Notes to Consolidated Financial Statements

Index Company Profile Financial Highlights Dear Fellow Shareholders Question and Answer with the CEO ASP Solutions HealtheWare HealthWeb Complementary Business Milestones Form 10-K Report of Independent Accountants Balance Sheets Statements of Operations Statements of Comprehensive Loss Statement of Stockholders' Equity (Deficit) Statements of Cash Flows Notes to Consolidated Financial Statements Valuation and Qualifying Accounts Corporate Information

NOTE 10 Income Taxes    The provision for (benefit of) income taxes consists of the following: YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ------- ----- ---- (IN THOUSANDS) Current Federal................................................... $ (242) $ (48) $143 State..................................................... 30 22 22 ------- ----- ---- (212) (26) 165 ------- ----- ---- Deferred Federal................................................... (4,989) (164) (71) State..................................................... (647) (23) (12) ------- ----- ---- (5,636) (187) (83) ------- ----- ---- Total income tax provision (benefit).............. $(5,848) $(213) $ 82 ======= ===== ====    The Company's effective tax rate differs from the statutory rate as shown in the following schedule: YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 1998 -------- ------- ---- (IN THOUSANDS) Tax provision (benefit) at federal statutory rate........... $(16,356) $(2,768) $48 State income taxes, net of federal benefit.................. (2,405) (385) 7 Increase in valuation allowance............................. 7,343 1,408 -- Goodwill amortization....................................... 3,434 699 -- Amortization of deferred stock compensation................. 657 412 -- Write off of acquired in-process technology................. 485 478 -- Other....................................................... 994 (57) 27 -------- ------- --- Tax provision (benefit)..................................... $ (5,848) $ (213) $82 ======== ======= ===    Temporary differences which gave rise to significant portions of deferred tax assets and liabilities are as follows (in thousands): YEAR ENDED DECEMBER 31, ------------------- 2000 1999 -------- ------- Deferred tax assets: Net operating loss carryforwards.......................... $ 16,246 $ 5,381 Reserves and accruals..................................... 2,096 425 Deferred revenue.......................................... 578 -- Research credits.......................................... 36 36 -------- ------- Deferred tax assets......................................... 18,956 5,842 -------- ------- Deferred tax liabilities: Deferred revenue.......................................... -- -- Fixed assets.............................................. -- (446) Leases.................................................... (554) -- Depreciation.............................................. (461) -- Acquired intangible assets................................ (43,082) (3,895) Other..................................................... -- (93) -------- ------- Deferred tax liabilities.................................... (44,097) (4,434) Valuation allowance......................................... -- (1,408) -------- ------- Net deferred taxes.......................................... $(25,141) $ -- ======== =======    Tax loss carryforwards at December 31, 2000 are approximately $27.2 million for federal purposes. The federal loss carryforward will start to expire in the year ended 2019. The ownership change provisions of the Internal Revenue Code of 1986 limit the availability of a portion of the net operating loss carryforwards. The annual limitation may result in the expiration of net operating losses before utilization.    During 2000, the valuation allowance increased by $7.3 million due to the generation of deferred tax assets and subsequently decreased to zero due to the Company's use of the valuation allowance to offset deferred liabilities resulting from its acquisitions.