ORGANICNET INC, S-1/A, 1999-12-10

ORGANICNET INC
S-1/A, 1999-12-10
PREPACKAGED SOFTWARE

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<PAGE>

As filed with the Securities and Exchange Commission on December 10, 1999
Registration No. 333-88277
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 2
TO THE
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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ORGANICNET, INC.
(Exact name of registrant as specified in its charter)
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Delaware 7372 68-0347739
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation ---------------
or organization) 330 Townsend Street, Suite 206
San Francisco, CA 94107-1630
(415) 495-4741
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Jack D. Anderson
Chief Executive Officer
OrganicNet, Inc.
330 Townsend Street, Suite 206
San Francisco, CA 94107-1630
(415) 495-4741
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Patrick A. Pohlen, Esq. Rodd M. Schreiber, Esq.
Cooley Godward LLP Skadden, Arps, Slate, Meagher & Flom (Illinois)
Five Palo Alto Square 333 West Wacker Drive
3000 El Camino Real Chicago, IL 60606
Palo Alto, CA 94306-2155
---------------
Approximate date of commencement of the proposed sale to the public: as
soon as practicable after the effective date of the Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Maximum
Aggregate Amount of
Title of Each Class of Offering Price Registration
Securities to be Registered (1) Fee (2)
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<S> <C> <C>
Common Stock, $.001 par value per share............ $34,787,500 $9,184
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(o) of the Securities Act of
1933, as amended.
(2) $14,386.50 was paid in connection with the original filing of this
Registration Statement.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

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

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission becomes effective. This +
+preliminary prospectus is not an offer to sell these securities nor does it +
+seek offers to buy these securities in any jurisdiction where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999

PRELIMINARY PROSPECTUS

2,750,000 Shares

OrganicNet, Inc.

Common Stock

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

We are offering 2,750,000 shares of common stock with this prospectus. We
expect the initial public offering price to be between $9.00 and $11.00 per
share. We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "OGNT."

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

Investing in the common stock involves risks. See "Risk Factors" beginning on
page 5.

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

<TABLE>
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<CAPTION>
Per Share Total
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<S> <C> <C>
Initial Public Offering Price....................... $ $
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Underwriting Discount............................... $ $
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Proceeds, before expenses, to OrganicNet, Inc....... $ $
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</TABLE>

The underwriters may also purchase up to an additional 412,500 shares from us
at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus, to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.

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

Needham & Company, Inc. Punk, Ziegel & Company

The date of this Prospectus is , 1999
<PAGE>

Description of Artwork:

1. Front inside cover: Description of artwork. This diagram represents our
ASP architecture. The top box, labeled the Organic Browser, diagrams the client
side of our client server architecture and depicts the user view. It is
connected to the Internet either via a local network or directly through
modems. The Internet feeds the application data from the client side into
OrganicNet's ASP. The OrganicNet ASP (the Server side of the architecture)
resides on our partner Conxion's Internet Service Provider, providing full
outsourced hosting services.

2. Back inside cover. Description: Five overlapping circles. The circles are
labelled Clinic Management, Practice Management, Credentialing, Clinical Drug
Trials and Disease Management. The words The CoreModel appear in the center.

Bullets points above the graphic are as follows:

. Internet Delivery, ASP Delivery Service

. Fully integrated solutions, built on a single model, the CoreModel(TM)

. Manages the entire clinical and business process in a single system

. Multiple users with simultaneous access

. Scalable to accommodate a growing number of users and solutions

. Easily tailored to accommodate user process and practice variations

. Easy to use, easy to change

. Cost effective alternative to legacy applications

The text of the caption below the graphic reads as follows:

Our CoreModel(TM) is a model of the real world components of the healthcare
delivery process. Each of the components is represented by an object. The
CoreModel(TM) is the blueprint to how these objects can be linked to build
applications. The specialized knowledge of healthcare required to build the
CoreModel(TM) originated from the experience of our employees as well as
extensive interviews with our users and other healthcare professionals.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Dilution................................................................. 18
Capitalization and Short-Term Debt....................................... 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 33
Management............................................................... 47
Certain Relationships and Related Transactions........................... 60
Principal Stockholders................................................... 64
Description of Capital Stock............................................. 66
Shares Eligible for Future Sale.......................................... 69
Underwriting............................................................. 71
Legal Matters............................................................ 73
Experts.................................................................. 73
Available Information.................................................... 73
Index to Financial Statements............................................ F-1
</TABLE>

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

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

<PAGE>

PROSPECTUS SUMMARY

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

OrganicNet

We develop, and deploy over the Internet, software applications that help
healthcare clinics and physician group practices process clinical information
and manage the day-to-day operations of their businesses. Our customers can
access and use our software applications over the Internet or their local or
private information networks. We charge our customers a monthly subscription
fee for these applications. We rely on a third party to provide the application
hosting, Internet infrastructure and data centers necessary to deploy our
applications over the Internet. The business of providing software applications
over the Internet for a monthly fee is known as the "application service
provider" or "ASP" business. We currently have developed ASP applications in
three areas: disease management and clinical drug trials recruitment, which
were first implemented in February 1999, and credentialing, which was developed
in November 1999. We are developing applications designed to manage all
elements of the business and clinical processes of our customers within a
single integrated system.

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

Our ASP applications are built using a technology we created that represents
a major change in the way software is built and deployed. Traditionally,
software has been built as a linear "program" using a programing language
called "code." Building an application with code and modifying it after it is
built are time-consuming and expensive processes. Software can also be
structured in a non-linear architecture using what is known as "object-
oriented" technology which requires a less time-consuming and expensive
process. Until now, object-oriented software has been built with both object-
oriented technology and linear programming using code. We have developed a new
object-oriented technology, which we refer to as the Organic Architecture, that
allows us to create applications without any code or linear programming. We
have applied for five patents on our technology and have received a Notice of
Allowance from the United States Patent and Trademark Office on each of the
first three applications.

All our ASP applications are built on our CoreModel, which is a
representation of the clinical and business processes in the healthcare
industry. To develop our CoreModel and applications, we selectively acquired
companies with expertise in particular areas of healthcare. These acquisitions
also provided us with traditional code-based legacy software products and
related service capabilities, customers and revenues. We intend to phase out
sales of these legacy products and related services, which historically
represented substantially all of our revenues, while simultaneously selling our
ASP applications as upgrades to our legacy products.

1
<PAGE>

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

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

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

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

Our ASP applications provide the following advantages:

Comprehensive. Our applications are designed to enable our customers to rely
on us as the single source for their software, whether these applications are
deployed over the Internet or their own private information networks.

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

Adaptable. Our applications are built with flexible links between data sets
instead of code, which makes them easier and less expensive to tailor to
accommodate practice variations and workflow of each user.

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

In addition, our ASP applications are scalable, modular, secure and easy to
use.

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

We also have entered into agreements with Conxion Corporation, which
provides us with application hosting, Internet infrastructure and data centers.
We depend on Conxion to provide these services and support the delivery of our
software applications and do not intend to provide these services ourselves.
Our business relationship with Conxion began in May 1997, and in April 1999
Conxion purchased $550,000 of our preferred stock.

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

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

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

2
<PAGE>

The Offering

<TABLE>
<C> <S>
Shares offered by OrganicNet.................. 2,750,000 shares
Total shares outstanding after this offering.. 10,479,213 shares
Use of proceeds............................... To repay short-term debt,
including amounts owed to or
guaranteed by certain of our
directors, officers and
stockholders, to continue
development of our solutions
and architecture, expand our
sales and marketing efforts,
expand our administrative
infrastructure, acquisitions
and for working capital and
other general corporate
purposes.
Proposed Nasdaq National Market symbol........ OGNT
</TABLE>

The common stock to be outstanding after this offering is based on the shares
outstanding as of November 30, 1999 and excludes:

. 1,012,569 shares of common stock issuable as of November 30, 1999 upon
the exercise of outstanding stock options issued at a weighted average
exercise price of $3.04 per share under our stock option plans;

. 3,148,315 shares of common stock reserved for issuance under our stock
option plans as of November 30, 1999;

. 300,000 shares of common stock reserved for issuances under our employee
stock purchase plan as of November 30, 1999;

. 14,880 shares of common stock reserved for issuance under stock options
held by former PSI-Med Corporation optionholders as of November 30,
1999. If shares are issued upon exercise of such options, OrganicNet
will remove that same number of shares from an escrow of shares to
former PSI-Med shareholders to satisfy that obligation; and

. the exercise of warrants for a total of 125,000 shares of common stock.

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

. the 0.56 for 1 reverse split of the outstanding shares of our capital
stock;

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

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

. no exercise of the underwriters' over-allotment option.

. shareholder approval of the 1999 Equity Incentive Plan and employee
stock purchase plan

Risk Factors

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

3
<PAGE>

Summary Financial Data

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

<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
-------------------------------------- --------------------------------
Pro Forma Pro Forma
1996 1997 1998 1998 1998 1999 1999
------- ------- ------- ----------- ----------- ------- -----------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations:
Revenue:
License................ $ -- $ 424 $ 571 $ 1,087 $ 376 $ 778 $ 1,077
Product development.... -- 1,375 565 565 391 340 340
Service................ 371 1,173 3,488 5,182 2,763 3,106 4,245
------- ------- ------- ------- ------- ------- -------
Total revenue.......... 371 2,972 4,624 6,834 3,530 4,224 5,662
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
License................ -- 475 756 756 577 551 596
Product development.... -- 320 209 209 168 61 61
Service................ 238 892 2,314 3,850 1,818 2,068 2,941
------- ------- ------- ------- ------- ------- -------
Total cost of revenue.. 238 1,687 3,279 4,815 2,563 2,680 3,598
------- ------- ------- ------- ------- ------- -------
Gross profit............ 133 1,285 1,345 2,019 967 1,544 2,064
------- ------- ------- ------- ------- ------- -------
Operating expense:
Sales and marketing.... 24 1,395 1,644 1,812 1,249 880 941
Research and
development........... 724 1,345 1,833 2,069 1,480 1,842 2,068
General and
administrative........ 1,690 3,332 3,768 4,597 2,422 2,859 3,150
------- ------- ------- ------- ------- ------- -------
Total operating
expense............... 2,438 6,072 7,245 8,478 5,151 5,581 6,159
------- ------- ------- ------- ------- ------- -------
Operating loss.......... (2,305) (4,787) (5,900) (6,459) (4,184) (4,037) (4,095)
Interest expense........ (9) (20) (93) (93) (48) (104) (114)
Other income (expense).. 7 13 (9) (95) (5) 10 (15)
------- ------- ------- ------- ------- ------- -------
Loss before income
taxes.................. (2,307) (4,794) (6,002) (6,647) (4,237) (4,131) (4,224)
Provision for income
taxes.................. 4 6 4 5 4 5 6
------- ------- ------- ------- ------- ------- -------
Net loss................ $(2,311) $(4,800) $(6,006) $(6,652) $(4,241) $(4,136) $(4,230)
======= ======= ======= ======= ======= ======= =======
Net loss per share:
Basic and diluted...... $ (.80) $ (1.58) $ (1.97) $ (2.18) $ (1.39) $ (1.35) $ (1.38)
Weighted average shares
outstanding:
Basic and diluted...... 2,906 3,038 3,051 3,051 3,048 3,074 3,074
</TABLE>

<TABLE>
<CAPTION>
As of September 30, 1999
----------------------------
Pro Forma
Actual As Adjusted
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(unaudited)
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......................... $ 895 $ 24,670
Working capital (deficit)......................... (2,898) 21,177
Total assets...................................... 5,404 29,179
Total stockholders' equity (deficit).............. (343) 23,732
</TABLE>

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

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

. the sale of 2,750,000 shares of common stock in this offering at an
assumed initial public offering price of $10.00 per share, after
deducting the underwriting discounts and commissions and estimated
offering expenses and application of the net proceeds therefrom, and

. the use of proceeds of $300,000 to repay notes payable to related
parties.

4
<PAGE>

RISK FACTORS

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

Risks Related To Our Business

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

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

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

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

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

We have experienced net losses in each quarterly and annual period since
inception. We recorded net operating losses of approximately $4.8 million for
the year ended December 31, 1997, approximately $5.9 million for 1998 and
approximately $4.0 million for the nine months ended September 30, 1999. As of
September 30, 1999, we had an accumulated deficit of approximately $17.5
million. We intend to increase our operating expenses substantially,
particularly expenses related to development of our applications and
architecture, expansion of our sales and marketing efforts, and expansion of
our administrative infrastructure. Therefore, we expect to incur significant
operating losses and to record significant net cash outflow for the foreseeable
future. We cannot assure you that we will achieve significant revenues from our
applications or achieve, sustain or improve profitability on a quarterly or
annual basis in the future.

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

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

5
<PAGE>

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

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

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

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

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

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

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

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

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

6
<PAGE>

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

Our systems may be vulnerable to security breaches and viruses.

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

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

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

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

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

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

. expand and enhance our administrative infrastructure;

7
<PAGE>

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

. expand, train and manage our employees effectively.

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

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

Our strategy contemplates the possibility of completing additional
acquisitions. We may be unable to retain the acquired companies' personnel or
integrate them into our company. In addition, we may be unable to integrate
their operations, services, or technology into our business model. Our
profitability may suffer because of acquisition-related costs or amortization
of acquired goodwill and other intangible assets. Similarly, the time and
expense associated with finding suitable and compatible companies to enhance
our object-oriented software technology or grow our ASP delivery model could
disrupt our ongoing business and divert our management's focus.

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

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

. developing and protecting our technology;

. developing economically attractive applications for our current and
future customers;

. negotiating and maintaining effective channel partnerships for the
delivery of our applications;

. selling and marketing our applications;

. attracting and retaining highly skilled employees; and

. integrating acquired companies into our operations.

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

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

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

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

8
<PAGE>

We are dependent upon a third party database management system.

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

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

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

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

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

Risks Related To Our Industry

Our success depends on Internet acceptance.

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

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

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<PAGE>

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

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

. develop new or enhance existing applications, software and services to
meet our customers' changing needs in a timely and cost-effective way;

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

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

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

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

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

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

The business of providing application software and services to clinics and
group practices is extremely competitive. In addition, the market for Internet-
based application service providers is relatively new and evolving, and we
anticipate that competition will continue to intensify as the use of the
Internet grows. Our competitive position in the healthcare software application
market is difficult to evaluate due to the variety of current and potential
competitors and the evolving nature of our market and the ASP model.

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

Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the healthcare
application market than we have. In addition, the lack of barriers to entry in
our market exposes us to a potentially increasing number of competitors. We
cannot assure you that we will have the resources or expertise to compete
successfully in the future. If we are unable to develop and expand our software
applications or adapt to changing customer needs as well as our current or
future competitors are able to do, we may experience reduced profitability and
a loss of market share, either of which could harm our business.

10
<PAGE>

The principal competitive factors in our market include:

. features and functionality;

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

. cost;

. ease of implementation and use;

. level of service;

. business and technical expertise;

. integration of applications;

. quality of customer service and support;

. reliability; and

. scalability.

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

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

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

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

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<PAGE>

and exchange of electronic health information may apply to legacy products sold
by our wholly owned subsidiary, PSI-Med Corporation, but not to our other
products, services or applications. If any of our products, services or
applications are subject to those regulations, we may be required to incur
additional expenses in order to comply with these requirements and we may not
be able to comply with them in a timely manner or at all. In addition, the
success of our compliance efforts may also be dependent on the success of
healthcare participants in dealing with the standards. If we are unable to
comply with regulations implementing HIPAA in a timely manner or at all, the
sale of our applications and business could be harmed.

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

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

The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could require us to make
unplanned enhancements of applications or services, or result in delays or
cancellations of orders or in the revocation of endorsement of our services by
our channel partners and others. Federal and state legislatures have
periodically considered programs to reform or amend the U.S. healthcare system
at both the federal and state level. These programs may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry participants
operate. Healthcare industry participants may respond by reducing their
investments or postponing investment decisions, including investments in our
applications and services. We do not know what effect any of these proposals
would have on our business.

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

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

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

We confront the Year 2000 problem in three contexts:

Our Applications. Because we sell computer-related applications, our risk of
lawsuits relating to Year 2000 issues is likely to be greater than that of
companies in other industries. Because computer products and services may
incorporate components from different providers, it may be difficult to
determine which component may cause a Year 2000 problem. As a result, we may be
subjected to Year 2000-related lawsuits

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<PAGE>

whether or not our software applications and services are Year 2000 compliant.
There can be no assurance as to what the outcomes or impact of any such
lawsuits may be. Our acquired subsidiaries have several contracts which make
Year 2000 warranties. The potential liability arising from these warranties is
not limited. Any Year 2000-related lawsuits or claims may divert management's
attention and resources. If such lawsuits or claims are resolved against us,
our business may be harmed.

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

Our Customers. Healthcare is one of the least prepared major industries in
the United States with respect to Year-2000 related problems. Many of our
customers and potential customers maintain their operations on computer
hardware that may be impacted by Year 2000 complications. Many of our customers
may not be Year 2000 compliant. If the installed computer systems and software
products used by the healthcare industry generally and by our target customers
particularly suffer failures as a result of Year 2000-related problems, those
organizations may not have access to the information they need to treat
patients and may suffer serious disruptions in their day to day operations. The
cost and administrative attention required to address such failures may
eliminate or reduce the demand for our products. In addition, customer
difficulties due to Year 2000 issues could interfere with healthcare
transactions or the transmission of information, which might expose us to
significant potential liability. If customer failures result in the failure of
our systems, it could harm our reputation and our business. Furthermore, Year
2000 issues may affect the purchasing patterns of these customers or potential
customers as companies expend significant resources to become Year 2000
compliant before they experience problems. The costs of becoming Year 2000
compliant for current or potential customers may result in reduced funds being
available to purchase and implement our applications and services, which would
harm our sales and our business.

Risks Related To This Offering

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

Our management will retain broad discretion allocating the proceeds of this
offering. We estimate the net proceeds from this offering to be approximately
$24.1 million, after deducting estimated offering expenses. We plan to use
these proceeds to repay short-term debt, including amounts owed to or
guaranteed by certain of our directors, officers and stockholders, for
development of our applications and architecture, expansion of our sales and
marketing efforts, and expansion of our administrative infrastructure. We have
no specific allocations for any other net proceeds of this offering.
Consequently, management will retain a significant amount of discretion over
the application of these proceeds. Because of the number and variability of
factors that will determine the use of these proceeds, how we spend the
proceeds may vary substantially from our current intentions.

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

We will require substantial additional capital to finance our future growth
and applications development activities. We expect that the net proceeds from
this offering, together with our existing assets, anticipated debt and capital
lease financing, and revenue from operations will be sufficient to fund our
operations for at least the next 12 months. The timing and amount of our
capital requirements will depend on many factors, including:

. acceptance and demand for our applications;

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

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<PAGE>

. the costs associated with expanding our operations; and

. the number and timing of acquisitions.

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

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

When this offering is completed, our executive officers, directors, existing
5% or greater stockholders and their affiliates will, in the aggregate, own
shares representing approximately 34.5% of our outstanding voting capital
stock. As a result, these persons, acting together, will be able to have a
significant influence on all matters submitted to our stockholders for approval
and on our management and affairs.

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

After this offering is completed, 10,479,213 shares of our common stock will
be issued and outstanding, assuming no exercise of the underwriter's over-
allotment option. There can be no assurance as to what effect, if any, future
sales of shares or the availability of shares for future sale will have on the
market price of the common stock. The market price of our common stock could
drop due to sales of a large number of shares in the market after this offering
or the perception that sales of large numbers of shares could occur. These
factors could also make it more difficult to raise funds through future
offerings of common stock. All of the shares of common stock sold in this
offering will be freely tradable under the Securities Act of 1933, as amended,
unless purchased by our "affiliates," as that term is defined in the Securities
Act. Our officers, directors and stockholders have entered into lock-up
agreements under which they have agreed not to, directly or indirectly, offer,
sell, offer to sell, pledge, grant any option to purchase or otherwise sell or
dispose of any shares of common stock or securities convertible into or
exchange or exerciseable for shares of common stock for a period of 180 days
after the date of this prospectus without the prior written consent of the
underwriters. Upon expiration of this lock-up period and as set forth in the
chart below, the shares owned by these persons prior to completion of this
offering may be sold into the public market without a registration statement
under the Securities Act in compliance with the volume limitations and other
applicable restrictions of Rule 144 under the Securities Act. As these
restrictions on resale end, the market price of our common stock could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.

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

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

After the date of this prospectus, we intend to file one or more
registration statements under the Securities Act to register all shares of
common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock plans, of which 691,315 shares will be
immediately exercisable upon the completion of this offering and an additional
80,038 shares will be exercisable within 60 days of November 30, 1999. Those
registration statements are expected to become effective immediately upon
filing, and subject to the vesting requirements and exercise of the related
options as well as the terms of the lock-up agreements, shares covered by those
registrations statements will be eligible for sale in the public markets,
except for any shares held by our "affiliates."

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<PAGE>

Our stock price could be volatile.

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

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

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

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

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<PAGE>

FORWARD-LOOKING STATEMENTS

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

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

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

. anticipated trends in our business;

. existing and future regulations affecting our business; and

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

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

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

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<PAGE>

USE OF PROCEEDS

Our net proceeds from the sale of the 2,750,000 shares of common stock in
this offering, assuming a public offering price of $10.00 per share, are
estimated to be $24.1 million ($27.9 million if the underwriters' over-
allotment option is exercised in full), after deducting underwriting discounts
and commissions and estimated offering expenses. The primary purposes of this
offering are to take advantage of favorable market conditions, to raise
additional equity capital, to create a public market for our common stock and
to facilitate future access to public markets.

Approximately $1,300,000 of the proceeds will be used to repay short-term
debt, including amounts owed to or guaranteed by certain of our directors
officers and shareholders. See "Certain Relationships and Related
Transactions." We have no other current specific plans for the remaining net
proceeds from this offering.

We generally intend to use the remaining net proceeds as follows:

. to continue the development of our solutions and architecture;

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

. to continue the expansion of our administrative infrastructure; and

. for working capital and other general corporate purposes.

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

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

DIVIDEND POLICY

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

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<PAGE>

DILUTION

Purchasers of our common stock in this offering will experience immediate
and substantial dilution in the pro forma net tangible book value of their
common stock from the initial public offering price. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
on a pro forma basis after giving effect to the conversion of all outstanding
shares of our preferred stock upon the consummation of this offering. The pro
forma net tangible book value of our common stock on September 30, 1999 was
$(2,397,709), or approximately $(0.31) per share. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of our common stock in this offering and the
net tangible book value per share of our common stock immediately afterwards.
After giving effect to the sale of 2,750,000 shares of common stock by us in
this offering at an assumed initial public offering price of $10.00 and after
deducting the underwriting discounts and commissions and estimated offering
expenses and the application of the estimated net proceeds therefrom, our pro
forma net tangible book value would have been $21,677,291 or approximately
$2.07 per share. This represents an immediate increase in pro forma net
tangible book value of $2.38 per share to existing stockholders and an
immediate and substantial dilution of $7.93 per share to new investors. The
following table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $10.00
Pro forma net tangible book value as of September 30,
1999..................................................... $(0.31)
Increase attributable to new investors.................... $ 2.38
Pro forma net tangible book value after this offering....... 2.07
------
Dilution in pro forma net tangible book value to new
investors.................................................. $ 7.93
======
</TABLE>

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

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount (1) Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 7,723,454 74% $17,203,284 38% $ 2.23
New investors............... 2,750,000 26 27,500,000 62 10.00
---------- --- ----------- ---
Total..................... 10,473,454 100% 44,703,284 100%
========== === =========== ===
</TABLE>
- --------
(1) For existing stockholders, includes $13,685,376 of cash consideration paid,
$2,052,209 of stock issued in connection with acquisitions and $1,465,699
of stock issued for services, compensation and repayment of loans.

Except as noted above, the foregoing discussions and tables assume no
exercise of any outstanding stock options or warrants. As of September 30,
1999, there were options outstanding to purchase 1,017,720 shares of common
stock pursuant to our stock option plans at a weighted average exercise price
of $3.02 per share. To the extent that any of these options are exercised,
there will be further dilution to the new investors.

18
<PAGE>

CAPITALIZATION AND SHORT-TERM DEBT

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

. our actual capitalization and short-term debt;

. our pro forma capitalization after giving effect to the conversion of
all outstanding shares of our preferred stock into a total of 4,577,374
shares of common stock upon the consummation of this offering, and

. our pro forma as adjusted capitalization after giving effect to the sale
of 2,750,000 shares of common stock sold in this offering at the assumed
initial public offering price of $10.00 per share, after deducting the
underwriting discounts and commissions and the estimated offering
expenses and the application of the estimated net proceeds therefrom,
and after repayment of $300,000 of notes payable to related parties.

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

<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Short-term debt, including lines of credit
and note payable to bank, notes payable to
related parties and others, and current
portion of capital leases................... $ 872 $ 872 $ 572
Capital lease obligations, less current
portion..................................... 53 53 53
Notes payable to employee and others, less
current portion............................. 38 38 38
-------- -------- --------
963 963 663
-------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock, all $0.01 par
value, none pro forma and pro forma as
adjusted:
Series A, 840,000 shares authorized;
735,456 shares issued and outstanding
actual.................................... 7 -- --
Series A-II, 64,400 shares authorized;
43,722 shares issued and outstanding
actual ................................... 1 -- --
Series A-III, 3,032 shares authorized;
3,032 shares issued and outstanding actual
.......................................... -- -- --
Series B, 700,000 shares authorized;
666,886 shares issued and outstanding
actual.................................... 7 -- --
Series C, 2,240,000 shares authorized;
2,239,952 shares issued and outstanding
actual.................................... 22 -- --
Common stock, $0.001 par value, 16,520,000
shares authorized actual and pro forma,
16,520,000 shares authorized pro forma as
adjusted; 3,146,080 shares issued and
outstanding actual, 7,723,454 shares issued
and outstanding pro forma and 10,473,454
shares issued and outstanding pro forma as
adjusted................................... 3 8 10
Additional paid-in capital.................. 17,710 17,742 41,815
Receivable for shares purchased............. (550) (550) (550)
Deferred compensation....................... (80) (80) (80)
Accumulated deficit......................... (17,463) (17,463) (17,463)
-------- -------- --------
Total stockholders' equity (deficit)......... (343) (343) 23,732
-------- -------- --------
Total capitalization......................... $ 620 $ 620 $ 24,395
======== ======== ========
</TABLE>

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

. 1,017,720 shares of common stock issuable as of September 30, 1999 upon
the exercise of outstanding stock options issued at a weighted average
exercise price of $3.02 per share under our stock option plans; and

. 267,959 shares of common stock reserved for issuance under our stock
option plans as of September 30, 1999.

19
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

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

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

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

<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------- --------------------------------
Pro Forma Pro Forma
1995 1996 1997 1998 1998 1998 1999 1999
------ ------- ------- ------- ----------- ----------- ------- -----------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share information)
Consolidated Statement of
Operations:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License................ $ -- $ -- $ 424 $ 571 $ 1,087 $ 376 $ 778 $ 1,077
Product development.... -- -- 1,375 565 565 391 340 340
Service................ 525 371 1,173 3,488 5,182 2,763 3,106 4,245
------ ------- ------- ------- ------- ------- ------- -------
Total revenue.......... 525 371 2,972 4,624 6,834 3,530 4,224 5,662
------ ------- ------- ------- ------- ------- ------- -------
Cost of revenue:
License................ -- -- 475 756 756 577 551 596
Product development.... -- -- 320 209 209 168 61 61
Service................ -- 238 892 2,314 3,850 1,818 2,068 2,941
------ ------- ------- ------- ------- ------- ------- -------
Total cost of revenue.. -- 238 1,687 3,279 4,815 2,563 2,680 3,598
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 525 133 1,285 1,345 2,019 967 1,544 2,064
------ ------- ------- ------- ------- ------- ------- -------
Operating expense:
Sales and marketing.... 7 24 1,395 1,644 1,812 1,249 880 941
Research and
development........... 508 724 1,345 1,833 2,069 1,480 1,842 2,068
General and
administrative........ 212 1,690 3,332 3,768 4,597 2,422 2,859 3,150
------ ------- ------- ------- ------- ------- ------- -------
Total operating
expense............... 727 2,438 6,072 7,245 8,478 5,151 5,581 6,159
------ ------- ------- ------- ------- ------- ------- -------
Operating loss.......... (202) (2,305) (4,787) (5,900) (6,459) (4,184) (4,037) (4,095)
Interest expense........ (9) (9) (20) (93) (93) (48) (104) (114)
Other income (expense).. 1 7 13 (9) (95) (5) 10 (15)
------ ------- ------- ------- ------- ------- ------- -------
Loss before income
taxes.................. (210) (2,307) (4,794) (6,002) (6,647) (4,237) (4,131) (4,224)
Provision for income
taxes.................. 1 4 6 4 5 4 5 6
------ ------- ------- ------- ------- ------- ------- -------
Net loss................ $ (211) $(2,311) $(4,800) $(6,006) $(6,652) $(4,241) $(4,136) $(4,230)
====== ======= ======= ======= ======= ======= ======= =======
Net loss per share:
Basic and diluted...... $(0.09) $ (0.80) $ (1.58) $ (1.97) $ (2.18) $ (1.39) $ (1.35) $ (1.38)
Weighted average shares
outstanding:
Basic and diluted...... 2,240 2,906 3,038 3,051 3,051 3,048 3,074 3,074
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
As of December 31, As of September 30,
------------------------------ --------------------------------
Pro Forma
As Adjusted
1995 1996 1997 1998 1998 1999 1999
----- ----- ------- ------- ----------- ------- -----------
(unaudited) (unaudited)
(in thousands)
Consolidated Balance
Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents........... $ 25 $ -- $ 47 $ 41 $ 14 $ 895 $24,670
Working capital
(deficit)............. 223 (524) (3,149) (6,290) (5,240) (2,898) 21,177
Total assets........... 144 761 2,904 2,215 2,244 5,404 29,179
Total stockholders'
equity (deficit)...... (205) (55) (1,257) (5,047) (3,775) (343) 23,732
</TABLE>

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

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

. the use of proceeds of $300,000 to repay notes payable to related
parties.

21
<PAGE>

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

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

Overview

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

Historically, we derived substantially all of our revenue from the sale of
legacy software products and services. Our legacy products address
credentialing, scheduling, resource management, case management and
disease/outcomes management. From our inception in January 1995, we have been
developing our Organic Architecture, a flexible platform for creating software
applications without code. As a part of our development strategy, we have
acquired companies that provided us with expertise in particular areas of
healthcare, as well as near-term products, customers and revenues. In February
1999, we delivered our first pre-production ASP software application using our
Organic Architecture to customers, and in April 1999, we deployed our first
pre-production ASP software application over the Internet. With the
introduction of our ASP software applications, we are de-emphasizing the sale
of legacy systems and expect sales of these systems and related service revenue
to substantially decline in future periods. We expect to market and sell these
ASP software applications as an upgrade to our existing legacy products in the
future, as we develop additional ASP software applications to replace our
legacy products. Due to the anticipated substantial decline in revenue
associated with these legacy systems and the costs associated with the
development and commercialization of our ASP software applications, as well as
the development of sales and marketing support for these applications, we
expect that our operating losses will increase substantially in future periods
and continue for at least the next several years. Our ability to achieve
profitability will depend on our successful development and marketing of our
applications. With our strategy, we are subject to the risks inherent in both
the ASP business model and the entry into a new and uncertain market. Our
applications may not achieve market acceptance. Accordingly, the extent of
future losses and the time required to achieve profitability, if any, is highly
uncertain.

We have generated and will continue to generate revenue from software
license, product development and service fees from our legacy products.
Software license fees are derived from the licensing of acquired legacy
products and are expected to decline substantially in future periods. Product
development fees have been and will continue to be generated from co-
development agreements with Pfizer Health Solutions Inc, but we expect these
revenues and their related costs to substantially decline in the future.
Revenue received under these co-development agreements with Pfizer Health
Solutions Inc represented 49% of total revenue in 1997, 20% of total revenue in
1998 and 25% of total revenue for the nine months ended September 30, 1999.
Service fees are derived from post-contract software support, case management,
credentialing, training, installation and simple interfaces for legacy
products, which we expect to decline substantially as sales of our legacy
systems decline.

In the future, we expect to generate revenue substantially from subscription
and service fees from the sale of our ASP software applications. Subscription
fees will be derived from our ASP software applications on a monthly basis. We
began to generate subscription fees for these applications in the second
quarter of 1999. We cannot predict subscription fees accurately because we have
limited experience selling our applications. In

22
<PAGE>

addition, our customers may decide to stop using our applications at any time
with very little notice. We may spend substantial time and resources developing
or tailoring applications for channel partners or customers prior to the time
we have entered into subscription agreements with them. If we do not enter into
agreements with these channel partners and customers do not subscribe for these
applications for a sufficient period of time, we will not be able to achieve
revenue to recoup our investment. Service fees related to our applications will
increase as we deploy them.

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

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

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

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

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

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

We were incorporated in January 1995 as a California corporation and
reincorporated in Delaware in 1996. Since our inception, we have incurred
significant losses and as of September 30, 1999, had an accumulated deficit of
approximately $17.5 million.

23
<PAGE>

Acquisitions

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

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

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

Healthcheck, L.I.N.C., Res-Q and Velocity Healthcare Informatics remain
wholly owned operating subsidiaries and function as an integrated part of
OrganicNet. All of our acquisitions were accounted for using the purchase
method of accounting and, accordingly, the results of the acquired companies'
operations are included in our consolidated financial statements from their
respective effective dates forward. Under the terms of the acquisition
agreements, the consideration included preferred shares, notes payable, common
shares and cash. We acquired all of the outstanding common stock for each of
the acquired companies except for Velocity Healthcare Informatics, which was
structured as an asset purchase. Total consideration for our acquisitions,
completed through December 31, 1998, was approximately $1.7 million.

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

PSI-Med Corporation

On September 20, 1999, we completed our acquisition of PSI-Med Corporation,
which sells and services practice management software and is engaged as a full
service provider of medical insurance billing and accounts receivable
collection services. We acquired all of the outstanding capital stock of PSI-
Med Corporation in exchange for 9,322 shares of preferred stock, which will
convert into 186,440 shares of our common stock upon the closing of this
offering. These shares have been valued at approximately $667,000. Our
acquisition was accounted for using the purchase method of accounting,
resulting in approximately $1.6 million of goodwill to be amortized using the
straight-line method over its estimated useful life of seven years. The results
of PSI-Med's operations are included in our consolidated financial statements
beginning with the effective date of the acquisition which was August 31, 1999.
PSI-Med remains a wholly owned operating subsidiary and functions as an
integrated part of OrganicNet.

24
<PAGE>

Results of Operations

Nine Months Ended September 30, 1999 and 1998

License revenue

License revenue includes fees from the licensing of our acquired legacy
products. License revenue increased 107% to approximately $778,000 for the nine
months ended September 30, 1999 from approximately $376,000 for the nine months
ended September 30, 1998. The increase in license revenue was primarily due to
an increase of $436,000 in our scheduling and resource management products
related to increased customer sales offset by a $50,000 decrease in sales of
our case management product related to the timing of installations.

Product development revenue

Product development revenue is primarily generated from co-development
agreements addressing outcomes, credentialing and survey software and services
with Pfizer Health Solutions Inc. Product development revenue decreased 13% to
approximately $340,000 for the nine months ended September 30, 1999 from
approximately $391,000 for the nine months ended September 30, 1998 due to the
timing and size of co-development contracts completed with Pfizer Health
Solutions Inc.

Service revenue

Service revenue is comprised of fees from post-contract software support,
case management services, credentialing services, training and installation of
simple interfaces. Service revenue increased 12% to approximately $3.1 million
for the nine months ended September 30, 1999 from approximately $2.8 million
for the nine months ended September 30, 1998. The increase in service revenue
was primarily due to an increase of $347,000 in sales of credentialing services
and approximately $140,000 of revenues associated with our acquisition of PSI-
Med, offset by a decrease of approximately $230,000 of revenue from our
scheduling and resource management products.

Cost of license revenue

Cost of license revenue consists of personnel salaries, benefits and related
overhead expenses, as well as the amortization of acquired technologies. Cost
of license revenue decreased 5% to approximately $551,000 for the nine months
ended September 30, 1999 from approximately $577,000 for the nine months ended
September 30, 1998 due to the redirection of our resources from our legacy
products to the development of our ASP software applications.

Cost of product development revenue

Cost of product development includes direct costs, such as personnel
salaries and benefits, and related overhead expenses, such as occupancy
charges. Cost of product development revenue decreased 64% to approximately
$61,000 for the nine months ended September 30, 1999 from approximately
$168,000 for the nine months ended September 30, 1998, due to the decreased
level of development efforts associated with the Pfizer Health Solutions Inc
co-development agreements.

Cost of service revenue

Cost of service revenue includes direct costs, such as personnel salaries
and benefits, and related overhead expenses, such as occupancy charges. Cost of
service revenue increased 14% to approximately $2.1 million in the nine months
ended September 30, 1999 from approximately $1.8 million for the nine months
ended September 30, 1998, primarily due to $243,000 of increased costs
associated with our increased sales of credentialing services.

25
<PAGE>

Sales and marketing expense

Sales and marketing expense consists primarily of salaries, related
benefits, commissions, printing of promotional material, public relations,
attendance at industry trade shows, advertising and other costs associated with
our sales and marketing efforts. Sales and marketing expenses decreased 30% to
approximately $880,000 for the nine months ended September 30, 1999 from
approximately $1.2 million for the nine months ended September 30, 1998. This
decrease was due to decreased spending for trade show and third party marketing
activities.

Research and development expense

Research and development expense consists primarily of salaries, related
benefits, third party consultant fees and other costs. Research and development
expense increased 24% to approximately $1.8 million for the nine months ended
September 30, 1999 from approximately $1.5 million for the nine months ended
September 30, 1998, due to increased personnel costs associated with additional
headcount and facilities expense for the development of our Organic
Architecture and ASP software applications.

General and administrative expense

General and administrative expense consists primarily of salaries and
related benefits, amortization of intangible assets for goodwill and workforce-
in-place, and fees for professional services, such as legal and accounting.
General and administrative expense increased 18% to approximately $2.9 million
for the nine months ended September 30, 1999 from approximately $2.4 million
for the nine months ended September 30, 1998, due to an increase of
approximately $238,000 in salaries and related expenses, an increase in bad
debts of $65,000, and approximately $70,000 associated with the acquisition of
PSI-Med. The remaining increase was due to increases in general corporate
expenses.

Interest expense

Interest expense increased 117% to approximately $104,000 for the nine
months ended September 30, 1999 from approximately $48,000 for the nine months
ended September 30, 1998, primarily due to increased borrowings used to fund
our operations.

Income taxes

Income taxes paid to state taxing authorities consisted of minimum payments
of $4,800 for the nine months ended September 30, 1999 and $4,000 for the nine
months ended September 30, 1998. As a result of operating losses, no provision
or benefit for income taxes has been recorded for either period. Deferred tax
assets associated with net operating losses generated have not been recognized
as there is substantial uncertainty as to the likelihood of the realization of
those net operating losses.

Years Ended December 31, 1998 and 1997

License revenue

License revenue increased 35% to approximately $571,000 in 1998 from
approximately $424,000 in 1997. Of this increase, $136,000 was primarily due to
inclusion in 1998 of a full year of license revenue for our scheduling,
resource management and case management products compared to a partial year of
license revenue in 1997.

Product development revenue

Product development revenue decreased 59% to approximately $565,000 in 1998
from approximately $1.4 million in 1997, due to the timing and size of co-
development contracts completed with Pfizer Health Solutions Inc in 1998 as
compared to 1997.

26
<PAGE>

Service revenue

Service revenue increased 197% to approximately $3.5 million in 1998 from
approximately $1.2 million in 1997. Of this increase, $1.1 million was due to
the inclusion in 1998 of a full year of service revenue for sales of service
and support contracts and $851,000 was due to the increased sales of
credentialing services.

Cost of license revenue

Cost of license revenue increased 59% to approximately $756,000 in 1998 from
approximately $475,000 in 1997. Of this increase, $167,000 was due to 1998
being the first full year of amortization of our acquired technologies and
$114,000 was due to the increased costs from inclusion in 1998 of a full year
of license revenue as compared to a partial year of license revenue in 1997.

Cost of product development revenue

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

Cost of service revenue

Cost of service revenue increased 159% to approximately $2.3 million in 1998
from approximately $892,000 in 1997. Of this increase, $841,000 was due to the
inclusion in 1998 of a full year of costs associated with generating service
revenue for our outcomes surveys, scheduling, resource management and case
management products and $540,000 was due to higher costs associated with our
increased sales of credentialing services.

Sales and marketing expense

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

Research and development expense

Research and development expense increased 36% to approximately $1.8 million
in 1998 from approximately $1.3 million in 1997, primarily due to an increase
of $469,000 from the growth in personnel costs through additional headcount and
facilities expense for the development of our Organic Architecture and ASP
software applications.

General and administrative expense

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

Interest expense

Interest expense increased 365% to approximately $93,000 in 1998 from
approximately $20,000 in 1997, due to increased borrowings used to fund our
operations.

Income taxes

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

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Years Ended December 31, 1997 and 1996

License revenue

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

Product development revenue

Product development revenue was approximately $1.4 million in 1997, due to
1997 being the first year of our co-development agreements with Pfizer Health
Solutions Inc.

Service revenue

Service revenue increased 216% to approximately $1.2 million in 1997 from
approximately $371,000 in 1996. Of this increase, $647,000 was due to the
inclusion of service revenue associated with companies we acquired in 1997 and
$291,000 was due to the inclusion in 1997 of a full year of service revenue for
companies we acquired in 1996, including service and support contracts
associated with the legacy software products we acquired in each year. Deferred
revenue increased from 1996 to 1997 due to our acquisitions in 1997 of
L.I.N.C., Res-Q, and Healthcheck. Deferred revenue from these businesses
resulted from payments received in advance of rendering services under post
customer support and credentialing service contracts.

Cost of license revenue

Cost of license revenue was approximately $475,000 in 1997. We had no cost
of license revenue in 1996. Of this increase, $281,000 was due to amortization
of our acquired technologies and $194,000 was attributable to the cost of
software products of the companies we acquired in 1997.

Cost of product development revenue

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

Cost of service revenue

Cost of service revenue increased 275% to approximately $892,000 in 1997
from approximately $238,000 in 1996. Of this increase, $415,000 was due to the
inclusion of the cost of service revenue associated with companies we acquired
in 1997 and $239,000 was due to the inclusion in 1997 of a full year of the
cost of service revenue for companies we acquired in 1996, including service
and support contracts associated with the legacy software products we acquired
in each year.

Sales and marketing expense

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

Research and development expense

Research and development expense increased 86% to approximately $1.3 million
in 1997 from approximately $724,000 in 1996. Of this increase, $435,000 was due
to the growth in personnel costs as a result of increased headcount and
facilities expense for the development of Organic Architecture and ASP software
applications.

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General and administrative expense

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

Interest expense

Interest expense increased to approximately $20,000 in 1997 from
approximately $9,000 in 1996, due to increased borrowings used to fund our
operations.

Income taxes

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

Pro Forma Financial Information

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

Pro Forma Nine Months Ended September 30, 1999

On a pro forma basis, our revenue for the nine months ended September 30,
1999 was approximately $5.7 million, compared to actual revenue of
approximately $4.2 million. Pro forma total revenue of PSI-Med includes sales
of medical accounting software and service revenue from post-contract customer
support agreements, accounts receivable management and collection services, and
rental arrangements for medical accounting software on a shared computer system
maintained at PSI-Med.

Our pro forma operating loss for the nine months ended September 30, 1999
was approximately $4.1 million, compared to an actual operating loss of
approximately $4.0 million. The operating loss remained relatively unchanged as
a result of PSI-Med's operating income of $115,000 being offset by the
additional goodwill amortization from the business combination of approximately
$174,900.

Our pro forma net loss for the nine months ended September 30, 1999 was
approximately $4.2 million, which reflects the increase in the operating loss
from the additional goodwill amortization resulting from the business
combination.

Pro Forma Year Ended December 31, 1998

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

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

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

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Liquidity and Capital Resources

Since inception, we have spent approximately $12.7 million primarily for our
operations and the development of our Organic Architecture and ASP software
applications. We have financed these operating and development activities
through approximately $14.4 million raised from the sale of our capital stock
and the issuance of notes to employees and stockholders. Investing activities
to date included receipt of approximately $234,000 in cash from acquired
businesses offset by approximately $465,000 of investments in capital assets.
As of September 30, 1999, we have approximately $895,000 in cash reserves and a
working capital deficit of approximately $2.9 million.

Net cash used in operating activities was approximately $5.4 million for the
nine months ended September 30, 1999, approximately $2.5 million in 1998,
approximately $2.7 million in 1997 and approximately $2.1 million in 1996. Cash
used in operating activities for the nine months ended September 30, 1999
resulted primarily from the funding of our operations and our payment of
current liabilities.

Our investing activities used approximately $108,000 for the nine months
ended September 30, 1999, used approximately $32,000 in 1998, provided
approximately $6,000 in 1997 and used approximately $97,000 in 1996. Investing
activities during those periods consisted primarily of aggregate net cash
obtained from acquisitions of approximately $234,000 and capital expenditures
of approximately $151,000 for the nine months ended September 30, 1999,
approximately $32,000 in 1998, approximately $207,000 in 1997 and approximately
$75,000 in 1996. We have no significant capital spending or purchase
commitments other than normal commitments under facilities and equipment
leases.

Financing activities provided cash of approximately $6.4 million during the
nine months ended September 30, 1999, approximately $2.6 million in 1998,
approximately $2.8 million in 1997 and approximately $2.2 million in 1996,
primarily from the aggregate net proceeds from sales of capital stock and the
issuance of notes to employees and stockholders. We used cash from financing
activities to make aggregate payments under notes payable to employees and
stockholders and capital leases of approximately $603,000 during these periods.

As of September 30, 1999, we had net operating loss carryforwards for
federal income tax purposes of approximately $18.6 million expiring in the
years 2013 through 2019. We had net operating loss carryforwards for state
income tax purposes of approximately $10.0 million expiring primarily in 2003.
The difference between federal and state net operating loss carryforwards is
due primarily to a 50% limitation on net operating loss carryforwards for
California income tax purposes. Due to the "change in ownership" provisions of
the Tax Reform Act of 1986, utilization of the net operating loss carryforwards
will be subject to an annual limitation regarding their utilization against
taxable income in future periods.

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

Year 2000 Preparedness

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

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

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

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

Healthcare is one of the least prepared industries in the United States for
Year 2000-related problems. Many of our customers may not be Year 2000
compliant. If the installed computer systems and software products used by the
healthcare industry generally and by our target customers particularly suffer
failures as a result of Year 2000-related problems, those organizations may not
have access to the information they need to treat patients and may suffer
serious disruptions in their day to day operations. The cost and administrative
attention required to address such failures may eliminate or reduce the demand
for our products. In addition, customer difficulties due to Year 2000 issues
could interfere with healthcare transactions or the transmission of
information, which might expose us to significant potential liability. If
customer failures result in the failure of our systems, it could harm our
reputation and business. Furthermore, Year 2000 issues may affect the
purchasing patterns of customers or potential customers as companies expend
significant resources to become Year 2000 compliant before they experience
problems. The costs of becoming Year 2000 compliant for current or potential
customers may result in reduced funds being available to purchase and implement
our software applications.

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

We have yet to develop a comprehensive contingency plan to address the
issues that could result from Year 2000 issues. In particular, we have not
developed a contingency plan to address the particular Year 2000 issues that
will face the healthcare industry. We are prepared to develop such a plan if
our ongoing assessment leads us to conclude we have significant exposure based
upon the likelihood of such an event. For more information about Year 2000
risks, see "Risk Factors--Failure of computer systems and software products to
be Year 2000 compliant could increase our costs, disrupt our services and
reduce demand from our clients."

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Recent Accounting Pronouncements

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

Quantitative and Qualitative Disclosure about Market Risk

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

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

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BUSINESS

Overview

We are an application service provider (ASP) that develops proprietary
software applications for clinics and group practices using our proprietary
technology platform. Our customers can access and use our applications over the
Internet or their local or private information networks. We are developing
integrated applications designed to manage all elements of the business and
clinical processes of our customers within a single system. We currently have
developed and implemented applications in disease management and clinical drug
trials recruitment. In addition, we have recently completed development of our
credentialing application. We charge our customers a monthly subscription fee
for our applications.

Industry Background

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

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

Demand for Information Services in Healthcare

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

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Traditional Healthcare Information Systems

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

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

The Emergence of the Internet and the ASP Model in Healthcare

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

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

According to the International Data Corporation (IDC), in 1998 the
enterprise ASP market was $23.1 million. Over the next five years, IDC
estimates the ASP market to grow to $2 billion.

Designing a Comprehensive Information Technology Solution

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

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

. expand easily to accommodate more users and applications;

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. enable the creation of fully integrated applications;

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

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

. permit Internet delivery or on-site installation;

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

. contain the requisite healthcare domain expertise; and

. facilitate easy use.

The OrganicNet Solution

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

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

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

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

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

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

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

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

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

. outcomes and disease management;

. clinical drug trials;

. practice management;

. credentialing and provider profiling;

. scheduling and resource management;

. business process reengineering; and

. case management.

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

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

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

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

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

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

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

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

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Our Strategy

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

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

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

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

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

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

Our Technology

Object-oriented technology. Our applications embody object-oriented
technology. Traditional software applications are built with computer language
using "code." Code essentially instructs the computer how to use pieces of
information, or "data." Most commercial software applications consist of up to
millions of lines of code. Each line is written by a highly trained programmer.
Object-oriented technology breaks up the lines of

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code into specialized programs, or "objects," which perform discrete tasks
within the application. An object can also be simultaneously used by different
applications so that complex systems can be easily built. The self-contained
nature of objects allows them to be tested, modified and maintained
independently from the rest of the system. Therefore, object-oriented
applications can be upgraded and maintained without modifying the entire
application.

After five years of development, we have developed a method of interpreting
data without instructions written in code. Using this method, we can build
applications that are not based on code. Since September 1999, we have received
a Notice of Allowance from the United States Patent and Trademark Office for
three of our inventions including the ability to write applications using data
instead of code and the ability to write queries using data instead of code.

CoreModel. The experience and knowledge of our healthcare industry experts,
and input from clinicians and users, have contributed to the development of our
CoreModel. Our CoreModel is a model of the real-world components of the
healthcare delivery process. Each of the components is represented by an
object. The CoreModel is the blueprint of how these objects can be linked to
build applications. As objects can be shared by different applications, all our
applications can be built using the set of objects contained in our CoreModel.
Therefore, data is not duplicated and applications are integrated. Once a user
has one of our applications, other applications can be added incrementally
without needing to be integrated, since integration is organic to all
applications.

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

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

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

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

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

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

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Our ability to store server side processes as data, instead of code, enables
us to quickly and easily modify the server side processes for increased
adaptability.

Our Software Applications

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

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

We are currently offering the following ASP applications:

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

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

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

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

We delivered our first disease management application in February 1999. As
of October 31, 1999, we have deployed eight of our ASP software applications
for the disease management market.

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

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

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

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

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

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

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

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

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

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

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

Credentialing. Credentialing is the process in which a clinician's
education, qualifications, licenses and history are reviewed in order to
provide a proper accreditation. Credentialing services performed by third
parties are estimated to estimated to represent a multi-hundred million dollar
market with annual expenditures primarily consisting of credentialing services
and software. However, this amount is estimated to represent only a minority of
the overall credentialing market. The majority of credentialing is done
internally by healthcare organizations with inefficient solutions using
spreadsheets or paper processes. This internal process is labor intensive,
expensive and often not integrated with the central information systems of
healthcare organizations. Depending on the number of organizations or plans to
which a clinician intends to provide services to, a single clinician may need
to be credentialed multiple times during a year. While doctors have
historically been the only medical professional required to be credentialed,
requirements are being expanded to include associated care professionals, such
as physician assistants and nurses.

Our credentialing application offers customers different options to meet
their credentialing needs. An organization can subscribe to our complete
application and bring the entire process in-house. Alternatively, an
organization can subscribe to a partial solution and pay a per item charge for
us to provide specified portions of the required data collection process.
Applications for credentialing can be completed by clinicians over the Internet
or through a scan form. Our application allows organizations to track the
status of clinician credentialing from their desktops. The system links
numerous doctors, clinics and group practices to a single

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database, making original clinician data reusable and available each time a
credentialing process is required. Organizations will be able to customize
their credentialing applications and the software will automate implementation
and tracking throughout the process.

In September 1999, we entered into a letter of intent with a credentialing
consulting firm to market our application to its customers. We cannot assure
you this letter of intent will result in a definitive agreement. In addition,
we will market this application through Healthcheck, Incorporated, one of our
wholly owned subsidiaries.

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

. Workers' Compensation. We are developing a workers' compensation
application to integrate the management of clinical and business
processes in occupational medicine. This application will enable us to
track progress and compliance during the course of a patient's
treatment. Our application will capture patient medical histories, help
physicians determine diagnoses and suggest appropriate treatment
protocols at the point of care. The criteria for diagnosis and treatment
protocols will be established by the physicians at the treatment clinic.
We have granted to an occupational health management information systems
organization the exclusive right for 12 months from acceptance of the
system to use and market the solution in California and throughout the
United States with their clinics and affiliate clinics so long as it has
paid us for a minimum number of its clinics and affiliate clinics for a
period of 12 months. If this organization has not paid us for at least
half of the minimum number of required users by the end of the first six
months, then we may cancel the exclusive arrangement. Similarly, we may
cancel the exclusive arrangement if it has not paid us for an increased
minimum number of users during each subsequent year. The system has not
yet been accepted.

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

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

. Practice Management. This application will provide scheduling, billing
and contract management features. We will initially market this
application as an upgrade to the traditional legacy products sold by
PSI-Med Corporation, one of our wholly owned subsidiaries.

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

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

. Cardiology Management. We are developing clinical management and
clinical trials recruitment applications for cardiology clinics.

Our Legacy Software Products. We currently market traditional legacy
software products for credentialing, scheduling, practice management, resource
management, case management and outcomes management applications. These
products were developed by the companies we have acquired since our inception
in 1995. We acquired these companies primarily for their specific domain
expertise and enabling technologies. Our acquired domain expertise is
incorporated into our CoreModel and has been used to buil our current
applications and applications in development. We intend to continue to m,arket
these Legacy products

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until we have completed development of a comparable application that can be
delivered using our ASP model. As each of these applications is completed, we
will market it as an upgarde to our existing legacy products. For more
information concerning our acquisitions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Strategic Relationships and Alliances

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

Pfizer Health Solutions Inc. We have had a strategic relationship with
Pfizer Health Solutions Inc, a subsidiary of Pfizer Inc., since 1997. We have
entered into agreements with Pfizer Health Solutions Inc that provide it with
non-exclusive distribution rights to the applications described below. Pursuant
to these agreements, we cannot enter into distribution agreements for the same
applications with any competitor of Pfizer Inc. Since 1997 through September
30, 1999, we have received approximately $3.5 million in revenue through this
relationship with Pfizer and its customers. The applications covered by these
agreements include:

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

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

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

Superior Consultant Holdings Corporation. In September 1999, we entered into
a Distribution and Services Agreement, as amended, with Superior Consultant
Holdings Corporation under which Superior agreed to introduce and outline the
advantages of our ASP software applications based on client interests, as well
as providing systems integration, process improvement, consulting and
implementation services to healthcare organizations. We agreed to market
Superior's healthcare consulting services and business integration services, to
promote Superior as our exclusive alliance partner for the provision of
healthcare consulting services and not to offer distribution rights to our
Organic Architecture and applications to any direct competitor of Superior
without Superior's prior written approval. Under the agreement, Superior has a
non-exclusive worldwide license to market, use, install and display our Organic
Architecture and applications. We have also appointed Superior as our
international provider of healthcare consulting services to our clients. The
agreement entitles Superior to appoint a member to our board of directors and
to receive a vested non-statutory stock option grant exercisable for 112,000
shares of our common stock at an exercise price of $10.71 per share. Pursuant
to this agreement, Superior has appointed James P. Clark to our board of
directors. The initial term of the agreement runs through August 31, 2002 and
may be renewed by Superior for up to two additional two-year terms.

Conxion Corporation. We have entered into several agreements with Conxion
Corporation, under which they supply us with application hosting services and
Internet infrastructure for our ASP software applications. Conxion houses the
equipment for these services in government rated Class A data centers from
which our ASP software applications are deployed and run. Our business
relationship with Conxion began in May 1997, and in April 1999 Conxion
purchased $550,000 of our preferred stock. We have been using Conxion's
services to deploy our ASP applications since May 1999 and have been using them
as our Internet service provider

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

OrganicNet Subsidiaries

Healthcheck, Incorporated, L.I.N.C., Inc., Res-Q, Inc., Velocity Healthcare
Informatics and PSI-Med Corporation are wholly owned subsidiaries of OrganicNet
and function as an integrated part of OrganicNet. Each of our subsidiaries
maintains operational management teams in their respective locations, but
depend on OrganicNet to provide overall financial and administrative support.
Our subsidiaries provide legacy products and services to our customers.

Healthcheck is located in Denver, Colorado and provides credentialing
services to verify the credentials of physicians, allied health professionals
and mid-level providers. Res-Q is located in Los Angeles, California and
provides resource management and scheduling software to allow customers to
manage their personnel resources more effectively. L.I.N.C. is located in Los
Angeles, California and provides case management software, services and
consultation to manage a wide range of medical, disability and workers'
compensation cases. Velocity Healthcare Informatics is located in Minneapolis,
Minnesota and provides outcomes management software applications and survey
services related to patient satisfaction.

Sales and Marketing

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

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

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

Research and Development

Our research and development organization is comprised of development
engineers who work on system architecture and applications development teams
who work with our domain experts to build solutions for each domain
incorporated in the CoreModel. As of November 30, 1999, we had approximately 28
professionals dedicated to architecture and applications development. We will
continue to make substantial investments in research and development to enhance
our proprietary architecture and support the development of additional
applications.

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Competition

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

Our competitive position in the healthcare software application market is
difficult to evaluate due to the variety of current and potential competitors
and the evolving nature of our market and the ASP model. Our primary
competitors include:

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

. application service providers such as CareTools, Inc., Confer Software,
Inc., MedicaLogic, Inc., The Trizetto Group, Inc. and U.S.
Internetworking, Inc.;

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

. object software application developers such as TenFold Corporation.

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

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

. features and functionality--our applications provide different users
simultaneous access and the ability to modify data in real time;

. fit with the user's practice, processes and needs--our applications can
be tailored to specific users' needs;

. cost--our applications are accessed over the Internet eliminating the
need for costly servers and reducing the need for in-house technology
experts;

. ease of implementation and use--our applications can be designed so that
users do not need to navigate through features they do not use;

. business and technical expertise--our applications incorporate the
collective healthcare knowledge of our personnel and other healthcare
experts;

. integration of applications--our applications are designed to allow
users to manage the entire clinical and business process in a single
system;

. reliability--our applications are easy to maintain because they are
built with data instead of code;

. scalability--the scope of our applications can be expanded or reduced to
easily and quickly accommodate our customers' specific and changing
needs.

Despite these differentiating characteristics, many of our competitors have
greater financial, technical and marketing resources, greater name recognition
and more established relationships in the healthcare market than we have. Low
barriers to entry also expose us to potential new competitors. We cannot assure
you that we will be able to compete successfully now or in the future.

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

. changing needs of clinics and group practices;

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

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. technological innovation and change;

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

. challenges of hiring and retaining qualified information technology
professionals.

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

Intellectual Property Rights

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

We retain ownership of our CoreModel and the software applications we
develop. In addition, we have entered into agreements for the right to use
third party software components, such as our database program, in our products
on a non-exclusive basis. Our breach of these agreements could result in our
loss of these rights and would harm our business. Our success will depend in
part on our ability to continue to license additional third party software and
upgrades to existing third party software in order to enhance our products.
However, we may not be able to license additional rights for this software on
commercially reasonable terms or at all. If we cannot obtain required licenses,
we could encounter delays or unanticipated development expense while we attempt
to internally develop substitute technology.

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

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

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

Government Regulation

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

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

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

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

Employees

As of November 30, 1999, we had approximately 125 employees. Our employees
are not subject to any collective bargaining agreements and we generally have
good relationships with our employees.

Facilities

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

Legal Proceedings

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

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MANAGEMENT

Directors and Executive Officers

The following table presents information regarding each of our directors and
executive officers as of November 30, 1999.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jack D. Anderson...................... 55 Chairman of the Board; Chief
Executive Officer
William W. Shaw, III.................. 42 President, Secretary and
Treasurer
William H. Matthews................... 45 Chief Financial Officer
Robert L. Anderson.................... 55 Director; Senior Vice President
Michael J. Barry...................... 38 Chief Information Officer
David W. McComb....................... 47 Director; Vice President,
Research and Development
Michael E. Meisel..................... 45 Chief Sales Officer; President
and CEO of Res-Q, Inc., a wholly
owned subsidiary of OrganicNet
M. Jan Roughan........................ 53 Director; President and CEO of
L.I.N.C., Inc., a wholly owned
subsidiary of OrganicNet
James P. Clark........................ 46 Director
Robert S. Garvie...................... 50 Director
Gail E. Oldfather..................... 64 Director
Michael A. Wilson..................... 52 Director
</TABLE>

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

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

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

Robert L. Anderson co-founded OrganicNet in January 1995 and has been Senior
Vice President of OrganicNet since January 1996. He has served as a director
since inception. Mr. Anderson has approximately

47
<PAGE>

20 years of experience in the development of applications for complex project
and program management engagements. From August 1993 to October 1994, he served
as Director of Practice Development of BSW Advanced Technology, Inc., an
object-oriented project management software company.

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

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

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

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

James P. Clark has been a director of OrganicNet since November 1999. He is
currently President of the Healthcare Systems Division of Superior Consultant
Company, an independent healthcare consulting firm. Mr. Clark has served in a
variety of management positions with Superior Consultant Company since joining
the firm in 1990. Mr. Clark also currently serves as Chairman of the Board of
Directors and Chief Executive Officer of Golf Safari, Inc., a Florida
corporation. From 1998 to 1990 Mr. Clark served in various consulting and
executive capacities with Health Systems Management Associates and from 1986 to
1988 he served in various consulting and executive capacities with First
Consulting Group, a healthcare consulting company.

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

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

Michael A. Wilson has been a director of OrganicNet since March 1998. He is
currently an independent healthcare consultant. From September 1997 to July
1999, he was President and Chief Executive Officer of the CHW Medical
Foundation in San Francisco, a division of Catholic Healthcare West. Before
joining CHW in

48
<PAGE>

September 1997, Mr. Wilson served for eight years as President and Chief
Administrative Officer of the Dean Medical Clinic in Madison, Wisconsin. He is
also a former president of the Medical Group Management Association and is a
member of the board of directors of Physician Insurance Company of Wisconsin.

Board Composition

The board of directors currently consists of eight members. OrganicNet's
Amended and Restated Certificate of Incorporation, as in effect immediately
prior to the consummation of this offering, divides the board of directors into
three classes. The members of each class of directors serve for staggered
three-year terms. The board of directors is composed of (1) three Class I
directors, Messrs. Jack D. Anderson, Robert L. Anderson and David W. McComb,
whose terms expire upon the election and qualification of directors at the
annual meeting of stockholders to be held in 2000; (2) three Class II
directors, Mr. Michael A. Wilson, Ms. M. Jan Roughan and Mr. James P. Clark,
whose terms expire upon the election and qualification of directors at the
annual meeting of stockholders to be held in 2001; and (3) two Class III
directors, Mr. Robert S. Garvie and Mr. Gail E. Oldfather, whose terms expire
upon the election and qualification of directors at the annual meeting of
stockholders to be held in 2002.

Pursuant to our agreement with Superior Consultant Holdings Corporation,
Superior has the right to appoint a member to our board of directors and has
appointed James P. Clark to our board.

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

Director Compensation

Directors who are also executive officers do not receive additional
compensation for serving on the board or any board committee. Directors are
reimbursed for reasonable travel expenses incurred in attending meetings. There
are no formal arrangements for compensating non-employee directors. We have
compensated non-employee directors with stock options for their service on the
board. In December 1996, Robert S. Garvie received an option to purchase 5,600
shares of common stock at an exercise price of $.89 per share and Gail E.
Oldfather received an option to purchase 10,080 shares of common stock at an
exercise price of $.89 per share. In March 1998, Mr. Garvie and Mr. Oldfather
each received options to purchase 2,520 shares of common stock at an exercise
price of $2.68 per share. All of Mr. Garvie's and Mr. Oldfather's options are
fully vested. Michael A. Wilson received an option in March 1998 to purchase
1,400 shares of common stock at an exercise price of $2.68, half of which are
fully vested.

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

. In October 1998, Robert S. Garvie received an option to purchase 560
shares of common stock at an exercise price of $3.57 per share;

. In October 1998, Gail E. Oldfather received an option to purchase 672
shares of common stock at an exercise price of $3.57 per share; and

. In December 1998, Gail E. Oldfather received an option to purchase 560
shares of common stock at an exercise price of $3.57 per share.

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

Committees of the Board Of Directors

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

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

49
<PAGE>

Compensation Committee Interlocks and Insider Participation

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

Executive Compensation

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

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------ ----------------------
Securities
Name and Principal Position Salary Bonus Underlying Options (#)
- --------------------------- ---------- --------- ----------------------
<S> <C> <C> <C>
Jack D. Anderson, Chairman of
the Board and Chief Executive
Officer....................... $ 120,000 (1) $ -- --
William W. Shaw, III,
President, Secretary and
Treasurer..................... 120,000 (2) -- 5,600
William H. Matthews, Chief
Financial Officer............. -- -- --
Robert L. Anderson, Senior Vice
President..................... 120,000 (1) -- --
Michael J. Barry, Chief
Information Officer........... 120,000 (3) -- 5,600
David W. McComb, Vice
President, Research and
Development................... 120,000 (1) -- --
Michael E. Meisel, Chief Sales
Officer; President and CEO of
Res-Q, Inc.................... 150,000 (4) 11,877 2,800
M. Jan Roughan, President and
Chief Executive Officer of
L.I.N.C., Inc................. 175,000 12,472 --
</TABLE>
- --------

(1) Includes $40,000 of salary accrued during fiscal year 1998 but has not yet
been paid.

(2) Includes $37,000 of salary accrued during fiscal year 1998 but has not yet
been paid.

(3) Includes $45,000 of salary accrued during fiscal year 1998 but has not yet
been paid.

(4) Includes $12,000 of salary accrued during fiscal year 1998 but has not yet
been paid.

50
<PAGE>

Option Grants in Last Fiscal Year and the Nine Months Ended September 30, 1999

The following table sets forth grants of stock options to each of the named
executive officers during the fiscal year ended December 31, 1998. The
potential realizable value is calculated by assuming that the initial public
offering price appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price on the last day
at the appreciated price. The 5% and 10% assumed annual rates of stock price
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future common
stock prices.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term (2)
---------------------------------------------------- ---------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Expiration
Name Granted Fiscal Year (1) Exercise Price Date 5% 10%
- ---- ---------- --------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Anderson........ -- -- -- -- -- --
William W. Shaw, III.... 2,800 1.26% $2.68 01/13/08 $ 38,105 $ 65,119
2,800 1.26% 3.57 09/25/08 $ 35,613 $ 62,627
William H. Matthews..... -- -- -- -- -- --
Robert L. Anderson...... -- -- -- -- -- --
Michael J. Barry........ 2,800 1.26% 2.68 01/13/08 $ 38,105 $ 65,119
2,800 1.26% 3.57 09/25/08 $ 35,613 $ 62,627
David W. McComb......... -- -- -- -- -- --
Michael E. Meisel....... 2,800 1.26% 2.68 01/13/08 $ 38,105 $ 65,119
M. Jan Roughan.......... -- -- -- -- -- --
</TABLE>

- --------

(1) In 1998, we granted options to purchase an aggregate of 222,982 shares of
common stock.

(2) The potential realizable value is calculated by assuming that the initial
public offering price of $10.00 per share appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price. The potential realizable value computation is net of the applicable
exercise price, but does not take into account applicable federal or state
income tax consequences and other expenses of option exercises or sales of
appreciated stock. The values shown do not consider non-transferability or
termination of the options upon termination of such employee's employment
with OrganicNet.

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

<TABLE>
<CAPTION>
Individual Grants
-----------------------------------
Number of Securities
Underlying Options
Name Granted Exercise Price Expiration Date
- ---- -------------------- -------------- ---------------
<S> <C> <C> <C>
Jack D. Anderson............ -- -- --
William W. Shaw, III........ 4,200 $3.57 03/02/09
5,600 4.46 08/06/09
William H. Matthews......... 2,240 4.46 04/21/09
1,380 4.46 06/22/09
50,400 4.46 06/22/09
Robert L. Anderson.......... -- -- --
Michael J. Barry............ 4,200 3.57 03/02/09
5,600 4.46 08/06/09
David W. McComb............. -- -- --
Michael E. Meisel........... 2,240 3.57 03/02/09
M. Jan Roughan.............. 1,960 3.57 03/02/09
Gail E. Oldfather........... 15,120 4.46 08/06/09
</TABLE>

51
<PAGE>

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

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

<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at December 31, 1998 December 31, 1998 (2)
----------------------------- -------------------------
Name Exercisable (1) Unexercisable Exercisable Unexercisable
- ---- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack D. Anderson........ -- -- -- --
William W. Shaw, III.... 96,133 49,466 $934,534 $478,756
William H. Matthews..... -- -- -- --
Robert L. Anderson...... -- -- -- --
Michael J. Barry........ 96,133 49,466 $934,534 $478,756
David W. McComb......... -- -- -- --
Michael E. Meisel....... -- 2,800 -- $ 20,496
M. Jan Roughan.......... -- -- -- --
</TABLE>
- --------
(1) Exercisable refers to those options which will be vested and exercisable
immediately upon completion of this offering, while "unexercisable" refers
to those options which will be unvested at such time.

(2) Value is determined by subtracting the exercise price from the fair market
value of the common stock based on an assumed initial public offering price
of $10.00, multiplied by the number of shares underlying the options.

Employment Agreements and Change of Control Arrangements

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

William W. Shaw, III entered into an employment agreement with OrganicNet on
June 1, 1996. Mr. Shaw's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Shaw or the company. Under the terms of his employment agreement,
Mr. Shaw receives a base salary of $120,000, subject to change at the sole
discretion of the board of directors. In addition, the board of directors, or a
duly appointed committee thereof will, no less than once annually, determine if
the award of a bonus is warranted and the amount of such bonus, if any.
Pursuant to his employment agreement, we issued Mr. Shaw options to purchase up
to 140,000 shares of our common stock and he is eligible for future issuances
at the discretion of the board of directors. If we terminate Mr. Shaw's
employment without cause or if Mr. Shaw resigns for good reason, upon a change
of control or due to disability or death, he would be entitled to receive his
then existing base salary for a period of 18 months from the date of
termination. In addition, Mr. Shaw would be entitled to his annual bonus,
including the cash value of shares issued, prorated to his date of termination,
and immediate and full vesting of all outstanding stock

52
<PAGE>

options granted through the termination date. The terms of Mr. Shaw's
employment agreement also provide that Mr. Shaw will not, during the course of
his employment and the 18 months following the date of the termination of his
employment with us: (1) engage or otherwise have a financial interest in any
business activity which is in competition with us or (2) solicit our employees.

William H. Matthews entered into an employment agreement with OrganicNet on
June 17, 1999. Mr. Matthew's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Matthews or the company. Under the terms of his employment
agreement, Mr. Matthews receives a base salary of $125,000 which will be
adjusted by the compensation committee within 45 days of the closing of this
offering to an amount that represents a market range salary for a public
company of our size and in our industry. Pursuant to his employment agreement,
we issued to Mr. Matthews options to purchase up to 50,400 shares of our common
stock at an option price of $4.46 per share and he is eligible for future
issuances. Upon the occurrence of a change of control before June 20, 2000,
fifty percent of Mr. Matthews' remaining unvested options will vest. Should a
change of control occur after June 20, 2000, all of his remaining options will
vest.

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

Michael J. Barry entered into an employment agreement with OrganicNet on
January 1, 1996. Mr. Barry's employment agreement provides that it may be
terminated with or without cause and with or without notice at any time by
either Mr. Barry or the company. Under the terms of his employment agreement,
Mr. Barry receives a base salary of $120,000, subject to change at the sole
discretion of the board of directors. In addition, the board of directors, or a
duly appointed committee thereof will, no less than once annually, determine if
the award of a bonus is warranted and the amount of such bonus, if any.
Pursuant to his employment agreement, we issued to Mr. Barry options to
purchase up to 140,000 shares of our common stock and he is eligible for future
issuances at the discretion of the board of directors. If we terminate Mr.
Barry's employment without cause or if Mr. Barry resigns for good reason, upon
a change of control or due to disability or death, he would be entitled to
receive his then existing base salary for a period of 18 months from the date
of termination. In addition, Mr. Barry would be entitled to his annual bonus,
including the cash value of shares issued, prorated to his date of termination,
and immediate and full vesting of all outstanding stock options granted through
the termination date. The terms of Mr. Barry's employment agreement also
provide that Mr. Barry will not, during the course of his employment and the 18
months following the date of the termination of his employment with us:
(1) engage or otherwise have a financial interest in any business activity
which is in competition with us or (2) solicit our employees.

M. Jan Roughan entered into an employment agreement with OrganicNet on
January 1, 1997. Ms. Roughan's employment agreement ends on December 31, 1999.
Under the terms of her employment agreement, Ms. Roughan receives a base salary
of $175,000. In addition, incentive bonuses will be awarded to Ms. Roughan
based upon net revenue realized from the sale of L.I.N.C., Inc. software
products during the preceding year. Either OrganicNet or Ms. Roughan may
terminate this agreement by giving written notice to the other party. Pursuant
to the terms of her employment agreement, if Ms. Roughan is terminated for
cause, as

53
<PAGE>

specified in the agreement, or upon her death, the company is obligated to pay
her base salary and benefits through the effective date of termination, or the
date of her death, as applicable, plus an additional 12 months of base salary
and benefits. If Ms. Roughan is terminated without cause upon a majority vote
of the board of directors, she is entitled to the greater of her base salary
and benefits through the term of the agreement or 12 months of her then base
salary and benefits. The terms of Ms. Roughan's employment agreement also
provide that she will not, during the course of her employment and the 12
months following the date of the termination of her employment with us: (1)
engage or otherwise have a financial interest in any business activity which
is in competition with us or (2) solicit our employees.

Limitation of Liability and Indemnification Matters

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

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

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

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

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

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

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

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

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

1999 Equity Incentive Plan

In November, 1999 our board of directors adopted, subject to stockholder
approval, the 1999 Equity Incentive Plan. A total of 2,800,000 shares of
common stock of the Company have been reserved for issuance under the 1999
Plan. The shares reserved under the 1999 Plan shall include those shares which
remain available for issuance under the 1996 Stock Option/Stock Issuance Plan
and the 1997 Stock Option/Stock Issuance Plan upon the closing of this
offering. In addition, the share reserve will be increased annually on the
date of the Company's annual meeting by the lesser of either (1) the sum of
(A) 2% of the outstanding shares on the date of the annual meeting plus (B)
the number of shares subject to an option under either the 1996 Plan or the
1997 Plan which expires unexercised; or (2) 5% of the shares of the Company's
total outstanding shares on the date the 1999 Plan was adopted. When a stock
award expires or is terminated before its is exercised, the shares not
acquired pursuant to the stock awards shall again become available for
issuance under the 1999 Plan.

The 1999 Plan permits the grants of options to directors, officers,
employees and consultants and advisors. Options may be either incentive stock
options ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended, or nonstatutory stock options. In addition, the 1999
Plan permits the grant of stock bonuses and rights to purchase restricted
stock.

The 1999 Plan is administered by the board of directors. The board of
directors may delegate its authority to administer the 1999 Plan to the
compensation committee. The administrator has the authority to select the
eligible persons to whom award grants are to be made, to designate the number
of shares to be covered by each award, to determine whether an option is to be
an ISO or a nonstatutory stock option, to establish vesting schedules, to
specify the exercise price and the type of consideration to be paid upon
exercise and to specify other terms.

54
<PAGE>

In general, the exercise price of an ISO cannot be less than 100% of the
fair market value of the common stock on the date of grant; provided, however,
that for a person who at the time of grant owns 10% of the total voting power
of the Company, the exercise price shall be at least 110% of the fair market
value on the date of grant. The exercise price for a nonstatutory stock option
cannot be less than 85% of the fair market value of the common stock on the
date of grant. In addition, the aggregate fair market value, determined at the
grant date, of an ISO that are exercisable for the first time during a calendar
year, under the 1999 Plan and all of our other stock plans may not exceed
$100,000.

The maximum term of options granted under the 1999 Plan is 10 years. In the
case of a 10% stockholder, the term of an ISO must not exceed five years from
the date of grant. Unless the terms of the stock option agreement provide for
earlier termination, an option shall expire three months after the termination
of an optionholder's service. However, if an optionholder is permanently
disabled or dies during his or her service, that person's options may be
exercised up to 12 months following disability or 18 months following death.

Generally, an optionholder may not transfer a stock option other than by
will or the laws of descent or distribution unless the optionholder holds a
nonstatutory stock option that provides otherwise. However, an optionholder may
designate a beneficiary who may exercise the option following the
optionholder's death.

Upon the completion of this offering, subject to certain exceptions, each
non-employee director will automatically be granted an option to purchase
10,000 shares of common stock. Any individual who becomes a non-employee
director after this offering will automatically receive this initial grant upon
being elected to the board of directors. On each annual meeting of each year,
commencing in calendar year 2001, any person who is then a non-employee
director will automatically be granted an option to purchase 2,500 shares of
common stock, provided that if any non-employee director that had not served in
that capacity for the entire period since the preceding annual meeting, then
the number of shares subject to the annual grant shall be reduced, pro rata,
for each full quarter the person did not serve during the previous period.
Initial grants and annual grants vest and become immediately exercisable upon
grant.

Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to specific
employees in a taxable year to the extent the compensation exceeds $1,000,000.
When we become subject to Section 162(m), the board of directors may not grant
awards under the 1999 Plan to an employee covering an aggregate of more than
1,200,000 shares in any calendar year.

In the event of certain changes in control, all outstanding options under
the 1999 Plan either will be assumed, continued or substituted for by any
surviving entity. If the surviving entity determines not to assume, continue or
substitute for such awards, the vesting provisions of such stock awards will be
accelerated and such stock awards will be terminated upon the change of control
if not previously exercised.

The board of directors has the authority to amend or terminate the 1999
Plan; provided, however, that no amendment or termination of the 1999 Plan may
adversely affect the rights and obligations with respect to options or unvested
awards unless the participant consents to such an amendment or modification.
Amendments will generally be submitted for stockholder approval only to the
extent required by applicable law.

As of November 30, 1999 no awards had been issued under the 1999 Plan.

Employee Stock Purchase Plan

In November, 1999, the board of directors adopted, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan. A total of 300,000 shares of
common stock has been authorized for issuance under the Purchase Plan. The
share reserve will increase automatically every year, starting on January 1,
2001, by 150,000 shares. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended. Under the Purchase Plan, eligible employees
will be able to purchase common stock at a discount price in periodic
offerings. The Purchase Plan will commence on the effective date of this
initial public offering.

55
<PAGE>

Unless otherwise determined by the board of directors, all employees are
eligible to participate in the Purchase Plan so long as they are employed by us
(or a subsidiary designated by the board of directors) for at least 20 hours
per week and are customarily employed by us (or a subsidiary designate by the
board of directors) for at least five months per calendar year.

Under the Purchase Plan, employees who participate in an offering may have
up to 15% of their earnings for the period of that offering withheld. The
amount withheld is used at the end of the offering period to purchase shares of
common stock. The price paid for common stock at the commencement date of that
offering period will equal the lower of 85% of the fair market value of the
common stock at the commencement date of that offering period or 85% of the
fair market value of the common stock on the relevant purchase date. Employees
may end their participation in the offering at any time during the offering
period, and participation ends automatically on termination of employment.

Upon changes in control of the Company, the board of directors has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right substituted by the successor entity or the board of
directors may provide for all sums collected by payroll deductions to be
applied to purchase stock immediately prior to the change in control
transaction.

The board of directors has the authority to amend or terminate the Purchase
Plan; provided, however, that no amendment or termination of the Purchase Plan
may adversely affect any outstanding rights to purchase common stock.
Amendments will generally be submitted for stockholder approval only to the
extent required by law.

1997 Stock Option/Stock Issuance Plan

In November 1997, the board of directors adopted, and the stockholders
approved, the 1997 Stock Option/Stock Issuance Plan. An aggregate of 827,967
shares of common stock currently are authorized for issuance under the
incentive plan and the share reserve will automatically be increased on the
first business day of each calendar year by an amount equal to 2% of the total
outstanding shares of common stock on the last business day of the immediately
preceding calendar year. No incentive stock option may be granted on the basis
of the annual share increases. When a stock award expires, is terminated before
it is exercised or is cancelled, the shares set aside for that award are
returned to the pool of shares available for future awards. Shares that are
issued when an award is exercised and that are subsequently repurchased by us
will again become available for future awards.

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

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

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

56
<PAGE>

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

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

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

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

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

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

As of November 30, 1999, the Company had issued and outstanding under the
1997 Plan options to purchase 553,193 shares of common stock.

57
<PAGE>

On November 23, 1999, the board voted to terminate the future issuance of
options under the 1997 Plan upon the closing of this offering. All options
outstanding as of the closing of this offering will remain outstanding subject
to the terms of the 1997 Plan. All shares reserved for future issuance under
the 1997 Plan but not issued as of the closing of this offering will be added
to those shares reserved for issuance under the 1999 Plan.

1996 Stock Option/Stock Issuance Plan

On April 30, 1996, the board of directors adopted, and the stockholders
approved, the 1996 Stock Option/Stock Issuance Plan. On April 22, 1997, the
board of directors adopted, and on November 21, 1997, the stockholders
approved, an amendment and restatement of the incentive plan. A maximum of
560,000 shares are authorized under the 1996 Plan. The authorized share reserve
is comprised of (1) 420,000 shares originally available under the incentive
plan and (2) an additional 140,000 shares of common stock authorized by the
board on April 22, 1997, subject to stockholder approval. When a stock award
expires, is terminated before it is exercised or is cancelled, the shares set
aside for that award are returned to the pool of shares available for future
awards. Awards may be granted in excess of the number of shares of common stock
then available for issuance under the 1996 Plan, provided any excess shall be
held in escrow until stockholder approval is obtained increasing the number of
shares of common stock available for issuance. If approval is not obtained
within 12 months after the issuance of the excess is made, then (1) any
unexercised options granted on the basis of the excess will terminate and cease
to be outstanding and (2) the company will refund the exercise or purchase
price plus interest.

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

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

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

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

58
<PAGE>

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

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

The terms of any stock bonuses or restricted stock purchase awards granted
under the 1996 Plan will be determined by the administrator. However, the
administrator may not impose a vesting schedule which is more restrictive than
20% per year, with initial vesting to occur no later than one year after the
issuance date. Such limitation shall not apply to any common stock issuance
made to officers, non-employee directors or consultants. The administrator may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the 1996 Plan may be subject to
repurchase by the company. The purchase price of restricted stock under any
restricted stock purchase agreement will not be less than 85% of the fair
market value of the company's common stock on the date of grant. However, the
purchase price per share of common stock for a 10% stockholder will not be less
then 110% of the fair market value on the date of grant.

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

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

As of November 30, 1999, the Company had issued and outstanding under the
1996 Plan options to purchase 459,376 shares of common stock.

On November 23, 1999, the board voted to terminate the future issuance of
options under the 1996 Plan upon the closing of this offering. All options
outstanding as of the closing of this offering will remain outstanding subject
to the terms of the 1996 Plan. All shares reserved for future issuance under
the 1996 Plan but not issued as of the closing of this offering will be added
to those shares reserved for issuance under the 1999 Plan.

401(k) Plan

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

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

59
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

Purchase Of Capital Stock

<TABLE>
<CAPTION>
Number of
Shares of
Common Stock
Issuable
After
Conversion
Date of Number of of Preferred
Name Purchase Type of Security Price per Share Shares Stock (5)
- ---- -------- ------------------------ --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Jack D. Anderson (1).... 08/10/99 Series C Preferred Stock $4.91 29,001 29,001
William H. Matthews..... 04/17/98 Series C Preferred Stock 4.91 6,109 6,109
01/06/99 Series C Preferred Stock 4.91 4,000 4,000
06/30/99 Series C Preferred Stock 4.91 2,800 2,800
08/02/99 Series C Preferred Stock 4.91 11,200 11,200
Michael E. Meisel....... 04/01/99 Series C Preferred Stock 4.91 2,800 2,800
Robert S. Garvie (2).... 02/19/99 Series C Preferred Stock 4.91 17,421 17,421
04/05/99 Common Stock (4) .89 5,600 --
04/05/99 Common Stock (4) 2.68 2,520 --
04/05/99 Common Stock (4) 3.57 560 --
04/05/99 Series C Preferred Stock 4.91 6,485 6,485
08/05/99 Series C Preferred Stock 4.91 20,363 20,363
Gail E. Oldfather (3)... 03/10/98 Series C Preferred Stock 4.91 10,049 10,049
11/25/98 Series C Preferred Stock 4.91 16,661 16,661
12/28/98 Series C Preferred Stock 4.91 1,008 1,008
03/31/99 Series C Preferred Stock 4.91 5,600 5,600
07/20/99 Series C Preferred Stock 4.91 42,000 42,000
</TABLE>
- --------
(1) Includes shares purchased on behalf of Mr. Anderson's spouse.
(2) Includes shares purchased by Omeah Ltd. Partnership. Mr. Garvie is a
General Partner of Omeah Ltd. Partnership.
(3) Includes shares purchased on behalf of Mr. Oldfather's spouse and
relatives.
(4) Shares purchased pursuant to the exercise of stock options.
(5) The shares of the Company's Preferred Stock will convert into shares of
common stock on a one-to-one basis effective upon the closing of this
offering.

60
<PAGE>

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

Issuance Of Stock Options

<TABLE>
<CAPTION>
Name Date Granted Exercise Price Options
- ---- ------------ -------------- -------
<S> <C> <C> <C>
William W. Shaw, III........................ 01/13/98 $2.68 2,800
09/25/98 3.57 2,800
03/02/99 3.57 4,200
08/06/99 4.46 5,600
William E. Matthews......................... 04/21/99 4.46 2,240
06/22/99 4.46 1,380
06/22/99 4.46 50,400
Michael J. Barry............................ 01/13/98 2.68 2,800
09/25/98 3.57 2,800
03/02/99 3.57 4,200
08/06/99 4.46 5,600
Michael E. Meisel........................... 01/13/98 2.68 2,800
03/02/99 3.57 2,240
M. Jan Roughan.............................. 03/02/99 3.57 1,960
Robert S. Garvie............................ 03/12/98 2.68 1,400
03/12/98 2.68 1,120
10/29/98 3.57 560
Gail E. Oldfather........................... 03/12/98 2.68 1,400
03/12/98 2.68 1,120
10/29/98 3.57 672
12/10/98 3.57 560
08/06/99 4.46 15,120
Michael A. Wilson........................... 03/12/98 2.68 1,400
</TABLE>

Lock-Up Agreements

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

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

On September 30, 1997, Mr. and Mrs. Anderson loaned $60,000 to us at an
interest rate of 6.5% per annum. As of September 30, 1999, the Company has
repaid a total of approximately $56,371 of the loan, approximately $31,453 of
which was repaid in cash and approximately $24,917 of which was repaid in the
form of 5,073 shares of Series C preferred stock. The remaining balance on this
loan is approximately $11,057.

Agreement with Superior Consultant Holdings Corporation

We entered into a marketing alliance with Superior Consultant Holdings
Corporation in September 1999, under which Superior will introduce, promote and
demonstrate our ASP software applications. Pursuant to this agreement, we
granted Superior an option to purchase 112,000 shares of our common stock at an
exercise price

61
<PAGE>

of $10.71 per share. See "Business--Strategic Relationships and Alliances" for
a description of this agreement. James P. Clark, a director of OrganicNet, is
the president of Superior's Healthcare Systems Division.

Indemnity and Subrogation Agreement between Michael E. Meisel and OrganicNet

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

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

In connection with our acquisition of Res-Q, Inc. (formerly MMS, Inc.),
OrganicNet and Mr. Meisel executed two $50,000 promissory notes on April 4,
1997 and December 1, 1997, respectively. These notes were consolidated on April
1, 1999. Under this consolidated promissory note, we are obligated to pay Mr.
Meisel $105,187, plus interest at the rate of 10% per annum, compounded
monthly. This note becomes due and payable on December 31, 1999 and can be
prepaid at any time in whole or in part without premium or penalty. As of
September 30, 1999, the outstanding balance of this note was $104,270. In
August 1999, we repaid $5,000 of this note. We will repay the entire
outstanding balance of this note from the proceeds of this offering.

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

On October 28, 1997, First National Bank extended a line of credit in the
amount of $100,000 to three of our executive officers and directors, Jack D.
Anderson, David W. McComb and Robert L. Anderson. The terms of the line of
credit are for a term for one year at a variable rate of interest, currently
10%. The line of credit has been extended to September 30, 2000. Messrs.
Anderson, McComb and Anderson have borrowed $100,000 under this line of credit
for our benefit. We have assumed the obligation to repay this loan. Messrs.
Anderson, McComb and Anderson have executed promissory notes with First
National Bank and have personally guaranteed this loan.

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

In connection with our acquisition of L.I.N.C., Inc. on June 23, 1997,
OrganicNet and Ms. Roughan executed two promissory notes in the amount of
$50,000 each on June 1, 1997 and December 1, 1997. As of September 30, 1999,
the total balance of these notes was $116,610. In August 1999, we repaid a
total of $5,000 of these notes. We will repay the entire outstanding balance of
these notes from the proceeds of this offering.

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

On October 2, 1998, Mr. Garvie loaned us $20,000 at an interest rate of 12%
per annum. As consideration for this loan, we granted Mr. Garvie options to
purchase 560 shares of common stock at an exercise price of $3.57 per share. We
have repaid this loan.

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

On November 25, 1998, Mr. Oldfather loaned us $20,000 at an interest rate of
12% per annum. As consideration for this loan, we granted Mr. Oldfather options
to purchase 560 shares of common stock at an exercise price of $3.57 per share.
We have repaid this loan.

62
<PAGE>

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

On October 19, 1998, Mr. Oldfather loaned us $24,000 at an interest rate of
12% per annum. As consideration for this loan, we granted Mr. Oldfather options
to purchase 672 shares of common stock at an exercise price of $3.57 per share.
We have repaid this loan.

Other Related Party Transactions

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

Indemnification Agreements

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

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

63
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to beneficial
ownership of our common stock as of November 30, 1999 and as adjusted to
reflect the sale of common stock offered by us pursuant to this offering. The
following table lists:

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

. each director;

. each named executive officer; and

. all directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address for each listed director and officer is
OrganicNet, Inc., 330 Townsend Street, Suite 206, San Francisco, California,
94107-1630. Except as indicated by footnote, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares
of common stock underlying options that are exercisable within 60 days of
November 30, 1999, but excludes shares of common stock underlying options held
by any other persons. Percentage of beneficial ownership prior to the offering
is based on 7,729,213 shares of common stock outstanding as of November 30,
1999 after giving effect to the conversion of our currently outstanding
preferred stock. Percentage of beneficial ownership after the offering is based
on 10,479,213 shares outstanding after the offering.

<TABLE>
<CAPTION>
Percentage of Shares
Shares Beneficially Owned
Beneficially --------------------------------
Name of Beneficial Owner Owned Prior to Offering After Offering
- ------------------------ ------------ ----------------- --------------
<S> <C> <C> <C>
Jack D. Anderson............ 1,281,169 (1) 16.58% 12.23%
William W. Shaw, III........ 193,510 (2) 2.46% 1.82%
William H. Matthews......... 50,489 (3) * *
Robert L. Anderson.......... 758,232 (4) 9.81% 7.24%
Michael J. Barry............ 186,015 (5) 2.36% 1.75%
David W. McComb............. 516,957 (6) 6.69% 4.93%
Michael E. Meisel........... 290,816 (7) 3.76% 2.77%
M. Jan Roughan.............. 145,730 1.89% 1.39%
James P. Clark.............. -- * *
Robert S. Garvie............ 132,663 (8) 1.72% 1.27%
Gail E. Oldfather........... 393,012 (9) 5.07% 3.74%
Michael A. Wilson........... 1,400 (10) * *
All directors and executive
officers as a group (12
persons)................... 3,949,993 (11) 48.97% 36.52%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the common
stock.

(1) Includes 127,770 shares of common stock owned by Mr. Anderson's spouse and
held in trust for the benefit of Mr. Anderson and his spouse.

(2) Includes 150,266 shares of common stock beneficially owned as a result of
options that become exercisable within 60 days of November 30, 1999.

(3) Includes 3,620 shares of common stock beneficially owned as a result of
options that become exercisable within 60 days of November 30, 1999.

(4) Includes 25,760 shares of common stock owned by Mr. Anderson's spouse and
children and held in trust for the benefit of Mr. Anderson's children.

(5) Includes 150,266 shares of common stock beneficially owned as a result of
options that become exercisable within 60 days of November 30, 1999.

(6) Includes 15,994 shares of common stock owned by Mr. McComb's spouse.

64
<PAGE>

(7) Includes 119,814 shares of common stock owned by Mr. Meisel's spouse and
held in trusts established for the benefit of Mr. Meisel's children, and
1,866 shares of common stock beneficially owned as a result of options
that become exercisable within 60 days of November 30, 1999.

(8) Includes 2,036 shares of common stock held in trust for the benefit of Mr.
Garvie's family and 130,629 shares owned by Omeah Ltd. Partnership. Mr.
Garvie is a General Partner of Omeah Ltd. Partnership.

(9) Includes 205,579 shares held in trusts established for the benefit of Mr.
Oldfather's family, and 28,952 shares of common stock beneficially owned
as a result of options that become exercisable within 60 days of November
30, 1999.

(10) Includes 1,400 shares of common stock beneficially owned as a result of
options that become exercisable within 60 days of November 30, 1999.
(11) Includes shares described in the notes above, as applicable.

65
<PAGE>

DESCRIPTION OF CAPITAL STOCK

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

Common Stock

As of November 30, 1999, there were 7,729,213 shares of common stock
outstanding held of record by approximately 460 stockholders, on an as-
converted basis. There will be 10,479,213 shares of common stock outstanding
after giving effect to the sale of the shares of common stock offered in this
prospectus. This number assumes no exercise of the underwriter's over-allotment
option and no exercise of options after November 30, 1999.

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

Preferred Stock

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

Registration Rights

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

66
<PAGE>

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

Amended and Restated Certificate of Incorporation and Bylaws

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

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

Delaware Takeover Statute

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

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

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

. by persons who are directors and also officers; and

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

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

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

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

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

67
<PAGE>

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

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

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

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

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is LaSalle Bank N.A.

Listing

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

68
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

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

After this offering, 10,479,213 shares of common stock will be outstanding,
10,891,713 shares if the underwriter exercises its over-allotment options in
full. Of these shares, the 2,750,000 shares sold in this offering, 3,162,500
shares if the underwriter's over-allotment options are exercised in full, will
be freely tradable without restriction under the Securities Act except for
shares purchased by our "affiliates" as defined in Rule 144 under the
Securities Act. The remaining 7,729,213 shares are "restricted securities"
within the meaning of Rule 144 under the Securities Act. The restricted
securities generally may not be sold unless they are registered under the
Securities Act or are sold pursuant to an exemption from registration, such as
the exemption provided by Rule 144 under the Securities Act.

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

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

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

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

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

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

69
<PAGE>

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

As soon as practicable following the closing of this offering, we intend to
file a registration statement under the Securities Act to register shares
of common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock option plans and our stock purchase
plans, of which 691,315 shares subject to options under our stock option plans
will be exercisable immediately upon the closing of this offering and an
additional 80,038 shares subject to options under our stock option plans will
be exercisable within 60 days of November 30, 1999. After the effective date of
such registration statement, these shares will be available for sale in the
open market subject to the lock-up agreements described above and, for our
affiliates, to the conditions and restrictions of Rule 144.

70
<PAGE>

UNDERWRITING

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

<TABLE>
<CAPTION>
Number
Underwriter of Shares
- ----------- ---------
<S> <C>
Needham & Company, Inc................................................
Punk, Ziegel & Company, L.P...........................................
---------
Total............................................................... 2,750,000
=========
</TABLE>

The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and it has for a period of 30 days
from the date of this prospectus, an over-allotment option to purchase up to
412,500 additional shares from us. If any additional shares are purchased, the
underwriters will purchase the shares in the same proportion as per the table
above.

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

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

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

In addition, we estimate that we will spend approximately $1,484,062 in
expenses for this offering. We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.

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

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

71
<PAGE>

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

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

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

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

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

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

In March 1998, certain entities and persons affiliated with Punk, Ziegel &
Company, L.P. at such time, including William Punk, Jr. and Punk, Ziegel &
Company Investors, LLC, a limited liability company serving as an investment
vehicle for Tarun Chandra, Barbara Horn, Roberta E. Hurst, Michael E. Knepper,
Douglas Sturmak and David Whelen, and purchased an aggregate of 33,762 shares
of our Series C Preferred Stock at a purchase price of $4.91 per share for an
aggregate amount of approximately $165,700. These shares of Series C Preferred
Stock were purchased for investment purposes. Such shares will convert into
33,762 shares of common stock upon the closing of this offering.

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

72
<PAGE>

LEGAL MATTERS

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

EXPERTS

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

AVAILABLE INFORMATION

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

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

73
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements, OrganicNet, Inc.
Form of Independent Auditors' Report................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Deficit....................... F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
Unaudited Pro Forma Condensed Combined Financial Information, OrganicNet,
Inc. and PSI-Med Corporation
Financial Information.................................................. F-27
Condensed Combined Statement of Operations............................. F-28
Financial Statements, PSI-Med Corporation
Independent Auditors' Report........................................... F-30
Balance Sheets......................................................... F-31
Statements of Operations............................................... F-32
Statements of Stockholders' Deficit.................................... F-33
Statements of Cash Flows............................................... F-34
Notes to Financial Statements.......................................... F-35
</TABLE>

F-1
<PAGE>

When the events referred to in note 15 to the consolidated financial
statements have been consummated, we will be in a position to render the
following report:

/s/ KPMG LLP

FORM OF INDEPENDENT AUDITORS' REPORT

The Board of Directors
OrganicNet, Inc.:

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

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

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

San Francisco, California

December 6, 1999, except as to Note 15, which is as of December ,
1999

F-2
<PAGE>

OrganicNet, Inc.

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30, 1999
------------------------- ------------------------------
Pro forma
stockholders'
1997 1998 Actual deficit (note 1)
----------- ------------ ------------ ----------------
(unaudited)
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... $ 46,558 $ 41,104 $ 894,897
Accounts receivable,
net of allowance for
doubtful accounts of
$113,000, $128,800
and $254,714 in 1997,
1998 and 1999,
respectively......... 805,687 732,370 859,901
Prepaids and other
current assets....... 119,340 158,186 68,819
Prepaid offering
costs................ -- -- 544,174
Prepaid distribution
services............. -- -- 391,400
----------- ------------ ------------
Total current
assets.............. 971,585 931,660 2,759,191
Property and equipment,
net of accumulated
depreciation of
$426,475, $615,402 and
$1,164,461 in 1997,
1998 and 1999,
respectively........... 504,867 348,134 412,001
Intangible assets, net
of accumulated
amortization of
$364,110, $928,094 and
$1,391,554 in 1997,
1998 and 1999,
respectively........... 1,392,291 884,970 2,054,320
Other noncurrent
assets................. 35,598 50,284 178,428
----------- ------------ ------------
$ 2,904,341 $ 2,215,048 $ 5,403,940
=========== ============ ============
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable...... $ 1,289,354 $ 2,359,263 $ 1,476,901
Deferred revenue...... 1,589,817 2,372,162 2,231,930
Due to employees...... 516,180 1,162,895 665,628
Notes payable to
employees and
stockholders......... 464,479 918,892 667,617
Lines of credit and
note payable to
bank................. 92,790 163,897 127,200
Current portion of
capital leases....... 39,342 19,506 31,521
Current portion of
note payable......... -- -- 46,000
Other current
liabilities.......... 129,122 224,695 410,024
----------- ------------ ------------
Total current
liabilities......... 4,121,084 7,221,310 5,656,821
Long-term portion of
capital leases......... 40,742 40,742 52,597
Long-term portion of
note payable to
employee............... -- -- 27,490
Long-term portion of
note payable........... -- -- 10,421
----------- ------------ ------------
Total liabilities.... 4,161,826 7,262,052 5,747,329
Commitments and
contingencies
Stockholders' deficit:
Series A, A-II, A-III,
B and C preferred
stock, $0.01 par
value, authorized
7,840,000 shares;
issued and
outstanding
1,626,576, 2,060,427
and 3,689,048 shares
in 1997, 1998 and
1999, respectively;
none pro forma; with
an aggregate
liquidation
preference of
$4,725,880,
$6,856,398 and
$14,990,200 in 1997,
1998 and 1999,
respectively......... 16,266 20,604 36,891 $ --
Common stock, $0.001
par value, 16,520,000
shares authorized;
3,038,355, 3,059,509
and 3,146,080 shares
issued and
outstanding in 1997,
1998 and 1999,
respectively;
7,723,454 shares pro
forma................ 3,038 3,060 3,146 7,723
Additional paid-in
capital.............. 6,045,442 8,257,264 17,709,879 17,742,193
Receivable related to
sale of stock........ -- -- (550,000) (550,000)
Deferred
compensation......... -- -- (80,014) (80,014)
Accumulated deficit... (7,322,231) (13,327,932) (17,463,291) (17,463,291)
----------- ------------ ------------ ------------
Total stockholders'
deficit............. (1,257,485) (5,047,004) (343,389) $ (343,389)
----------- ------------ ------------ ============
$ 2,904,341 $ 2,215,048 $ 5,403,940
=========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

OrganicNet, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

OrganicNet, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

Years Ended December 31, 1996, 1997 and 1998 and Nine Months Ended September
30, 1999

<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Receivable Total
------------------ ---------------- paid-in Deferred Accumulated related to stockholders'
Shares Amount Shares Amount capital compensation deficit sale of stock deficit
--------- ------- --------- ------ ----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1995............ -- $ -- 2,122,080 $2,122 $ 7,878 $ -- $ (210,485) $ (5,000) $ (205,485)
Issuance of
Series A
preferred
stock........... 746,630 7,466 -- -- 1,325,804 -- -- -- 1,333,270
Issuance of
Series B
preferred
stock........... 224,636 2,246 -- -- 900,414 -- -- -- 902,660
Paydown of notes
receivable...... -- -- -- -- -- -- -- 5,000 5,000
Common stock
issued upon the
acquisition of
FPI............. -- -- 893,797 894 158,712 -- -- -- 159,606
Series A-II
preferred stock
issued upon the
acquisition of
CPCS ........... 998 10 -- -- 3,959 -- -- -- 3,969
Common stock
issued upon the
acquisition of
CPCS............ -- -- 22,478 22 3,992 -- -- -- 4,014
Series A-II and
A-III preferred
stock issued
upon the
acquisition of
Velocity........ 6,064 61 -- -- 48,683 -- -- -- 48,744
Series A-II
preferred stock
issued upon the
acquisition of
RiteLine........ 1,277 13 -- -- 5,119 -- -- -- 5,132
Net loss......... -- -- -- -- -- -- (2,311,734) -- (2,311,734)
--------- ------- --------- ------ ----------- --------- ------------ --------- -----------
Balances at
December 31,
1996............ 979,605 9,796 3,038,355 3,038 2,454,561 -- (2,522,219) -- (54,824)
Issuance of
Series A
preferred stock
in lieu of
compensation.... 47,600 476 -- -- 84,524 -- -- -- 85,000
Issuance of
Series B
preferred
stock........... 426,321 4,263 -- -- 1,713,711 -- -- -- 1,717,974
Issuance of
Series B
preferred stock
in lieu of
compensation.... 22,400 224 -- -- 89,776 -- -- -- 90,000
Issuance of
Series C
preferred
stock........... 121,557 1,216 -- -- 595,760 -- -- -- 596,976
Series A-II
preferred stock
issued upon the
acquisition of
Res-Q........... 13,065 131 -- -- 497,329 -- -- -- 497,460
Series A-II
preferred stock
issued upon the
acquisition of
LINC............ 7,466 75 -- -- 284,451 -- -- -- 284,526
Series A-II
preferred stock
issued upon the
acquisition of
Healthcheck..... 4,828 48 -- -- 183,093 -- -- -- 183,141
Series A-II
preferred stock
issued upon the
acquisition of
Intedata........ 3,734 37 -- -- 142,237 -- -- -- 142,274
Net loss......... -- -- -- -- -- -- (4,800,012) -- (4,800,012)
--------- ------- --------- ------ ----------- --------- ------------ --------- -----------
Balances at
December 31,
1997............ 1,626,576 16,266 3,038,355 3,038 6,045,442 -- (7,322,231) -- (1,257,485)
Issuance of
Series C
preferred
stock........... 433,851 4,338 -- -- 2,126,180 -- -- -- 2,130,518
Stock options
granted to non-
employees....... -- -- -- -- 29,001 -- -- -- 29,001
Common shares
issued for
purchase price
adjustment for
CPCS............ -- -- 21,154 22 56,641 -- -- -- 56,663
Net loss......... -- -- -- -- -- -- (6,005,701) -- (6,005,701)
--------- ------- --------- ------ ----------- --------- ------------ --------- -----------
Balances at
December 31,
1998............ 2,060,427 20,604 3,059,509 3,060 8,257,264 -- (13,327,932) -- (5,047,004)
Issuance of
Series C
preferred stock,
net............. 1,421,711 14,217 -- -- 6,878,381 -- -- -- 6,892,598
Issuance of
Series C
preferred stock
to Conxion...... 112,000 1,120 -- -- 548,880 -- -- (550,000) --
Issuance of
Series C
preferred stock
in exchange for
legal services.. 84,000 840 -- -- 411,660 -- -- -- 412,500
Issuance of
Series C
preferred stock
in exchange for
other services.. 20,262 203 -- -- 99,300 -- -- -- 99,503
Issuance of
Series C
preferred stock
to repay loans
to related
parties......... 46,571 466 -- -- 228,230 -- -- -- 228,696
Series A-II
preferred stock
issued upon the
acquisition of
PSI-Med ........ 9,322 93 -- -- 666,587 -- -- -- 666,680
Issuance of
common stock
pursuant to
exercise of
stock options... -- -- 21,326 21 36,293 -- -- -- 36,314
Conversion of
Series A to
common stock.... (58,774) (588) 58,774 59 529 -- -- -- --
Conversion of
Series B to
common stock.... (6,471) (65) 6,471 6 59 -- -- -- --
Stock options
granted to non-
employees....... -- -- -- -- 67,412 -- -- -- 67,412
Stock options
granted to
Superior
Consultant
Holdings
Corporation..... -- -- -- -- 391,400 -- -- -- 391,400
Deferred
compensation
related to stock
option grants... -- -- -- -- 123,885 (123,885) -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 43,871 -- -- 43,871
Net loss......... -- -- -- -- -- -- (4,135,359) -- (4,135,359)
--------- ------- --------- ------ ----------- --------- ------------ --------- -----------
Balances at
September 30,
1999............ 3,689,048 $36,891 3,146,080 $3,146 $17,709,879 $ (80,014) $(17,463,291) $(550,000) $ (343,389)
========= ======= ========= ====== =========== ========= ============ ========= ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

OrganicNet, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(2,311,734) $(4,800,012) $(6,005,701) $(4,240,830) $(4,135,359)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 76,535 522,506 752,911 598,941 622,657
Provision for bad
debts................ -- 113,000 15,800 -- 101,684
Noncash compensation
expense.............. -- 175,000 29,001 16,600 111,283
Changes in operating
assets and
liabilities:
Accounts receivable... 154,699 (61,920) 57,517 291,276 (93,209)
Prepaid expenses and
other current and
non-current assets... (16,450) (28,079) (53,532) (96,971) (562,555)
Accounts payable and
other current
liabilities.......... (78,060) 5,645 1,184,988 592,997 (825,342)
Deferred revenue...... 78,030 805,558 782,345 687,505 (213,442)
Due to employees...... -- 516,180 646,716 344,432 (451,386)
Interest on notes from
related parties...... 6,550 16,355 65,412 34,522 53,367
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities.......... (2,090,430) (2,735,767) (2,524,543) (1,771,528) (5,392,302)
----------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Capital expenditures... (74,752) (206,916) (32,194) (109,195) (150,864)
Cash (paid for)
received from
acquisitions.......... (22,032) 212,822 -- -- 43,111
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by
investing
activities.......... (96,784) 5,906 (32,194) (109,195) (107,753)
----------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from notes
payable to related
parties............... 110,000 448,125 389,000 185,000 --
Repayment of notes
payable to related
parties............... (31,000) (77,168) -- -- (437,313)
Borrowings (payments)
from banks, net....... -- 92,790 71,107 -- (36,697)
Proceeds from preferred
stock issued in
private placements.... 2,078,660 2,314,950 2,130,518 1,650,371 6,892,598
Repayment of note
receivable............ 5,000 -- -- -- --
Repayment of long-term
debt.................. -- -- -- -- (85,286)
Proceeds from exercise
of stock options...... -- -- -- -- 36,314
Repayment of capital
lease obligations..... -- (2,278) (39,342) 12,739 (15,768)
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities.......... 2,162,660 2,776,419 2,551,283 1,848,110 6,353,848
----------- ----------- ----------- ----------- -----------
Net (decrease) increase
in cash and cash
equivalents............ (24,554) 46,558 (5,454) (32,613) 853,793
Cash and cash
equivalents at
beginning of period.... 24,554 -- 46,558 46,558 41,104
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ -- $ 46,558 $ 41,104 $ 13,945 $ 894,897
=========== =========== =========== =========== ===========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for income
taxes................ $ 4,000 $ 6,400 $ 4,000 $ 4,000 $ --
Supplemental schedule of
noncash investing and
financing activities:
Summary of the
acquisitions described
in note 2:
Fair value of assets
acquired............. $ 781,900 $ 2,435,357 $ 56,663 $ 56,663 $ 1,861,412
Net cash (paid)
received............. (22,032) 212,822 -- -- 43,111
Stock issued.......... (221,465) (1,107,401) (56,663) (56,663) (666,680)
Notes issued.......... -- (200,000) -- -- --
----------- ----------- ----------- ----------- -----------
Liabilities assumed.. $ 538,403 $ 1,340,778 $ -- $ -- $ 1,237,843
=========== =========== =========== =========== ===========
Receivable related to
sale of stock........ $ -- $ -- $ -- $ -- $ 550,000
Stock and options
issued in exchange
for equity finders
fees................. -- -- -- -- 87,479
Stock issued as
settlement for legal
services rendered in
prior periods ....... -- -- -- -- 412,500
Stock issued as
settlement for other
services rendered in
prior periods ....... -- -- -- -- 99,503
Stock issued to repay
loans to related
parties.............. 157,270 -- -- -- 228,696
Assets acquired under
capital lease
obligations.......... -- 114,524 33,620 -- --
Prepaid distribution
services............. -- -- -- -- 391,400
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1996, 1997 and 1998, and September 30, 1998 and 1999

(Information as of and for the Nine Months Ended September 30, 1998 is
unaudited)

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

Business of the Company

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

On September 17, 1999, our Board of Directors authorized our management to
file a Registration Statement with the Securities and Exchange Commission to
sell shares of our common stock to the public.

Basis of Presentation

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

Interim Financial Information

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

Accounting Estimates

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

Revenue Recognition

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

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

F-7
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

Deferred Revenue

We defer revenues related to annual payments of PCS agreements and
recognize those revenues as the services are performed over the PCS contract
periods. Payments of license fees received prior to fulfilling our obligations
are recorded as deferred revenue until the obligations have been completed.
Advance payments and deposits received on other service contracts are deferred
and recognized as the related services are rendered.

Research and Development

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

Advertising Costs

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

Income Taxes

We account for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Net Loss per Share

We compute net loss per share based upon SFAS No. 128, Earnings per Share.
The basic net loss per share is computed by dividing the net loss available to
common stockholders by the weighted-average number of common shares
outstanding. Potential common shares relating to stock options of 330,583,
482,120, 696,506 and 1,017,720 in 1996, 1997 and 1998, and for the nine months
ended September 30, 1999, respectively, are anti-dilutive due to the net
losses sustained by us. Convertible preferred stock of 979,605, 1,626,576,
2,060,427, and 3,689,048 shares in 1996, 1997, 1998 and for the nine months
ended September 30, 1999, respectively, have also been excluded from the
calculations of net loss per share as the impact would be anti-dilutive. Thus,
the diluted net loss per share in these years is the same as the basic net
loss per share.

F-8
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Unaudited pro forma basic and diluted net loss per share was $(1.23) and
$(0.71) for the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively, based on pro forma weighted average shares
outstanding of 4,872,024 and 5,807,416 for those respective periods. This
information reflects per share data assuming the conversion of all outstanding
shares of convertible preferred stock at a conversion rate of 20 common shares
for each preferred share of Series A-II and A-III and at a conversion rate of
one common share for each preferred share of Series A, B, and C as if the
conversion of the preferred stock had taken place at the beginning of 1998 or
at the date of issuance, if later.

Stock-Based Compensation

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

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

Comprehensive Loss

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

Cash and Cash Equivalents

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

Long-Lived Assets, Including Intangible Assets

We account for long-lived assets under SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment loss to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. We estimate fair value based on the best
information available, making judgments and projections as considered
necessary.

Intangible assets consist of items related to our business
combinations. Goodwill is amortized over a three to seven year period depending
on the acquisition. Acquired technology is being amortized over its estimated
useful life of approximately three years. Workforce-in-place is being amortized
over the lesser of the employment tenure of the employee or the agreement term.

Software Development Costs

Software development costs are accounted for in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. This statement provides for capitalization of

F-9
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

certain software development costs once technological feasibility is
established. We establish technological feasibility once testing of a working
model has been completed. The time between establishment of a working model
and general release is short. Therefore, we believe that software development
costs incurred subsequent to technological feasibility have not been material.

Property and Equipment

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

Concentrations of Credit Risk

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

We have several product development and collaborative agreements with
Pfizer Health Solutions Inc to co-develop, market, license and distribute
various OrganicNet products and services. Co-development and marketing
agreements to date include development of OrganicNet's Outcomes Partner III,
care management and credentialing applications. Additionally, we have co-
developed and marketed several survey products including the National
Committee for Quality Assurance Member Satisfaction Survey, disenrollment and
patient satisfaction surveys. Sales to Pfizer Health Solutions Inc amounted to
approximately $0, $1,466,000, $945,000, $779,000 and $1,043,000 for the years
ended December 31, 1996, 1997 and 1998, and the nine months ended September
30, 1998 and 1999, respectively. These sales represented approximately 0%,
49%, 20%, 22% and 25%, respectively, of our total revenue for those periods.
Accounts receivable from Pfizer Health Solutions Inc amounted to approximately
$74,000, $253,000, and $37,000 at December 31, 1997 and 1998 and at September
30, 1999, respectively.

A different customer accounted for 14% of total revenue for the nine months
ended September 30, 1999.

Fair Value of Financial Instruments

The carrying amounts of trade receivables, accounts payable, lines of
credit and notes payable and other current liabilities approximate fair value
due to the short maturities of these instruments. The related party
liabilities are not traded on any public market and approximate our best
estimate of fair value.

Pro Forma Stockholders' Deficit (Unaudited)

The unaudited pro forma stockholders' deficit gives effect to the
conversion of 3,689,048 shares of Series A, A-II, A-III, B and C convertible
preferred stock outstanding as of September 30, 1999 into 4,577,374 shares of
common stock, at a conversion rate of 20 common shares for each preferred
share of Series A-II and A-III and at a conversion rate of one common share
for each preferred share of Series A, B and C, upon closing of our initial
public offering.

F-10
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(2) Business Combinations

(a) Acquisitions prior to December 31, 1998

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

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

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

<TABLE>
<CAPTION>
Series A-II Series A-III
Common preferred preferred
Acquired company stock stock stock
---------------- ------- ----------- ------------
<S> <C> <C> <C>
FPI......................................... 893,797 -- --
RiteLine.................................... -- 1,277 --
CPCS........................................ 43,632 998 --
Velocity.................................... -- 3,032 3,032
Intedata.................................... -- 3,734 --
LINC........................................ -- 7,466 --
Res-Q....................................... -- 13,065 --
Healthcheck................................. -- 4,828 --
</TABLE>

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

The consideration paid is as follows:

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

F-11
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

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

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

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

The above purchase price includes $56,663 of contingent payments to CPCS for
the issuance of 21,154 shares of our common stock valued at $2.68 per share
which was the value of our common stock on the date the contingency was
resolved. This amount has been allocated to goodwill and is being amortized
using the straight-line method over five years, which is the remaining
estimated life of the goodwill.

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

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

F-12
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
Years Ended December
31,
------------------------
1996 1997
----------- -----------
(unaudited)
<S> <C> <C>
Pro forma basis:
Total net revenues.............................. $ 4,480,048 $ 5,040,332
Net loss........................................ $(2,877,036) $(4,980,815)
Net loss per share basic and diluted............ $ (0.95) $ (1.64)
Weighted average shares outstanding:
Basic and diluted............................... 3,038,355 3,038,355
</TABLE>

(b) Acquisition of PSI-Med Corporation

On September 20, 1999, we completed our acquisition of all of the
outstanding stock of PSI-Med Corporation (PSI-Med) in exchange for 9,322 shares
of our Series A-II preferred stock. PSI-Med Corporation sells and services
practice management software and is engaged as a full service provider of
medical insurance billing and accounts receivable collection services. The
Series A-II preferred stock has been valued at $666,680. We accounted for the
acquisition under the purchase method of accounting and, accordingly, the
results of PSI-Med's operations are included in our consolidated financial
statements beginning with the effective date of the acquisition which was
August 31, 1999.

The allocation of the purchase price to the assets acquired and liabilities
assumed is as follows:

<TABLE>
<S> <C>
Cash............................................................. $ 43,111
Accounts receivable.............................................. 136,006
Other assets..................................................... 20,397
Property and equipment........................................... 72,199
Goodwill......................................................... 1,632,810
Accounts payable ................................................ (240,512)
Notes payable ................................................... (380,724)
Capital lease obligations ....................................... (39,638)
Other accrued expenses .......................................... (362,052)
Long-term debt .................................................. (141,707)
Customer deposits and deferred maintenance....................... (73,210)
----------
$ 666,680
==========
</TABLE>

Goodwill represents the excess of the purchase price over the fair value of
the assets acquired and liabilities assumed, and is amortized using the
straight-line method over its estimated useful life of seven years.

F-13
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table shows unaudited pro forma results of operations assuming
the acquisition of PSI-Med had been consummated at the beginning of 1998. The
unaudited pro forma information is not necessarily indicative of the combined
results that would have occurred had the acquisition taken place as of the
beginning of the periods presented, nor is it necessarily indicative of results
that may occur in the future:

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1998 1999
------------ -----------------
(unaudited)
<S> <C> <C>
Pro forma basis:
Total net revenues........................ $ 6,834,242 $ 5,662,151
Net loss.................................. $(6,651,008) $(4,229,296)
Net loss per share: Basic and diluted..... $ (2.18) $ (1.38)
Weighted average shares outstanding:
Basic and diluted....................... 3,050,779 3,074,434
</TABLE>

(3) Property and Equipment

Property and equipment consists of the following:

<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
Computers and related equipment.... $ 746,195 $ 752,400 $ 1,241,506
Furniture and fixtures............. 176,114 201,076 303,016
Leasehold improvements............. 9,033 10,060 31,940
----------- ----------- -----------
931,342 963,536 1,576,462
Less accumulated depreciation and
amortization...................... (426,475) (615,402) (1,164,461)
----------- ----------- -----------
$ 504,867 $ 348,134 $ 412,001
=========== =========== ===========
</TABLE>

Depreciation and amortization expense on property and equipment was
approximately $60,000, $175,000, $189,000, $121,000 and $159,000 for the years
ended December 31, 1996, 1997 and 1998, and for the nine months ended September
30, 1998 and 1999, respectively.

(4) Intangible Assets

Intangible assets consist of the following:

<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
Goodwill........................... $ 436,301 $ 492,964 $ 2,125,774
Acquired technology................ 1,177,826 1,177,826 1,177,826
Workforce-in-place................. 142,274 142,274 142,274
----------- ----------- -----------
1,756,401 1,813,064 3,445,874
Less accumulated amortization...... (364,110) (928,094) (1,391,554)
----------- ----------- -----------
$ 1,392,291 $ 884,970 $ 2,054,320
=========== =========== ===========
</TABLE>

F-14
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(5) Other Current Liabilities

The following items are included in other current liabilities:

<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Accounts payable, non-trade.................. $ -- $ 15,000 $ 15,000
Bank overdraft............................... 119,596 62,025 --
Franchise taxes payable...................... -- -- 4,800
Other accrued expenses....................... 9,526 147,670 390,224
-------- -------- --------
$129,122 $224,695 $410,024
======== ======== ========
</TABLE>

(6) Notes Payable to Employees and Stockholders

The notes payable to employees and stockholders consist of notes with
interest rates generally ranging from 9% to 12%. All notes are due on December
31, 1999. Certain of the notes to stockholders provided for the lender to
receive options for shares of the Company's common stock at a rate of 10% times
the principal loaned divided by $3.57, which was the fair market value of our
common stock when the notes were issued. Options to purchase 5,824 shares of
the Company's common stock were granted in conjunction with this provision. A
portion of the proceeds of the notes was allocated to the value of the options
based on the Black-Scholes option pricing model and was amortized into the
statement of operations during the year ended December 31, 1998 (note 9). All
of these notes payable to stockholders were repaid during the nine months ended
September 30, 1999.

We acquired certain notes payable to stockholders from our PSI-Med
acquisition in September 1999. The interest rates range from 10%-12% on those
notes. One note is due on February 1, 2002. The current and long-term portions
of this note at September 30, 1999 were $20,000 and $27,490, respectively. As
of September 30, 1999, a second note due on June 1, 2000 had a balance
outstanding of $41,502 and the balance of the remaining notes of $205,474 was
due on demand.

(7) Commitments, Contingencies and Borrowings

Leases

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

F-15
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ----------
<S> <C> <C>
Year ending December 31:
1999.................................................... $33,771 $ 280,486
2000.................................................... 53,306 470,354
2001.................................................... 34,715 328,049
2002.................................................... 6,100 251,806
2003 and thereafter..................................... -- 72,360
------- ----------
Total minimum payments................................... 127,892 $1,403,055
==========
Less amount representing interest........................ 43,774
-------
Present value of capital lease obligations............... 84,118
Less current portion..................................... 31,521
-------
Lease obligations, long term............................. $52,597
=======
</TABLE>

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

<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- ------- -------------
<S> <C> <C> <C>
Computers and related equipment............. $114,524 $62,968 $ 530,896
Accumulated depreciation.................... (32,991) (31,540) (443,512)
-------- ------- ---------
$ 81,533 $31,428 $ 87,384
======== ======= =========
</TABLE>

Rent expense for operating leases totaled approximately $33,000, $248,000,
$428,000, $283,000 and $340,000 for the years ended December 31, 1996, 1997 and
1998, and for the nine months ended September 30, 1998 and 1999, respectively.

Lines of Credit

We have a $200,000 revolving line of credit with Wells Fargo Bank, which
bears interest at a rate of 1.0% above the prime rate. The weighted average
interest rate was approximately 9.50%, 8.75% and 8.81% for the years ended
December 31, 1997 and 1998, and for the nine months ended September 30, 1999,
respectively. We are required to make regular monthly payments of accrued
interest. The line of credit is collateralized by all accounts receivable,
inventory and furniture and equipment of Res-Q. In addition, an officer of Res-
Q has provided a guaranty in connection with this line of credit. We agreed to
indemnify the officer for a maximum amount of $200,000 (the amount of the
officer's guaranty plus accrued interest) for any deficiency that may be
suffered after making a claim for reimbursement from the principal borrower.

On July 8, 1999 we entered into a $25,000 line of credit with Foothills Bank
which bears interest at a rate of 2.25% above the prime rate. The weighted
average interest rate was approximately 10.5% for the nine months ended
September 30, 1999. We make monthly payments of accrued interest. The line of
credit matures on January 8, 2000 and is secured by accounts receivable of
Healthcheck.

The balance outstanding under lines of credit was $92,790, $163,897 and
$92,356 at December 31, 1997 and 1998 and at September 30, 1999, respectively.

F-16
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Notes Payable

We acquired a note payable to a bank from our PSI-Med acquisition that is
secured by PSI-Med's assets and a personal guarantee by an officer of PSI-Med.
The note bears interest at a rate of prime plus 6.25% (14.50% at September 30,
1999). Principal and interest are due monthly and the note matures on June 15,
2000. The balance due on the note was $34,844 at September 30, 1999.

We have an unsecured non-interest bearing note payable to the prior owners
of a company acquired by PSI-Med. Principal is payable monthly based on a
percentage of gross billings collected related to the acquired customer base.
The note is due January 15, 2001. The current and long-term portions due were
$46,000 and $10,421, respectively, at September 30, 1999.

(8) Capital Stock

We are authorized to issue 7,840,000 shares of preferred stock. The
preferred shares are automatically convertible into common shares upon an
initial public offering of our common stock. A summary of preferred stock
follows:

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

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

Series A-II, 115,000 shares designated,
$.01 par value per share, 61,490
shares issued and outstanding in 1997
and 1998 and 78,157 issued and
outstanding in 1999................... 1,140,874 1,140,874 1,807,554

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

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

Series B-I, 1,250,000 shares
designated, $.01 par value per share,
none issued and outstanding........... -- -- --

Series C, 4,000,000 shares designated,
$.01 par value per share, 217,066,
991,800 and 4,000,000 shares issued
and outstanding in 1997, 1998 and
1999, respectively, liquidation
preference of $596,976, $2,727,494 and
$11,000,000 in 1997, 1998 and 1999,
respectively, net of cash transaction
costs of $65,066 in 1999.............. 596,976 2,727,494 10,934,934

Series C-I, 4,000,000 shares
designated, $.01 par value per share,
none issued and outstanding........... -- -- --
---------- ---------- -----------
$5,891,126 $8,021,644 $16,895,764
========== ========== ===========
</TABLE>

F-17
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Series A-II and Series A-III preferred shares have been issued in
conjunction with our acquisitions as discussed in note 2. Series A shares were
issued at $1.78 per share, Series B shares were issued at $4.03 per share, and
Series C shares were issued at $4.91 per share. In addition to Series C
transaction costs paid, we issued 4,911 shares of Series C stock valued at
$4.91 and issued options to purchase 22,719 shares of common stock valued at
$63,364 (note 9) as Series C finders fees.

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

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

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

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

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

(9) Stock Option Plans

We have been authorized to issue options to purchase up to 560,000 and
827,967 shares of our common stock in connection with our 1996 and 1997 stock
option plans (the Plans) to employees, directors, and consultants. The number
of shares of common stock available for issuance under the 1997 stock option
plan automatically increases on the first business day of each calendar year
during the term of the 1997 stock option plan, beginning with the 1999 calendar
year, by an amount equal to two percent (2%) of the shares of common stock
outstanding on the last business day of the immediately preceding calendar
year. The Plans provide for the issuance of stock purchase rights, incentive
stock options, or nonstatutory stock options.

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

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

As of September 30, 1999, options to purchase 462,524 and 555,196 shares of
our common stock were outstanding under the 1996 and 1997 stock option plans,
respectively. As of September 30, 1999, 267,959 shares were available for grant
under the 1997 stock option plan. With the creation of the 1997 stock option
plan, no further issuance of options under the 1996 stock option plan are
allowed.

F-18
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock-Based Compensation

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

Years Ended December 31,
------------------------- Nine Months Ended
1996 1997 1998 September 30, 1999
------- ------- ------- ------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net loss:
As reported................... $(2,312) $(4,800) $(6,006) $(4,135)
Pro forma..................... (2,319) (4,837) (6,116) (4,297)
Basic and diluted net loss per
share:
As reported................... $ (0.80) $ (1.58) $ (1.97) $ (1.35)
Pro forma..................... (0.80) (1.59) (2.00) (1.40)
</TABLE>

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

Years Ended December 31,
----------------------- Nine Months Ended
1996 1997 1998 September 30, 1999
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Expected volatility.................. 40% 40% 40% 40%
Average life......................... 5 years 5 years 5 years 5 years
Risk-free interest rate.............. 6.82% 6.89% 5.64% 6.24%
Dividends............................ -- -- -- --
</TABLE>

Compensation cost recognized in the accompanying consolidated statements of
operations for stock options granted to employees at less than the fair market
value of the underlying common stock was approximately $44,000 for the nine
months ended September 30, 1999.

The value of each option granted to non-employees was estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
Nine Months
Year ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Expected volatility.................................. 40% 40%
Average life......................................... 10 years 10 years
Risk-free interest rate.............................. 5.32% 5.94%
Dividends............................................ -- --
</TABLE>

The weighted-average fair value of options granted to non-employees was
$1.88 and $5.52 for the year ended December 31, 1998 and for the nine months
ended September 30, 1999, respectively. No options were granted to non-
employees during the years ended December 31, 1996 and 1997.

F-19
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

We granted options to purchase 9,594 and 24,048 shares of common stock to
non-employees for the twelve and nine months ended December 31, 1998 and
September 30, 1999, respectively, in exchange for contract accounting and
consulting services that had been previously rendered. Compensation cost
recognized in the accompanying consolidated statements of operations related to
these option grants was $16,597 and $67,384 for the twelve and nine months
ended December 31, 1998 and September, 30, 1999, respectively.

We granted options to purchase 5,824 shares of common stock to stockholders
for the twelve months ended December 31, 1998 in accordance with the terms of
note agreements with those stockholders. Compensation cost recognized in the
accompanying consolidated statements of operations related to these option
grants was $12,404 for the twelve months ended December 31, 1998.

We granted options to purchase 22,719 shares of common stock to non-
employees as finders fees for our Series C financing for the nine months ended
September 30, 1999. The value of these options of $63,364 has been credited
against additional paid-in capital as a cost of the financing. In addition, we
granted options to purchase 112,000 shares of common stock to Superior in
conjunction with our strategic relationship with Superior in September 1999
(note 12).

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

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------- Nine Months Ended
1996 1997 1998 September 30, 1999
----------------- ------------------ ------------------ --------------------
Weighted- Weighted- Weighted- Weighted-
average average average average
exercise exercise exercise exercise
Shares price Shares price Shares price Shares price
------- --------- ------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 330,583 $0.27 482,120 $0.75 696,506 $1.39
Granted................. 330,583 0.27 160,303 1.79 222,982 2.79 366,957 6.05
Exercised............... -- -- -- -- -- -- (21,326) 1.70
Canceled................ -- -- (8,766) 1.23 (8,596) 2.21 (24,417) 3.02
------- ----- ------- ----- ------- ----- --------- -----
Outstanding at end of
period................. 330,583 $0.27 482,120 $0.75 696,506 $1.39 1,017,720 $3.02
======= ===== ======= ===== ======= ===== ========= =====
Options exercisable at
end of period.......... 37,706 $0.89 131,377 $0.43 302,100 $0.82 668,740 $3.00
======= ===== ======= ===== ======= ===== ========= =====
Weighted average fair
value of options
granted at fair value
during the period...... $0.11 $0.82 $1.21 $3.84
===== ===== ===== =====
Weighted average fair
value of options
granted below fair
value during the
period................. $ -- $ -- $ -- $1.70
===== ===== ===== =====
</TABLE>

F-20
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------------------------------------------------
Weighted- Weighted-
average Weighted-average average
exercise remaining exercise
Option price Shares price contractual life Shares price
------------ --------- --------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.18 291,200 $0.18 6.6 282,800 $0.18
0.89 24,116 0.89 7.2 24,116 0.89
1.79 147,489 1.79 7.5 97,460 1.79
2.68 168,867 2.68 8.4 46,238 2.68
3.57 153,646 3.57 9.3 48,160 3.57
4.46 120,402 4.46 9.7 57,966 4.46
10.71 112,000 10.71 9.9 112,000 10.71
----------- --------- ----- --- ------- -----
$0.18-10.71 1,017,720 $3.02 8.2 668,740 $3.00
========= ===== === ======= =====
</TABLE>

(10) Employee Retirement and Savings Plan

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

(11) Internet Hosting Agreements

In fiscal year 1999, we have entered into several agreements with Conxion
Corporation under which it will supply us with application hosting services
and Internet infrastructure for our ASP software applications. These
agreements typically have terms of one year. Conxion has agreed to enter into
extensions of these agreements and to enter into supplemental service
agreements, as required by us on terms not less favorable to us as they offer
to any of their customers. In addition, they have agreed not to terminate or
suspend the services provided under these agreements in the event of a bona
fide dispute so long as undisputed payments are not withheld. In connection
with these agreements, Conxion invested $550,000 in exchange for 112,000
shares of our Series C preferred stock which was recorded as a $550,000
receivable at September 30, 1999. This receivable was paid in full in October
1999. At September 30, 1999, the Company had an accrual for approximately
$41,500 in accrued expenses for hosting services incurred during the nine
months ended September 30, 1999.

(12) Superior Consultant Holdings Corporation

In September 1999, we entered into a Distribution and Services Agreement,
as amended, with Superior Consultant Holdings Corporation under which Superior
agreed to market our product as a preferred ASP application for healthcare
organizations. We agreed to market Superior's healthcare consulting services
and business integration services. In conjunction with this agreement we
granted a fully vested, nonforfeitable, non-statutory stock option grant
exercisable for 112,000 shares of our common stock at an exercise price of
$10.71 per share. The option was valued at $3.49 per share using the Black-
Scholes option pricing model and $391,400 has been recorded as prepaid
distribution services in the accompanying balance sheet for the nine months
ended September 30, 1999. This prepaid will be expensed over the term of the
agreement. The initial term of the agreement runs through August 31, 2002 and
may be renewed by Superior for up to two additional two-year terms.

F-21
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(13) Income Taxes

The provision for income taxes consists of the following components:

<TABLE>
<CAPTION>
Years Ended December
31,
-------------------- Nine Months Ended
1996 1997 1998 September 30, 1999
------ ------ ------ ------------------
<S> <C> <C> <C> <C>
Current portion:
Federal............................ $ -- $ -- $ -- $ --
State.............................. 4,000 6,400 4,000 4,800
Deferred portion..................... -- -- -- --
------ ------ ------ ------
$4,000 $6,400 $4,000 $4,800
====== ====== ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------- Nine Months Ended
1996 1997 1998 September 30, 1999
--------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Tax at statutory rate... $(784,629) $(1,629,828) $(2,040,578) $(1,406,022)
State income taxes, net
of federal taxes....... 2,640 4,224 2,640 3,168
Permanent differences,
including goodwill..... 5,327 35,449 59,310 59,964
Net operating losses not
benefited.............. 780,662 1,596,555 1,982,628 1,347,690
--------- ----------- ----------- -----------
$ 4,000 $ 6,400 $ 4,000 $ 4,800
========= =========== =========== ===========
</TABLE>

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

<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
Deferred tax liabilities:
Property and equipment............... $ 58,460 $ 26,617 $ 40,289
Intangibles.......................... 172,819 48,982 --
State taxes.......................... 139,074 253,107 339,966
----------- ----------- ----------
Total deferred tax liabilities..... 370,353 328,706 380,255
----------- ----------- ----------
Deferred tax assets:
Various accruals and reserves not
deductible for tax purposes......... 222,032 790,659 543,748
Intangibles.......................... -- -- 41,077
Net operating loss carryforwards..... 3,101,362 4,696,158 7,228,471
Tax credit carryforwards............. 16,073 16,073 16,073
----------- ----------- ----------
Total deferred tax assets.......... 3,339,467 5,502,890 7,829,369
----------- ----------- ----------
Net deferred tax assets.............. 2,969,114 5,174,184 7,449,114
Valuation allowance.................. (2,969,114) (5,174,184) (7,449,114)
----------- ----------- ----------
Net deferred tax assets after
valuation allowance............... $ -- $ -- $ --
=========== =========== ==========
</TABLE>

The net changes in the valuation allowance for the years ended December 31,
1997 and 1998 and for the nine months ended September 30, 1999 were increases
of $1,950,719, $2,205,070 and $2,274,930, respectively. We believe sufficient
uncertainty exists regarding our ability to realize our deferred tax assets
and, accordingly, a valuation allowance has been established against the net
deferred tax assets.

F-22
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As of September 30, 1999, we had approximately $18,600,000 and $10,000,000
of net operating loss carryforwards for federal and state purposes,
respectively. The federal net operating loss carryforwards expire between 2013
and 2019 and the state net operating loss carryforwards expire primarily in
2004. The difference between the federal and state net operating loss
carryforwards is due primarily to a 50% limitation on net operating loss
carryforwards for California income tax purposes.

Federal and state laws impose substantial restrictions on the utilization of
net operating loss carryforwards in the event of an "ownership change," as
defined in Section 382 of the Internal Revenue Code. We have not yet determined
whether an ownership change occurred due to significant stock transactions in
each of the reported years. If an ownership change has occurred, utilization of
the net operating loss carryforwards could be significantly reduced.
Additionally, the utilization of the net operating loss carryforwards of
approximately $2.4 million acquired in the acquisition of Healthcheck and PSI-
Med is limited to the taxable income generated by the operations of the two
entities.

(14) Segment Information

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

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

F-23
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
Corporate
Headquarters Velocity Healthcheck PSI-MED Res-Q LINC Consolidated
------------ ---------- ----------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Revenue from external
customers:
Service............... $ -- $ 3,755 $ 367,299 $ -- $ -- $ -- $ 371,054
Depreciation and
amortization........... 33,218 1,392 41,925 -- -- -- 76,535
Interest expense........ 8,583 -- 51 -- -- -- 8,634
Income tax expense...... 4,000 -- -- -- -- -- 4,000
Net loss................ (1,994,958) (41,851) (274,925) -- -- -- (2,311,734)
Total assets............ 307,725 319,706 133,585 -- -- -- 761,016
1997
Revenue from external
customers:
License............... $ -- $ 15,693 $ -- $ -- $ 347,166 $ 61,481 $ 424,340
Product development... -- 1,375,000 -- -- -- -- 1,375,000
Service............... -- 353,518 171,721 -- 497,597 149,309 1,172,145
Depreciation and
amortization........... 133,161 60,159 40,326 -- 135,797 153,063 522,506
Interest expense........ 18,605 -- 1,147 -- -- -- 19,752
Income tax expense...... 6,400 -- -- -- -- -- 6,400
Net loss................ (4,037,950) 289,569 (308,826) -- (284,200) (458,605) (4,800,012)
Total assets............ 673,289 354,953 649,612 -- 736,730 489,757 2,904,341
1998
Revenue from external
customers:
License............... $ -- $ 25,460 $ -- $ -- $ 421,395 $ 123,839 $ 570,694
Product development... -- 564,560 -- -- -- -- 564,560
Service............... 73,000 637,067 1,022,937 -- 1,024,324 731,069 3,488,397
Depreciation and
amortization........... 219,489 65,453 17,155 -- 216,176 234,638 752,911
Interest expense........ 90,344 -- -- -- 2,611 -- 92,955
Income tax expense...... 4,000 -- -- -- -- -- 4,000
Net loss................ (4,674,652) (443,703) (113,242) -- (372,191) (401,913) (6,005,701)
Total assets............ 380,061 450,414 558,704 -- 465,208 360,661 2,215,048
1999
Revenue from external
customers:
License............... $ -- $ 41,113 $ -- $ -- $ 633,739 $ 102,634 $ 777,486
Product development... 29,765 310,589 -- -- -- -- 340,354
Service............... 13,735 718,161 1,150,313 146,111 525,379 552,567 3,106,266
Depreciation and
amortization........... 183,571 58,772 24,727 5,875 174,813 174,899 622,657
Interest expense........ 93,103 -- 7,605 3,720 -- -- 104,428
Income tax expense...... 4,800 -- -- -- -- -- 4,800
Net (loss) income....... (3,590,895) (72,988) 101,188 (45,287) (274,997) (252,380) (4,135,359)
Total assets............ 1,917,166 218,433 537,750 1,895,609 711,119 123,863 5,403,940
</TABLE>

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

F-24
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(15) Subsequent Events

Promissory Notes

On November 29, 1999, we entered into an agreement with an individual under
which we are to receive $1,000,000 in exchange for a promissory note. The note
is due and payable upon the earlier of a) January 1, 2001, or b) upon the
initial public offering of our common stock or our next round of financing in
excess of $7,000,000. The note bears interest at 10% per annum. Interest
payments are due monthly. In addition the holder of the note received a warrant
to purchase 125,000 shares of our common stock, at an exercise price of $8.00
per share. $425,960 of the proceeds from the note were allocated to the value
of the warrants based on the Black-Scholes option pricing model which valued
the warrant at $1.91 per share. This amount will be amortized into the
statement of operations over the term of the note.

Stock Split

On November 23, 1999, our Board of Directors approved a 0.56 for 1 reverse
stock split of our common and preferred stock. All references in the
accompanying financial statements to the number of shares and per share amounts
have been retroactively restated to reflect this stock split.

Board Resolutions

[On , 1999, our Board of Directors approved, subject to stockholder
approval, and effective upon the closing of our proposed IPO, the following
resolutions:

. An amendment to our Articles of Incorporation to increase the number of
authorized shares of common stock to .

. An amendment to the Articles of Incorporation to create a new class of
preferred stock, consisting of 5,000,000 shares, and to grant the Board
of Directors the authority to issue the preferred stock in such series
and with such rights, preferences and privileges as the Board shall
determine without further stockholder approval.]

1999 Equity Incentive Plan

On November 23, 1999, our board of directors adopted, subject to stockholder
approval, the 1999 Equity Incentive Plan (the 1999 Plan). A total of 2,800,000
shares of common stock of the Company have been reserved for issuance under the
1999 Plan. The initial share reserve will also include those shares which
remain available under the 1996 and 1997 Stock Option Plans upon closing of
this offering. The share reserve will be increased annually on the date of the
Company's annual meeting by the lesser of either (1) the sum of (A) 2% of the
outstanding shares on the date of the annual meeting; plus (B) the number of
shares subject to an option under either the 1996 Plan or the 1997 Plan which
expires unexercised; or (2) 5% of the shares of the Company's total outstanding
shares on the date the 1999 Plan was adopted. When a stock award expires or is
terminated before it is exercised, the shares not acquired pursuant to the
stock awards shall again become available for issuance under the 1999 Plan.

The 1999 Plan permits the grants of options to directors, officers,
employees and consultants. In addition, the 1999 Plan permits the grant of
stock bonuses and rights to purchase restricted stock. The maximum term of
options granted under the 1999 Plan is 10 years. In the case of a 10%
stockholder, the term of an ISO must not exceed five years from the date of
grant.

In general, the exercise price of an incentive stock option cannot be less
than 100% of the fair market value of the common stock on the date of grant;
provided, however, that for a person who at the time of grant owns 10% of the
total voting power of the Company, the exercise price shall be at least 110% of
the fair

F-25
<PAGE>

OrganicNet, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

market value on the date of grant. The exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of grant.

No awards have been issued under the 1999 Plan.

Employee Stock Purchase Plan

On November 23, 1999, our board of directors adopted, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan (the Purchase Plan). A total of
300,000 shares of common stock has been authorized for issuance under the
Purchase Plan. The share reserve will increase automatically every year,
starting on January 1, 2001, by 150,000 shares. The Purchase Plan is intended
to qualify as an employee stock purchase plan within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended. Under the Purchase Plan,
eligible employees will be able to purchase common stock at a discount price in
periodic offerings. The Purchase Plan will commence on the effective date of
this initial public offering.

Unless otherwise determined by the board of directors, all employees are
eligible to participate in the Purchase Plan so long as they are employed by us
for at least 20 hours per week and are customarily employed by us for at least
five months per calendar year.

F-26
<PAGE>

OrganicNet, Inc. and PSI-Med Corporation

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined statements of
operations have been prepared to illustrate the effect of our acquisition of
PSI-Med Corporation for the nine months ended September 30, 1999 and the year
ended December 31, 1998. The pro forma condensed combined statements of
operations are based on the historical consolidated financial statements of
OrganicNet, Inc. and the historical financial statements of PSI-Med
Corporation.

The unaudited pro forma condensed combined statement of operations assume
that the acquisition had been consummated as of the first day of the earliest
period presented.

F-27
<PAGE>

OrganicNet, Inc. and PSI-Med Corporation

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
Pro forma Pro forma
OrganicNet PSI-Med adjustments combined
----------- ---------- ----------- -----------
(A)
<S> <C> <C> <C> <C>
Revenue:
License................ $ 777,486 $ 299,262 $ -- $ 1,076,748
Product development.... 340,354 -- -- 340,354
Service................ 3,106,266 1,138,783 -- 4,245,049
----------- ---------- --------- -----------
Total revenue........ 4,224,106 1,438,045 -- 5,662,151
----------- ---------- --------- -----------
Cost of revenue:
License................ 551,050 44,777 -- 595,827
Product development.... 60,813 -- -- 60,813
Service................ 2,068,029 873,232 -- 2,941,261
----------- ---------- --------- -----------
Total cost of
revenue............. 2,679,892 918,009 -- 3,597,901
----------- ---------- --------- -----------
Gross profit ............ 1,544,214 520,036 -- 2,064,250
----------- ---------- --------- -----------
Operating Expense:
Sales and marketing.... 879,626 61,996 -- 941,622
Research and
development........... 1,841,604 226,095 -- 2,067,699
General and
administrative........ 2,858,705 116,631 174,944 (B) 3,150,280
----------- ---------- --------- -----------
Total operating
expense............. 5,579,935 404,722 174,944 6,159,601
----------- ---------- --------- -----------
Operating loss........... (4,035,721) 115,314 (174,944) (4,095,351)
Interest expense......... (104,428) (9,259) -- (113,687)
Other income (expense)... 9,590 (24,248) -- (14,658)
----------- ---------- --------- -----------
Net (loss) income before
income taxes............ (4,130,559) 81,807 (174,944) (4,223,696)
Provision for income
taxes................... 4,800 800 -- 5,600
----------- ---------- --------- -----------
Net loss................. $(4,135,359) $ 81,007 $(174,944) $(4,229,296)
=========== ========== ========= ===========
Net loss per share:
Basic and diluted...... $ (1.35) $ (1.38)
=========== ===========
Weighted average shares
outstanding:
Basic and diluted...... 3,074,434 3,074,434
=========== ===========
</TABLE>

(A) Reflects the operations of PSI-Med for the eight months ended August
31, 1999 as the operations of PSI-Med are included in our statement of
operations from September 1, 1999.

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

F-28
<PAGE>

OrganicNet, Inc. and PSI-Med Corporation

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

<TABLE>
<CAPTION>
Pro forma Pro forma
OrganicNet PSI-Med adjustments combined
----------- ---------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C>
License................ $ 570,694 $ 516,559 $ -- $ 1,087,253
Product development.... 564,560 -- -- 564,560
Service................ 3,488,397 1,694,032 -- 5,182,429
----------- ---------- --------- -----------
Total revenue........ 4,623,651 2,210,591 -- 6,834,242
----------- ---------- --------- -----------
Cost of revenue:
License................ 756,156 -- -- 756,156
Product development.... 208,533 -- -- 208,533
Service................ 2,314,026 1,535,514 -- 3,849,540
----------- ---------- --------- -----------
Total cost of
revenue............. 3,278,715 1,535,514 -- 4,814,229
----------- ---------- --------- -----------
Gross profit............. 1,344,936 675,077 -- 2,020,013
----------- ---------- --------- -----------
Operating expense:
Sales and marketing.... 1,643,868 168,135 -- 1,812,003
Research and
development........... 1,832,783 237,105 -- 2,069,888
General and
administrative........ 3,768,388 587,077 241,225 (C) 4,596,690
----------- ---------- --------- -----------
Total operating
expense............. 7,245,039 992,317 241,225 8,478,581
----------- ---------- --------- -----------
Operating loss........... (5,900,103) (317,240) (241,225) (6,458,568)
Interest expense......... (92,955) -- -- (92,955)
Other expense............ (8,643) (86,042) -- (94,685)
----------- ---------- --------- -----------
Loss before income
taxes................... (6,001,701) (403,282) (241,225) (6,646,208)
Provision for income
taxes................... 4,000 800 -- 4,800
----------- ---------- --------- -----------
Net loss................. $(6,005,701) $ (404,082) $(241,225) $(6,651,008)
=========== ========== ========= ===========
Net loss per share:
Basic and diluted...... $ (1.97) $ (2.18)
=========== ===========
Weighted average share
outstanding:
Basic and diluted...... 3,050,779 3,050,779
=========== ===========
</TABLE>

F-29
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
PSI-Med Corporation:

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

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

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

KPMG LLP

Orange County, California

August 4, 1999, except
as to notes 8 and 10, which
are as of December 6, 1999
and September 7, 1999,
respectively

F-30
<PAGE>

PSI-Med Corporation

BALANCE SHEETS
May 31, 1998 and 1999

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

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

<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT

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

See accompanying notes to financial statements.

F-31
<PAGE>

PSI-Med Corporation

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

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

See accompanying notes to financial statements.

F-32
<PAGE>

PSI-Med Corporation

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

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

See accompanying notes to financial statements.

F-33
<PAGE>

PSI-Med Corporation

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

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

See accompanying notes to financial statements.

F-34
<PAGE>

PSI-Med Corporation

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

(1) Organization and Summary of Significant Accounting Policies

Business Description

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

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

Use of Estimates

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

Cash and Cash Equivalents

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

Furniture, Fixtures and Equipment

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

Revenue Recognition

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

As a result of certain issues raised in applying SOP 97-2, in March 1998,
the AICPA issued an SOP which delayed for one year the effective date of
certain provisions of SOP 97-2 with respect to what constitutes vendor-
specific objective evidence of fair value of the delivered software element in
certain multiple-element arrangements that include service elements entered
into by entities that never sell the software elements separately. In December
1998, the AICPA issued SOP 98-9, which amended certain paragraphs of SOP 97-2
to require recognition of revenue using the residual method under certain
circumstances, and is effective for fiscal years beginning after March 15,
1999. We do not expect the adoption of this SOP to have a material impact on
our financial statements.

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

F-35
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

Adoption of Accounting Pronouncements

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

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

Stock-Based Compensation

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

Fair Value of Financial Instruments

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

Year 2000

We recognize the need to ensure our operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. We are addressing this risk to the availability and integrity of
financial systems and products and the reliability of operational systems. We
have tested our Integrated Provider Network System and have completed the Year
2000 conversion of this system. We are in the process of assessing the system's

F-36
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

Year 2000 compliance identifying Year 2000 remaining compliance issues in its
other systems, equipment and processes. In addition to a review of internal
systems, we have initiated formal communications with third parties with which
we do business in order to determine whether or not they are Year 2000
compliant and the extent to which we may be vulnerable to third parties'
failure to become Year 2000 compliant. Additionally, we are making changes to
such systems, updating or replacing such equipment and modifying such processes
to make them Year 2000 compliant. The total cost of compliance and its effect
on our future results of operations are not expected to be material. However,
due to the complexities of estimating the cost of modifying applications to
become Year 2000 compliant and the difficulties in assessing third parties'
ability to become Year 2000 compliant, estimates may be subject to change.

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

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

Long-lived assets and certain identifiable intangibles (including goodwill)
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

Capitalized Software Development Costs

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

Goodwill

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

Income Taxes

We account for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 provides that deferred tax assets and liabilities
be recognized for temporary differences between the financial reporting basis
and the tax basis of our assets and liabilities and expected benefits of
utilizing net operating loss and credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The impact on deferred taxes of changes in tax rates and
laws, if any, are applied to the years during which temporary differences are
expected to be settled and reflected in the financial statements in the period
enacted.

F-37
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

Concentration of Credit Risk

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

Net Earnings (loss) Per Share

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

(2) Acquisition of Physician Management Services, Inc.

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

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

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

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

(3) Furniture, Fixtures and Equipment

Furniture, fixtures and equipment consist of the following:

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

F-38
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

(4) Commitments

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

Future minimum lease payments under noncancelable leases are as follows:

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

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

F-39
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

(5) Notes Payable

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

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

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

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

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

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

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

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

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

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

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

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

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

F-40
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

(6) Related Party Transactions

Accounts Payable to Related Parties

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

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

Deferred Compensation Payable to Related Parties

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

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

Executive Compensation

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

(7) Income Taxes

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

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

F-41
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

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

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

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

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

Due to the uncertainty surrounding the realization of the benefits of our
favorable tax attributes in future tax returns, we have fully reserved our
deferred tax assets as of May 31, 1998 and 1999, respectively. In assessing the
potential realization of deferred tax assets, we considered whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible.

(8) Liquidity

We have incurred significant losses resulting in a net capital deficiency
through May 31, 1999. As of May 31, 1999, we reached maximum borrowing capacity
on our notes payable and we have no commitments to raise additional capital. On
August 31, 1999, we were acquired by OrganicNet, Inc. OrganicNet, Inc. received
additional bridge financing in December which will allow OrganicNet to continue
supporting us such that we can meet our obligations as they come due during the
next twelve months.

F-42
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

(9) Stock Options

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

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

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

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

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

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

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

F-43
<PAGE>

PSI-Med Corporation

NOTES TO FINANCIAL STATEMENTS--(Continued)

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

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

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

(10) Subsequent Events

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

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

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

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

Effective August 31, 1999, our shareholders exchanged all of their shares of
our common stock for 9,322 shares of Series A-II preferred stock of OrganicNet,
Inc.

F-44
<PAGE>

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

Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as underwriter and with respect to its unsold allotments or
subscriptions.

2,750,000 Shares

[ORGANICNET LOGO]

Common Stock

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

Preliminary Prospectus

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

Needham & Company, Inc. Punk, Ziegel & Company

, 1999

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

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

<TABLE>
<S> <C>
Registration fee.................................................. $ 14,387
NASD filing fee................................................... 5,675
Nasdaq National Market listing fee................................ 94,000
Printing and engraving............................................ 200,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 850,000
Transfer agent fees............................................... 10,000
Blue sky fees and expenses........................................ 10,000
Miscellaneous..................................................... *
---------
Total........................................................... 1,484,062
=========
</TABLE>
- --------
* To be filed by amendment.

Item 14. Indemnification of Directors and Officers

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

Item 15. Recent Sales of Unregistered Securities

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

(1) During the period, the Registrant granted stock options covering an
aggregate of 791,581 shares of common stock, at a weighted average exercise
price of $4.02 per share. The Registrant sold an aggregate of 27,083 shares of
its common stock for consideration in the aggregate amount of $51,184 pursuant
to the exercise of stock options granted under the Registrant's stock option
plans.

II-1
<PAGE>

(2) From August 1996 to August 1999, the Registrant issued and sold an
aggregate of 666,886 shares of Series B Preferred Stock at a price of
approximately $4.02 per share to 88 investors for an aggregate purchase price
of approximately $2,705,558. Such shares of Series B Preferred Stock will
convert into shares of common stock of the Registrant upon completion of this
offering.

(3) On December 20, 1996, the Registrant issued 3,032 shares of Series A-
II Preferred Stock and 3,032 shares of Series A-III Preferred Stock to
Velocity Healthcare Informatics, Inc. and Dean Health Systems, Inc. in
exchange for substantially all of the assets of Velocity Healthcare
Informatics, Inc. Such shares of Series A-II and Series A-III Preferred Stock
will convert into 121,280 shares of common stock of the Registrant upon the
closing of this offering.

(4) On June 4, 1997, the Registrant issued 3,734 shares of Series A-II
Preferred Stock to a group of 3 shareholders of Intedata, Inc. for the
acquisition of 100% of the voting securities of Intedata, Inc. Such shares of
Series A-II preferred stock will convert into 74,680 shares of common stock of
the Registrant upon the closing of this offering.

(5) On June 23, 1997, the Registrant issued 7,466 shares of Series A-II
Preferred Stock to the sole shareholder of L.I.N.C., Inc. For the acquisition
of 100% of the voting securities of L.I.N.C., Inc. Such shares of Series A-II
Preferred Stock will convert into 149,320 shares of common stock of the
Registrant upon the closing of this offering.

(6) On May 14, 1997, the Registrant issued 13,065 shares of Series A-II
Preferred Stock to a group of five shareholders of MMS, Inc. for the
acquisition of 100% of the voting securities of MMS, Inc. Such shares of
Series A-II Preferred Stock will convert into 261,300 shares of common stock
of the Registrant upon the closing of this offering.

(7) From October 1997 to August 1999, the Registrant issued and sold an
aggregate of 2,239,952 shares of Series C Preferred Stock at a price of
approximately $4.91 per share to 315 investors, including Conxion Corporation
who purchased a total of 112,000 shares of Series C Preferred Stock, for an
aggregate purchase price of approximately $11,000,000. Such shares of Series C
Preferred Stock will convert into 2,239,952 shares of common stock of the
Registrant upon completion of this offering.

(8) On November 14, 1997, the Registrant issued 4,828 shares of Series A-
II Preferred Stock to a group of 46 shareholders of Healthcheck, Inc. for the
acquisition of 100% of the voting securities of Healthcheck, Inc. Such shares
of Series A-II Preferred Stock will convert into 96,560 shares of common stock
of the Registrant upon the closing of this offering.

(9) On September 9, 1998, the Registrant issued 21,154 shares of common
stock to a group of 8 former shareholders of Comprehensive Providers
Credentialing Services, Inc. pursuant to an adjustment provision contained in
the merger agreement by and between such shareholders and the Registrant,
dated May 23, 1996.

(10) On September 20, 1999, the Registrant issued 9,322 shares of Series
A-II Preferred Stock and granted options to purchase 14,880 shares of common
stock to a group of 16 shareholders of PSI-Med Corporation for the acquisition
of 100% of the voting securities of PSI-Med. The 9,322 shares of Series A-II
Preferred Stock will convert into 186,440 shares of common stock of the
Registration upon completion of this offering.

The issuances described in Items 2 through 9 were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
The issuances described in Item 10 was deemed to be exempt from registration
under the Securities Act in reliance on Rule 504 of the Securities Act. The
investors receiving shares of Series B Preferred Stock and Series C Preferred
Stock in Items 2 and 7 made certain representations, including (i) such
investor had received all the information it considers necessary or
appropriate to make an informed investment decision, (ii) such

II-2
<PAGE>

investor understood that such investment involved substantial risk and that
such investor had sufficient knowledge and experience in financial and
business matters, (iii) that such investor is an "accredited investor" within
the meaning of Regulation D under the Securities Act of 1933, as amended, (iv)
that such investor is purchasing the shares for such investor's own account
not with a view for public distribution and (v) acknowledgment that the shares
purchased by such investor are "restricted securities" under the Securities
Act of 1933, as amended, and that such shares can be resold only in certain
limited circumstances. The individuals receiving shares of common stock,
Series A-II preferred stock and Series A-III preferred stock in Items 3
through 6 and Items 8 and 10 made certain representations, including (i) such
individual has received all the information it considers necessary or
appropriate to make an informed decision in receiving such shares, (ii) such
individual understood that such transactions involved substantial risk and
that such individual has sufficient knowledge and experience in financial and
business matters, (iii) that such individual is receiving the shares for such
individual's own account not with a view for public distribution and
(iv) acknowledgment that the shares received by such investor are "restricted
securities" under the Securities Act of 1933, as amended, and that such shares
can be resold in certain limited circumstances.

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

II-3
<PAGE>

When the events referred to in Note 15 to the consolidated financial
statements have been consummated, we will be in a position to render the
following report:

/s/ KPMG LLP

FORM OF INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE

The Board of Directors
OrganicNet, Inc.:

The audits referred to in our report dated December 6, 1999, except as
to Note 15, which is as of December , 1999, included the related
consolidated financial statement schedule for each of the years in the
three-year period ended December 31, 1998, and for the nine-month
period ended September 30, 1999, included in the registration
statement. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule
based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

San Francisco, California

December 6, 1999

II-4
<PAGE>

OrganicNet, Inc.
SCHEDULE II-VALUATION & QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Other(1) Period
----------- ------------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended 1996:
Allowance for Doubtful
Accounts............. $ -- $ -- $ -- $ -- $ --
Year Ended 1997:
Allowance for Doubtful
Accounts............. $ -- $113,000 $ -- $ -- $113,000
Year Ended 1998:
Allowance for Doubtful
Accounts............. $113,000 $ 15,800 $ -- $ -- $128,800
Nine Months Ended
September 30, 1999:
Allowance for Doubtful
Accounts ............ $128,800 $101,684 $(32,377) $56,607 $254,714
</TABLE>
- --------
(1) Reflects PSI-Med reserves acquired

II-5
<PAGE>

Item 16. Exhibit and Financial Statement Schedule

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1(1) Amended and Restated Certificate of Incorporation of Registrant
3.2(1) Bylaws of Registrant
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of
the Registrant
5.1* Legal Opinion of Cooley Godward LLP
10.1** Amended and Restated Investor Rights Agreement, dated October 31,
1997, between Registrant and the Series A, B and C Investors
10.2** Indemnity and Subrogation Agreement, dated January 1, 1998, between
the registrant and Michael Meisel
10.3** 1996 Stock Option/Stock Issuance Plan
10.4** 1997 Stock Option/Stock Issuance Plan
10.5** Employment Agreement with Jack D. Anderson dated January 1, 1996
10.6** Employment Agreement with Robert L. Anderson dated January 1, 1996
10.7** Employment Agreement with William W. Shaw, III dated June 1, 1996
10.8** Employment Letter Agreement with William H. Matthews dated June 17,
1999
10.9** Employment Agreement with M. Jan Roughan dated January 1, 1997
10.10** Employment Agreement with Michael J. Barry dated January 1, 1996
10.11** Form of Indemnification Agreement
10.12** Promissory Note, dated April 1, 1999, between Michael E. Meisel and
the Registrant
10.13** Promissory Note, dated June 1, 1997 between M. Jan Roughan and the
Registrant
10.14** Promissory Note, dated December 1, 1997 between M. Jan Roughan and
the Registrant
10.15** Lease Agreement, dated January 5, 1999 between 1301 Evans Street
Associates, LLC and the Registrant
10.16+** Dedicated Server Agreement between Conxion and the Registrant dated
April 8, 1999
10.17+** Dedicated Server Agreement between Conxion and the Registrant dated
May 3, 1999
10.18+** T1 Service Agreement between Conxion and the Registrant dated May 23,
1999
10.19+** Dedicated Server Agreement between Conxion and the Registrant dated
June 1, 1999
10.20+** T1 Service Agreement between Conxion and the Registrant dated
September 1, 1999
10.21** Application Service Provider Agreement between Conxion and the
Registrant dated September 17, 1999
10.22** Distribution and Services Agreement between Superior Consultant
Holdings Corporation and the Registrant dated September 20, 1999
10.23 1999 Equity Incentive Plan
10.24 Employee Stock Purchase Plan
21.1** Subsidiaries of Registrant
23.1 Consent of KPMG LLP, independent auditors
23.2 Consent of KPMG LLP, independent auditors
24.1** Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
(1) As proposed to be filed with the Secretary of State of the State of
Delaware prior to the effectiveness of this offering.
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested on portions of this exhibit. Unredacted
versions of this exhibit have been filed separately wih the Commission.

II-6
<PAGE>

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel the matters have been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes for the purpose of determining
any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 479(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter or
permit prompt delivery to each purchaser.

II-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, State of California, on December 10, 1999.

ORGANICNET, INC.

/s/ Jack D. Anderson,
*By: ________________________________
Jack D. Anderson
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Jack D. Anderson Chairman of the Board and December 10, 1999
______________________________________ Chief Executive Officer
Jack D. Anderson (Principal Executive
Officer)

* President December 10, 1999
______________________________________
William W. Shaw, III

* Chief Financial Officer December 10, 1999
______________________________________ (Principal Financial
William H. Matthews Officer)

* Director December 10, 1999
______________________________________
Gail E. Oldfather

* Director December 10, 1999
______________________________________
Michael A. Wilson

* Director December 10, 1999
______________________________________
Robert S. Garvie

* Director December 10, 1999
______________________________________
Robert L. Anderson

* Director December 10, 1999
______________________________________
M. Jan Roughan

* Director December 10, 1999
______________________________________
David W. McComb

Director December 10, 1999
______________________________________
James P. Clark
</TABLE>

/s/ Jack D. Anderson
*By: ________________________________

Jack D. Anderson
Attorney-in-fact

II-8
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
------- ----------------------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1(1) Amended and Restated Certificate of Incorporation of
Registrant
3.2(1) Bylaws of Registrant
4.1* Specimen Certificate for shares of Common Stock, $.001 par
value, of the Registrant
5.1* Legal Opinion of Cooley Godward LLP
10.1** Amended and Restated Investor Rights Agreement, dated October
31, 1997, between Registrant and the Series A, B and C
Investors
10.2** Indemnity and Subrogation Agreement, dated January 1, 1998,
between the registrant and Michael Meisel
10.3** 1996 Stock Option/Stock Issuance Plan
10.4** 1997 Stock Option/Stock Issuance Plan
10.5** Employment Agreement with Jack D. Anderson dated January 1,
1996
10.6** Employment Agreement with Robert L. Anderson dated January 1,
1996
10.7** Employment Agreement with William W. Shaw, III dated June 1,
1996
10.8** Employment Letter Agreement with William H. Matthews dated
June 17, 1999
10.9** Employment Agreement with M. Jan Roughan dated January 1, 1997
10.10** Employment Agreement with Michael J. Barry dated January 1,
1996
10.11** Form of Indemnification Agreement
10.12** Promissory Note, dated April 1, 1999, between Michael E.
Meisel and the Registrant
10.13** Promissory Note, dated June 1, 1997 between M. Jan Roughan and
the Registrant
10.14** Promissory Note, dated December 1, 1997 between M. Jan Roughan
and the Registrant
10.15** Lease Agreement, dated January 5, 1999 between 1301 Evans
Street Associates, LLC and the Registrant
10.16+** Dedicated Server Agreement between Conxion and the Registrant
dated April 8, 1999
10.17+** Dedicated Server Agreement between Conxion and the Registrant
dated May 3, 1999
10.18+** T1 Service Agreement between Conxion and the Registrant dated
May 23, 1999
10.19+** Dedicated Server Agreement between Conxion and the Registrant
dated June 1, 1999
10.20+** T1 Service Agreement between Conxion and the Registrant dated
September 1, 1999
10.21** Application Service Provider Agreement between Conxion and the
Registrant dated September 17, 1999
10.22** Distribution and Services Agreement between Superior
Consultant Holdings Corporation and the Registrant dated
September 20, 1999
10.23 1999 Equity Incentive Plan
10.24 Employee Stock Purchase Plan
21.1** Subsidiaries of Registrant
23.1 Consent of KPMG LLP, independent auditors
23.2 Consent of KPMG LLP, independent auditors
24.1** Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
(1) As proposed to be filed with the Secretary of State of the State of
Delaware prior to the effectiveness of this offering.
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested on portions of this exhibit. Unredacted
versions of this exhibit have been filed separately with the Commission.

<PAGE>

Exhibit 3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ORGANICNET, INC.

William W. Shaw, III does hereby certify:

One: He is the President of OrganicNet, Inc., a corporation organized and
existing under the laws of the state of Delaware.

Two: The original name of this corporation is Object Products, Inc. and
the original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on April 12, 1996.

Three: The Certificate of Incorporation of this Corporation is hereby
amended and restated as follows:

The name of this corporation is OrganicNet, Inc.

II.

The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent and the name
of the registered agent of the corporation in the State of Delaware at such
address is National Corporate Research, Inc.

III.

The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.

IV.

A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is ___________
(___________) shares. _____________ (______________) shares shall be Common
Stock, each having a par value of one tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of one
tenth of one cent ($.001).

B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the

1
<PAGE>

designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions of any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.

A. For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:

(1) The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.

(2) Board of Directors

a. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and to any
restrictions or limitations of applicable law, following the closing of the
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock to the public (the "Initial Public Offering"), the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), this Section A.2. of this
Article V shall become effective and be applicable only when the corporation is
a "listed" corporation within the meaning of Section 301.5 of the CGCL.

b. In the event that the corporation is unable to have a classified
board under applicable law, Section 301.5 of the CGCL, Section A. 2. of this
Article V shall not

2
<PAGE>

apply and all directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting.

c. No stockholder entitled to vote at an election for directors may
cumulate votes to which such stockholder is entitled, unless, at the time of
such election, the corporation (i) is subject to Section 2115(b) of the CGCL and
(ii) is not or ceases to be a "listed" corporation under Section 301.5 of the
CGCL. During this time, every stockholder entitled to vote at an election for
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.

Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

(3) Removal.

a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.

b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.

(4) Vacancies

a. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the

3
<PAGE>

number of directors, shall, unless the Board of Directors determines by
resolution that any such vacancies or newly created directorships shall be
filled by the stockholders, except as otherwise provided by law, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified.

b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.

c. At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy by the directors then
in office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then

(i) Any holder or holders of an aggregate of five percent (5%) or
more of the total number of shares at the time outstanding having the right to
vote for those directors may call a special meeting of stockholders; or

(ii) The Superior Court of the proper county shall, upon application
of such stockholder or stockholders, summarily order a special meeting of
stockholders, to be held to elect the entire board, all in accordance with
Section 305(c) of the CGCL. The term of office of any director shall terminate
upon that election of a successor.

B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
(2) The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.

(3) No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of Stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering and following the closing of
the Initial Public Offering no action shall be taken by the stockholders by
written consent.

4
<PAGE>

(4) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.

VI.

A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.

B. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) for breach of duty to the corporation and
its shareholders through bylaw provisions or through agreements with the agents,
or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.

C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.

VII.

A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.

B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.

The foregoing Restated Certificate of Incorporation has been duly approved
by the Board of Directors.

The foregoing Restated Certificate of Incorporation has been duly approved
by the vote of the stockholders in accordance with Sections 242 and 245 of the
Delaware General Corporation Law. The number of shares voting in favor of the
amendment equaled or exceeded the vote required.

5
<PAGE>

In Witness Whereof, the undersigned has signed this certificate this ___
day of __________, 1999, and hereby affirms and acknowledges under penalty of
perjury that the filing of this Restated Certificate of Incorporation is the act
and deed of OrganicNet, Inc.

OrganicNet, Inc.

By
----------------------------------
William W. Shaw, III
President

<PAGE>

EXHIBIT 3.2

AMENDED AND RESTATED

BYLAWS

ORGANICNET, INC.

(A DELAWARE CORPORATION)
<PAGE>

Table Of Contents

<TABLE>
Page
<S> <C> <C>
ARTICLE I OFFICES...................................................... 1
Section 1. Registered Office....................................... 1
Section 2. Other Offices........................................... 1

ARTICLE II CORPORATE SEAL............................................... 1
Section 3. Corporate Seal.......................................... 1

ARTICLE III STOCKHOLDERS' MEETINGS....................................... 1
Section 4. Place Of Meetings....................................... 1
Section 5. Annual Meetings......................................... 1
Section 6. Special Meetings........................................ 4
Section 7. Notice Of Meetings...................................... 5
Section 8. Quorum.................................................. 5
Section 9. Adjournment And Notice Of Adjourned Meetings............ 5
Section 10. Voting Rights........................................... 6
Section 11. Joint Owners Of Stock................................... 6
Section 12. List Of Stockholders.................................... 6
Section 13. Action Without Meeting.................................. 6
Section 14. Organization............................................ 7

ARTICLE IV DIRECTORS.................................................... 8
Section 15. Number And Term Of Office............................... 8
Section 16. Powers.................................................. 8
Section 17. Classes of Directors.................................... 8
Section 18. Vacancies............................................... 9
Section 19. Resignation............................................. 10
Section 20. Removal................................................. 10
Section 21. Meetings................................................ 10
Section 22. Quorum And Voting....................................... 11
Section 23. Action Without Meeting.................................. 12
Section 24. Fees And Compensation................................... 12
Section 25. Committees.............................................. 12
Section 26. Organization............................................ 13
</TABLE>

i.
<PAGE>

Table Of Contents
(CONTINUED)
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ARTICLE V OFFICERS..................................................... 14
Section 27. Officers Designated...................................... 14
Section 28. Tenure And Duties Of Officers............................ 14
Section 29. Delegation Of Authority.................................. 15
Section 30. Resignations............................................. 15
Section 31. Removal.................................................. 15

ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION..................................... 16

Section 32. Execution Of Corporate Instruments....................... 16
Section 33. Voting Of Securities Owned By The Corporation............ 16

ARTICLE VII SHARES OF STOCK.............................................. 16
Section 34. Form And Execution Of Certificates....................... 16
Section 35. Lost Certificates........................................ 17
Section 36. Transfers................................................ 17
Section 37. Fixing Record Dates...................................... 17
Section 38. Registered Stockholders.................................. 18

ARTICLE VIII OTHER SECURITIES OF THE CORPORATION.......................... 19
Section 39. Execution Of Other Securities............................ 19

ARTICLE IX DIVIDENDS.................................................... 19
Section 40. Declaration Of Dividends................................. 19
Section 41. Dividend Reserve......................................... 19

ARTICLE X FISCAL YEAR.................................................. 20
Section 42. Fiscal Year.............................................. 20

ARTICLE XI INDEMNIFICATION.............................................. 20
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents..................... 20

ARTICLE XII NOTICES...................................................... 23
Section 44. Notices.................................................. 23

ARTICLE XIII AMENDMENTS................................................... 25
Section 45. Amendments............................................... 25
</TABLE>

ii.
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Table Of Contents
(CONTINUED)
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ARTICLE XIV LOANS TO OFFICERS............................................ 25
Section 46. Loans To Officers........................................ 25
</TABLE>

iii.
<PAGE>

AMENDED AND RESTATED

BYLAWS

ORGANICNET, INC.

(A DELAWARE CORPORATION)

ARTICLE I

Offices

Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.

Section 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.

ARTICLE II

Corporate Seal

Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.

ARTICLE III

Stockholders' Meetings

Section 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.

Section 5. Annual Meetings.

(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal

1.
<PAGE>

of business to be considered by the stockholders may be made at an annual
meeting of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph, who is entitled to
vote at the meeting and who complied with the notice procedures set forth in
Section 5.

(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting

2.
<PAGE>

such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of, in the
case of the proposal, at least the percentage of the corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").

(c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.

(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.

(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.

(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.

3.
<PAGE>

Section 6. Special Meetings.

(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.

At any time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), stockholders holding five
percent (5%) or more of the outstanding shares shall have the right to call a
special meeting of stockholders as set forth in Section 18(c) herein.

(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.

(c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no

4.
<PAGE>

event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.

Section 7. Notice Of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.

Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.

Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted

5.
<PAGE>

at the original meeting. If the adjournment is for more than thirty (30) days or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.

Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.

Section 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.

Section 12. List Of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.

Section 13. Action Without Meeting.

(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum

6.
<PAGE>

number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.

(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.

(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written consent has been given in accordance with
Section 228 of the Delaware General Corporation Law.

(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").

Section 14. Organization.

(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.

(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to

7.
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questions or comments by participants and regulation of the opening and closing
of the polls for balloting on matters which are to be voted on by ballot. Unless
and to the extent determined by the Board of Directors or the chairman of the
meeting, meetings of stockholders shall not be required to be held in accordance
with rules of parliamentary procedure.

ARTICLE IV

Directors

Section 15. Number And Term Of Office. The authorized number of directors
of the corporation shall be fixed as designated by resolution of the Board of
Directors. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.

Section 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.

Section 17. Classes of Directors.

(a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the Initial Public Offering, the directors shall be divided into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering (assuming the
corporation is not subject to (S)2115(b) of the CGCL), the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
Initial Public Offering (assuming the corporation is not subject to (S)2115(b)
of the CGCL), the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the Initial Public Offering (assuming
the corporation is not subject to (S)2115(b) of the CGCL), the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders (assuming the corporation is not subject to (S)2115(b) of the
CGCL), directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. During such
time or times that the corporation is subject to Section 2115(b) of the CGCL,
this Section 17(a) shall become effective and apply only when the corporation is
a "listed" corporation within the meaning of Section 301.5 of the CGCL.

(b) In the event that the corporation is unable to have a
classified Board of Directors under applicable law, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.

8.
<PAGE>

(c) No Stockholder entitled to vote at an election for directors
may cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to (S)2115(b) of the CGCL and (ii) is
not or ceases to be a "listed" corporation under Section 301.5 of the CGCL.
During this time, every stockholder entitled to vote at an election for
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.

Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

Section 18. Vacancies.

(a) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Bylaw in the case of the death,
removal or resignation of any director.

(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.

9.
<PAGE>

(c) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in
office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then

(1) Any holder or holders of an aggregate of five percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or

(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.

Section 19. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.

Section 20. Removal.

(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.

(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section 20(a) above shall no longer apply and removal shall be as provided
in Section 141(k) of the Delaware General Corporation Law.

Section 21. Meetings.

(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such

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meeting is held. No notice of an annual meeting of the Board of Directors shall
be necessary and such meeting shall be held for the purpose of electing officers
and transacting such other business as may lawfully come before it.

(b) Regular Meetings. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.

(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.

(d) Telephone Meetings. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.

(e) Notice of Meetings. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.

Section 22. Quorum And Voting.

(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in

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accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.

(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.

Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.

Section 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.

Section 25. Committees.

(a) Executive Committee. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation.

(b) Other Committees. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.

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(c) Term. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.

(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.

Section 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President (if a director), or if the President is absent, the most
senior Vice President (if a director), or, in the absence of any such person, a
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.

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ARTICLE V

Officers

Section 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.

Section 28. Tenure And Duties Of Officers.

(a) General. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.

(b) Duties of Chairman of the Board of Directors. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.

(c) Duties of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.

(d) Duties of Vice Presidents. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.

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(e) Duties of Secretary. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.

(f) Duties of Chief Financial Officer. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.

Section 29. Delegation Of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.

Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.

Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

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ARTICLE VI

Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation

Section 32. Execution Of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.

All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.

Unless authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.

Section 33. Voting Of Securities Owned By The Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.

ARTICLE VII

Shares Of Stock

Section 34. Form And Execution Of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests

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the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated stock,
the corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.

Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.

Section 36. Transfers.

(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.

(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law.

Section 37. Fixing Record Dates.

(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to

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vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.

(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.

Section 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.

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ARTICLE VIII

Other Securities Of The Corporation

Section 39. Execution Of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.

ARTICLE IX

Dividends

Section 40. Declaration Of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and applicable law.

Section 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.

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ARTICLE X

Fiscal Year

Section 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.

ARTICLE XI

Indemnification

Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents.

(a) Directors And Executive Officers. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law; provided, however, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers; and, provided, further,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).

(b) Other Officers, Employees and Other Agents. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the DGCL or any other applicable law. The Board of Directors shall
have the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.

(c) Expenses. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.

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Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.

(d) Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the DGCL or any other applicable law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.

(e) Non-Exclusivity of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically

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authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law, or by any
other applicable law.

(f) Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

(g) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law or any other applicable law, the corporation, upon
approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.

(h) Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.

(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.

(j) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:

(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.

(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.

(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in

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the same position under the provisions of this Bylaw with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.

(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.

(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.

ARTICLE XII

Notices

Section 44. Notices.

(a) Notice To Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.

(b) Notice To Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.

(c) Affidavit Of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.

(d) Time Notices Deemed Given. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of

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mailing, and all notices given by facsimile, telex or telegram shall be deemed
to have been given as of the sending time recorded at time of transmission.

(e) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.

(f) Failure To Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.

(g) Notice To Person With Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.

(h) Notice To Person With Undeliverable Address. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.

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ARTICLE XIII

Amendments

Section 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.

ARTICLE XIV

Loans To Officers

Section 46. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.

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Exhibit 10.23

OrganicNet, Inc.

1999 EQUITY INCENTIVE PLAN

Adopted ______________, 1999
Approved By Stockholders _____________, 1999
Effective Date: _____________, 1999
Termination Date: ______________, 2009

1. PURPOSES.

(a) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

(b) Available Stock Awards. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. The
Plan also provides for non-discretionary grants of Nonstatutory Stock Options to
Non-Employee Directors of the Company.

(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2. DEFINITIONS.

(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

(b) "Board" means the Board of Directors of the Company.

(i) A dissolution or liquidation of the Company.

(ii) A sale, lease or other disposition of all or substantially all of
the assets of the Company.

(iii) A merger, reverse merger, consolidation or reorganization of
the Company with or into another corporation or other legal person, other than a
merger,reverse merger,

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consolidation or reorganization in which beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act or comparable successor
rule) of more than fifty percent (50%) of the combined voting power of the then-
outstanding securities of the surviving entity (or if the surviving entity is a
controlled affiliate of any other entity, the then-outstanding securities of the
entity that ultimately controls the survivor) immediately after such a
transaction are held in the aggregate by holders of voting securities of the
Company immediately prior to such transaction. However, any person who acquired
securities of the Company prior to the occurrence of a merger, reverse merger,
consolidation or reorganization in contemplation of such transaction, and who
after such transaction possesses direct or indirect beneficial ownership of at
least ten percent (10%) of the securities of the Company or the surviving entity
(or if the Company or the surviving entity is a controlled affiliate, then of
the appropriate entity as determined above) immediately following such
transaction shall not be included in the group of stockholders of the Company
immediately prior to such transaction.

(iv) The acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act or any comparable successor
provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or a subsidiary or other controlled
affiliate of the Company) of the beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act or comparable successor rule)
of securities of the Company representing fifty percent (50%) or more of the
combined voting power of the then-outstanding securities of the Company.

(v) The individuals who, at the beginning of any period of two (2)
consecutive years, constitute the Board (the "Incumbent Directors") cease for
any reason during such period to constitute at least a majority of the Board,
unless the election or the nomination for election by the Company's stockholders
of a Director first elected during such period was approved by the vote of at
least two-thirds of the Incumbent Directors, whereupon such Director shall also
be classified as an Incumbent Director.

(d) "Code" means the Internal Revenue Code of 1986, as amended.

(e) "Committee" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).

(f) "Common Stock" means the common stock of the Company.

(g) "Company" means OrganicNet, Inc, a Delaware corporation.

(h) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.

(i) "Continuous Service" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall
not be deemed to have terminated merely because of

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<PAGE>

a change in the capacity in which the Participant renders service to the Company
or an Affiliate as an Employee, Consultant or Director or a change in the entity
for which the Participant renders such service, provided that there is no
interruption or termination of the Participant's Continuous Service. For
example, a change in status from an Employee of the Company to a Consultant of
an Affiliate or a Director will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.

(j) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

(k) "Director" means a member of the Board of Directors of the Company.

(l) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

(m) "Employee" means any person employed by the Company or an Affiliate.
Mer service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(o) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(q) "IPO Date" means the effective date of the Company's S-1 Registration
Statement which constitutes the initial public offering of the Company's
Common Stock.

(r) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation

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<PAGE>

(directly or indirectly) from the Company or its parent or a subsidiary for
services rendered as a consultant or in any capacity other than as a Director
(except for an amount as to which disclosure would not be required under Item
404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation
S-K")), does not possess an interest in any other transaction as to which
disclosure would be required under Item 404(a) of Regulation S-K and is not
engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.

(s) "Non-Employee Director Option" means a Non-Statutory Stock Option
granted pursuant to Section 7 hereof.

(t) "Non-Employee Director Option Agreement" means a written agreement
between the Company and an Eligible Director, as defined in Section 7,
evidencing the terms and conditions of a Non-Employee Director Option grant.
Each Non-Employee Director Option Agreement shall be subject to the terms and
conditions of the Plan.

(u) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.

(v) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(w) "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.

(x) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

(y) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.

(z) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

(aa) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award .

(bb) "Plan" means this OrganicNet, Inc. 1999 Equity Incentive Plan.

(cc) "Predecessor Plans" means the Company's 1997 Stock Option/Stock
Issuance Plan and 1996 Stock Option/Stock Issuance Plan, as amended and
restated.

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(dd) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.

(ee) "Securities Act" means the Securities Act of 1933, as amended.

(ff) "Stock Award" means any right granted under the Plan, including an
Option a stock bonus and a right to acquire restricted stock.

(gg) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

(hh) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.

3. ADMINISTRATION.

(a) Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.

(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(iii) To amend the Plan or a Stock Award as provided in Section 13.

(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

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<PAGE>

(i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

(ii) Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.

(d) Effect of Board's Decision. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4. SHARES SUBJECT TO THE PLAN.

(a) Share Reserve. Subject to the provisions of Section 12 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate Two Million Eight
Hundred Thousand (2,800,000) shares of Common Stock (the "Initial Reserve"),
plus an increase equal to the lesser of (1) the sum of (A) 2 % of the shares of
the Company's Common Stock outstanding on each January 1, beginning with January
1, 2001 , such amount to be added on that date; plus (B) that number of shares
of Common Stock subject to a stock option granted under one of the Predecessor
Plans at the time and to the extent that stock option expires unexercised after
the date that the Plan becomes effective under Section 15; or (2) 5% of the
shares of the Company's Common Stock outstanding on the date that the Plan was
originally adopted, such amount to be added on January 1, beginning with January
1, 2001. The Initial Reserve shall include those shares which remain
available under the Company's Predecessor Plans on the date on which the
Plan becomes effective under Section 15. Notwithstanding the foregoing,
the Board may designate a smaller number of shares of Common Stock to be
added to the share reserve as of a particular January 1.

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<PAGE>

(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan. In
addition, if any shares of Common Stock issued under the Plan shall for any
reason be repurchased or reacquired by the Company because they have not vested
under the terms of the Stock Award Agreement governing such shares, then any and
all shares of Common Stock so repurchased or reacquired shall revert to and
again become available for issuance under this Plan.

(c) Source of Shares. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY

(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.

(b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

(c) Section 162(m) Limitation. Subject to the provisions of Section 12
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than One Million Two
Hundred Thousand (1,200,000) shares of the Common Stock during any calendar
year.

(d) Consultants. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.

6. OPTIONS PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

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<PAGE>

(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.

(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.

(c) Exercise Price of a Nonstatutory Stock Option. The exercise price of
each Nonstatutory Stock Option shall not be less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

(d) Consideration. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock owned by the Participant for at least six (6)
months, (2) according to a deferred payment or other similar arrangement with
the Optionholder or (3) in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.

In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

(e) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.

(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be

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<PAGE>

transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionholder only by the
Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.

(g) Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.

(h) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.

(i) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option as set forth in the Option Agreement or
(ii) the expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.

(j) Disability of Optionholder. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate .

(k) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reasonoth
er than death, then the Option may be exercised (to the extent

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<PAGE>

the Optionholder was entitled to exercise such Option as of the date of death)
by the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

(l) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.

(m) Re-Load Options. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such Re-
Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option shall be subject to the same exercise price and term
provisions heretofore described for Options under the Plan.

Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on the exercisability of Incentive Stock Options
described in subsection 11(d) and in Section 422(d) of the Code. There shall be
no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be
subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.

7. NON-EMPLOYEE DIRECTOR STOCK OPTIONS.

Without any further action of the Board, each eligible Director shall be
granted Nonstatutory Stock Options as described in subsections 7(a) and 7(b)
(collectively, "Non-Employee Director Options"). A Director shall be eligible
to receive the grant of a Non-

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<PAGE>

Employee Director Option if the Director is neither an Employee nor a Consultant
on the date that such option is granted ("Eligible Director"). Each Non-Employee
Director Option shall include the substance of the terms set forth in
subsections 7(c) through 7(k) and such other terms and conditions as shall be
determined by the Board as appropriate.

(a) Initial Grants. After the IPO Date, each person who is elected or
appointed for the first time to be an Eligible Director automatically shall,
upon the date of his or her initial election or appointment to be an Eligible
Director by the Board or stockholders of the Company, be granted an Initial
Grant to purchase Ten Thousand (10,000) shares of Common Stock on the terms and
conditions set forth herein.

(b) Annual Grants. On the day following each Annual Meeting commencing
with the Annual Meeting in calendar year 2001, each person who is then an
Eligible Director automatically shall be granted an Annual Grant to purchase Two
Thousand Five Hundred (2,500) shares of Common Stock on the terms and conditions
set forth herein; and further provided, however, that if the person has not been
serving as an Eligible Director for the entire period since the preceding Annual
Meeting, then the number of shares subject to the Annual Grant shall be reduced
by one quarter, for each full three month period prior to the date of grant
during which such person did not serve as an Eligible Director at any time.

(d) Exercise Price. The exercise price of each Non-Employee Director
Option shall be one hundred percent (100%) of the Fair Market Value of the stock
subject to the Non-Employee Director Option on the date of grant.
Notwithstanding the foregoing, a Non-Employee Director Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Non-Employee Director Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

(e) Vesting. The total number of share of Common Stock subject to a Non-
Employee Director Option may, but need not, vest and therefore become
exercisable in periodic installments which may, but need not, be equal. The Non-
Employee Director Options may be subject to such other terms and conditions on
the or times when they may be exercised. In the event of a Change in Control,
the vesting of any outstanding Non-Employee Director Options (and, if
applicable, the time during which such Non-Employee Director Options may be
exercised) shall be accelerated in full, and the Non-Employee Director Options
shall terminate if not exercised (if applicable) at or prior to such event.

(f) Consideration. The purchase price of stock acquired pursuant to a
Non-Employee Director Option may be paid, to the extent permitted by applicable
statutes and regulations, in any combination of (i) cash or check, (ii) delivery
to the Company of other Common Stock owned by the Director for at least six (6)
months, (ii) deferred payment or (iv) any other form of legal consideration that
may be acceptable to the Board and provided in the Non-Employee Director Option
Agreement; provided, however, that at any time that the

11
<PAGE>

Company is incorporated in Delaware, payment of the Common Stock's "par value,"
as defined in the Delaware General Corporation Law, shall not be made by
deferred payment.

(g) Transferability. A Non-Employee Director Option is not transferable,
except (i) by will or by the laws of descent and distribution, (ii) by
instrument to an inter vivos or testamentary trust or other entity, in a form
acceptable to the Company, in which the Non-Employee Director Option is to be
passed to beneficiaries upon the death of the trustor (settlor) or transferor
and (iii) by gift, in a form acceptable to the Company, to any person who is
eligible to receive registered securities under Form S-8 by transfer from the
Director, including the Director's "family members" as that term is defined
below. The term "family member" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-
in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law, and includes adoptive relationships, any person sharing the Director's
household (other than a tenant or employee), a trust in which these persons have
more than fifty percent of the beneficial interest, a foundation in which these
persons (or the Director) control the management of the assets, and any other
entity in which these people (or the Director) own more than fifty percent of
the voting interests. In addition to the foregoing, the Company may require, as
a condition of the transfer of the Non-Employee Director Option to a trust, by
gift or as otherwise permitted herein, that Director's transferee enter into an
option transfer agreement provided by, or acceptable to, the Company. The terms
of a Non-Employee Director Option shall be binding upon the Director's
transferees, executors, administrators, heirs, successors, and assigns.

Notwithstanding the foregoing, by delivering written notice to the Company,
in a form satisfactory to the Company, the Director may designate a third party
who, in the event of Director's death, shall thereafter be entitled to exercise
the Non-Employee Director Option.

(h) Termination of Continuous Service. In the event a Director's
Continuous Service terminates (other than upon the Director's death or
Disability), the Director may exercise his or her Non-Employee Director Option
(to the extent that the Director was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date six (6) months following the termination of the Director's Continuous
Service, or (ii) the expiration of the term of the Non-Employee Director Option
as set forth in the Non-Employee Director Option Agreement. If, after
termination, the Director does not exercise his or her Non-Employee Director
Option within the time specified herein, the Non-Employee Director Option shall
terminate.

(i) Extension of Termination Date. If the exercise of the Non-Employee
Director Option following the termination of the Director's Continuous Service
(other than upon the Director's death or Disability) would be prohibited at any
time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Non-Employee Director Option
shall terminate on the earlier of (i) the expiration of the term of the

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<PAGE>

Non-Employee Director Option set forth in subsection 7(c) or (ii) the expiration
of a period of three (3) months after the termination of the Director's
Continuous Service during which the exercise of the Non-Employee Director Option
would not violate such registration requirements.

(j) Disability of Director. In the event a Director's Continuous Service
terminates as a result of the Director's Disability, the Director may exercise
his or her Non-Employee Director Option (to the extent that the Director was
entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Non-
Employee Director Option as set forth in the Non-Employee Director Option
Agreement. If, after termination, the Director does not exercise his or her Non-
Employee Director Option within the time specified herein, the Non-Employee
Director Option shall terminate.

(k) Death of Director. In the event (i) a Director's Continuous Service
terminates as a result of the Director's death or (ii) the Director dies within
the six-month period after the termination of the Director's Continuous Service
for a reason other than death, then the Non-Employee Director Option may be
exercised (to the extent the Director was entitled to exercise the Non-Employee
Director Option as of the date of death) by the Director's estate, by a person
who acquired the right to exercise the Non-Employee Director Option by bequest
or inheritance or by a person designated to exercise the Non-Employee Director
Option upon the Director's death, but only within the period ending on the
earlier of (1) the date eighteen (18) months following the date of death or (2)
the expiration of the term of such Non-Employee Director Option as set forth in
the Non-Employee Director Option Agreement. If, after death, the Non-Employee
Director Option is not exercised within the time specified herein, the Non-
Employee Director Option shall terminate.

8. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:

(i) Consideration. A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for its
benefit.

(ii) Vesting. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share reacquisition right in favor
of the Company in accordance with a vesting schedule to be determined by the
Board.

(iii) Termination of Participant's Continuous Service. In the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.

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<PAGE>

(iv) Transferability. Rights to acquire shares under the stock bonus
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the stock
bonus agreement remains subject to the terms of the stock bonus agreement.

(b) Restricted Stock Awards. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

(i) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement.

(ii) Consideration. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.

(iii) Vesting. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.

(iv) Termination of Participant's Continuous Service. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.

(v) Transferability. Rights to acquire shares under the restricted
stock purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as Common
Stock awarded under the restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.

9. CONVENANTS OF THE COMPANY.

(a) Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

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<PAGE>

(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

11. MISCELLANEOUS.

(a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.

(b) Stockholder Rights. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Participant during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

(e) Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances

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<PAGE>

satisfactory to the Company as to the Participant's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (ii) to give written assurances satisfactory to
the Company stating that the Participant is acquiring Common Stock subject to
the Stock Award for the Participant's own account and not with any present
intention of selling or otherwise distributing the Common Stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares of Common Stock upon the
exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (iv) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.

(f) Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock. Notwithstanding the
foregoing, the Company shall not be authorized to withhold shares of Common
Stock at rates in excess of the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) Capitalization Adjustments. If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)

(b) Changes in Corporate Structure.

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<PAGE>

(i) Dissolution or Liquidation. In the event of a dissolution or
liquidation of the Company, any Options, if not exercised prior to the
occurrence of such an event, and all other then outstanding Stock Awards shall
terminate immediately prior to such event.

(ii) Asset Sale, Merger, Consolidation or Reverse Merger. In the
event of (i) a sale, lease or other disposition of all or substantially all of
the assets of the Company, (ii) a merger or consolidation in which the Company
is not the surviving corporation or (iii) a reverse merger in which the Company
is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; then to
the extent permitted by applicable law: (x) the surviving entity (or if the
surviving entity is a controlled affiliate of any other entity, then the entity
that ultimately controls the survivor) shall assume or continue any Stock Awards
outstanding under the Plan or shall substitute similar Stock Awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this Section 12(b)(ii)) for those outstanding under the
Plan. In the event the surviving entity (or if the surviving entity is a
controlled affiliate of any other entity, then the entity that ultimately
controls the survivor) refuses to assume or continue such Stock Awards or to
substitute similar Stock Awards for those outstanding under the Plan, then, with
respect to Stock Awards held by Participants then performing services for the
Company, the time at which such Stock Awards become vested and, if Options,
become vested and exercisable, shall be accelerated in full and the Stock Awards
(whether or not held by Participants then performing services) terminated upon
the occurrence of such event.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.

(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

(d) No Impairment of Rights. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

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<PAGE>

(e) Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

14. TERMINATION OR SUSPENSION OF THE PLAN.

(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect, except with the written consent of the Participant.

15. EFFECTIVE DATE OF PLAN.

The Plan shall become effective on the date determined by the Board, which
shall in no event be any earlier than the date on which it is adopted by the
Board, but no Stock Award shall be exercised (or, in the case of a stock bonus,
shall be granted) unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.

16. CHOICE OF LAW.

The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.

<PAGE>

Exhibit 10.24

OrganicNet, Inc.
1999 Employee Stock Purchase Plan

Adopted by Board of Directors , 1999
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Approved by Stockholders , 1999
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Effective Date: , 1999 [Same as Board Adoption Date]
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Termination Date: None

1. Purpose.

(a) The purpose of the Plan is to provide a means by which Employees of the
Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.

(b) The Company, by means of the Plan, seeks to retain the services of such
Employees, to secure and retain the services of new Employees and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.

(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.

2. Definitions.

(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.

(b) "Board" means the Board of Directors of the Company.

(d) "Committee" means a committee appointed by the Board in accordance with
subsection 3(c) of the Plan.

(e) "Company" means OrganicNet, Inc., a Delaware corporation.

(f) "Director" means a member of the Board.

(g) "Eligible Employee" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.

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(h) "Employee" means any person, including Officers and Directors, employed
by the Company or an Affiliate of the Company. Neither service as a Director nor
payment of a director's fee shall be sufficient to constitute "employment" by
the Company or the Affiliate.

(i) "Employee Stock Purchase Plan" means a plan that grants rights intended
to be options issued under an "employee stock purchase plan," as that term is
defined in Section 423(b) of the Code.

(j) "Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.

(k) "Fair Market Value" means the value of a security, as determined in
good faith by the Board. Unless otherwise provided in the Offering, if the
security is listed on any established stock exchange or traded on the Nasdaq
National Market or the Nasdaq SmallCap Market, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day which is coincident with the relevant determination date, as
reported in The Wall Street Journal or such other source as the Board deems
reliable.

(l) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.

(m) "Offering" means the grant of Rights to purchase Shares under the Plan
to Eligible Employees.

(n) "Offering Date" means a date selected by the Board for an Offering to
commence.

(o) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

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(p) "Participant" means an Eligible Employee who holds an outstanding Right
granted pursuant to the Plan or, if applicable, such other person who holds an
outstanding Right granted under the Plan.

(q) "Plan" means this 1999 Employee Stock Purchase Plan.

(r) "Purchase Date" means one or more dates established by the Board during
an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.

(s) "Right" means an option to purchase Shares granted pursuant to the
Plan.

(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.

(u) "Securities Act" means the United States Securities Act of 1933, as
amended.

(v) "Share" means a share of the common stock of the Company.

3. Administration.

(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c). Whether
or not the Board has delegated administration, the Board shall have the final
power to determine all questions of policy and expediency that may arise in the
administration of the Plan.

(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).

(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.

(iii) To construe and interpret the Plan and Rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.

(iv) To amend the Plan on the terms of an Offering authorized under
the Plan as provided in Section 14.

(v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.

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(c) The Board may delegate administration of the Plan to a Committee of the
Board composed of two (2) or more members, all of the members of which Committee
may be, in the discretion of the Board, Non-Employee Directors and/or Outside
Directors. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee of one
(1) or more Directors, including Non-Employee Directors and/or Outside
Directors, any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such a subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.

(d) All determinations, interpretations and constructions made by the Board
in good faith shall not be subject to review by any person and shall be final,
binding and conclusive on all persons.

4. Shares Subject to the Plan.

(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in securities, the Shares that may be sold pursuant to Rights granted
under the Plan shall not exceed in the aggregate Three Hundred Thousand
(300,000) Shares. If any Right granted under the Plan shall for any reason
terminate without having been exercised, the Shares not purchased under such
Right shall again become available for the Plan.

(b) Subject to the provisions of Section 13 relating to adjustments upon
changes in securities, on the first day of each calendar year the Company (the
"Calculation Date"), commencing on January 1, 2001 and ending on (and including)
January 1, 2015, the aggregate number of Shares specified in paragraph 4(a)
shall be increased by One Hundred Fifty Thousand (150,000) shares.

(c) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.

5. Grant of Rights; Offering.

(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Offering Dates selected by the Board. Each
Offering shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate, which shall comply with the requirements of
Section 423(b)(5) of the Code that all Employees granted Rights to purchase
Shares under the Plan shall have the same rights and privileges. The terms and
conditions of an Offering shall be incorporated by reference into the Plan and
treated as part of the Plan. The provisions of separate Offerings need not be
identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the document comprising the Offering or
otherwise) the period during which the Offering shall be effective,

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which period shall not exceed twenty-seven (27) months beginning with the
Offering Date, and the substance of the provisions contained in Sections 6
through 9, inclusive.

(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an earlier-
granted Right (or a Right with a lower exercise price, if two Rights have
identical grant dates) will be exercised to the fullest possible extent before a
later-granted Right (or a Right with a higher exercise price if two Rights have
identical grant dates) will be exercised.

6. Eligibility.

(a) Rights may be granted only to Employees of the Company or, as the Board
may designate as provided in subsection 3(b), to Employees of an Affiliate.
Except as provided in subsection 6(b), an Employee shall not be eligible to be
granted Rights under the Plan unless, on the Offering Date, such Employee has
been in the employ of the Company or the Affiliate, as the case may be, for such
continuous period preceding such grant as the Board may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no Employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan unless, on the Offering Date, such Employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.

(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:

(i) the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;

(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and

(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.

(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subsection 6(c), the rules of Section 424(d) of

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<PAGE>

the Code shall apply in determining the stock ownership of any Employee, and
stock which such Employee may purchase under all outstanding rights and options
shall be treated as stock owned by such Employee.

(d) An Eligible Employee may be granted Rights under the Plan only if such
Rights, together with any other Rights granted under all Employee Stock Purchase
Plans of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such Eligible Employee's rights to purchase Shares of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of the fair market value of such Shares (determined
at the time such Rights are granted) for each calendar year in which such Rights
are outstanding at any time.

(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.

7. Rights; Purchase Price.

(a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted the Right to purchase up to the number of
Shares purchasable with a percentage designated by the Board or the Committee
not exceeding fifteen percent (15%) of such Employee's Earnings (as defined by
the Board in subparagraph 8(a)) during the period which begins on the Offering
Date (or such later date as the Board determines for a particular Offering) and
ends on the date stated in the Offering, which date shall be no later than the
end of the Offering. The Board shall establish one or more Purchase Dates during
an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.

(b) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the Shares
available in as nearly a uniform manner as shall be practicable and as it shall
deem to be equitable.

(c) The purchase price of Shares acquired pursuant to Rights granted under
the Plan shall be not less than the lesser of:

(i) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Offering Date; or

(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Purchase Date.

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<PAGE>

8. Participation; Withdrawal; Termination.

(a) An Eligible Employee may become a Participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering.
"Earnings" is defined as an employee's regular salary or wages (including
amounts thereof elected to be deferred by the employee, that would otherwise
have been paid, under any arrangement established by the Company that is
intended to comply with Section 125, Section 401(k), Section 402(e)(3), Section
402(h) or section 403(b) of the Code, and also including any deferrals under a
non-qualified deferred compensation plan or arrangement established by the
Company), and also, if determined by the Board or the Committee and set forth in
the terms of the Offering, may include any or all of the following: (i) overtime
pay, (ii) commissions, (iii) bonuses, incentive pay, profit sharing and other
remuneration paid directly to the employee, and/or (iv) other items of
remuneration not specifically excluded pursuant to the Plan. Earnings shall not
include the cost of employee benefits paid for by the Company or an Affiliate,
education or tuition reimbursements, imputed income arising under any group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company or an Affiliate under any employee benefit plan, and similar
items of compensation, as determined by the Board or the Committee.
Notwithstanding the foregoing, the Board or Committee may modify the definition
of "Earnings" with respect to one or more Offerings as the Board or Committee
determines appropriate. The payroll deductions made for each Participant shall
be credited to a bookkeeping account for such Participant under the Plan and
either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.

(b) At any time during an Offering, a Participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board in the Offering. Upon such withdrawal from the Offering by
a Participant, the Company shall distribute to such Participant all of his or
her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the Participant) under the
Offering, without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.

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<PAGE>

(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating Employee's employment with the
Company or a designated Affiliate for any reason (subject to any post-employment
participation period required by law) or other lack of eligibility. The Company
shall distribute to such terminated Employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire Shares for the terminated Employee) under the Offering, without
interest unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subsection 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.

(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in Section 15 and, otherwise during his
or her lifetime, shall be exercisable only by the person to whom such Rights are
granted.

9. Exercise.

(a) On each Purchase Date specified therefor in the relevant Offering, each
Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be issued
upon the exercise of Rights granted under the Plan unless specifically provided
for in the Offering. The amount, if any, of accumulated payroll deductions
remaining in each participant's account after the purchase of shares which is
less than the amount required to purchase one share of Common Stock on the final
Purchase Date of an Offering shall be held in each such participant's account
for the purchase of shares under the next Offering under the Plan, unless such
participant withdraws from such next Offering, as provided in subparagraph 8(b),
or is no longer eligible to be granted rights under the Plan, as provided in
paragraph 6, in which case such amount shall be distributed to the participant
after such final Purchase Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account after the
purchase of shares which is equal to the amount required to purchase one or more
whole shares of Common Stock on the final Purchase Date of an Offering shall be
distributed in full to the participant after such Purchase Date, without
interest.

(b) No Rights granted under the Plan may be exercised to any extent unless
the Shares to be issued upon such exercise under the Plan (including Rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan. If on
a Purchase Date in any Offering hereunder the Plan is not so registered or in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject

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to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If, on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no Rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire Shares) shall be distributed to
the Participants, without interest unless otherwise specified in the Offering.
If the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subsection 8(a), then the distribution shall be made from the separate account,
without interest unless otherwise specified in the Offering.

10. Covenants of the Company.

(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.

(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.

11. Use of Proceeds from Shares.

Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.

12. Rights as a Stockholder.

A Participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, Shares subject to Rights granted under the
Plan unless and until the Participant's Shares acquired upon exercise of Rights
under the Plan are recorded in the books of the Company (or its transfer agent).

13. Adjustments upon Changes in Securities.

(a) If any change is made in the Shares subject to the Plan, or subject to
any Right, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the

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Company), the Plan will be appropriately adjusted in the type of security and
initial maximum number of Shares subject to the Plan pursuant to subsection
4(a), the additional Shares subject to the Plan and the overall maximum of
Shares pursuant to subsection 4(b), and the outstanding Rights will be
appropriately adjusted in the type of security, number of shares, and purchase
limits of such outstanding Rights. The Board shall make such adjustments, and
its determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction that
does not involve the receipt of consideration by the Company.)

(b) Effective as of the first Offering, in the event of a Change in
Control, then, as determined by the Board in its sole discretion (i) any
surviving or acquiring corporation may assume outstanding Rights or substitute
similar Rights for those under the Plan, (ii) such Rights may continue in full
force and effect, or (iii) the Participants' accumulated payroll deductions may
be used to purchase Shares immediately prior to the transaction described above
and the Participants' Rights under the ongoing Offering terminated. In the event
that no affirmative determination is made by the Board pursuant to the preceding
sentence, then alternative (iii) shall automatically apply.

(i) A dissolution or liquidation of the Company.

(ii) A sale, lease or other disposition of all or substantially all
of the assets of the Company.

(iii) A merger, reverse merger, consolidation or reorganization of the
Company with or into another corporation or other legal person, or any other
capital reorganization of the Company, including but not limited to a capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged.

14. Amendment of the Plan.

(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:

(i) Increase the amount of Shares reserved for Rights under the
Plan;

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(ii) Modify the provisions as to eligibility for participation in the
Plan to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code; or

(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code.

(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.

(c) Rights and obligations under any Rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such Rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as necessary to ensure that
the Plan and/or Rights granted under the Plan comply with the requirements of
Section 423 of the Code.

15. Designation of Beneficiary.

(a) A Participant may file a written designation of a beneficiary who is to
receive any Shares and/or cash, if any, from the Participant's account under the
Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.

(b) The Participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such Participant's death, the Company shall deliver such Shares and/or cash to
the executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.

16. Termination or Suspension of the Plan.

(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.

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(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.

17. Effective Date of Plan.

The Plan shall become effective as determined by the Board, but no Rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board, which date may be prior to the
effective date set by the Board.

-12-

<PAGE>

Exhibit 23.1

The Board of Directors
OrganicNet, Inc.

We consent to the use of the form of our reports on the consolidated
balance sheets of OrganicNet, Inc. and subsidiaries as of December 31, 1997
and 1998 and September 30, 1999, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the years in the
three-year period ended December 31, 1998, and for the nine-month period ended
September 30, 1999, and the related consolidated financial statement schedule,
included herein and to the reference to our firm under the headings "Experts"
and "Selected Consolidated Financial Data" in the Prospectus.

/s/ KPMG LLP

San Francisco, California

December 8, 1999

<PAGE>

Exhibit 23.2

The Board of Directors
PSI-Med Corporation

We consent to the use of our report on the balance sheets of PSI-Med
Corporation as of May 31, 1998 and 1999, and the related statements of
operations, stockholders' deficit and cash flows for each of the years in the
three-year period ended May 31, 1999, included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.

/s/ KPMG LLP

Orange County, California

December 8, 1999

<PAGE>

<ARTICLE> 5

<PERIOD-TYPE> 6-MOS YEAR

<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998

<PERIOD-START> JAN-01-1999 JAN-01-1998

<PERIOD-END> SEP-30-1999 DEC-31-1998

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<DEPRECIATION> 1,164,461 615,402

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0 0

36,891 20,604

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<INCOME-PRETAX> 4,130,559 (6,001,701)

<INCOME-TAX> 4,800 4,000

<INCOME-CONTINUING> (4,135,359) (6,005,701)

<DISCONTINUED> 0 0

<EXTRAORDINARY> 0 0

<CHANGES> 0 0

<NET-INCOME> (4,135,359) (6,005,701)

<EPS-BASIC> (1.35) (1.97)

<EPS-DILUTED> (1.35) (1.97)

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