

Since our inception, we have had limited revenues and have incurred       
substantial net losses in each year. While we are unable to predict accurately  
our future operating expenses, we may not be able to achieve our targeted       
expense reductions, as we:                                                      

. restructure and/or terminate various contractual obligations;             

. offer product promotions;                                                 

. integrate geographically dispersed operations as a result of              
acquisitions;                                                           

. make payments to both our existing and future business partners to gain   
advertising revenue; and                                                

. develop and expand our systems infrastructure and support functions.      

If we do not achieve our targeted expense reductions as planned, our      
business may be jeopardized. Even if we were to achieve profitability, we       
might not be able to sustain or increase profitability on a quarterly or        
annual basis.                                                                   

The Internet has not proven to be an effective or profitable marketing media    
for advertisers and our institutional business has not developed as initially   
anticipated, and thus our business depends on the success of our e-Commerce     
and catalog business.                                                           

At the time of our public offering, we expected to build revenues from    
three channels: Internet advertising, private label institutional website       
services, and healthcare e-commerce. To date, the Internet has not proven to    
be as effective an advertising medium as traditional media, and thus            
advertising revenues contribute much less to our revenue mix than originally    
expected. In addition, the institutional healthcare market has been slow to     
adopt the Internet as a meaningful tool to improve patient service and          
revenues. Thus, we have focused our business operations on the sale of          
healthcare products online, the sale of vitamins through our mail order         
business and our retail stores and the sale of Dr. Dean Edell Eyewear to our    
distribution partner, and if we do not meet our target performance goals in     
any of these business lines, our business may fail.                             

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

The healthcare e-Commerce market is unproven, and we have limited         
experience in the sale of healthcare products and services online. Our rate of  
revenue growth and profitability could be significantly less than that of       
other online merchants, many of which have longer operating histories and       
greater name recognition. The online market for pharmaceutical and other        
health products is in its infancy and is highly fragmented and intensely        
competitive, which has resulted in price discounting, the erosion of gross      
margins and business failures by many of our better known competitors. This     
market is significantly less developed than the online market for books,        
music, software, toys and a number of other consumer products. Even if          
Internet usage and electronic commerce continue to increase, the rate of        
growth and profit margins, if any, of the online drugstore and health products  
market could be significantly less than those in online markets for other       
products.                                                                       

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We recently acquired our own fulfillment capabilities for e-Commerce product    
orders (except for contact lenses), and we have limited experience in           
providing these services.                                                       

As a result of our acquisition of assets of DrugEmporium.com and the      
acquisition of assets of Comfort Living, we have begun managing fulfillment of  
our e-Commerce product orders internally. Previously, we relied primarily upon  
third parties to manage most of our product fulfillment responsibilities and    
therefore have limited experience in providing these services. A failure in     
the ability to purchase items on favorable terms, obtain sufficient types and   
quantities of supplies, manage inventory levels effectively, or fill and ship   
orders on a cost-effective and timely basis could result in customer            
dissatisfaction and could significantly harm our e-Commerce business. We are    
in the process of rationalizing various fulfillment functions, which may lead   
to disruptions in inventory management and other fulfillment problems. We are   
also in the process of reviewing our pharmacy operations and, as a result, may  
make changes in the future.                                                     

We rely on third-party carriers for shipments to and from our distribution
facilities. We are therefore subject to the risks, including employee strikes   
and inclement weather, associated with our distribution partners and our        
carriers' ability to provide product fulfillment and delivery services to meet  
our distribution and shipping needs. Failure to deliver products to our         
customers in a timely manner could adversely affect our reputation, brand and   
business.                                                                       

Because we have very limited cash, we will need to raise additional capital     
soon and may not be able to raise it on acceptable terms, or at all.            

As of December 31, 2000, we had cash and cash equivalents of approximately
$14.2 million. While we are targeting to reduce our cost structure, we          
currently expect to continue to use cash to fund operating losses, to           
integrate acquisitions, to acquire and retain customers and to restructure      
agreements. We currently are targeting that our available cash, cash            
equivalents and cash flows to be generated from operations will be sufficient   
to meet our targeted cash needs through approximately mid-year 2001, provided   
that we achieve our targeted revenues, efficiencies and cost reductions and     
restructure certain partnerships and other relationships. We are currently      
exploring various possibilities with regard to equity and debt financing, as    
well as possible asset sales. If we are unable to obtain financing on a timely  
basis, or at all, we may have to significantly reduce our operations and our    
business may be jeopardized.                                                    

Any projections of future cash needs and cash flows are subject to        
substantial uncertainty. We may need additional cash sooner than currently      
anticipated. The sale of additional equity or debt securities that include      
warrants could result in dilution to our stockholders. Any debt securities      
issued could have rights senior to holders of common stock and could contain    
covenants that would restrict our operations. Any additional financing may not  
be available in amounts or on terms acceptable to us, or at all. We have        
received a report from our independent accountants for the year ended December  
31, 2000 containing an explanatory paragraph that describes the uncertainty as  
to our ability to continue as a going concern due to our historical net         
operating losses and negative cash flows, and because, as of the date they      
rendered their opinion, we only had cash and cash equivalents on hand           
sufficient to satisfy our liquidity requirements through approximately mid-     
year 2001.                                                                      

Our stock price, like that of many companies in the Internet industry, has      
been and may continue to be extremely volatile, and we may be delisted from     
the Nasdaq National Market System.                                              

The market price of our common stock has declined significantly in recent 
months, and we expect that it will continue to be subject to significant        
fluctuations as a result of variations in our quarterly operating results and   
the overall decline in the Nasdaq stock market. These fluctuations have been,   
and may continue to be, exaggerated because an active trading market has not    
developed for our stock. Thus, investors may have difficulty selling shares of  
our stock at a desirable price, or at all. Our stock is currently trading       
below the $1 per share requirement for continued listing on the Nasdaq          
National Market, and on January 4, 2001 we received notice from Nasdaq that     
our stock may be delisted from the Nasdaq National Market if we are unable to   
regain compliance with this requirement by April 4, 2001. We currently intend   
to seek a Nasdaq hearing for appeal if and when we receive such notice. If our  
efforts in this regard are unsuccessful, our stock will be delisted from the    
Nasdaq National Market System.                                                  

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In addition, due to the technology-intensive and emerging nature of our   
business, the market price of our common stock may rise and fall in response    
to:                                                                             

. announcements of technological or competitive developments;               

. acquisitions or strategic alliances by us or our competitors;             

. the gain or loss of a significant strategic partner;                      

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

. reductions in operating scope.                                            

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

We are dependent on a single-source supplier and on a single distributor for    
the "Dr. Dean Edell" brand of eyewear.                                          

We currently sell our Dr. Dean Edell brand of eyewear to a single         
distributor under an exclusive arrangement for resale to brick-and-mortar       
retail stores. We are currently in negotiations with this distributor           
regarding changes to the existing agreement that may result in inventory        
values not being realized. Accounts receivable due from this distributor        
represented almost 70% of our total receivables as of December 31, 2000. Any    
failure of this distributor to effectively market and sell the product could    
harm our business. We have entered into an exclusive supply agreement with a    
single-source supplier for the "Dr. Dean Edell" brand of non-prescription       
eyewear, and we are in negotiations with the supplier regarding changes to the  
existing agreement. Any failure by this supplier to provide sufficient          
quantities and types of products in a timely manner could result in our         
inability to fulfill customer orders, which in turn could harm our business.    
Any disruption in either our supply or distribution of these products could     
harm our business.                                                              

We may not achieve the expected benefits of the acquisition of Vitamins.com,    
or the acquisition of the assets of DrugEmporium.com and Comfort Living, and    
their integration may result in disruption to our business or the distraction   
of our management and employees.                                                

We may not be able to successfully assimilate the Vitamins.com,           
DrugEmporium.com or ComfortLiving.com assets and operations or accomplish the   
execution of our e-Commerce business plan. The integration of these recent      
acquisitions into our business has strained, and may continue to strain, our    
existing technology and operations systems as we continue to assimilate         
Vitamins.com and DrugEmporium.com into our existing operations and begin        
integrating the assets of Comfort Living into our existing operations. In       
addition, the personnel that we have hired pursuant to these acquisitions may   
decide not to continue working for us or otherwise may not integrate            
successfully with our current staff. These difficulties could disrupt our       
ongoing business, distract our management and employees or increase our         
expenses.                                                                       

Our merger with Vitamins.com, and our acquisitions of the assets of       
DrugEmporium.com and Comfort Living could adversely affect our combined         
financial results or the market price of our common stock. If the benefits of   
the merger or the acquisitions do not exceed the costs associated with them,    
including any dilution to our stockholders resulting from the issuance of       
shares in connection with the merger and acquisitions, our financial results,   
including earnings per share, could be adversely affected. In addition, if we   
do not achieve the perceived benefits of these acquisitions as rapidly as, or   
to the extent, anticipated by financial or industry analysts, the market price  
of our common stock may decline.                                                

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

We have filed an S-3 Registration Statement covering the resale of        
approximately 29.4 million shares of our common stock by selling stockholders.  
In addition to the shares being registered on the Form S-3, approximately 16.3  
million shares are saleable in the public market without restriction under the  
Securities Act or are saleable under Rule 144 of the Securities Act, subject    
to volume, manner of sale, notice and current reporting information             

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requirements. In addition, approximately 4.5 million shares of our common       
stock are subject to options outstanding, and approximately 2.9 million of      
these options were repriced in December 2000 and carry an exercise price of     
$0.4062 per share. Because our stock price is currently low and the trading     
volume is thin, the sale of a substantial number of shares could depress the    
price of our stock dramatically and could jeopardize our ability to maintain    
our Nasdaq National Market listing. Any substantial sales could also make it    
more difficult for us to sell equity-related securities in the future at an     
appropriate price, or at all.                                                   

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

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

 Because of the interest in the privacy of health-related information, we or
any other e-health company could become either a target of, or a witness in, a  
federal or state agency or private party claim regarding privacy issues, any    
of which could be expensive and time-consuming, could divert the attention of   
senior management from our core business and could harm our business.           

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

Over 15,000 healthcare websites compete with us for customers, users,     
advertisers, content and product providers, institutional clients and other     
sources of online revenue. We compete with other dedicated healthcare           
information websites, such as WebMD, drkoop.com, DiscoveryHealth.com,           
InteliHealth, and Medscape.com. In addition, we compete with:                   

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

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

. other online dietary supplement stores, such as VitaminShoppe.com;        

. pharmacy benefit managers, or PBMs, that direct sales of pharmaceuticals; 
and                                                                     

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

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

. greater name recognition and larger marketing budgets and resources;      

. established marketing relationships with manufacturers and advertisers;   

. larger customer and user bases;                                           

. substantially greater financial, technical and other resources; and       

. larger production and technical staffs.                                   

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The intense competition in the online drug store business has resulted in 
price discounting and difficulty in building customer loyalty. We believe that  
we may face a significant competitive challenge from our online competitors     
forming alliances with brick and mortar drug stores, HMOs, PBMs or other        
competitors, which could both strengthen our competitors and/or preclude us     
from entering into similar relationships with their partners. For instance,     
Merck/Medco has entered into an alliance with CVS.com and drugstore.com has     
formed an alliance with RiteAid. Increased competition in the online drug       
store business has resulted in, and could continue to result in, price          
reductions, fewer customer orders, reduced margins and loss of, or failure to   
build, market share.                                                            

In the market for enterprise web services, we compete mainly with payors' 
and providers' internal systems development teams, with local web development   
companies, and with other consumer-oriented websites that are selling           
applications to institutions, such as drkoop.com and WebMD. We also compete     
with drugstore.com and CVS.com in the sale of e-Commerce solutions to           
healthcare institutions. Healthcare participants may determine that our tools   
and website development and maintenance services are inferior to those of our   
competitors, that our product mix is inappropriate for their needs, or that it  
would be better for them to independently develop and manage their own          
websites.                                                                       

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

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

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

. lack of consumer awareness of our online drug and health product stores;  

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

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

. lack of face-to-face interaction with a pharmacist or other retail store  
personnel;                                                              

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

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

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

Some of our major contractual relationships have been terminated or are in the  
process of being terminated or renegotiated, which could result in disruption   
of our business and/or payment obligations.                                     

We are currently in dispute with Microsoft with regard to our claims of   
breach of contract by Microsoft and their payment claims against us. We have    
begun the process of settlement negotiations with Microsoft, however, if        
Microsoft were to prevail on its claim, we could face potentially substantial   
payment obligations.                                                            

We are in the process of renegotiating and/or terminating certain major   
contractual relationships such as lease agreements, licensing agreements and    
advertising agreements, and may renegotiate certain additional contractual      
relationships, any of which could disrupt our business and/or cause us to       
incur additional costs or make additional payments.                             

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

 We receive sponsorship revenues from advertisers of health-related products
on our websites and revenues from sales of health-related products. However,    
our success in attracting and retaining users to our websites depends on our    
being a trusted source of independent health-related information. Any consumer  
perception that our editorial content is influenced by our commercial           
relationships could harm our reputation and business.                           

We have experienced and may experience systems interruptions and capacity       
constraints on our HealthCentral.com network, which could result in adverse     
publicity, revenue losses and erosion of customer trust.                        

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

We are also vulnerable to breaches in our security and to natural         
disasters. We may not be able to correct any problem in a timely manner.        
Because we outsource the server hosting function to third parties, some         
systems interruptions may be outside of our control. We have no formal          
disaster recovery plan, and our insurance may not adequately compensate us for  
losses that may occur due to systems interruptions.                             

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

 We retain confidential customer and patient information on our servers. Any
breach of security from a physical break-in, computer virus, programming error  
or attack by a third party or an unexpected natural disaster could subject us   
to a lawsuit. We have expended, and may be required to expend, significant      
sums to protect against security breaches or to alleviate problems caused by    
breaches. In addition, a breach of privacy of patient health records could      
constitute a violation of federal law.                                          

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

 A portion of our revenues consists of the sale of advertising, all of which
is currently derived through our relationship with DoubleClick, an online       
advertising sales agency. DoubleClick is our exclusive representative for       
advertising sold on our HealthCentral.com website; however, DoubleClick can     
enter into advertising sales contracts with our competitors, and either party   
can terminate the contract on 90 days notice. We have no control over           
DoubleClick's sales efforts, and if it fails to sell advertising in accordance  
with our expectations, our revenues would likewise be lower.                    

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

In part because of our limited operating history, it is difficult to      
forecast accurately our future revenues or results of operations. We have       
recently made certain organizational changes to focus operations on e-commerce  
and our catalog business and to conserve cash. We have reduced our marketing    
budget substantially and thus it may be difficult for us to achieve our         
revenue targets. A variety of factors may cause our annual and quarterly        
operating results to fluctuate significantly including:                         

. reductions in spending on marketing and other promotional activities;     

. customer visits and purchases on the WebRx.com, Vitamins.com,             
DrugEmporium.com, ComfortLiving.com, HealthCentral.com and RxList.com   
websites and associated costs;                                          

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. demand for our products and mix of products sold;                         

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

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

. changes in the frequency and size of repeat purchases by customers of our 
online stores and retail stores;                                        

. management of our inventory levels and fulfillment operations;            

. interruptions in product supply, supplier channels or relationships;      

. fluctuations in the wholesale prices of the products we sell, as well as  
shipping costs or delivery times;                                       

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

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

. fluctuations in expected revenues from our strategic relationships;       

. changes in reimbursement policies and practices of pharmacy benefit       
managers and other third party payors;                                  

. systems problems, such as disruptions, slower system response times and   
degradation in customer service; and                                    

. changes in government regulation.                                         

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

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

We have experienced a period of significant growth in our business, which 
has placed, and will continue to place, a significant strain on our resources.  
As we continue to rationalize our cost structure, including the implementation  
of additional planned layoffs, we will need to improve our efficiency, which    
we may not be able to accomplish. Any failure to successfully manage our        
operations and increase our efficiency could distract management attention and  
result in our failure to execute on our business plan. As a result of our       
acquisitions, we need to assimilate the operations of Vitamins.com,             
DrugEmporium.com and Comfort Living into our operations. In order to manage     
this growth effectively, we will need to implement and integrate transaction-   
processing, operational, reporting, and financial systems, rationalize and      
train our employee base, and maintain close coordination among our technical,   
finance, marketing, sales and editorial staffs. Our integration and             
operational efforts are complicated by the fact that Vitamins.com operates in   
the Washington D.C. and New York areas, DrugEmporium.com operations are based   
in Kentucky and the Comfort Living operations are based in Maryland. Thus, we   
have to manage an enterprise operating over a wide geographical area. We will   
need to expend significant amounts of our time and financial resources as we    
consolidate these operations and otherwise restructure these operations to      
achieve efficiencies from these acquisitions, which may distract management     
and further strain our technology and staffing resources. We also need to       
devote resources to website development, strategic relationships, technology    
infrastructure and operational infrastructure.                                  

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

If we fail to retain and motivate our current personnel, our business and 
future growth prospects could be severely harmed. Competition for personnel     
throughout the Internet and healthcare industries is intense. We have from      
time to time in the past experienced, and we expect to continue to experience   
in the future, difficulty in retaining highly skilled employees with            
appropriate qualifications. Recent and planned layoffs within our company may   
make it harder to retain key employees. Additionally, the loss of any of our    
key executive officers could have a significant negative impact on our          
operations.                                                                     

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We may be exposed to liabilities that are not covered by the indemnification    
available under the Vitamins.com merger agreement, the DrugEmporium.com asset   
purchase agreement or the more.com and Comfort Living asset purchase            
agreement, which may harm our results of operation and financial condition.     

Upon consummation of our merger and asset purchase agreements, we assumed 
all the liabilities of Vitamins.com, and certain liabilities of                 
DrugEmporium.com and Comfort Living. In addition, it is possible that           
liabilities may arise in the future which we did not discover or anticipate.    
To the extent these liabilities are inconsistent with representations and       
warranties made in the respective agreements, we may have a claim for           
indemnification against the former stockholders of Vitamins.com, DrugEmporium   
or more.com. Pursuant to the Vitamins.com agreement, 10% of the                 
HealthCentral.com common stock issued in the merger was placed in an escrow     
account and will be held to cover any indemnification claims for a period       
equal to the lesser of twelve months after the effective time or the period     
ending two business days after the escrow holder receives written notification  
that we have issued our first independent audit report showing the combined     
results of operations of HealthCentral.com and Vitamins.com. The                
DrugEmporium.com and more.com agreements provide that 10% of the                
HealthCentral.com stock issued in each purchase will be placed in an escrow     
account for indemnification and held for a period of one year. The escrow       
amount will be our sole recourse for indemnification claims other than in the   
case of fraud. However, the assumed liabilities, both at the time of and        
arising after the consummation of the agreements, may exceed our expectations   
and the escrow amount may be insufficient to cover these liabilities. If        
liabilities for which indemnification is available exceed the escrow amount,    
we will suffer financial losses, which may harm our business, results of        
operation and financial condition.                                              

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

To date, we have completed mergers or asset acquisitions of six companies,
Enterprise Web Services, HealthCentralRx.com, RxList.com, Vitamins.com,         
DrugEmporium.com and more.com/Comfort Living, and we have acquired the license  
to use the Dr. Dean Edell Eyewear brand. We are not currently planning any      
additional acquisitions; however we may acquire or make investments in other    
complementary businesses and technologies in the future. We may not be able to  
identify other future suitable acquisition or investment candidates, and even   
if we do identify suitable candidates, we may not be able to make these         
acquisitions or investments on commercially acceptable terms, or at all. If we  
do acquire or invest in other companies, we may not be able to realize the      
benefits we expected to achieve at the time of entering into the transaction    
and will likely face integration risks, including but not limited to:           

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

. expenses associated with the transactions;                                

. additional expenses associated with amortization of acquired intangible   
assets;                                                                 

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

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

. the potential unknown liabilities associated with acquired businesses;    
and                                                                     

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

 Our failure to adequately address these issues could harm our business. See
also "We may not achieve the expected benefits of the acquisition of            
Vitamins.com, or the acquisition of the assets of DrugEmporium.com and Comfort  
Living, and their integration may result in a disruption to our business or     
the distraction of our management and employees."                               

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We could face significant non-cash stock-based charges.                         

In light of the recent decline in our stock price and in an effort to     
retain our employee base, in December 2000 we exchanged stock options held by   
employees and certain consultants. In exchange for accepting new vesting        
schedules, the exercise price of all eligible employee and certain consultant   
options with an exercise price in excess of $0.4062 was reduced to $0.4062,     
the closing market price on the Nasdaq on December 11, 2000. As a result of     
this repricing, options to purchase a total of 2,967,890 shares will be         
subject to variable accounting treatment, which means that any increase in our  
stock price will result in non-cash accounting charges, which would increase    
our net loss.                                                                   

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

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

Any errors in filling or packaging the prescription drugs for our customers or  
dispensing products on our websites may expose us to liability and negative     
publicity.                                                                      

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

 Prescription orders are currently filled by our in-house pharmacists and we
may be exposed to liability for pharmacy errors. Pharmacy errors may produce    
significant adverse publicity either for us or the entire online pharmacy       
industry. The amount of negative publicity that we or the online pharmacy       
industry may receive as a result of pharmacy or prescription processing errors  
could be disproportionate in relation to the negative publicity received by     
traditional pharmacies making similar mistakes. We believe that any negative    
publicity could erode consumer trust and result in an immediate reduction in    
product purchases.                                                              

We may be sued by consumers as a result of the health-related products we sell  
through our online and offline channels.                                        

Consumers may sue us if any of our products or services that are sold     
through our online or offline channels are defective, fail to perform properly  
or injure the user, even if such goods and services are manufactured and        
provided by unrelated third parties. Liability claims could require us to       
spend significant time and money in litigation or to pay significant damages    
and could seriously damage our reputation.                                      

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

The healthcare and Internet industries are characterized by the existence 
of a large number of patents and frequent litigation based on allegations of    
patent infringement or other violations of intellectual property rights.        

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As the number of entrants into our market increases, the possibility of an      
intellectual property claim against us grows. Our content, technology,          
products and services may not be able to sustain any third party claims or      
rights against their use. Some of the information in our website network        
databases regarding dietary supplements, drug descriptions, clinical            
pharmacology, indications and usage, warnings and the like is copied from       
information contained in package inserts, which accompany the particular drug.  
We have not obtained licenses to reproduce this information from the various    
pharmaceutical companies. Although we have not received a copyright claim to    
date, we could face potential copyright infringement claims in this regard.     
Any intellectual property claims, with or without merit, could be time          
consuming and expensive to litigate or settle and could divert management       
attention from administering our core business.                                 

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

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

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

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

If we do not gain significant brand recognition quickly, we may lose the  
opportunity to build a critical mass of customers, and our business may fail.   
Some of our competitors, such as drugstore.com, CVS.com, drkoop.com, WebMD and  
medscape.com, have stronger name recognition than do we. The increasing         
competition in our markets makes building a brand more expensive and difficult  
than it otherwise would be. To increase brand recognition, we may need to       
offer product promotions and discounts, all of which are expensive.             

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

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

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

 Any diminishment in Dr. Edell's reputation as a medical expert and advisor,
his death or incapacity, the expiration of his 15 year agreement with us, or    
any other development that would cause us to lose the benefits of our           
affiliation with Dr. Edell, could diminish our standing with healthcare         
consumers as a credible source of                                               

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healthcare information and could harm sales of the Dr. Dean Edell brand of      
eyewear. Although we maintain key person life insurance for Dr. Edell, his      
role in our company is sufficiently critical that the insurance would not       
adequately protect us in the event of his death.                                

In order to attract and retain users to our HealthCentral.com network, we need  
to continue to provide content, which is expensive and difficult to obtain      
and/or develop.                                                                 

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

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

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

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

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

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

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

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

. the practice of medicine and other healing arts professions;              

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

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

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

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. advertising drugs, cosmetics and nutritional supplements; and             

. state insurance regulations.                                              

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

Governmental regulation of the Internet could increase our operating costs.     

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

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

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

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

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

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

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

. authorization for the board to issue preferred stock;                     

. prohibition of cumulative voting in the election of directors;            

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

. change of control clauses in the employment agreements with several       
company officers.                                                       

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Management has broad discretion over how our available cash is being used.      

 Our officers and directors have broad discretion with respect to the use of
our available cash. We currently expect to use our existing cash balances to    
fund operating losses, costs associated with integrating acquisitions and       
website development. In addition, we are continuing to evaluate possible        
acquisitions or investments in complementary businesses.                        

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

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

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

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

Our exposure to market risk is limited to interest income sensitivity,    
which is affected by changes in the general level of U.S. interest rates. Our   
cash equivalents are invested with high quality issuers and limit the amount    
of credit exposure to any one issuer. Due to the short-term nature of the cash  
equivalents, we believe that we are not subject to any material interest rate   
risk. We did not have any foreign currency hedges or other derivative           
financial instruments as of December 31, 2000.                                  

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

Item 8. Financial Statements and Supplementary Data.                            

See Part IV, Item 14 of this Report.                                      

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

None.                                                                     

PART III  

The Company's Proxy Statement for its 2001 Annual Meeting of Stockholders 
which, when filed pursuant to Regulation 14A under the Securities Exchange Act  
of 1934, will be incorporated by reference in this Form 10-K pursuant to        
General Instruction G(3) of Form 10-K and will provide the information          
required under Part III (Items 10-13), except for the information with respect  
to the Company's executive officers, which is included in "Item 1, Business-    
Executive Officers."                                                            

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PART IV 

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

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

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

(2) Financial Statement Schedules--See Index to Consolidated Financial  
Statements and Financial Statement Schedule on Page F-1 of this 
Report on Form 10-K.                                            

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

(3) Exhibits (number in accordance with Item 601 of Regulation S--K)    

(b) Exhibits                                                            

                                                                [Download Table]

Number                                Description                             
------                                -----------                             
                                                                              
 2.1    Asset Purchase Agreement dated July 24, 2000 by and among             
        HealthCentral.com, HCC Subsidiary Corp., DrugEmporium.com, Inc. and   
        Drug Emporium, Inc. (as amended on September 11, 2000) (Filed as      
        Exhibits 2.1 and 2.2 to the Company's Current Report on Form 8-K filed
        on September 28, 2000 and herein incorporated by reference.)          

 2.2    Asset Purchase Agreement dated October 23, 2000, by and among         
        HealthCentral.com, HCEN Acquisition Corporation, more.com, Inc. and   
        Comfort Living, Inc. (as amended on November 14, 2000 and November 27,
        2000) (Filed as Exhibits 2.5, 2.6 and 2.7 to the Company's Current    
        Report on Form 8-K, filed on December 21, 2000 and herein incorporated
        by reference.)                                                        

 2.3    Agreement and Plan or Reorganization and Merger among                 
        HealthCentral.com, HCC Acquisition Corp. and Vitamins.com, Inc., dated
        as of March 15, 2000 (Filed as Exhibit 2.1 to the Company's Current   
        Report on Form 8-K, filed on June 19, 2000, and herein incorporated by
        reference.)                                                           

 3.3(1) Amended and Restated Certificate of Incorporation of the Company      

 3.5++  Amended and Restated Bylaws of the Company                            

 3.8    Certificate of Designation of Series A Preferred Stock of             
        HealthCentral.com dated September 7, 2000                             

 4.1(1) Form of Company's Common Stock Certificate                            

 4.2(3) Registration Rights Agreement between the Company and Alta Vista      
        Company dated August 2, 2000                                          

 4.3    Registration Rights Agreement between the Company and Don Bayless     
        dated December 2, 2000                                                

 4.4    Registration Rights Agreement between the Company and Goldberg,       
        Marchesano Partners, Inc. dated December 22, 2000                     

10.1(1) First Amended and Restated Investors' Rights Agreement dated August   
        27, 1999 between the Company and certain investors                    

10.2(2) 1999 Stock Plan, as amended on January 2000, and form of stock option 
        agreements and restricted stock purchase agreements                   

10.3(2) Amended and Restated 1998 Stock Plan, as amended on January 2000, and 
        form of stock option agreements and restricted stock purchase         
        agreements                                                            

10.4(1) 1999 Employee Stock Purchase Plan, and form of subscription agreement 

10.5(1) 1999 Directors' Stock Option Plan, and form of stock option agreement 

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                                                                [Download Table]

 Number                                Description                            
 ------                                -----------                            

                                                                              
10.6(1)   Form of Common Stock Agreement between the Company and each of Dean 
          S. Edell M.D. and James J. Hornthal                                 

10.9(1)   Employment Agreement between the Company and Deryk Van Brunt        

10.10(3)  Employment Agreement between the Company and Albert Greene, dated   
          August 16, 1999, as amended June 27, 2000                           

10.11(1)  Offer Letter from the Company to C. Fred Toney dated June 16, 1999  

10.15(1)  License and Confidential Information Agreement between the Company  
          and Dr. Dean S. Edell dated May 14, 1999                            

10.16(1)  Office Lease between the Company and Christie Avenue Partners JS    
          dated March 26, 1999                                                

10.17(1)  Landlord's Consent and Agreement (Sublease) between the Company and 
          Burnham Pacific Operating Partnership, L.P. dated July 22, 1999     

10.19(1)+ Co-Branded Site Agreement by and between the Company, Graedon       
          Enterprises, Inc., and Joe Graedon and Teresa Graedon dated         
          September 9, 1999                                                   

10.21(1)  Agreement and Plan of Reorganization by and between the Company, HC 
          Acquisition Corporation and ePills, Inc. dated September 28, 1999   

10.24(1)  Form of Indemnification Agreement                                   

10.25(1)  Agreement and Plan of Reorganization by and between the Company and 
          RxList.com dated October 25, 1999                                   

10.26(1)  Industrial Lease between ePills.com and H.S.P. dated May 4, 1999    

10.27(1)+ Co-Branding Content Agreement between the Company and MediaLinx     
          Interactive, L.P. dated June 30, 1999                               

10.29(1)  Assumed HealthCentralRx.com 1999 Stock Option Plan and form of      
          incentive stock option agreement                                    

10.30(2)  Agreement with Covert Bailey dated December 1999                    

10.31(4)  Employment Agreement between the Company and Robert M. Haft, dated  
          March 15, 2000 and effective as of June 16, 2000                    

10.32(4)  Assignment and Amendment Agreement among the Company, Brand Optical 
          Corporation and Dr. Dean Edell, dated April 11, 2000                

10.33     Industrial Lease Agreement between Telestar Court Limited           
          Partnership and Vitamins Superstore, L.L.C. dated June 19, 1997     

10.34     Industrial Lease Agreement between Drug Emporium, Inc. and Crow     
          Family Holdings Industrial Limited Partnership dated July 15, 1999  

10.35     Office Lease between the Company and Christie Avenue Partners JS    
          dated May 19, 2000 (as amended June 5, 2000)                        

10.36     Offer Letter from the Company to James Schanzenbach dated August 15,
          2000                                                                

10.37     Assignment Agreement between Drug Emporium, Inc. and                
          DrugEmporium.com, Inc., dated February 29, 2000                     

10.38     Assignment Agreement between the Company and DrugEmporium.com, Inc.,
          dated August 30, 2000                                               

10.39     Common Stock Repurchase Agreement between the Company and C. Fred   
          Toney dated November 13, 2000                                       

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                                                                [Download Table]

Number                               Description                              
------                               -----------                              
                                                                              
10.40  Amendment I to Industrial Lease Agreement between the Company and Crow 
       Family Holdings Industrial Limited Partnership, dated November 27, 2000

10.41  Severance and Change of Control Agreement between the Company and C.   
       Fred Toney dated December 2000                                         

21.1++ List of subsidiaries                                                   

23.1   Consent of Independent Accountants, PricewaterhouseCoopers LLP         

23.2   Consent of Independent Accountants, Arthur Andersen LLP                

24.1   Power of Attorney (Page 47)                                            

--------                                                                        
+  Confidential treatment has been granted by the Securities and Exchange       
Commission                                                                

++ Supersedes previously filed exhibit                                          

(1) Filed with the Company's Registration Statement on Form S-1 (Commission     
File No. 333-88019) and herein incorporated by reference                

(2) Filed with the Annual Report on 10-K for the year ending December 31,       
1999, filed on March 10, 2000 and herein incorporated by reference      

(3) Filed with the Quarterly Report on 10-Q for the quarter ending June 30,     
2000, filed on August 14, 2000 and herein incorporated by reference     

(4) Filed with Quarterly Report on 10-Q for the quarter ending September 30,    
2000, filed on November 14, 2000 and herein incorporated by reference.  

(c) Reports on Form 8-K                                                 

A current report on Form 8-K was filed with the SEC on October 27, 2000 to
report the issuance of a press release on the more.com, Inc. and Comfort        
Living, Inc. asset acquisition.                                                 

 A current report on Form 8-K was filed with the SEC on November 16, 2000 to
report the receipt of notice of Robert M. Haft's resignation from the Board of  
Directors.                                                                      

A current report on Form 8-K/A was filed with the SEC on November 28, 2000
to include financial statements for the Drug Emporium, Inc. asset acquisition.  

 A current report on Form 8-K was filed with the SEC on December 11, 2000 to
announce the approval of an option repricing program.                           

 A current report on Form 8-K was filed with the SEC on December 21, 2000 to
report the close of its acquisition of the assets of more.com, Inc. and         
Comfort Living, Inc.                                                            

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SIGNATURES  

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

                     HealthCentral.com

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

Date: April 2, 2001                                                             

POWER OF ATTORNEY 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature      
appears below constitutes and appoints C. Frederick Toney as his attorney-in-   
fact, with the power of substitution, for him in any and all capacities, to     
sign any amendments to this Report on Form 10-K, and to file the same, with     
exhibits thereto and other documents in connection therewith with the           
Securities and Exchange Commission, hereby ratifying and confirming all that    
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 Exchange Act of 1934, this 
Report on Form 10-K has been signed below by the following persons on behalf    
of the registrant and in the capacities and on the dates indicated.             

                                                                [Download Table]

             Signature                           Title                    Date  
             ---------                           -----                    ----  

                                                                                
     /s/ C. Frederick Toney          Chief Executive Officer,      April 2, 2001
____________________________________  President, Chief Financial                
         C. Frederick Toney           Officer and Director                      
                                      (Principal Executive                      
                                      Officer, Financial and                    
                                      Accounting Officer)                       

          /s/ Dean Edell             Director                      April 2, 2001
____________________________________                                            
             Dean Edell                                                         

                                     Chairman of the Board                      
____________________________________                                            
          Albert L. Greene                                                      

        /s/ James Hornthal           Director                      April 2, 2001
____________________________________                                            
           James Hornthal                                                       

     /s/ Michael D. McDonald         Director                      April 2, 2001
____________________________________                                            
        Michael D. McDonald                                                     

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HEALTHCENTRAL.COM 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

                                                                [Download Table]

                                                                            Page
                                                                            ----
                                                                                
Report of Independent Accountants--PricewaterhouseCoopers LLP.............. F-2 

Report of Independent Accountants--PricewaterhouseCoopers LLP.............. F-3 

Report of Independent Accountants--Arthur Andersen LLP..................... F-4 

Consolidated Balance Sheets................................................ F-5 

Consolidated Statements of Operations...................................... F-6 

Consolidated Statements of Stockholders' Equity............................ F-7 

Consolidated Statements of Cash Flows...................................... F-8 

Notes to Consolidated Financial Statements................................. F-9 

Report of Independent Accountants on Financial Statement Schedule.......... S-1 

Schedule II--Valuation and Qualifying Accounts............................. S-2 

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Stockholders                                      
of HealthCentral.com:                                                           

In our opinion, based on our audit and the report of other auditors, the  
accompanying consolidated balance sheet and the related consolidated            
statements of operations, of stockholders' equity and of cash flows present     
fairly, in all material respects, the financial position of HealthCentral.com   
and its subsidiaries at December 31, 2000 and 1999, and the results of their    
operations and their cash flows for the years then ended in conformity with     
accounting principles generally accepted in the United States of America.       
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 did not audit the financial statements of               
Vitamins.com, Inc., a wholly owned subsidiary, which statements reflect total   
assets of $30,694,894 as of December 31, 1999 and total revenues of             
$16,940,977 for the year ended December 31, 1999. Those statements were         
audited by other auditors whose report thereon has been furnished to us, and    
our opinion expressed herein, insofar as it relates to the amounts included     
for Vitamins.com, Inc., is based solely on the report of the other auditors.    
We conducted our audit of these statements in accordance with auditing          
standards generally accepted in the United States of America, which require     
that we plan and perform the audit to obtain reasonable assurance about         
whether the financial statements are free of material misstatement. An audit    
includes examining, on a test basis, evidence supporting the amounts and        
disclosures in the financial statements, assessing the accounting principles    
used and significant estimates made by management, and evaluating the overall   
financial statement presentation. We believe that our audits and the report of  
other auditors provide a reasonable basis for our opinion.                      

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

/s/ PricewaterhouseCoopers LLP                                                  

San Jose, California                                                            
February 9, 2001                                                                

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Stockholders                                      
of HealthCentral.com:                                                           

In our opinion, the accompanying consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all material          
respects, the results of operations and cash flows of HealthCentral.com and     
its subsidiaries for the year ended December 31, 1998 in conformity with        
accounting principles generally accepted in the United States of America.       
These financial statements are the responsibility of the Company's management;  
our responsibility is to express an opinion on these financial statements       
based on our audit. We conducted our audit of these statements in accordance    
with auditing standards generally accepted in the United States of America,     
which require that we plan and perform the audit to obtain reasonable           
assurance about whether the financial statements are free of material           
misstatement. An audit includes examining, on a test basis, evidence            
supporting the amounts and disclosures in the financial statements, assessing   
the accounting principles used and significant estimates made by management,    
and evaluating the overall financial statement presentation. We believe that    
our audit provides a reasonable basis for the opinion expressed above.          

We previously audited and reported on the consolidated statements of      
operations and cash flows of HealthCentral.com for the year ended December 31,  
1998, prior to its restatement for the June 16, 2000 pooling of interests. The  
contribution of HealthCentral.com to revenues and net loss represented 3        
percent and 25 percent for the year ended December 31, 1998 of the respective   
totals. Separate financial statements of the other company included in the      
1998 restated consolidated statements of operations and cash flows were         
audited and reported on separately by other auditors. We also audited the       
combination of the accompanying consolidated statements of operations and cash  
flows for the year ended December 31, 1998, after restatement for the June 16,  
2000 pooling of interests; in our opinion, such consolidated statements have    
been properly combined on the basis described in Note 1 of notes to             
consolidated financial statements.                                              

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

/s/ PricewaterhouseCoopers LLP                                                  

San Jose, California                                                            
February 9, 2001                                                                

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS  

To the Board of Directors of Vitamins.com, Inc.:                                

We have audited the consolidated balance sheets of Vitamins.com, Inc.     
(formerly Vitamin Superstore, LLC; the "Company," a Delaware corporation), as   
of December 31, 1998 and 1999, and the related consolidated statements of       
operations, stockholders' equity (deficit), and cash flows for each of the      
three years in the period ended December 31, 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 auditing standards generally   
accepted in the United States. Those standards require that we plan and         
perform the audit to obtain reasonable assurance about whether the              
consolidated financial statements are free of material misstatement. An audit   
includes examining, on a test basis, evidence supporting the amounts and        
disclosures in the consolidated 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             
Vitamins.com, Inc., as of December 31, 1998 and 1999, and the results of its    
operations and its cash flows for each of the three years in the period ended   
December 31, 1999 in conformity with accounting principles generally accepted   
in the United States.                                                           

The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the         
consolidated financial statements, the Company has suffered recurring losses    
from operations and has a net capital deficiency that raises substantial doubt  
about its ability to continue as a going concern. Management plans to raise     
sufficient financing to meet its needs for the coming year (see Note 1). The    
consolidated financial statements do not include any adjustments that might     
result from the outcome of this uncertainty.                                    

/s/ Arthur Andersen LLP                                                         

Vienna, Virginia                                                                
February 17, 2000                                                               
(except with respect to                                                         
the matter discussed                                                            
in Note 9 of the                                                                
financial statements                                                            
incorporated by                                                                 
reference herein, as to                                                         
which the date is June                                                          
16, 2000)                                                                       

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HEALTHCENTRAL.COM 

CONSOLIDATED BALANCE SHEETS 

                                                                [Download Table]

                                                          December 31,         
                                                   --------------------------- 
                      ASSETS                           2000           1999     
                      ------                       -------------  ------------ 
                                                                               
Current assets:                                                                
  Cash and cash equivalents....................... $  14,208,364  $ 83,690,072 
  Accounts receivable, net of allowance for                                    
   doubtful accounts of $83,941 and $64,609,                                   
   respectively...................................     3,058,940     1,149,020 
  Inventory.......................................     9,006,016     5,464,633 
  Prepaid expenses and other current assets.......     2,064,815     4,672,349 
                                                   -------------  ------------ 
    Total current assets..........................    28,338,135    94,976,074 
Property and equipment, net.......................    11,685,865     6,253,153 
Other assets......................................       439,495     1,535,799 
Intangible assets.................................     4,922,353    46,072,969 
                                                   -------------  ------------ 
    Total assets.................................. $  45,385,848  $148,837,995 
                                                   =============  ============ 

 LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE                               
                 PREFERRED STOCK                                               
             AND STOCKHOLDERS' EQUITY                                          
 -----------------------------------------------                               
                                                                               
Current liabilities:                                                           
  Accounts payable................................ $  12,258,364  $  8,360,133 
  Accrued expenses................................     3,701,438     2,321,608 
  Deferred revenue and other current liabilities..     1,279,645       431,535 
  Current portion of obligations under capital                                 
   leases.........................................     3,258,040       326,058 
  Note payable....................................           --      2,540,784 
                                                   -------------  ------------ 
    Total current liabilities.....................    20,497,487    13,980,118 
Deferred rent.....................................       194,708       171,727 
Obligations under capital leases..................     1,289,258       621,097 
                                                   -------------  ------------ 
    Total liabilities.............................    21,981,453    14,772,942 
                                                   -------------  ------------ 
Mandatorily redeemable convertible preferred                                   
 stock, $0.001 par value, 0 and 19,220,935 shares                              
 authorized at December 31, 2000 and 1999,                                     
 respectively, 0 and 17,411,710 shares issued and                              
 outstanding at December 31, 2000 and 1999,                                    
 respectively.....................................           --     36,565,397 
                                                   -------------  ------------ 
Commitments and contingencies (Notes 11 and 13)                                
Stockholders' equity:                                                          
  Convertible preferred stock, $0.001 par value,                               
   5,000,000 shares authorized at December 31,                                 
   2000 and 1999, respectively, 480,000 and 0                                  
   issued and outstanding at December 31, 2000 and                             
   1999, respectively.............................     7,274,880           --  
  Common stock, $0.001 par value, 100,000,000                                  
   shares authorized at December 31, 2000 and                                  
   1999, respectively, and 50,282,394 and                                      
   27,602,336 issued and outstanding at December                               
   31, 2000 and 1999, respectively................        50,097        27,417 
  Additional paid-in capital......................   210,831,291   169,646,821 
  Note receivable from stockholder................       (65,457)     (465,457)
  Deferred stock compensation.....................    (1,487,023)   (5,005,965)
  Accumulated deficit.............................  (193,199,393)  (66,703,160)
                                                   -------------  ------------ 
    Total stockholders' equity....................    23,404,395    97,499,656 
                                                   -------------  ------------ 
    Total liabilities, mandatorily redeemable                                  
     convertible preferred stock and stockholders'                             
     equity....................................... $  45,385,848  $148,837,995 
                                                   =============  ============ 

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

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HEALTHCENTRAL.COM 

CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                                [Download Table]

                                              Years Ended December 31,          
                                       ---------------------------------------- 
                                           2000           1999         1998     
                                       -------------  ------------  ----------- 
                                                                                
Revenues:                                                                       
  eCommerce and other product sales..  $  43,051,726  $ 17,041,760  $ 4,340,297 
  Advertising, content and other.....      2,952,974     1,188,753       15,259 
                                       -------------  ------------  ----------- 
    Total revenues...................     46,004,700    18,230,513    4,355,556 
                                       -------------  ------------  ----------- 
Operating and other expenses:                                                   
  Cost of eCommerce and other product                                           
   sales.............................     32,301,566    11,793,276    2,646,179 
  Content and product development....     10,346,029     4,398,580      136,788 
  Sales and marketing................     56,435,754    28,671,971    2,318,122 
  General and administrative.........     10,593,593     4,683,423      914,002 
  Amortization of intangible assets..     14,799,823     3,657,222          --  
  Stock compensation.................      1,765,279     6,245,822      104,641 
  Acquired in-process research and                                              
   development.......................            --        804,525          --  
  Acquisition and contract                                                      
   termination costs.................      9,258,375           --           --  
  Write-off of intangibles...........     39,134,092           --           --  
                                       -------------  ------------  ----------- 
    Total operating and other                                                   
     expenses........................    174,634,511    60,254,819    6,119,732 
                                       -------------  ------------  ----------- 
Loss from operations.................   (128,629,811)  (42,024,306)  (1,764,176)
Other expense, net...................       (343,426)      (32,568)         --  
Interest income (expense), net.......      2,477,004       777,867      (20,519)
                                       -------------  ------------  ----------- 
Net loss.............................   (126,496,233)  (41,279,007)  (1,784,695)
Preferred stock dividends............            --    (22,275,542)         --  
                                       -------------  ------------  ----------- 
Net loss attributable to common                                                 
 stockholders........................  $(126,496,233) $(63,554,549) $(1,784,695)
                                       =============  ============  =========== 
Basic and diluted net loss per share                                            
 attributable to common stockholders.  $       (3.39) $      (5.67) $     (0.25)
                                       =============  ============  =========== 
Shares used in computing basic and                                              
 diluted net loss per share                                                     
 attributable to common stockholders.     37,359,590    11,204,708    7,016,416 
                                       =============  ============  =========== 

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

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HEALTHCENTRAL.COM 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

                                                        [Enlarge/Download Table]

                       Convertible                                              Note                                  
                     Preferred Stock         Common Stock       Additional   Receivable     Deferred                  
                  ----------------------  -------------------    Paid-In        from         Stock       Accumulated  
                    Shares      Amount      Shares    Amount     Capital     Stockholder  Compensation     Deficit    
                  ----------  ----------  ----------  -------  ------------  -----------  ------------  ------------- 
                                                                                                                      
Balance at                                                                                                            
 December 31,                                                                                                         
 1997...........         --   $      --    6,811,178  $ 6,580  $  3,017,207  $(1,175,780) $       --    $  (1,363,916)
Issuance of                                                                                                           
 Series A                                                                                                             
 preferred stock                                                                                                      
 and warrants,                                                                                                        
 net............   1,012,500       1,134         --       --      1,933,891          --           --              --  
Issuance of                                                                                                           
 common stock...         --          --    1,427,165    1,436     8,966,924   (3,365,931)         --              --  
Deferred                                                                                                              
 compensation                                                                                                         
 expense in                                                                                                           
 connection with                                                                                                      
 issuance of                                                                                                          
 stock options..         --          --          --       --        389,122          --      (389,122)            --  
Amortization of                                                                                                       
 deferred stock                                                                                                       
 compensation...         --          --          --       --            --           --       104,641             --  
Net loss........         --          --          --       --            --           --           --       (1,784,695)
                  ----------  ----------  ----------  -------  ------------  -----------  -----------   ------------- 
Balance at                                                                                                            
 December 31,                                                                                                         
 1998...........   1,012,500       1,134   8,238,343    8,016    14,307,144   (4,541,711)    (284,481)     (3,148,611)
Deferred                                                                                                              
 compensation                                                                                                         
 expense in                                                                                                           
 connection with                                                                                                      
 issuances of                                                                                                         
 stock options..         --          --          --       --      9,521,321          --    (9,661,178)            --  
Amortization of                                                                                                       
 deferred                                                                                                             
 compensation...         --          --          --       --            --           --     4,939,694             --  
Issuance of                                                                                                           
 Series B                                                                                                             
 convertible                                                                                                          
 preferred stock                                                                                                      
 and warrants,                                                                                                        
 net............   4,038,455       4,523         --       --     19,810,542          --           --              --  
Common stock                                                                                                          
 issued for                                                                                                           
 acquisitions...         --          --    5,324,871    5,576    35,572,592          --           --              --  
Issuance of                                                                                                           
 Series A                                                                                                             
 convertible                                                                                                          
 preferred stock                                                                                                      
 warrants.......         --          --          --       --         49,372          --           --              --  
Issuance of                                                                                                           
 common stock                                                                                                         
 warrants and                                                                                                         
 options........         --          --          --       --      1,747,848          --           --              --  
Preferred stock                                                                                                       
 dividend.......         --          --          --       --     11,388,000          --           --      (11,388,000)
Issuance of                                                                                                           
 common stock in                                                                                                      
 IPO, net.......         --          --    7,500,000    7,500    74,651,321          --           --              --  
Conversion of                                                                                                         
 preferred                                                                                                            
 stock..........  (5,050,955)     (5,657)  5,050,955    5,051           606          --           --              --  
Exercise of                                                                                                           
 warrants and                                                                                                         
 options........         --          --      936,796      722     1,285,895     (459,526)         --              --  
Common stock                                                                                                          
 issued.........         --          --       96,142       96        62,636          --           --          (58,648)
Issuance of                                                                                                           
 common stock                                                                                                         
 for domain name                                                                                                      
 purchase.......         --          --      193,774      194     1,249,806          --           --              --  
Exercise of                                                                                                           
 dilution                                                                                                             
 rights.........         --          --      261,455      262          (262)         --           --              --  
Forgiveness of                                                                                                        
 note receivable                                                                                                      
 from                                                                                                                 
 stockholder....         --          --          --       --            --     1,175,780          --              --  
Collection of                                                                                                         
 note receivable                                                                                                      
 from                                                                                                                 
 stockholder....         --          --          --       --            --     3,360,000          --              --  
Recapitalization                                                                                                      
 (Note 8).......         --          --          --       --            --           --           --      (10,828,894)
Net loss........         --          --          --       --            --           --           --      (41,279,007)
                  ----------  ----------  ----------  -------  ------------  -----------  -----------   ------------- 
Balance at                                                                                                            
 December 31,                                                                                                         
 1999...........         --          --   27,602,336   27,417   169,646,821     (465,457)  (5,005,965)    (66,703,160)
Stock issued for                                                                                                      
 acquisitions...     480,000   7,274,880   4,993,471    4,994     6,002,978          --           --              --  
Conversion of                                                                                                         
 preferred stock                                                                                                      
 to common                                                                                                            
 stock..........                          17,411,710   17,412    36,547,985                                           
Exercise of                                                                                                           
 options........         --          --      268,098      268       437,199          --           --              --  
Issuance of                                                                                                           
 common stock                                                                                                         
 warrants and                                                                                                         
 options........         --          --          --       --         12,878          --           --              --  
Amortization of                                                                                                       
 deferred                                                                                                             
 compensation...         --          --          --       --            --           --     1,693,913             --  
Cancellation and                                                                                                      
 revaluation of                                                                                                       
 common stock                                                                                                         
 warrants.......         --          --          --       --       (829,843)         --       159,026             --  
Common stock                                                                                                          
 issued for                                                                                                           
 services.......         --          --      300,000      300       937,200          --           --              --  
Common stock                                                                                                          
 issued under                                                                                                         
 employee stock                                                                                                       
 purchase plan..         --          --       19,279       19        54,263          --           --              --  
Deferred                                                                                                              
 compensation                                                                                                         
 adjustment for                                                                                                       
 terminated                                                                                                           
 employees......         --          --          --       --     (1,666,003)         --     1,666,003             --  
Forgiveness of                                                                                                        
 note receivable                                                                                                      
 from                                                                                                                 
 stockholder....         --          --     (312,500)    (313)     (312,187)     400,000          --              --  
Net loss........         --          --          --       --            --           --           --     (126,496,233)
                  ----------  ----------  ----------  -------  ------------  -----------  -----------   ------------- 
Balance at                                                                                                            
 December 31,                                                                                                         
 2000...........     480,000  $7,274,880  50,282,394  $50,097  $210,831,291  $   (65,457) $(1,487,023)  $(193,199,393)
                  ==========  ==========  ==========  =======  ============  ===========  ===========   ============= 

                      Total                                                                                           
                  Stockholders'                                                                                       
                     Equity                                                                                           
                  --------------                                                                                      
                                                                                                                      
Balance at                                                                                                            
 December 31,                                                                                                         
 1997...........  $     484,091                                                                                       
Issuance of                                                                                                           
 Series A                                                                                                             
 preferred stock                                                                                                      
 and warrants,                                                                                                        
 net............      1,935,025                                                                                       
Issuance of                                                                                                           
 common stock...      5,602,429                                                                                       
Deferred                                                                                                              
 compensation                                                                                                         
 expense in                                                                                                           
 connection with                                                                                                      
 issuance of                                                                                                          
 stock options..            --                                                                                        
Amortization of                                                                                                       
 deferred stock                                                                                                       
 compensation...        104,641                                                                                       
Net loss........     (1,784,695)                                                                                      
                  --------------                                                                                      
Balance at                                                                                                            
 December 31,                                                                                                         
 1998...........      6,341,491                                                                                       
Deferred                                                                                                              
 compensation                                                                                                         
 expense in                                                                                                           
 connection with                                                                                                      
 issuances of                                                                                                         
 stock options..       (139,857)                                                                                      
Amortization of                                                                                                       
 deferred                                                                                                             
 compensation...      4,939,694                                                                                       
Issuance of                                                                                                           
 Series B                                                                                                             
 convertible                                                                                                          
 preferred stock                                                                                                      
 and warrants,                                                                                                        
 net............     19,815,065                                                                                       
Common stock                                                                                                          
 issued for                                                                                                           
 acquisitions...     35,578,168                                                                                       
Issuance of                                                                                                           
 Series A                                                                                                             
 convertible                                                                                                          
 preferred stock                                                                                                      
 warrants.......         49,372                                                                                       
Issuance of                                                                                                           
 common stock                                                                                                         
 warrants and                                                                                                         
 options........      1,747,848                                                                                       
Preferred stock                                                                                                       
 dividend.......            --                                                                                        
Issuance of                                                                                                           
 common stock in                                                                                                      
 IPO, net.......     74,658,821                                                                                       
Conversion of                                                                                                         
 preferred                                                                                                            
 stock..........            --                                                                                        
Exercise of                                                                                                           
 warrants and                                                                                                         
 options........        827,091                                                                                       
Common stock                                                                                                          
 issued.........          4,084                                                                                       
Issuance of                                                                                                           
 common stock                                                                                                         
 for domain name                                                                                                      
 purchase.......      1,250,000                                                                                       
Exercise of                                                                                                           
 dilution                                                                                                             
 rights.........            --                                                                                        
Forgiveness of                                                                                                        
 note receivable                                                                                                      
 from                                                                                                                 
 stockholder....      1,175,780                                                                                       
Collection of                                                                                                         
 note receivable                                                                                                      
 from                                                                                                                 
 stockholder....      3,360,000                                                                                       
Recapitalization                                                                                                      
 (Note 8).......    (10,828,894)                                                                                      
Net loss........    (41,279,007)                                                                                      
                  --------------                                                                                      
Balance at                                                                                                            
 December 31,                                                                                                         
 1999...........     97,499,656                                                                                       
Stock issued for                                                                                                      
 acquisitions...     13,282,852                                                                                       
Conversion of                                                                                                         
 preferred stock                                                                                                      
 to common                                                                                                            
 stock..........     36,565,397                                                                                       
Exercise of                                                                                                           
 options........        437,467                                                                                       
Issuance of                                                                                                           
 common stock                                                                                                         
 warrants and                                                                                                         
 options........         12,878                                                                                       
Amortization of                                                                                                       
 deferred                                                                                                             
 compensation...      1,693,913                                                                                       
Cancellation and                                                                                                      
 revaluation of                                                                                                       
 common stock                                                                                                         
 warrants.......       (670,817)                                                                                      
Common stock                                                                                                          
 issued for                                                                                                           
 services.......        937,500                                                                                       
Common stock                                                                                                          
 issued under                                                                                                         
 employee stock                                                                                                       
 purchase plan..         54,282                                                                                       
Deferred                                                                                                              
 compensation                                                                                                         
 adjustment for                                                                                                       
 terminated                                                                                                           
 employees......            --                                                                                        
Forgiveness of                                                                                                        
 note receivable                                                                                                      
 from                                                                                                                 
 stockholder....         87,500                                                                                       
Net loss........   (126,496,233)                                                                                      
                  --------------                                                                                      
Balance at                                                                                                            
 December 31,                                                                                                         
 2000...........  $  23,404,395                                                                                       
                  ==============                                                                                      

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

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HEALTHCENTRAL.COM 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                                [Download Table]

                                              Years Ended December 31,          
                                       ---------------------------------------- 
                                           2000           1999         1998     
                                       -------------  ------------  ----------- 
                                                                                
Cash flows from operating activities:                                           
 Net loss............................  $(126,496,233) $(41,279,007) $(1,784,695)
 Adjustments to reconcile net loss to                                           
  net cash used in operating                                                    
  activities:                                                                   
 Common stock issued for services....            --         62,500        2,429 
 Stock compensation expense..........      1,884,273     6,245,822      104,641 
 Depreciation and amortization.......     17,253,459     4,384,989      218,403 
 Acquired in-process research and                                               
  development........................            --        804,525          --  
 Loss on disposal of property........        343,426        32,568          --  
 Amortization of prepaid contracts...        965,725       373,884          --  
 Stock issued for termination of                                                
  contracts..........................        937,500           --           --  
 Write-off of intangible assets and                                             
  website development costs..........     44,253,982           --           --  
 Changes in assets and liabilities:                                             
  Accounts and other receivables.....     (2,070,060)     (417,366)     (32,749)
  Prepaid expenses and other assets..      1,514,928    (2,643,953)    (176,376)
  Inventory..........................       (248,585)   (2,858,812)    (940,242)
  Accounts payable...................      2,361,814     5,373,302      520,554 
  Accrued expenses...................      1,332,468       272,189       98,374 
  Deferred revenue and other current                                            
   liabilities.......................        868,693       (30,897)     109,597 
                                       -------------  ------------  ----------- 
   Net cash used in operating                                                   
    activities.......................    (57,098,610)  (29,680,256)  (1,880,064)
                                       -------------  ------------  ----------- 
Cash flows from investing activities:                                           
 Purchase of property and equipment..     (6,159,784)   (3,723,868)    (990,300)
 Proceeds from sale of property and                                             
  equipment..........................         21,121         1,625          --  
 Cash paid in connection with                                                   
  acquisitions, net of cash received.     (3,340,339)   (6,169,405)         --  
 Cash paid for domain name...........            --       (290,583)         --  
 Payments to related party...........     (2,157,398)   (2,302,901)    (563,541)
                                       -------------  ------------  ----------- 
   Net cash used in investing                                                   
    activities.......................    (11,636,400)  (12,485,132)  (1,553,841)
                                       -------------  ------------  ----------- 
Cash flows from financing activities:                                           
 Proceeds from issuance of                                                      
  mandatorily redeemable convertible                                            
  preferred stock....................            --     23,266,584          --  
 Proceeds from issuance of                                                      
  convertible preferred stock........            --     18,315,065    1,935,025 
 Payments on capital leases..........     (1,167,080)     (174,148)    (124,005)
 Proceeds from issuance of notes                                                
  payable............................            --      1,500,000          --  
 Proceeds from warrant exercises.....            --        809,991          --  
 Collection of notes receivable from                                            
  stockholders.......................            --      3,360,000          --  
 Proceeds from issuance of common                                               
  stock..............................        420,382    74,675,921    5,600,000 
                                       -------------  ------------  ----------- 
   Net cash (used in) provided by                                               
    financing activities.............       (746,698)  121,753,413    7,411,020 
                                       -------------  ------------  ----------- 
Net (decrease) increase in cash and                                             
 cash equivalents....................    (69,481,708)   79,588,025    3,977,115 
Cash and cash equivalents at                                                    
 beginning of year...................     83,690,072     4,102,047      124,932 
                                       -------------  ------------  ----------- 
Cash and cash equivalents at end of                                             
 year................................  $  14,208,364  $ 83,690,072  $ 4,102,047 
                                       =============  ============  =========== 
Supplemental disclosures of cash flow                                           
 information:                                                                   
 Cash paid for interest..............  $     291,186  $    173,043  $    37,065 
Supplemental disclosures of non-cash                                            
 investing and financing activities:                                            
 Deferred stock compensation adjusted                                           
  for terminations...................  $  (1,666,003) $  9,661,178  $   389,122 
 Warrants and options issued in                                                 
  connection with agreements.........         12,878     1,496,153          --  
 Cancellation of warrants issued in                                             
  connection with agreements.........        (57,177)          --           --  
 Conversion of preferred stock to                                               
  common stock.......................     36,565,397           --           --  
 Common stock purchased with notes                                              
  receivables........................            --        459,526    3,365,931 
 Stock warrants issued in connection                                            
  with sale of preferred stock.......            --        301,317      408,629 
 Issuance of stock in connection with                                           
  acquisitions and purchase of                                                  
  assets.............................     13,282,854    39,239,671          --  
 Payment of note payable with                                                   
  preferred stock....................            --      1,500,000          --  
 Forgiveness of note from                                                       
  stockholder........................       (431,495)   (1,175,780)         --  
 Preferred stock dividends...........            --     22,275,542          --  
 Assets acquired under capital                                                  
  leases.............................         35,612       375,225      138,314 
 Remeasurement of stock options and                                             
  warrants...........................       (772,666)          --           --  

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

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

Note 1. The Company and Summary of Significant Accounting Policies              

The Company                                                                   

HealthCentral.com (the "Company") was incorporated in California on August
12, 1996, and reincorporated in Delaware in 1999. The Company commenced         
operations in 1998 and is a leading provider of online healthcare related e-    
commerce and content to consumers through the Company's network of websites     
which include WebRx.com, Vitamins.com, HealthCentral.com, RxList.com,           
DrugEmporium.com and ComfortLiving.com, and through the Company's Vitamins.com  
mail order and retail operations. In addition, the Company designs, hosts and   
maintains healthcare institutions' websites for healthcare content and e-       
commerce. The Company emerged from the development stage in 1999 and operates   
in three business segments.                                                     

The Company has a limited operating history and its prospects are subject 
to the risks, expenses and uncertainties frequently encountered by companies    
in the new and rapidly evolving markets for Internet products and services.     
These risks include the failure to develop and extend the Company's on-line     
brands, the rejection of the Company's services by Internet consumers, vendors  
and/or advertisers, the inability of the Company to maintain and increase the   
levels of traffic on its on-line services, as well as other risks and           
uncertainties. In the event that the Company does not successfully implement    
its business plan, certain assets may not be recoverable. (See Note 2.)         

On June 16, 2000, the Company completed the acquisition of Vitamins.com,  
Inc. ("Vitamins.com") (formerly Vitamin Superstore, LLC, which converted to a   
C corporation in August 1999), in a business combination that was accounted     
for as a pooling of interests. The Company's consolidated financial statements  
and the accompanying notes reflect the Company's financial position and the     
results of operations as if Vitamins.com was a wholly owned subsidiary of the   
Company for all periods presented.                                              

Vitamins.com is a retailer that provides dietary supplements, related     
health and wellness products and information to consumers. The Company          
acquired Vitamins.com for consideration consisting of 22,432,801 shares of the  
Company's common stock. Acquisition and related costs approximated $2.5         
million. Each share of Vitamins.com stock was exchanged for 0.387 shares of     
HealthCentral.com common stock. Vitamins.com will remain a wholly owned         
subsidiary of HealthCentral.com. The transaction was recorded using the         
pooling of interest method of accounting and was a tax-free reorganization      
under Section 369 of the Internal Revenue Code of 1986, as amended.             

Revenues and net losses included in the consolidated statement of         
operations of HealthCentral.com and Vitamins.com (as adjusted to conform        
Vitamins.com's accounting policies to those of the Company) prior to the        
pooling of interest transaction are as follows:                                 

                                                                [Download Table]

                                   Three Months  Years Ended December 31,  
                                      Ended      ------------------------- 
                                  March 31, 2000     1999         1998     
                                  -------------- ------------  ----------- 
                                                                           
Revenues:                                                                  
  HealthCentral.com..............  $  1,301,655  $  1,188,753  $    15,259 
  Vitamins.com...................     9,235,216    17,041,760    4,340,297 
                                   ------------  ------------  ----------- 
                                   $ 10,536,871  $ 18,230,513  $ 4,355,556 
                                   ============  ============  =========== 
Net loss:                                                                  
  HealthCentral.com..............  $(23,247,640) $(22,999,386) $  (446,235)
  Vitamins.com...................    (6,773,859)  (18,279,621)  (1,338,460)
                                   ------------  ------------  ----------- 
                                   $(30,021,499) $(41,279,007) $(1,784,695)
                                   ============  ============  =========== 

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Principles of consolidation and basis of presentation                         

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

Use of estimates                                                              

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

Cash and cash equivalents                                                     

The Company considers all highly liquid investments with an original      
maturity of three months or less to be cash equivalents. At December 31, 2000   
and 1999, the Company maintained its cash and cash equivalents in bank          
accounts in amounts which, at times, exceed federally insured limits. Cash      
equivalents consist primarily of corporate bonds and money market auction       
instruments with maturities of three months or less for which the carrying      
value approximated fair value. The cost of these investments at December 31,    
2000 and 1999 was $5,979,000 and $69,942,000, respectively.                     

Inventory                                                                     

The Company's inventory, which consists primarily of finished goods, is   
priced at the lower of cost or market. The Company uses the weighted-average    
method of inventory costing.                                                    

Property and equipment                                                        

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

                                                                [Download Table]
                                                                           
Computer equipment and software.................................. 3-5 years
Equipment........................................................ 3-5 years
Furniture and fixtures........................................... 5-7 years

The Company accounts for website development costs in accordance with the 
AICPA Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer  
Software Developed or Obtained for Internal Use and Emerging Issues Task        
Force, and ("EITF") Issue No. 00-02, Accounting For Website Development Costs.  
Website development costs consist of external and internal costs incurred to    
purchase and implement the website software, and significant enhancements       
thereto, used in the Company's business. These costs are capitalized and        
amortized using the straight-line method over the estimated life of the asset.  
Internal and external costs of developing website content are expensed as       
incurred and included in content and product development expense.               

 Leasehold improvements are amortized on a straight-line basis over the life
of the lease, or the useful life of the assets, whichever is shorter.           
Maintenance and repairs are charged directly to expense as incurred.            

Impairment of long-lived assets                                               

 The Company assesses the impairment of identifiable intangibles and related
goodwill periodically in accordance with the provisions of Statement of         
Financial Accounting Standards ("SFAS") No. 121, Accounting                     

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be         
Disposed Of. The Company also assesses the impairment of enterprise level       
goodwill periodically in accordance with the provision of Accounting            
Principles Board (APB) Opinion No. 17, Intangible Assets. An impairment review  
is performed whenever events or changes in circumstances indicate that the      
carrying value may not be recoverable. Factors the Company considers important  
which could trigger an impairment review include, but are not limited to,       
significant underperformance relative to expected historical or projected       
future operating results, significant changes in the manner of use of the       
acquired assets or the strategy for the Company's overall business,             
significant negative industry or economic trends, a significant decline in the  
Company's stock price for a sustained period, and market capitalization         
relative to net book value. When the Company determines that the carrying       
value of goodwill may not be recoverable based upon the existence of one or     
more of the above indicators of impairment, the Company measures any            
impairment based on a projected discounted cash flow method using a discount    
rate commensurate with the risk inherent in its current business model.         

Goodwill and intangible assets                                                

Goodwill and intangibles assets are carried at cost, less accumulated     
amortization and any impairment write-offs, and are amortized on a straight-    
line basis over their estimated useful lives as follows:                        

                                                                [Download Table]
                                         
Goodwill................... 2 to 20 years
Core technology............       2 years
Acquired workforce.........  2 to 4 years
Contracts..................       2 years
Tradenames.................  2 to 7 years
Customer lists.............  3 to 6 years
Domain name................ 4 to 10 years

Comprehensive income                                                          

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

Revenue recognition                                                           

e-Commerce and other product sales are recognized for over-the-counter    
health and beauty aid products and dietary supplements, net of discounts, when  
products are shipped to customers or sold through our retail stores. Net sales  
include outbound shipping and handling fees charged to customers. Prior to      
September 2000, the Company recognized commission revenue for the use of the    
website related to sales made by Medi-Mail for prescription drugs. However,     
the acquisition of DrugEmporium.com enabled the Company to sell and ship        
prescription drugs directly to consumers. Accordingly, beginning in September   
2000, the Company began to recognize gross revenues from the sale of            
pharmaceutical products. Revenue also includes the wholesale revenue from the   
sale of "Dr. Dean Edell Eyewear" brand eyeglasses to the Company's brick-and-   
mortar distribution partner. All revenues are recognized, net of allowances     
for product returns, promotional discounts and coupons, at the time the         
products are shipped to the customer for e-commerce sales and at the point of   
sale for retail stores. The Company is responsible for all refunds relating to  
all sales where a customer is not satisfied with the products received. The     
Company records an estimated allowance for such returns in the period of sale   
and also retains the credit risk for all sales.                                 

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Advertising revenues are recognized in the period the advertising         
impressions are delivered to customers. The Company uses an outside vendor to   
solicit customers to use the Company's advertising services, to serve the ads   
to the Company's website and to bill and collect for these services. This       
outside vendor provides monthly reports indicating the impressions delivered,   
the amounts billed for advertising services and the related administrative      
fee. The Company recognizes advertising revenues, as reported by the outside    
vendor, net of this administrative fee, as the Company bears no collection      
risk for the gross amount of the advertising fees. The advertising contracts    
do not guarantee a minimum number of impressions to be delivered. The Company   
also enters into sponsorship agreements and provides customers with enhanced    
promotional opportunities and co-branded web pages.                             

Content and other revenues are derived from contracts with healthcare     
providers, health product resellers, and third party organizations and          
principally consist of license fees for website development applications,       
consulting fees from custom website development and hosting, and maintenance    
fees related to the websites' maintenance. The Company recognizes software      
license revenue under SOP 97-2, Software Revenue Recognition, and SOP 98-9,     
Modifications of SOP 97-2, Software Revenue Recognition, with Respect to        
Certain Transactions. When contracts contain multiple elements and vendor-      
specific objective evidence exists for all undelivered elements, the Company    
accounts for the delivered elements in accordance with the "Residual Method"    
prescribed by SOP 98-9. For consulting projects, revenues are recognized at     
the time services are rendered based on charges for time and materials.         
Deferred revenues represent the amount of cash received or services performed   
and billed prior to revenue recognition.                                        

During the year ended December 31, 2000, the Company adopted Staff        
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial       
Statements. The adoption of SAB 101 did not impact the Company's financial      
position or results of operations.                                              

Content and product development expense                                       

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

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

Advertising expenses                                                          

Internet advertising expenses are recognized based on the terms of the    
individual agreements, but generally over the greater of the ratio of the       
number of impressions received over the total number of contracted              
impressions, or on a straight-line basis over the term of the contract.         
Advertising expenses for the years ended December 31, 2000, 1999 and 1998 were  
$30,965,566, $15,232,965 and $324,051, respectively, and have been included in  
sales and marketing expense in the consolidated statements of operations.       

Shipping and fulfillment                                                      

 Fulfillment costs include the external fulfillment fee charged by our third
party fulfillment partner and the internal cost of operating and staffing the   
distribution center. Shipping and fulfillment expenses for the years ended      
December 31, 2000 and 1999 were $5,231,197 and $1,584,076, respectively, and    
have been included in sales and marketing expense in the consolidated           
statements of operations. There were no shipping and fulfillment expenses in    
1998.                                                                           

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Store openings                                                                

All costs of a noncapital nature incurred in opening a new store are      
charged to expense as incurred.                                                 

Net loss per share                                                            

The Company computes net loss per share in accordance with SFAS No. 128,  
Earnings per Share. Basic and diluted net loss per share are computed by        
dividing the net loss available to holders of common stock for the period by    
the weighted average number of shares of common stock outstanding during the    
period. The calculation of diluted net loss per share excludes potential        
common stock if their effect is antidilutive. Potential common stock consists   
of restricted common stock, convertible preferred stock and incremental common  
shares issuable upon the exercise of stock options and warrants. The net loss   
per share for the year ended December 31, 1999 includes the weighted average    
effect of 5,050,955 shares of convertible preferred stock that converted into   
common shares on a one-to-one basis upon completion of the Company's initial    
public offering in December 1999. The net loss per share for the year ended     
December 31, 2000 includes the weighted average effect of 17,411,710 shares of  
mandatorily redeemable convertible preferred stock that converted into common   
stock at a ratio of .387 at the time of the merger with Vitamins.com.           

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

                                                                [Download Table]

                                                      December 31,         
                                             ------------------------------
                                               2000       1999      1998   
                                             --------- ---------- ---------
                                                                           
Convertible preferred stock.................   480,000 17,411,710 1,012,500
Convertible preferred stock warrants........    12,249     12,249   486,000
Convertible common stock warrants...........       --      73,896       -- 
Common stock options........................ 5,010,432  3,219,883   274,718
Common stock subject to repurchase..........       --     312,500    17,937
                                             --------- ---------- ---------
                                             5,502,681 21,030,238 1,791,155
                                             ========= ========== =========

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

Income taxes                                                                  

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

Concentration of credit risk                                                  

Financial instruments that potentially subject the Company to a           
concentration of credit risk consist of cash and cash equivalents and accounts  
receivable. The Company's accounts receivable are derived from revenues earned  
from customers located in the United States. The Company performs ongoing       
credit evaluations of its customers' financial condition and, generally,        
requires no collateral from its customers. The Company generally does not       
extend credit to customers of e-commerce, except through the use of third-      
party credit cards. Credit under these accounts is extended by third parties,   
and accordingly, the Company bears no financial risk under these agreements     
except in the case of fraud. Approximately 69% of the Company's accounts        
receivables balance                                                             

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

reflect amounts due from the sale of the Dr. Dean Edell brand eyewear to Cable  
Car Eyewear, which accounted for 11% of the Company's total revenue for the     
year ended December 31, 2000. The Company maintains an allowance for doubtful   
accounts receivable based upon the expected collectibility of these balances.   

Financial instruments                                                         

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

Stock options                                                                 

The Company accounts for employee stock compensation arrangements in      
accordance with provisions of APB No. 25, Accounting for Stock Issued to        
Employees, and complies with the disclosure provisions of SFAS No. 123,         
Accounting for Stock-Based Compensation. Under APB No. 25, stock compensation   
is based on the difference, if any, on the date of grant, between the           
estimated fair value of the Company's common stock and the exercise price. In   
July 2000, the Company adopted Financial Accounting Standards Board ("FASB")    
Interpretation ("FIN") No. 44, Accounting for Certain Transactions Involving    
Stock Compensation, an Interpretation of APB Opinion No. 25. FIN No. 44         
clarifies the application of Opinion 25 for (a) the definition of an employee   
for purposes of applying Opinion 25, (b) the criteria for determining whether   
a plan qualifies as a non-compensatory plan, (c) the accounting consequence of  
various modifications to the terms of a previously fixed stock option or        
award, and (d) the accounting for an exchange of stock compensation awards in   
a business combination. Deferred stock compensation is amortized in accordance  
with FIN No. 28. The Company accounts for stock issued to non-employees in      
accordance with the provisions of SFAS No. 123 and EITF Issue No. 96-18,        
Accounting for Equity Instruments that are Issued to Other than Employees for   
Acquiring, or in Conjunction with Selling Goods or Services.                    

Recent accounting pronouncements                                              

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

Note 2. Need For Additional Financing and Nasdaq Listing                        

 The Company has sustained net operating losses and negative cash flows from
operations since its inception. Further, the Company has experienced            
substantial increases in expenditures consistent with its growth in operations  
and personnel, both internally and through multiple acquisitions. These         
matters raise substantial doubt about the Company's ability to continue as a    
going concern. The accompanying financial statements do not include any         
adjustments that might result from the outcome of this uncertainty. The         
Company has previously financed operations through the issuance of preferred    
stock, the issuance of notes payable, an initial public offering completed in   
December 1999 for $74.7 million in cash and through capital leases. Since the   
Company's current cash and cash equivalents are insufficient to satisfy its     
liquidity requirements beyond approximately mid 2001, the Company is seeking    
to issue additional equity or debt securities, obtain credit facilities from    
lenders and/or sell certain assets.                                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

On January 4, 2001, the Company received a notification from the Nasdaq   
that it has 90 days to comply with the minimum closing bid price per share      
rule. Management is exploring alternative strategies to bring the Company back  
into compliance with the listing requirements. Should these efforts be          
unsuccessful, the Company's common stock could be delisted from the Nasdaq      
National Market System.                                                         

Note 3. Balance Sheet Components                                                

                                                                [Download Table]

                                                       December 31,       
                                                  ----------------------- 
                                                     2000         1999    
                                                  -----------  ---------- 
                                                                          
Property and equipment:                                                   
  Computer equipment and software................ $10,020,495  $2,565,898 
  Equipment......................................     620,361     498,063 
  Furniture and fixtures.........................   2,136,119   1,568,415 
  Leasehold improvements.........................   1,878,816   1,478,570 
  Website development............................     513,672   1,099,485 
                                                  -----------  ---------- 
                                                   15,169,463   7,210,431 
  Less: Accumulated depreciation and                                      
   amortization..................................  (3,483,598)   (957,278)
                                                  -----------  ---------- 
                                                  $11,685,865  $6,253,153 
                                                  ===========  ========== 

Property and equipment includes approximately $6,904,000 and $1,097,000 of
computer equipment under capital leases at December 31, 2000 and 1999,          
respectively. Accumulated depreciation of assets under capital leases totaled   
approximately $967,000 and $245,000 at December 31, 2000 and 1999,              
respectively.                                                                   

                                                                [Download Table]

                                                        December 31,       
                                                   ----------------------- 
                                                      2000        1999     
                                                   ----------  ----------- 
                                                                           
Intangible assets:                                                         
  Goodwill........................................ $  875,911  $42,895,500 
  Core technology.................................        --     1,615,573 
  Acquired workforce..............................    700,000      357,829 
  Contracts.......................................        --     1,189,103 
  Tradenames......................................    600,000      443,062 
  Customer lists..................................  3,000,000    1,566,279 
  Domain name.....................................        --     1,540,583 
  Other...........................................        --       122,260 
                                                   ----------  ----------- 
                                                    5,175,911   49,730,189 
  Less: Accumulated amortization..................   (253,558)  (3,657,220)
                                                   ----------  ----------- 
                                                   $4,922,353  $46,072,969 
                                                   ==========  =========== 

 During the fourth quarter ended December 31, 2000, the Company performed an
impairment analysis of the identifiable intangibles and enterprise level        
goodwill recorded in connection with the acquisitions of Enterprise Web         
Services, L&H Vitamins, Inc., HealthCentralRx.com, Inc., RxList.com,            
DrugEmporium.com and the license agreement with Dr. Dean Edell. The analysis    
was performed in response to the sustained decline in the Company's stock       
price, the overall decline in the Internet industry growth rates, the excess    
of the carrying value of the identifiable intangibles and goodwill over the     
Company's market capitalization, and lower projected future operating results.  
As a result of this review, a $39.1 million impairment charge was recorded to   
eliminate all of the Company's identifiable intangibles and enterprise level    
goodwill, except for the amounts recorded in December 2000 in connection with   
our acquisition of certain assets of more.com, Inc. and its subsidiary,         
Comfort                                                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Living, Inc. The charge was determined based upon the Company's estimated       
future discounted cash flows using a discount rate of 30%. The assumptions      
supporting the cash flows analysis, including the discount rate, were           
determined using management's best estimates. The remaining goodwill and        
identifiable intangibles at December 31, 2000 with a net book value of          
approximately $4.9 million will be amortized over the remaining useful lives    
of three to four years.                                                         

                                                                [Download Table]

                                                         December 31,     
                                                     ---------------------
                                                        2000       1999   
                                                     ---------- ----------
                                                                          
Accrued expenses:                                                         
  Accrued compensation.............................. $  229,006 $  395,994
  Accrued advertising...............................  1,769,910    455,314
  Accrued vacation..................................    258,704     97,470
  Accrued taxes.....................................    294,868    104,287
  Accrued professional fees.........................    824,809    775,126
  Frequent buyer program liability..................     86,412    320,994
  Other accrued liabilities.........................    237,729    172,423
                                                     ---------- ----------
                                                     $3,701,438 $2,321,608
                                                     ========== ==========

Note 4. Acquisitions                                                            

Domain Name www.vitamins.com                                                  

In March 1999, Vitamin Superstore, LLC (the predecessor to Vitamins.com)  
purchased the domain name www.vitamins.com (the "Domain Name"), the             
Vitamins.com website, and copyrighted content available on that website.        
Vitamins.com paid $290,583 in cash, which included direct costs of the          
purchase of $40,583, and issued 193,774 shares of its common stock that were    
valued at approximately $6.46 per share.                                        

Enterprise Web Services                                                       

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

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

                                                                [Download Table]
                                                                          
Goodwill...................................................... $10,751,000
Identifiable assets...........................................     842,000
Core technology...............................................     375,000
Acquired workforce............................................     180,000
In-process research and development...........................     555,000
                                                               -----------
  Total purchase price........................................ $12,703,000
                                                               ===========

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

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

L&H Vitamins, Inc.                                                            

On August 16, 1999, Vitamins.com acquired L&H Vitamins, Inc., and its     
affiliate for $5.6 million in cash, which included acquisition costs of         
$230,000, and 891,583 and 1,527,167 shares of its common stock and mandatorily  
redeemable convertible preferred stock, respectively, valued at $2.58 per       
share. The purchase price was subsequently reduced based on L&H's adjusted net  
worth, and Vitamins.com recorded the reduction of $554,000 as a purchase price  
receivable. In addition, the former owners of L&H had been granted employment   
agreements with Vitamins.com for a period of four years.                        

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

                                                                [Download Table]
                                                                           
Goodwill...................................................... $ 9,526,000 
Identifiable net assets.......................................     168,000 
Customer lists................................................   1,566,000 
Stock consideration...........................................  (6,250,000)
Purchase price receivable.....................................     554,000 
                                                               ----------- 
  Total purchase price........................................ $ 5,564,000 
                                                               =========== 

HealthCentralRx.com                                                           

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

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

                                                                [Download Table]
                                                                           
Goodwill....................................................... $11,441,000
Identifiable assets............................................   1,147,000
Contracts......................................................   1,189,000
Core technology................................................   1,241,000
Tradename......................................................     443,000
Acquired workforce.............................................     177,000
In-process research and development............................     250,000
                                                                -----------
  Total purchase price......................................... $15,888,000
                                                                ===========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

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

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

RxList.com                                                                    

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

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

                                                                [Download Table]
                                                                           
Goodwill...................................................... $11,212,000 
Net liabilities assumed.......................................    (287,000)
Pharmaceutical database.......................................     123,000 
                                                               ----------- 
  Total purchase price........................................ $11,048,000 
                                                               =========== 

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

Dr. Dean Edell Licensing Agreement                                            

On April 11, 2000, the Company acquired the exclusive licensing rights to 
market and sell "Dr. Dean Edell Eyewear" through 2006. Payment for the product  
license was $2.8 million in cash of which $1.4 million was paid to a related    
party. Simultaneously, the Company entered into a license and distribution      
agreement with Cable Car Eyewear for it to sell the Dr. Dean Edell Eyewear to   
brick-and-mortar pharmacies and grocery chains. This agreement requires Cable   
Car Eyewear to make minimum purchases of products during 2000 through 2006      
starting at $5.0 million in 2000 and increasing each subsequent year to $7.2    
million in 2006. The Company is in negotiations with the distributor regarding  
changes to the existing agreement that may result in inventory values not       
being realized. In addition, the Company entered into a supply agreement with   
a vendor through 2006 to supply the Company with the Dr. Dean Edell Eyewear     
products, and we are in negotiations with the supplier regarding changes to     
the existing agreement.                                                         

DrugEmporium.com                                                              

On September 14, 2000, the Company consummated an asset purchase agreement
with DrugEmporium, Inc. and its online drugstore subsidiary, DrugEmporium.com.  
Under the terms of the asset purchase agreement, the                            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Company acquired substantially all of the assets and assumed some liabilities,  
primarily trade payables and hardware/software leases, of DrugEmporium.com in   
exchange for the issuance of shares of the Company's non-voting preferred       
stock, which does not carry a liquidation preference and which is convertible   
into 2,400,000 shares of common stock. Drug Emporium, Inc. also has an          
opportunity to receive additional shares of the Company's convertible           
preferred stock, which do not carry a liquidation preference, if certain        
revenue targets are met. In connection with this acquisition, the Company also  
entered into a ten year services agreement with Drug Emporium, Inc., under      
which the Company receives in-store promotional and advertising support and     
access to Drug Emporium, Inc.'s electronic purchasing system and in-store       
order pickup capabilities at certain Drug Emporium, Inc. retail stores. In      
consideration of Drug Emporium, Inc.'s services, the Company will pay Drug      
Emporium, Inc. a fee equal to 2% of sales, net of any fees for shipping and     
handling.                                                                       

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

                                                                [Download Table]
                                                                           
Goodwill........................................................ $  888,000
Identifiable assets.............................................  1,939,000
Contracts.......................................................  1,700,000
Customer list...................................................  1,100,000
Tradename.......................................................    870,000
Acquired workforce..............................................  1,300,000
                                                                 ----------
  Total purchase price.......................................... $7,797,000
                                                                 ==========

The total purchase price of $7.8 million consisted of 480,000 shares of   
preferred stock, which are convertible into 2.4 million shares of common        
stock, valued at $7,274,880 based upon the fair market value of the Company's   
common stock of $3.0312 per share on the date the asset purchase agreement was  
signed. The purchase price also included transaction costs of $522,316.         

Comfort Living, Inc. and certain assets of more.com, Inc.                     

On October 23, 2000, the Company entered into an asset purchase agreement 
with more.com, Inc. and Comfort Living, Inc. Under the terms of the asset       
purchase agreement, the Company acquired all of the assets and properties and   
assumed certain liabilities associated with more.com's Comfort Living           
subsidiary, including its website, inventory and a leased 18,000 square foot    
warehouse and distribution center in Gaithersburg, Maryland. The Company also   
acquired all of more.com's trademarks, tradenames, websites and customer lists  
in exchange for the issuance of 5,002,525 shares of the Company's common        
stock, valued at $1.233 per share. The total purchase price approximates $6.3   
million, including transaction costs. The transaction was completed on          
December 14, 2000. The Company accounted for the acquisition using the          
purchase method of accounting.                                                  

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

                                                                [Download Table]
                                                                           
Identifiable assets ............................................ $1,099,000
Goodwill .......................................................    876,000
Customer list ..................................................  3,000,000
Tradename ......................................................    600,000
Acquired workforce .............................................    700,000
                                                                 ----------
  Total purchase price.......................................... $6,275,000
                                                                 ==========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

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

                                                                [Download Table]

                                               Years Ended December 31,   
                                               -------------------------- 
                                                   2000          1999     
                                               ------------  ------------ 
                                                                          
Revenues...................................... $     69,023  $     40,750 
Net loss attributable to common stockholders..     (195,600)     (145,640)
Basic and diluted net loss per share                                      
 attributable to common stockholders..........        (5.24)       (13.00)

Note 5. Related Party Transactions                                              

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

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

In July 1999, the Company borrowed an aggregate of $600,000 from four     
stockholders in the form of promissory notes. The notes bear interest at the    
rate of ten percent per annum. In connection with these notes, the Company      
issued warrants to purchase an aggregate of 16,664 shares of the Company's      
common stock at $3.60 per share. The warrants expire upon the earliest of (a)   
July 1, 2003, (b) the closing of an acquisition, or (c) immediately prior to    
the effective date of the Company's registration statement under the            
Securities Act of 1933 with respect to an initial public offering. The Company  
valued the warrants using the Black-Scholes option pricing model, applying an   
expected life of four years, a weighted average risk-free rate of 5.7%, an      
expected dividend yield of zero percent, a volatility of 70% and deemed values  
of common stock of $6.07 and $6.92 per share. The estimated fair value of the   
warrants of $64,017 was amortized over the period the notes became exercisable  
and included within interest expense in the statement of operations. In August  
1999, the notes were canceled upon the issuance of 115,383 shares of the        
Company's Series B convertible preferred stock at $5.20 per share. In December  
1999, the warrants were exercised and 16,664 shares of the Company's common     
stock were issued.                                                              

In August 1999, the Company and Enterprise Web Services entered into a    
joint development agreement with Global Health Initiatives, Inc. ("GHI"). A     
member of the Board of Directors of the Company is also an officer of GHI. As   
of December 31, 1999, GHI completed one project for the Company at a cost of    
$37,338. Also, in September 1999, the Company subleased a portion of its        
offices to GHI. Rent under the lease was $1,250 per                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

month. The original lease term expired on October 31, 1999 at which time the    
lease was converted to a month-to-month basis. The joint development agreement  
was terminated on February 29, 2000.                                            

Note 6. Convertible Preferred Stock                                             

Preferred stock dividend                                                      

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

Warrants for convertible preferred stock                                      

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

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

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

Vitamins.com mandatorily redeemable convertible preferred stock               

Vitamins.com, the Company's wholly owned subsidiary, had authorized the   
issuance of Series A preferred, Series B preferred and Series C preferred       
stock (together, the "Vitamins.com preferred stock"). Each share of the         
Vitamins.com preferred stock is convertible, at any time, at the option of the  
holder into one share of Vitamins.com common stock. On June 16, 2000, pursuant  
to the acquisition of Vitamins.com by HealthCentral.com, all outstanding        
shares of convertible preferred stock of Vitamins.com were converted to shares  
of HealthCentral.com common stock.                                              

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Drug Emporium, Inc. preferred stock                                           

 Under the terms of the asset purchase agreement with DrugEmporium, Inc. and
its online drugstore subsidiary, DrugEmporium.com, the Company issued 480,000   
shares of its non-voting Series A preferred stock to Drug Emporium, Inc. The    
preferred stock does not carry a liquidation preference and is convertible      
into 2,400,000 shares of common stock . The Series A Preferred Stock has the    
following conversion rights:                                                    

--Each share of the preferred stock is convertible, at any time, at the     
option of the holder into five shares of fully paid and non-assessable  
HealthCentral.com common stock, or                                      

--Each share of the preferred stock may be automatically converted into     
five shares of fully paid and non-assessable HealthCentral.com common   
stock upon either (a) the occurrence of an average closing price of the 
 Company's common stock on the Nasdaq Stock Market equal to at least $9.00
for ten consecutive trading days or (b) the written consent of the      
holders of a majority of the outstanding shares of Series A preferred   
stock.                                                                  

Drug Emporium Inc. also has an opportunity to receive additional shares of
the Company's convertible preferred stock, which does not carry a liquidation   
preference, if certain revenue targets are met.                                 

In addition, the holders of the Series A preferred stock are entitled to  
receive noncummulative dividends, when and if declared by the Board of          
Directors of the Company. The holders of Series A preferred stock are entitled  
to participate in dividends on common stock, when and if declared by the Board  
of Directors, based on the number of shares of common stock held on an as-if    
converted basis. No dividends on convertible preferred stock or common stock    
have been declared by the Board from inception through December 31, 2000.       

In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the assets of the Company shall be             
distributed to the holders of the common stock and to the holders of the        
Series A preferred stock pro rata based upon the number of shares of common     
stock held by each holder (assuming conversion into common stock of all         
outstanding shares of Series A preferred stock.)                                

Note 7. Common Stock                                                            

HealthCentral.com                                                             

In April 1999, in connection with a content license agreement, the Company
issued a warrant to purchase 73,896 shares of the Company's common stock at an  
exercise price of $6.50 per share. The warrant is exercisable at the earlier    
of a) May 2002, b) the one year anniversary of an initial public offering, c)   
the sale of 50% of the Company's equity, or d) the date of termination of the   
content license agreement or the date in which all of the Company's material    
is removed from the website according to the agreement. The Company valued the  
warrant using the Black-Scholes option pricing model, applying an expected      
life of three years, a weighted average risk-free rate of 5.40%, an expected    
dividend yield of zero percent, an expected volatility of 80% and a deemed      
value of common stock of $4.97 per share. The fair value of the warrant of      
$155,301 was amortized over the period of the content license agreement and is  
included in content and product development expense in the statement of         
operations. In June 2000, a new contract was signed that cancelled the          
outstanding warrants.                                                           

In June 1999, the Company granted an officer immediately exercisable      
options to purchase an aggregate of 312,500 shares of common stock at an        
exercise price of $1.28 per share. In July 1999, in connection with the         
exercise of these options, the officer issued a promissory note in the amount   
of $400,000 bearing interest at the rate of 5.74% per annum, due upon the       
earlier of July 12, 2003 or the termination of employment. On November 13,      
2000, the Company and the officer entered into an agreement to provide for the  
repurchase by the Company of 312,500 shares of the Company's common stock (the  
"Shares") for a purchase price of $1.381 per share, or an aggregate amount of   
$431,500. The purchase price was paid by cancellation of two promissory notes   

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executed for the aggregate principal amount of $400,000 and accrued interest    
of $31,500. In connection with the repurchase, the Company recognized a         
compensation expense of $118,995 for the difference between the fair value of   
the common stock on November 13, 2000 and the amount paid for the common        
stock. The officer was granted 447,000 additional options in November 2000, of  
which 312,500 will be subject to variable accounting in accordance with FIN     
No. 44.                                                                         

The Company has reserved 7,378,751 shares of common stock at December 31, 
2000 for future issuance in connection with stock options and warrants.         

Vitamins.com                                                                  

Vitamin Superstore, LLC (the "LLC") was initially formed as a limited     
liability company in 1995. In August 1999, the LLC became a wholly owned        
subsidiary of Vitamins.com, which was formed at that time as a C corporation    
(the "Recapitalization"). To effect the Recapitalization, all member interests  
and rights to acquire member interests in the LLC were exchanged for common     
stock, options to acquire common stock and convertible preferred stock of       
Vitamins.com. Each stockholder received approximately 0.66 shares of preferred  
stock together with every share of common stock issued by Vitamins.com. Though  
the preferred stock was issued as an integral part of the transfer of the       
interests in the LLC to Vitamins.com, for financial reporting purposes the      
issuance of the preferred stock was accounted for as a noncash dividend in the  
amount of $10,828,894. All share and per share amounts in these consolidated    
financial statement have been retroactively restated to reflect the             
recapitalization.                                                               

In 1997, the LLC's wholly owned subsidiary, Vitamins.com, entered into a  
subscription agreement (the "First Subscription Agreement") to issue 71,538     
units of LLC member interests in return for the assignment to Vitamins.com of   
a note valued at $1,175,780 including interest. The assignor of the note was    
an existing member of the LLC. The First Subscription Agreement contained a     
redemption right whereby, at any time from March 7, 1999, to March 7, 2005,     
Vitamins.com could repurchase the shares issued under the Subscription          
Agreement for $1,153,800 plus 8 percent per annum. In 1999, Vitamins.com        
distributed the note to its maker as a distribution with respect to the         
member's capital account in Vitamins.com. For financial reporting purposes,     
the transfer of the note was reflected as a period expense in the amount of     
$1,175,780, included in stock compensation expense for the year ended December  
31, 1999. The First Subscription Agreement was effectively terminated in        
August 1999 as a result of the acquisition by Vitamins.com of all the           
interests in the LLC.                                                           

Note 8. Stock Option Plan                                                       

1998 Stock Plan                                                               

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

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

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1999 Stock Plan                                                               

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

1999 Vitamins.com Stock Plan                                                  

The Company's wholly owned subsidiary, Vitamins.com, adopted the          
Vitamins.com, Inc. 1999 Stock Incentive Plan (the "Vitamins.com Plan"), which   
authorized Vitamins.com to grant options and awards to purchase up to an        
aggregate of 1,551,517 shares of common stock. Under the Vitamins.com Plan,     
incentive and nonqualified stock options and other awards may be granted to     
employees, officers, directors, advisors and consultants. Options were granted  
by a board-appointed committee (the "Committee"). Each outstanding option       
granted under the Vitamins.com Plan expires at various dates, not to exceed     
ten years from the date of the grant, and becomes exercisable in varying        
installments as determined by the Committee at the date of the grant. As of     
December 31, 1999 there were 375,009 options granted at exercise prices         
ranging from $1.66 to $3.88, with a weighted average exercise price of $2.71,   
and a weighted average fair value of $3.20. Pursuant to the acquisition of      
Vitamins.com by the Company, all of the outstanding options to purchase shares  
of Vitamins.com common stock were exchanged using the acquisition exchange      
ratio of 0.387 for options to purchase shares of the Company's common stock.    
The assumption by HealthCentral.com of the options under the Vitamins.com Plan  
did not terminate or modify the plan. The Company assumed 270,271 shares at a   
weighted average exercise price of $2.62. Of these shares, 52,734 shares were   
cancelled at a weighted average exercise price of $2.73, 91,087 shares were     
repriced at a weighted average exercise price of $0.41 and 14,237 shares were   
exercised at a weighted average exercise price of $1.66. As of December 31,     
2000, there were 203,300 shares outstanding at a weighted average exercise      
price of $1.62. No additional options will be granted under the Vitamins.com    
plan.                                                                           

During the period from January 1, 1998 through December 31, 2000, the     
Company recorded $11,356,428 of deferred stock compensation in accordance with  
APB 25, SFAS 123 and EITF 96-18, related to options granted to consultants and  
employees in 1999 and 2000. During this period the Company determined the fair  
value of options granted to consultants using the Black-Scholes option pricing  
model with the following assumptions: expected lives of one to four years;      
weighted average risk-free rates between 4.2% and 6.4%; expected dividend       
yield of zero percent; expected volatility of 70% to 155% and deemed values of  
common stock between $0.10 and $10.08 per share. Stock compensation expense is  
being recognized in accordance with FIN No. 28 over the vesting periods of the  
related options, generally four years. The Company recognized stock             
compensation expense of $1,765,279, $6,245,822 and $104,641for the years ended  
December 31, 2000, 1999 and 1998, respectively.                                 

Repricing of options                                                          

On November 29, 2000, the Board of Directors of the Company approved an   
option exchange program under which the Company has offered to all employees    
and key consultants holding outstanding options with per share exercise prices  
in excess of $0.4062, the opportunity to exchange such old options for new      
options.                                                                        

In accordance with FIN No. 44, 2,967,890 stock options exchanged by the   
Company on December 11, 2000 are subject to variable plan accounting from that  
date forward. Accordingly, the Company will continue to remeasure compensation  
cost for the exchanged options until the options are exercised, cancelled, or   
forfeited                                                                       

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without replacement. The remeasurment will be based on any excess of the        
closing stock price at the end of the reporting period or date of exercise,     
forfeiture or cancellation without replacement, if earlier, over the fair       
value of the Company's common stock on December 11, 2000. The resulting non-    
cash compensation charge will be recorded over the three-year vesting schedule  
of the new options issued in the option exchange program in accordance with     
FIN No. 28. There was no effect at December 31, 2000 as the fair value of the   
common stock was less than $0.4062.                                             

Option activity                                                               

The following table summarizes activity under the 1998 Plan:              

                                                                [Download Table]

                                                                   Weighted
                                             Shares                Average 
                                           Available   Number of   Exercise
                                           for Grant     Shares     Price  
                                           ----------  ----------  --------
                                                                           
Balances, December 31, 1997 ..............        --          --    $ --   
  Shares reserved for grant...............  3,000,000         --      --   
  Options granted.........................   (274,718)    274,718    0.25  
  Restricted stock granted................    (23,916)        --     0.25  
                                           ----------  ----------          
Balances, December 31, 1998...............  2,701,366     274,718    0.25  
  Options granted......................... (2,537,063)  2,537,063    3.73  
  Options exercised.......................        --     (376,250)   1.11  
  Options canceled........................     27,500     (27,500)  10.06  
  Restricted stock fully vested...........        --      (23,916)   0.25  
                                           ----------  ----------          
Balances, December 31, 1999...............    191,803   2,384,115    3.70  
  Options exercised.......................        --     (182,499)   0.95  
  Options canceled........................  1,222,190  (1,222,190)   6.16  
  Options repriced........................   (273,750)    273,750    0.41  
                                           ----------  ----------          
Balances, December 31, 2000 ..............  1,140,243   1,253,176    0.99  
                                           ==========  ==========          

During 2000 and 1999, the Company issued stock options under the 1998 Plan
with the following weighted average fair values:                                

                                                                [Download Table]

                                                                  Weighted 
                                                        Options   Average  
                                                        Granted  Fair Value
                                                       --------- ----------
                                                                           
Below fair value...................................... 1,747,689   $5.42   
At fair value.........................................   789,374   $9.86   

The following table summarizes information under the 1998 Plan at December
31, 2000:                                                                       

                                                                [Download Table]

                        Options Outstanding                Options Exercisable  
           ---------------------------------------------- ----------------------
                       Weighted Average       Weighted               Weighted   
Exercise             Remaining Contractual    Average                Average    
Prices      Number       Life (Years)      Exercise Price Number  Exercise Price
--------   --------- --------------------- -------------- ------- --------------
                                                                                
$ 0.25       603,657         7.98              $ 0.25     603,657     $ 0.25    
  0.41       273,750         8.73                0.41      24,860       0.41    
  1.28       346,043         8.59                1.28     160,809       1.28    
 10.00        18,437         8.91               10.00       6,939      10.00    
 10.08        35,205         8.76               10.08      35,205      10.08    
           ---------                                      -------               
           1,277,092                                      831,470               
           =========                                      =======               

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

The following table summarizes activity under the 1999 Plan:              

                                                                [Download Table]

                            Shares Available   Number    Weighted Average
                               for Grant     of Shares    Exercise Price 
                            ---------------- ----------  ----------------
                                                                         
Balances, December 31,                                                   
 1998......................           --            --        $ --       
  Shares reserved for                                                    
   grant...................     4,625,000           --          --       
  Options granted..........      (436,843)      436,843        4.89      
                               ----------    ----------                  
Balances, December 31,                                                   
 1999......................     4,188,157       436,843        4.89      
  Options granted..........    (3,975,540)    3,975,540        2.81      
  Options canceled.........     3,512,479    (3,512,479)       3.52      
  Options repriced.........    (2,603,053)    2,603,053        0.41      
                               ----------    ----------                  
Balances, December 31,                                                   
 2000......................     1,122,043     3,502,957        0.57      
                               ==========    ==========                  

During 2000 and 1999, the Company issued all stock options under the 1999 
Plan at fair value.                                                             

The following table summarizes information under the 1999 Plan at December
31, 2000:                                                                       

                                                                [Download Table]
                                                                                 
                        Options Outstanding                 Options Exercisable  
          ------------------------------------------------ ----------------------
Range of                Weighted Average       Weighted               Weighted   
Exercise              Remaining Contractual    Average                Average    
 Prices     Number        Life (Years)      Exercise Price Number  Exercise Price
--------  ----------  --------------------- -------------- ------- --------------
$0.19 -                                                                          
  $0.41   3,204,145           9.74              $ 0.38     48,310      $ 0.41    
 1.28 -                                                                          
  2.50       256,000          8.72                1.31     80,078        1.28    
 9.00 -                                                                          
  11.00       42,812          8.94               10.58     16,458       10.39    
          ----------                                       -------               
           3,502,957                                       144,846               
          ==========                                       =======               

1999 Directors' Stock Plan                                                    

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

The following table summarizes activity under the 1999 Directors Plan:    

                                                                [Download Table]

                               Shares Available  Number   Weighted Average
                                  for Grant     of Shares  Exercise Price 
                               ---------------- --------- ----------------
                                                                          
Balances, December 31, 1998...         --            --        $ --       
  Shares reserved for grant...     312,500           --          --       
                                   -------       -------                  
Balances, December 31, 1999...     312,500           --          --       
  Options granted.............     (56,250)       56,250        3.94      
  Options canceled............      29,167       (29,167)       3.94      
                                   -------       -------                  
Balances, December 31, 2000...     285,417        27,083        3.94      
                                   =======       =======                  

 During 2000, the Company issued all stock options under the 1999 Directors'
Plan at fair value.                                                             

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HEALTHCENTRAL.COM 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

The following table summarized information under the 1999 Directors' Plan 
at December 31, 2000:                                                           

                                                                [Download Table]

                       Options Outstanding              Options Exercisable 
           ------------------------------------------- ---------------------
                    Weighted Average       Weighted              Weighted   
Exercise          Remaining Contractual    Average               Average    
 Price     Number      Life (Years)     Exercise Price Number Exercise Price
--------   ------ --------------------- -------------- ------ --------------
                                                                            
$3.94      27,083         9.46              $3.94      17,708     $3.94     

 During 2000, 71,386 options for shares of common stock were exercised under
various stock option plans assumed by the Company and are not related to any    
of the option plans presented above.                                            

Fair value disclosures                                                        

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

                                                                [Download Table]

                                         Years Ended December 31,          
                                  ---------------------------------------- 
                                      2000           1999         1998     
                                  -------------  ------------  ----------- 
                                                                           
Net loss attributable to common                                            
 stockholders:                                                             
  As reported.................... $(126,496,233) $(63,554,549) $(1,784,695)
  Pro forma......................  (130,667,419)  (67,462,578)  (3,172,224)
Basic and diluted net loss per                                             
 share attributable to common                                              
 stockholders:                                                             
  As reported.................... $       (3.39) $      (5.67) $     (0.25)
  Pro forma......................         (3.50)        (6.02)       (0.45)

 The Company calculated the fair value on the date of grant using the Black-
Scholes option pricing method with the following assumptions: expected          
dividend yield of zero percent; weighted average expected option term of four   
years; risk interest rates of 5.0% to 6.4% and for 2000 a volatility of 70% to  
155%.                                                                           

Employee Stock Purchase Plan                                                  

In September 1999, the Company's Board of Directors adopted the Employee  
Stock Purchase Plan (the "Purchase Plan"), which provides for the issuance of   
a maximum of 1,250,000 shares of common stock. Eligible employees can have up   
to 10% of their earnings withheld, up to certain maximums, to be used to        
purchase shares of the Company's common stock on every January 31st and July    
31st. The price of the common stock purchased under the Purchase Plan will be   
equal to 85% of the lower of the fair market value of the common stock on the   
commencement date of each six month offering period or the specified purchase   
date. During 2000, 19,279 shares were purchased at a price of $2.82 per share.  
At December 31, 2000, 1,230,721 shares were available under the Purchase Plan   
for future issuance.                                                            

Note 9. Income Taxes                                                            

At December 31, 2000, the Company has net operating loss carryforwards of 
approximately $77.2 million for federal and $48.5 million for state income tax  
purposes. The net operating loss carryforwards begin to expire in the year      
2018 for federal and 2003 for state purposes.                                   

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 

Deferred tax assets and (liabilities) comprise the following:             

                                                                [Download Table]

                                                      December 31,         
                                                -------------------------- 
                                                    2000          1999     
                                                ------------  ------------ 
                                                                           
Deferred tax assets:                                                       
  Net operating loss carryforwards............. $ 29,065,606  $ 10,401,364 
  Coupon liability.............................          --        112,332 
  Accrued payroll..............................       66,016        65,100 
  Amortization.................................    1,749,860        29,913 
  Inventory....................................          --         28,000 
  Customer deposits............................          --         27,300 
  Professional fees............................          --         36,750 
  Allowances...................................        7,701        26,000 
  Deferred compensation........................      863,200       849,000 
  Write-off of intangibles.....................    5,821,451           --  
  Acquisition costs............................    1,799,458           --  
  Other........................................      551,874         8,590 
                                                ------------  ------------ 
    Gross deferred tax asset...................   39,925,166    11,584,349 
Deferred tax liability:                                                    
  Depreciation and amortization................     (453,272)       (7,999)
Valuation allowance............................  (39,471,894)  (11,576,350)
                                                ------------  ------------ 
  Net deferred tax assets...................... $        --   $        --