USWEB CORP, 10-K405/A, 1998-04-14

USWEB CORP
10-K405/A, 1998-04-14
COMPUTER INTEGRATED SYSTEMS DESIGN

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K/A

(Mark One)

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1997

[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ____________.

COMMISSION FILE NO. 000-23151

USWEB CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 87-0551650
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

2880 LAKESIDE DRIVE, SUITE 300
SANTA CLARA, CALIFORNIA 95054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(408) 987-3200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $.001 par value NASDAQ
</TABLE>

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

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

As of April 7, 1998, there were outstanding 35,713,821 shares of the
registrant's Common Stock, par value $.001, which is the only class of common
or voting stock of the registrant. As of that date, the aggregate market value
of the shares of Common Stock held by nonaffiliates of the registrant (based
on the closing price for the Common Stock on NASDAQ on April 7, 1998) was
approximately $114,654,000. For purposes of this disclosure, shares of Common
Stock held by each officer and director of the Registrant and by each person
who owns 5% or more of the outstanding voting stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the
Company which will be filed with the Securities and Exchange Commission no
later than 120 days after December 31, 1997.

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USWEB CORPORATION

ANNUAL REPORT ON FORM 10-K/A

TABLE OF CONTENTS

YEAR ENDED DECEMBER 31, 1997

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PAGE NO.
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PART I

<C> <S> <C>
Item 1. Business................................................... 1
Item 2. Properties................................................. 16
Item 3. Legal Proceedings.......................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........ 16

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 17
Item 6. Selected Consolidated Financial Data....................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 35
Item 8. Consolidated Financial Statements and Supplementary Data... 35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 57

PART III

Item 10. Directors and Officers of the Company...................... 58
Item 11. Executive Compensation..................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 58
Item 13. Certain Relationships and Related Transactions............. 58

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 59
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This report contains certain forward-looking statements that involve risks
and uncertainties, including statements regarding the Company's strategy,
financial performance, and revenue sources. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors" and elsewhere in this report.

PART I

ITEM 1. BUSINESS

OVERVIEW

USWeb is a leading Internet professional services firm that provides
Intranet, Extranet and Web site solutions and services to businesses. The
Company has built a national network of consulting offices and what it
believes to be one of the most recognized brands for Internet professional
services. The Company offers a comprehensive range of services to deliver
Internet solutions designed to improve clients' business processes. The
Company's services include strategy consulting; analysis and design;
technology development; implementation and integration; audience development;
and maintenance. The Company markets its services to medium-sized and large
companies.

INDUSTRY BACKGROUND

Intranets, Extranets and Web sites (collectively, "Internet solutions")
provide companies with a new set of tools for improving basic business
processes such as communications, data transmission, marketing, transaction
processing and customer service. An Intranet enables a company's employees to
receive corporate information and training efficiently, communicate through e-
mail, use the internal network's business applications, and access proprietary
information and legacy databases. An Extranet can extend part or all of the
functionality of a secure Intranet to selected business partners outside of
the company, such as customers, suppliers or distributors. Forrester Research,
Inc. ("Forrester") estimates that the worldwide market for Intranet
development services will grow from approximately $100 million in 1996 to
approximately $6.9 billion in 2000. Web sites, which are accessible by the
general public, can present advertising and marketing materials in new and
compelling fashions, display products and services in electronic catalogs,
offer products and services for sale online, process transactions and fulfill
orders, provide customers with rapid and accurate responses to their
questions, and gather customer feedback efficiently. Forrester estimates that
the worldwide market for Web site content and electronic commerce solution
development will grow from approximately $1.2 billion in 1996 to approximately
$9.4 billion in 2000.

Although businesses are adopting Internet solutions rapidly and at
increasing rates, the basic technical differences of such solutions from
earlier technologies and the broad scope of business process improvements that
such solutions can provide require companies to take fundamentally new
approaches toward implementing them. Businesses seeking to realize the
benefits provided by Internet solutions face a formidable series of challenges
presented by the need to link business strategy, new and rapidly changing
technologies and continuously updated content. Before creating an Intranet,
Extranet or Web site, a company must first conduct a thorough needs assessment
to review its strategic business requirements and compare them to the
capabilities of its existing processes and systems. Next, the company must
architect the solution and develop an implementation plan. The implementation,
establishment and maintenance of the solution will require significant
technical expertise in a number of areas, such as electronic commerce systems,
security and privacy technologies, application and database programming,
mainframe and legacy integration technologies and advanced user interface and
multimedia production.

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To perform this multitude of functions in-house, a company would have to
make substantial commitments of time, money and technical personnel to keep
current with rapidly evolving technologies, content presentation techniques
and competitors' offerings. Professionals with the requisite strategic,
technical and creative skills are often in short supply and many organizations
are reluctant to expand their internal information systems or marketing
departments for particular engagements at a time when they are attempting to
minimize fixed costs to increase returns on investment. At the same time,
external economic factors encourage organizations to focus on their core
competencies and trim workforces in the information technology management
area. Accordingly, many businesses have chosen to outsource a significant
portion of the design, development and maintenance of their Intranets,
Extranets and Web sites to independent professionals who can leverage
accumulated strategic, technical and creative talent and stay current with
ongoing developments in a field characterized by extremely short technology,
process and content lifecycles.

Companies seeking to establish Internet solutions may turn to their
traditional marketing or technology service providers for assistance. However,
most of these providers have neither a proven track record of successful
Internet solution deployment nor the full portfolio of strategy, technology,
marketing and creative skills required to serve client needs effectively. Most
advertising and marketing communications agencies lack the extensive technical
skills, such as application development and legacy system and database
integration, required to produce the increasingly complex and functional
solutions demanded by clients. Most national information technology consulting
service providers have sizable corporate infrastructures and have therefore
chosen to focus on multi-million dollar engagements such as Year 2000 projects
and client/server enterprise resource planning software deployments, not
Internet solution consulting engagements. Most large computer technology
product and service vendors lack the creative and marketing skills required to
build audiences and deliver unique and compelling content, and are further
constrained by their need to recommend their proprietary brands. Internet
access service providers, whose core strength is in providing Internet access
and site hosting rather than solution development, typically lack both the
necessary creative and application development skills.

A number of small Internet professional services firms have emerged to
address the significant and rapidly growing market for Internet solutions.
However, the small size and capital constraints of most of these firms
restrict their ability to supply clients with the necessary depth and
integration of strategic, technical and creative skills. Furthermore, many of
these providers tend to develop expertise in a limited number of vertical
markets because of the need to leverage the information and experiences gained
from the relatively small number of Internet solution engagements they have
completed.

The Company believes that the rapidly increasing demand for Internet
solutions, combined with the inability of most current providers to supply the
full range and integration of strategic, technical and creative skills
required by clients, has created a significant market opportunity for a scaled
Internet professional services firm. In the currently fragmented and rapidly
changing environment, an organization that could deliver the creative
strengths of advertising and marketing firms, the strategic skills and
technical capabilities of information technology consulting service providers,
and the national reputation, economies of scale, multiple points of local
presence and information sharing capabilities of a large organization could
capitalize on this opportunity to help companies significantly improve their
business processes.

THE USWEB SOLUTION

USWeb's mission is to provide clients with the vision, expertise and
resources required to develop new strategies and improve business processes
using Internet solutions. To capitalize on the opportunity presented by the
rapid growth in demand for such solutions combined with a fragmented group of
organizations serving this demand, USWeb has built and is continuing to expand
through acquisitions and internal growth an Internet professional services
firm with 32 Company-owned and Affiliate offices nationwide as of February 28,
1998. The Company's services include strategy consulting; analysis and design;
technology development; implementation and integration; audience development;
and maintenance.

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The Company delivers value to its clients through the application of its
Internet strategy and solutions methodology. Through its focus on Internet
technologies, the Company believes that it is well positioned to provide wide-
ranging and leading edge expertise with regard to:

. Internet browsers, servers and plug-ins.
. Electronic commerce and transaction systems.
. Security authentication and privacy technologies.
. E-mail and advanced collaboration systems.
. Digital asset management systems.
. Client/server and database application systems.
. Mainframe and legacy integration technologies.
. Advanced user interface and multimedia production.
. Internet-based video conferencing.
. Custom programming and tool applications.
. Site administration and reporting tools.
. Internet marketing systems and services.
. Client, server and routing hardware.
. Internet access and hosting services.

The Company delivers these services to clients through its network of
consulting offices, whose regional presence enables each office to develop
close client relationships and an understanding of client needs. Each
consulting office also benefits from the resources of the overall USWeb
organization. For example, individual consulting offices may draw as needed
upon the assistance of one or more additional offices with specialized
creative or technical expertise. Each consulting office also draws upon the
USWeb Internet Strategy and Solutions Center, which aggregates the expertise
of the entire USWeb network of offices to provide resources such as USWeb
Business Solutions that target selected client market segments or business
functions, a centralized index of best demonstrated practice methodologies, a
technology library of proprietary reusable software and content objects, a
central project registry, executive briefing programs for client decision
makers, SiteCast Internet solution education broadcasts and professional
Internet technology certification programs. The consulting offices can
leverage these central resources to provide clients efficiently with effective
Internet business solutions. The Company believes that its methodology has a
proven track record of delivering value to clients and is an important factor
in retaining existing clients and marketing to new ones.

USWeb believes that its operational model enables it to scale rapidly by
leveraging its central resources as its operations expand. First, the Company
believes that its aggregation and deployment of the accumulated experience and
expertise of its network of offices provides clients with enhanced business
solutions. Second, the Company's ability to leverage central technology and
operational resources enables the Company to scale efficiently, both through
the growth of existing consulting offices and the acquisition of new offices,
which also provides significant numbers of additional skilled personnel.
Finally, the Company's aggressive brand development campaign, which reinforces
the message that USWeb is a secure, reliable, high quality choice for the
provision of Internet professional services, increases the Company's ability
to access and influence key client decision makers.

STRATEGY

The Company's objective is to become and remain the leading global Internet
professional services firm. The Company's strategy to achieve this objective
includes the following elements:

Continue to Expand Network of Company-Owned Offices. The Company is
continuing to build its network of Company-owned offices through acquisitions
and internal growth. The Company believes that in the fragmented market for
providing Internet solutions, rapidly building a critical mass of strategic,
technical and creative talent through both internal growth and acquisitions
will provide USWeb with a substantial competitive advantage. As of February
28, 1998, USWeb had Company-owned and Affiliate offices in 32 locations across
the United States, including Atlanta, Austin, Boston, Chicago, Detroit, Los
Angeles,

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Milwaukee, New York, Philadelphia, Phoenix, Pittsburgh, Santa Clara, San
Diego, San Francisco, Seattle and Washington, D.C., as well as an office in
Dusseldorf, Germany. The Company intends to acquire additional entities in
both the U.S. and abroad by continuing to implement its acquisition
methodology for identifying, acquiring and integrating Internet professional
services firms that meet the Company's criteria for revenues, profitability,
growth potential and operating strategy.

Strengthen Position as a Leading Internet Professional Services Firm. The
Company is continuing to strengthen its position as a leading Internet
professional services firm in order to provide clients with superior Internet
solutions. The Company intends to continue investing significantly in
identifying, reviewing and integrating the latest Internet technologies and
accumulating and deploying the best demonstrated practices for developing and
implementing Internet solutions. The Company is continuing to develop USWeb
Business Solutions, partially pre-built Internet solutions that combine USWeb
methodologies, services and reusable software and content objects with third-
party software. The Company's consulting offices intend to continue leveraging
the Company's nationwide presence, operational scale and professional
marketing tools, which provide each consulting office with resources and
credibility to convince client decision makers that USWeb can provide
successful Internet solutions to meet the most demanding business needs. The
Company also intends to remain both vendor and technology neutral in order to
remain focused on delivering the Internet solution best suited to a client's
needs.

Enhance USWeb Brand. In a fragmented industry that lacks brands strongly
identified with Internet professional services, USWeb believes that it has
built one of the most well-recognized brands. The Company's brand development
programs are designed to reinforce the message that USWeb is a national
company with a local presence that can provide a complete range of services to
build and deploy business solutions and has a proven track record of doing so.
The Company is continuing to build and differentiate this brand through the
use of publicity campaigns that include Internet, print and radio advertising;
national seminars and executive briefings; Internet broadcasts; extensive
marketing tools and educational "white papers"; and co-marketing programs with
selected strategic partners.

Develop Additional Strategic Relationships. The Company intends to continue
developing strategic relationships because they enable USWeb to enter new
markets, gain early access to leading-edge technology, cooperatively market
products and services with leading technology vendors, cross-sell additional
services and gain enhanced access to vendor training and support. USWeb has
developed a number of strategic relationships with leading Internet hardware,
software and content companies, including Intel, Microsoft, Hewlett-Packard,
Pandesic LLC (the Internet company from Intel and SAP), Sun Microsystems and
Reuters. Collectively these relationships provide for co-marketing programs,
joint research and development on leading implementations of Internet
solutions, technical education, client feedback channels and hardware and
software distribution rights.

Leverage Operational Economies of Scale. USWeb provides certain operational
and administrative services centrally, allowing the network of offices to
benefit from the economies of scale created by a large operation while
enabling the consulting offices to focus on their core competency of providing
superior client services. These centrally provided services include business
development programs, operations management guides, client support assistance,
carrier-grade site hosting, human resources programs, financial reporting and
forecasting, performance appraisals and standardized methodologies.

SERVICES

The Company offers a comprehensive range of services to deliver Internet
solutions designed to improve clients' business processes. In each consulting
engagement, the client can contract for the specific services it requires,
depending on the nature of the engagement and the capabilities of the client's
organization. The Company bills most of its engagements on a time and
materials basis, although it has delivered several solutions on a fixed-price
basis and intends to increase the percentage of engagements provided on such a
basis.

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INTERNET SOLUTION DEVELOPMENT AND DEPLOYMENT. The Company's Internet
solution development and deployment methodology consists of six phases:

Strategy Consulting. USWeb works closely with the client to conduct a
thorough study of the client's strategic market position, business
requirements and existing systems and capabilities to determine the ways in
which Internet solutions can most improve the client's business processes. The
Company then delivers its recommendations, which define the strategic basis
for a specific Internet solution that takes into account the client's budget,
timeline and available resources.

Analysis and Design. Once the strategic groundwork has been established, the
Company translates the client's strategic requirements into a system or
process design architecture, a blueprint that defines the roles the system
will perform to meet those requirements. By choosing USWeb, the Company's
clients receive vendor-neutral solutions prepared by Internet-focused
consultants. USWeb researches, tests and evaluates virtually all major
Internet technologies and tools to design system and process architectures
that successfully meet client needs. The Company's objective is to design,
build and deploy a solution that is logically planned, scales well over time,
is sufficiently secure, and is easy to use, administer and manage.

Technology Development. In the development phase, the Company builds a
testable version of the client's solution based on the blueprint produced in
the analysis and design phase. The Company designs, codes, integrates and
tests all necessary programs and components using a broad range of expertise,
including object-based and relational database systems; electronic commerce
systems; custom ActiveX, Java and C++ programming and host integration;
implementation of third-party applications and security technologies; and
integration of hardware, software and Internet access products. USWeb's
experienced and professional graphic designers also work to create a
compelling user interface for the solution to enable it to attract and hold
the attention of the client's target audience while conforming to the client's
brand image and marketing campaigns. In performing these functions, USWeb
professionals benefit from access to an extensive library of re-usable
software and content objects.

Implementation and Integration. In the implementation phase, USWeb tests the
solution created in the development phase and readies it to be deployed into a
full production system. The Company delivers the system to the client,
installs it, converts and initializes all necessary data, performs acceptance
testing and puts the system into operation. The Company also integrates
Intranet solutions with back-office legacy systems to ensure that each
client's critical applications are secure and seamless. USWeb maintains third-
party vendor relationships that offer its clients secure, state-of-the-art,
high-availability Intranet, Extranet and Web site hosting and integrated
services for relational databases, workgroup collaboration, streaming audio
and video, management and monitoring, e-mail and secure electronic commerce.

Audience Development. The Company can work with the client to develop a
strategy for achieving its online marketing objectives by increasing Web site
traffic, strengthening brand awareness and generating sales leads. The Company
provides online media planning and purchasing services and advice regarding
online public relations. The Company has also developed a proprietary audience
creation methodology designed to optimize a Web site's search engine presence,
increase site access through hyperlink recruitment and disseminate the
client's key messages to Internet newsgroups, mailing lists and forums.

Maintenance. USWeb can provide the client with ongoing support services for
its Internet solutions, from content maintenance to site administration, for
as long as the client wishes. The Company's technical staff can also assist
clients on a case-by-case basis to resolve technical problems, provide
assistance with the hosting environment, and deliver support for Internet
solution software.

EXAMPLES OF USWEB INTERNET SOLUTIONS. The following examples illustrate the
Company's Internet solution development capabilities.

Ingram Micro E-Commerce Extranet. Ingram Micro Inc. ("Ingram Micro"), a
leading wholesale distributor of technology products and services, teamed with
USWeb to build and deploy an e-commerce Extranet for on-line distribution. The
business-to-business commerce solution, called Auction Block, is a real-

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time, on-line bidding service that allows resellers to purchase new, unopened
products that are not returnable to the manufacturer. USWeb developed a
customized Java-based inventory auction system that automates inventory
negotiation processes in real-time and integrated it with Ingram Micro's back-
end database to facilitate user authentication and inventory tracking. This
new Internet distribution channel has become a new source of revenues for
Ingram Micro.

Harley-Davidson Dealer Extranet. Harley-Davidson, a motorcycle manufacturer,
was seeking ways to streamline two specific business processes: technical
documentation distribution and warranty claims processing. To obtain
instruction sheets, service bulletins or other technical documentation,
dealers previously had to request the appropriate documents by telephone and
then wait for Harley-Davidson to process the request manually and fax the
documents back to the dealership. To process warranty claims, dealers
previously had to mail such claims to Harley-Davidson and wait for them to be
manually entered into a database and checked for errors through overnight
batch processing. Both of these procedures were slow, inefficient and prone to
errors. To improve these basic business processes, USWeb created an Extranet
accessible via a Web browser that allows dealers to securely search, view and
print technical documents at their convenience and submit warranty claims
directly online. Using the Extranet has reduced turnaround time for
documentation distribution and warranty claims processing, reduced the error
rate and reduced overhead costs associated with providing information through
paper forms or telephone support.

Real Estate Tax Services Intranet. Real Estate Tax Services ("RETS"), a
provider of corporate tax assessment and property appraisal services, wanted
to improve its network infrastucture and its mission critical system of
managing and distributing data. Processing more than 200,000 tax bills
annually, RETS uses mainframe computers for storing client tax-related
information. Frequently, RETS field agents require quick turn-around on custom
client reports. To prepare these reports, administrators previously used
proprietary software to import mainframe data into desktop spreadsheet
applications. After manipulating and reformatting the content, the data was
then exported into word-processing applications suitable for presentations.
Following this highly administrative, time-consuming effort, RETS
administrators would then forward these reports to agents around the country.
Beginning with the deployment of a new high-speed network infrastructure,
USWeb automated these processes by designing a database-integrated Intranet
solution. The RETS Intranet streamlines internal resources and empowers field
agents to easily and effectively store and retrieve data, as well as generate
client presentations from any geographic location using lap-top computers and
an intuitive Web browser.

The foregoing examples of the Company's Internet solutions show the breadth
of the Company's Internet solution capabilities. Because each USWeb client and
its needs are different, the Internet solutions in these examples may be more
extensive and successful than others that do not achieve all the goals of a
particular client. There can be no assurance that any particular client
project will meet the client's objectives, stay within budgeted expense
levels, be completed at the desired or scheduled date or otherwise allow the
Company's clients to realize the intended benefits of a project. Promoting and
positioning the USWeb brand will depend largely on the success of the
Company's marketing efforts and the ability of the Company to provide high
quality, reliable and cost effective Internet solution strategy consulting,
analysis and design, technology development, implementation and integration,
audience development and maintenance services. If clients do not perceive the
Company's solutions or services as meeting their needs, or if the Company
fails to market those solutions or services effectively, the Company will be
unsuccessful in maintaining and strengthening its brand, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "--Risk Factors--Uncertain
Maintenance and Strengthening of the USWeb Brand" and "--Potential Liability
to Clients."

CONSULTING OFFICE NETWORK DEVELOPMENT

USWeb has established and is continuing to expand a nationwide network of
consulting offices. As of February 28, 1998, the Company had 32 consulting
offices, 22 of which were Company-owned and 10 of

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which were owned by Affiliates. The number of Affiliate offices has decreased
over time because of acquisitions of Affiliates by USWeb, consolidation of
offices and discontinuance of franchise relationships. The Company believes
that in the fragmented market for providing Internet solutions, rapidly
building a critical mass of strategic, technical and creative talent through
both internal growth and acquisition will provide USWeb with a substantial
competitive advantage. The Company promotes internal growth through its
continued investment in branded marketing programs, expansion and improvement
of the Strategy and Solutions Center, new and existing strategic partnerships,
and rigorous management of business fundamentals.

The Company is aggressively pursuing its selective acquisition program. The
Company uses a standardized transaction structure that includes a purchase
price adjustment feature to provide target company management with an
incentive to improve and expand their operations. The Company also generally
grants stock options to all employees of a target company to provide them with
an incentive to contribute to the success of the overall USWeb organization.
The Company believes that use of a consistent acquisition structure can speed
the negotiation and closing of acquisitions.

The Company has a team of professionals dedicated to identifying potential
acquisition candidates and implementing the Company's acquisition methodology.
This team identifies those Internet professional service firms that meet its
acquisition criteria, engages in a series of meetings and due diligence
activities with each candidate to explore whether it meets USWeb's criteria
for growth potential and operating strategy, and completes the acquisition of
a significant percentage of those candidates. The Company stresses to each
desired candidate the advantages of merging with USWeb, including client
recognition and acceptance of the USWeb brand, additional funding required to
pursue profitably large, long-term client opportunities and strategic
partnerships with leading hardware, software and content vendors. Following
the closing of each acquisition, the Company moves rapidly to integrate the
new subsidiary into USWeb operations by deploying a conversion team to
integrate financial, marketing and operating procedures, providing access to
USWeb Central, the Company's secure Intranet, and delivering a thorough
orientation to all employees.

The Company regularly evaluates potential acquisition candidates, is
currently holding preliminary discussions with a number of such candidates and
is in active negotiations with a number of such other candidates. If, after
due diligence review and negotiation, such companies can be acquired on a
basis considered fair to the Company and its stockholders, the Company may
proceed with such acquisitions. The Company is also considering joint ventures
or acquisitions outside the United States. The Company expects most of its
future joint ventures or acquisitions to include the issuance of additional
shares of the Company's Common Stock in the future. The Company recently filed
a "shelf" Registration Statement on Form S-4 to register 16,666,667 shares of
its Common Stock for use in future acquisitions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Acquisition of
Internet Professional Service Firms," "--Risk Factors--Risks Related to
Acquisitions," "--Management of Growth; Integration of Acquisitions," and "--
Dilution."

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As of April 7, 1998, the Company had acquired the following companies and
signed acquisition agreements with an additional five companies:

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OFFICE MONTH OF NUMBER OF
NAME LOCATIONS CONSOLIDATION (1) EMPLOYEES (2)
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<S> <C> <C> <C>
USWeb San Francisco..... San Francisco, CA March 1997 38
San Diego, CA
USWeb Seattle........... Seattle, WA April 1997 34
USWeb Milwaukee......... Milwaukee, WI April 1997 40
USWeb LA Metro.......... Los Angeles, CA April 1997 21
USWeb Silicon Valley.... Santa Clara, CA May 1997 24
USWeb Atlanta........... Atlanta, GA May 1997 26
Austin, TX
USWeb DC ............... Washington, D.C. June 1997 36
Philadelphia, PA
USWeb Phoenix........... Phoenix, AZ June 1997 16
USWeb Pittsburgh........ Pittsburgh, PA July 1997 65
USWeb Chicago Metro..... Chicago, IL July 1997 17
USWeb DreamMedia (3).... Culver City, CA August 1997 23
USWeb Hollywood (3)..... Culver City, CA August 1997 --
USWeb Marin............. Sausalito, CA September 1997 47
USWeb Long Island....... Long Island, NY September 1997 12
USWeb Detroit........... Detroit, MI September 1997 12
USWeb San Mateo......... San Mateo, CA September 1997 13
USWeb Houston........... Houston, TX November 1997 12
USWeb LA Central........ Culver City, CA November 1997 22
USWeb New York Central.. New York, NY November 1997 23
USWeb Germany........... Dusseldorf, Germany February 1998 25
USWeb Boston............ Boston, MA March 1998 25
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(1) The Company consolidates the target entity's financial statements as of
the date USWeb establishes effective control of the target entity, which
date is generally in advance of the legal completion of the underlying
merger.
(2) Represents the number of full-time employees as of February 28, 1998.
(3) USWeb Dream Media and USWeb Hollywood combined their operations into a
single wholly owned subsidiary of the Company upon the consummation of the
acquisitions. The combined entity had an aggregate of 23 employees. USWeb
LA Central shares facilities and is expected to combine operations with
these entities in the future.

The Company believes that there are many other potential acquisition
candidates in the U.S. and abroad that satisfy its acquisition criteria. The
Company is currently discussing on a non-binding basis the acquisitions of
several companies in the U.S. To penetrate foreign markets, the Company may
use joint ventures as well as acquisitions, so as to capitalize on a foreign
partner's local knowledge and reputation as well as USWeb's brand name and
central technical, marketing and administrative resources. The Company's
acquisition strategy involves a number of risks and uncertainties, and there
can be no assurance that the Company will be able to identify suitable
acquisition candidates, acquire such companies on acceptable terms or
integrate their operations successfully with those of the Company. As the
Company issues stock to complete future acquisitions, there will be ownership
dilution to existing stockholders. In addition, to the extent the Company
chooses to use cash as consideration in such acquisitions, the Company may be
required to obtain additional financing and there can be no assurance that
such financing will be available on favorable terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--

8
<PAGE>

Risks Related to Acquisitions," "--Dilution," "--Management of Growth;
Integration of Acquisitions" and "--Future Capital Needs; Uncertainty of
Additional Financing."

In addition to its Company-owned offices, as of February 28, 1998 USWeb had
eight Affiliates which collectively managed an aggregate of ten consulting
offices. Each Affiliate agreement typically grants a nonexclusive right to the
Affiliate to maintain an office and advertise in a designated metropolitan
area or territory. The Affiliate agreements, which have terms ranging from
five to ten years, also include a nonexclusive license to use the Company's
intellectual property and proprietary information, including the USWeb brand,
the Company's Internet solution development methodology and the Strategy and
Solutions Center. In exchange for these rights, most Affiliates paid the
Company an initial fee and all Affiliates make monthly royalty payments to the
Company. Monthly royalties are equal to the greater of (i) a minimum monthly
payment or (ii) the aggregate of a five percent royalty and a two percent
marketing promotion payment, each based on the Affiliate's adjusted gross
revenues. For the year ended December 31, 1997, initial fees and monthly
royalty payments together represented 4% of the Company's total revenues. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company selected a franchise business model as the first phase of its
corporate development strategy because it enabled the Company to rapidly scale
its operations and build its brand with relatively low risk and capital
commitment while leveraging the existing infrastructure, expertise and client
relationships of the Affiliates. The Company launched the second phase of its
market entry strategy, the acquisition of those Affiliates and other Internet
professional services firms that meet its acquisition criteria, in the first
quarter of 1997. The Company last enrolled an Affiliate in March 1997 and does
not intend to enter into any additional Affiliate agreements. The Company may
also decide to terminate the Affiliate agreements of those Affiliates that do
not meet the performance criteria required by such agreements to ensure their
continuation. A significant number of Affiliates remain and the operation of
franchises does entail certain risks to the Company's business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--Risks of Franchising."

CLIENTS

The Company markets its services to medium-sized and large companies, which
it defines as those with over 100 employees or $10 million in annual revenues.
Such companies have several desirable characteristics as potential clients: a
need for Internet solutions ranging from basic Web sites to complex and highly
functional Intranets, substantial budgets devoted to information technology
expenditures, and a relatively high willingness to adopt Internet-based
strategies and solutions. The Company tailors its professional services to
meet the specific needs of these clients. No individual customer accounted for
more than 10% of the Company's total revenues for the year ended December 31,
1997. The Company's top 10 clients accounted for 31% of the Company's total
revenues during such period.

The Company provides Internet professional services to clients in a variety
of industries, as indicated by the selected clients set forth below, each of
which was responsible for at least $50,000 in services revenues for the year
ended December 31, 1997.

Amgen Harley-Davidson Real Estate Tax
Bantam Doubleday Dell Ingram Micro Services
Barnes & Noble Marcus & Millichap Silicon Graphics
Catalina Marketing Microsoft Thomasville Furniture
Charles Schwab New York Magazine Time, Inc.
Chevron Polk Audio Toshiba
World Economic Forum

Clients typically begin their adoption of Internet solutions by establishing
a basic Web site costing several thousand dollars and then implement
increasingly powerful business solutions, which can include business critical,
fully integrated Intranets or Extranets costing several million dollars. The
Company's strategy is to

9
<PAGE>

provide clients with services at all stages of their adoption of Internet
solutions. The Company targets clients whose Internet technology consulting
needs will result in contracts ranging from $25,000 to $3,000,000 per
engagement. The Company's 30 largest clients spent approximately $100,000 to
$1,700,000 each for USWeb services for the year ended December 31, 1997.

USWEB INTERNET STRATEGY AND SOLUTIONS CENTER

The Strategy and Solutions Center, located at the Company's headquarters in
Santa Clara, California, is designed to provide clients with more effective
Internet solutions by aggregating and redeploying the best methodologies,
technologies and creative work delivered by USWeb consulting offices. The
Company believes that the Strategy and Solutions Center provides USWeb
consulting offices with a competitive advantage by giving them efficient, real
time access to these assets, thereby allowing them to leverage the
capabilities of the entire USWeb operation in their efforts on behalf of each
client. The Strategy and Solutions Center is a centrally managed resource that
can be made available to a large number of consulting offices through USWeb
Central, the Company's secure Intranet.

The Strategy and Solutions Center provides the following resources and
programs for its clients:

USWeb Solutions Library. The Strategy and Solutions Center aggregates the
best demonstrated practices of its offices to develop USWeb Business
Solutions, partially pre-built Internet solutions that combine USWeb
methodologies, services and reusable software and content objects with third-
party software. One of the first USWeb Business Solutions was designed for
human resources in collaboration with Coopers & Lybrand and leading providers
of Internet-based human resource management technologies. The Company intends
to target each USWeb Business Solution toward a selected vertical market or
business function and offer it at a fixed price range. The Company's goal is
to provide through each USWeb Business Solution a large volume of high-quality
sales and implementation tools that leverage the cumulative experience of all
USWeb consulting offices.

USWeb Technology Library. The Strategy and Solutions Center maintains and
continually expands a technology library of proprietary reusable software and
content objects developed during the course of client engagements. The Company
believes that access to these assets helps reduce the costs of designing and
implementing individual Internet solutions, improves the quality of client
service and facilitates the Company's development of USWeb Business Solutions.

USWeb Project Registry. The Strategy and Solutions Center has constructed a
database in which each client engagement is summarized and registered,
enabling each consulting office to find rapidly which offices have performed
certain types of work. This project registry is used to facilitate the real-
time distribution of engagement activity to those consulting offices best
equipped to serve the client.

USWeb Executive Briefing Program. The Strategy and Solutions Center has
established a program that enables USWeb consulting offices to provide their
key clients with executive seminars, solution demonstrations and discussions
with senior USWeb executives on-site at the Strategy and Solutions Center.
These sessions provide key client decision makers with first-hand experience
on the ways Internet solutions can significantly improve business processes.

USWeb SiteCasts. The Strategy and Solutions Center develops and distributes
the USWeb SiteCast Intranet Series, a sequence of Internet broadcasts designed
to show businesses how to use Internet solutions to improve business
processes. The Company sponsors the SiteCasts jointly with Microsoft and each
SiteCast incorporates leading Microsoft Internet technologies. The first
SiteCast, held on June 24, 1997 using Microsoft's NetShow 2.0, brought
together computer industry leaders to discuss how to use Intranets to achieve
business objectives. This SiteCast, which attracted approximately 800
participants, was the first Internet broadcast to incorporate simultaneous
video conferencing, chat sessions and presentations and include both pre-taped
and live video. The second SiteCast, held on September 16, 1997, attracted
more than

10
<PAGE>

2,300 participants and demonstrated how Internet solutions can automate
business processes, using as an example the Intranet USWeb created for the
Stanford University Graduate School of Business.

On December 10, 1997, the Company held a third SiteCast to provide an
interactive, online forum to discuss trends and issues surrounding electronic
commerce. Attracting more than 3,400 participants, this SiteCast was broadcast
live from the Intel booth at Internet World Fall in New York and included a
discussion on how e-Business solutions can improve business processes and
profitability and create competitive advantages for businesses.

In each area where methodologies, technologies and content are aggregated,
the Company has implemented policies to ensure that confidential or
proprietary client information and assets are accessible only by properly
authorized personnel and not disclosed to unauthorized parties.

MARKETING

The Company's marketing efforts are dedicated to demonstrating the benefits
of Internet solutions, and the proven effectiveness of the USWeb organization
in providing such solutions, to key decision makers in client organizations.
The Company believes that a strong USWeb brand provides USWeb consulting
offices with a competitive advantage over those Internet professional services
firms whose brands may not be as well known or may not convey the same focused
message of competence, security and results. The Company's marketing programs
are also highly scalable because most advertising campaigns and marketing
tools are developed by the Company's corporate marketing group and can be
delivered to all of the consulting offices without requiring significant
additional expenses.

The Company's marketing program includes the following initiatives:

Enhance the USWeb Brand. The continued strengthening of the USWeb brand is
crucial to the achievement of the Company's objective of becoming the most
recognized provider of Internet professional services to medium-sized and
large business clients. The Company's brand development programs are designed
to reinforce the message that USWeb is a national company with a local
presence that can provide a complete range of services to build and deploy
business solutions and has a proven track record of doing so. The Company is
continuing to build and differentiate this brand through the use of publicity
campaigns that include Internet, print and radio advertising; national
seminars and executive briefings; Internet broadcasts; extensive marketing
tools and educational "white papers"; and co-marketing programs with strategic
partners.

Generate Client Leads. The Company's marketing campaigns are intended to
generate client leads for its consulting offices in several ways. First,
central lead management programs direct leads generated by the Company's
national advertising to consulting offices based on client zip code and other
substantive lead attributes. Second, regional marketing derived from corporate
advertising templates for multiple forms of media, including direct mail and
tradeshow programs, are personalized for an office's target market to drive
demand directly to that office. Third, the Company has implemented programs to
encourage cross-office lead referral when clients have vertical market needs
or proximity concerns that would be best addressed by another office. Finally,
the Company has established a national account program to help manage the
accounts of clients with multiple locations and direct service fulfillment to
the consulting office best situated by geography and specialty to meet the
client's needs.

Develop Marketing and Sales Tools for Consulting Offices. The Company has
developed a toolkit of marketing and sales materials to be used by consulting
offices in their business generation efforts. These materials include
brochures, reprints of articles, fact sheets, white papers, summary "success
stories," PR handbooks, business development guides and client presentation
templates and technologies. These materials are designed to increase the
effectiveness of the sales and marketing efforts of the Company's consulting
offices by providing them with centralized expert advice and consistent,
professional marketing tools.

11
<PAGE>

STRATEGIC RELATIONSHIPS

The Company has entered into, and intends to continue entering into,
strategic relationships with a limited number of leading Internet hardware,
software and content companies. The Company believes that these relationships,
which typically are non-exclusive, enable it to deliver clients more effective
solutions with greater efficiency because the strategic relationships provide
the Company with the opportunity to gain early access to leading-edge
technology, cooperatively market products and services with leading technology
vendors, cross-sell additional services and gain enhanced access to vendor
training and support. The Company also believes that these relationships are
important because they leverage the strong brand and technology positions of
these market leaders.

The Company has strategic relationships with the following companies:

[LOGO] Intel. In November 1997, the Company entered into a Relationship
Agreement with Intel pursuant to which the Company and Intel
will jointly define and develop a program designed to establish
and promote end-to-end e-business solutions running on high-end
Intel Architecture-based platforms. Activities under the program will range
from creation of specific business solutions to joint advertising. These
programs will be administered by representatives of each party. Intel
purchased $10.0 million of the Company's Common Stock in a private placement
transaction which closed contemporaneously with the Company's initial public
offering.

[LOGO] Microsoft. The Company and Microsoft have entered into a joint
marketing and technical information sharing agreement. The
companies are engaging in a jointly branded marketing campaign designed to
increase demand for Microsoft's Internet software products and USWeb's
professional services. Microsoft is also providing USWeb consulting offices
with education and support in the use of Microsoft's Internet products, and
the USWeb consulting offices are providing Microsoft with product feedback and
customer reactions.

[LOGO] Hewlett-Packard. The Company and Hewlett-Packard have entered
into an agreement to launch collaborative marketing and
technical support programs to offer business clients a complete set of
Internet solutions. The companies are engaging in a jointly branded marketing
campaign designed to increase demand for Hewlett-Packard's Internet systems
and USWeb's professional services. Hewlett-Packard is also providing USWeb
consulting offices with education and support in the use of Hewlett-Packard's
Internet systems and USWeb consulting offices are providing Hewlett-Packard
with product feedback and client reactions.

[LOGO] Pandesic. Intel and SAP have formed Pandesic LLC to deliver a
comprehensive hardware, software and service solution for
managing Internet-based electronic commerce. The Company and
Pandesic have entered into a letter agreement regarding plans to
implement a joint systems integration program, develop joint
marketing and sales programs, build field development programs and conduct
ongoing technical exchanges to ensure the proper deployment and efficient
utilization of the Pandesic electronic commerce platform.

[LOGO] Sun Microsystems. The Company and Sun Microsystems have entered
into an agreement enabling USWeb consulting offices to become
authorized resellers of Sun NETRA network servers after having
filed the appropriate documentation and attended required
training classes. This marketing program enables USWeb affiliates to deliver a
complete UNIX Intranet solution to a customers.

[LOGO] Reuters. The Company and Reuters have entered into a letter
agreement regarding plans to develop USWeb Business Solutions
that will integrate Reuters data feeds into corporate Intranet environments.
The two parties also intend to develop joint sales and marketing programs.

The contractual agreements regarding these strategic relationships do not
cover the entire scope of the strategic relationship and are typically
terminable at will by either party. In the event that any strategic
relationship is discontinued, either in connection with termination of an
agreement or otherwise, the

12
<PAGE>

Company's business, results of operations and financial condition may be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Risk Factors--Reliance Upon Key
Strategic Relationships."

In early 1998, the Company assisted in the formation of USWeb Learning,
Inc., a separate company with the mission to become the leading provider of
education and certification services relating to Internet technologies to
address the shortage of technology professionals. USWeb Learning will license
the USWeb name from the Company and the Company will contribute certain
training materials it has created. The Company intends to make a minority
equity investment in USWeb Learning and add management experience through
board representation.

OPERATIONS

The Company's organization includes its headquarters in Santa Clara,
California and as of February 28, 1998, 32 Company-owned and Affiliate
consulting offices in the U.S. Each consulting office is responsible for
providing Internet professional services to its clients, either alone or in
conjunction with one or more other offices. The managers of each office also
make all client sales, engagement pricing, and staffing decisions for that
office. However, the Company's executive officers take an active role in
directing the activities of all consulting offices.

USWeb headquarters manages the Strategy and Solutions Center, the Company's
marketing campaigns, the strategic relationships with partner companies and
the acquisition program. The Company's headquarters also provides consulting
offices with operational support in financial management and reporting, human
resources, office administration, and management performance improvement
tools. USWeb also negotiates with product, office equipment and financing
vendors to deliver quality products to its consulting offices at favorable
prices. Finally, the Company has established relationships with leading
Internet communications companies to provide clients with carrier-grade,
highly reliable central hosting and value-added services such as shared
databases, electronic commerce, and audio and video streaming.

USWeb headquarters also manages USWeb Central, the Company's Intranet and
the Company's primary channel for enterprise-wide interaction and
communication. The Company developed and maintains USWeb Central in-house.
USWeb Central provides Company-owned and Affiliate consulting offices with
rapid, secure and efficient online access to each other and to all of the
Company's centrally managed resources, such as the Strategy and Solutions
Center libraries, sales and marketing tools, vendor information and
operational assistance. The Company believes that USWeb Central is both
scalable and critical to its strategy of strengthening its position as a
leading Internet professional services firm because USWeb Central is the
primary mechanism by which the Company is able to aggregate and redeploy the
best strategic, technical and creative work developed by the consulting
offices.

COMPETITION

The market for Internet professional services is relatively new, intensely
competitive, rapidly evolving and subject to rapid technological change. The
Company expects competition to persist, intensify and increase in the future.
The Company's competitors can be divided into several groups: computer
hardware and service vendors such as International Business Machines
Corporation ("IBM"), Digital Equipment Corporation ("DEC") and Hewlett-Packard
Company ("Hewlett-Packard"); advertising and media agencies such as CKS Group,
Inc. ("CKS"), Foote, Cone & Belding and Ogilvy & Mather; Internet integrators
and Web presence providers such as iXL Holding, Inc. ("iXL"), Organic Online,
Inc. ("Organic Online"), Poppe Tyson and Proxicom, Inc. ("Proxicom"); large
information technology consulting service providers such as Andersen
Consulting, Cambridge Technology Partners and Electronic Data Systems
Corporation ("EDS"); telecommunications companies such as AT&T Corporation
("AT&T") and MCI Communications Group ("MCI"); Internet and online service
providers such as America Online Incorporated ("America Online"), NETCOM On-
Line Communications Services Inc. ("NETCOM") and UUNet Technologies, Inc.
("UUNet"); and software vendors such as Lotus Development Corporation
("Lotus"), Microsoft Corporation ("Microsoft"), Netscape Communications Corp.
("Netscape"), Novell, Inc. ("Novell") and Oracle Corporation

13
<PAGE>

("Oracle"). Although only a few of these competitors have to date offered a
full range of Internet professional services, several have announced their
intention to offer comprehensive Internet technology solutions.

The Company believes that the principal competitive factors in its market
are strategic expertise, technical knowledge and creative skills, brand
recognition, reliability of the delivered solution, client service and price.
Most of the Company's current and potential competitors have longer operating
histories, larger installed client bases, longer relationships with clients
and significantly greater financial, technical, marketing and public relations
resources than the Company and could decide at any time to increase their
resource commitments to the Company's market. In addition, the market for
Internet solutions is relatively new and subject to continuing definition,
and, as a result, the core business of certain of the Company's competitors
may better position them to compete in this market as it matures. Competition
of the type described above could materially adversely affect the Company's
business, results of operations and financial condition.

There are relatively low barriers to entry into the Company's business. For
example, the Company has no patented technology that would preclude or inhibit
competitors from entering the Internet professional services market. The
Company expects that it will face additional competition from new entrants
into the market in the future. There can be no assurance that existing or
future competitors will not develop or offer services that provide significant
performance, price, creative or other advantages over those offered by the
Company, which could have a material adverse effect on the Company's business,
results of operations and financial condition. Moreover, in pursuing
acquisition opportunities the Company may compete with other companies with
similar growth strategies, certain of which competitors may be larger and have
greater financial and other resources than the Company. Competition for these
acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Risk Factors--Competition; Low Barriers to Entry."

EMPLOYEES

As of February 28, 1997, the Company had 606 employees, of which 93 were
located at the Company's headquarters office in Santa Clara, California and
440 were located in consulting offices. The headquarters employees included 48
in sales and marketing, 9 in hosting and education and 36 in finance,
administration and the Strategy and Solutions Center. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppages and believes its relationship with its employees is good.
Competition for qualified personnel in the industry in which the Company
competes is intense. The Company believes that its future success will depend
in part on its continued ability to attract, hire or acquire and retain
qualified employees. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "--Risk Factors--Recruitment and
Retention of Internet Solutions Professionals" and "--Dependence on Key
Personnel."

14
<PAGE>

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The directors and executive officers of the Company, and their ages as of
December 31, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph Firmage...................... 27 Chairman of the Board and Chief Executive Officer
Tobin Corey......................... 36 President
James Heffernan..................... 56 Executive Vice President, Chief Financial Officer,
Secretary and Director
Sheldon Laube....................... 47 Executive Vice President and Chief Technology
Officer
Jeffrey Ballowe (1)................. 41 Director
Robert Hoff (1)(2).................. 44 Director
Gary Rieschel (2)................... 40 Director
Barry Rubenstein.................... 54 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

Mr. Joseph Firmage co-founded the Company in December 1995 and has served as
its Chairman and Chief Executive Officer since that time. From August 1994 to
December 1995, Mr. Firmage served as Vice President of Strategic Planning of
the Systems Group of Novell. Prior to joining Novell, Mr. Firmage founded
Serius Corporation ("Serius"), where he served as Chief Executive Officer from
1989 through 1993, when Serius was sold to Novell.

Mr. Tobin Corey co-founded the Company in December 1995 and has served as
its President since June 1996. Prior to June 1996, Mr. Corey served as its
Executive Vice President, Marketing. From 1994 to December 1995, Mr. Corey
served as Vice President of Marketing for the NetWare Products Division of
Novell. From 1991 through 1994, Mr. Corey served as Director of Marketing for
the Desktop Division of Novell.

Mr. James Heffernan co-founded the Company in December 1995 and has served
as its Executive Vice President, Chief Financial Officer, Secretary and a
Director since that time. From May 1993 to July 1994, he worked as an
independent consultant and then joined Interlink Computer Sciences, Inc. in
July 1994 as Chief Financial Officer, where he served until January 1996. From
March 1992 to May 1993, Mr. Heffernan served as Chief Financial Officer and
Chief Operating Officer of Serius. Mr. Heffernan has also served as an officer
of several other technology companies, including Software Publishing Corp.,
Zital Inc. and Measurex Corp. Mr. Heffernan is a director of Western
MicroTechnology, Inc.

Mr. Sheldon Laube co-founded the Company and has served as its Executive
Vice President and Chief Technology Officer since January 1996. From July 1995
through January 1996, Mr. Laube served as Chief Technology Officer for Novell.
Prior to joining Novell, Mr. Laube was employed by Price Waterhouse LLP as a
partner and served as Director of Information and Technology from 1986 to May
1995.

Mr. Jeffrey Ballowe has served as a Director of the Company since February
1996. From March 1996 to December 1997, Mr. Ballowe served as President of the
Ziff-Davis Interactive Media and Development Group. Prior to March 1996, Mr.
Ballowe served as President of the Ziff-Davis Interactive Media Group in 1995
and as President of the Ziff-Davis Marketing and Development Group in 1994. He
became Group Vice President of the Ziff-Davis Business Media Group in 1993 and
Vice President of the Ziff-Davis Worldwide Network of Direct Publications in
1991.

Mr. Robert Hoff has served as a Director of the Company since February 1996.
He has been a general partner of Crosspoint Venture Partners, a private
venture capital investment company, since September 1983. Mr. Hoff also serves
as a director of Pair Gain Technologies, Inc. and Onyx Acceptance Corporation.

15
<PAGE>

Mr. Gary Rieschel has served as a Director of the Company since March 1996.
Mr. Rieschel has been a Senior Vice President of SOFTBANK Holdings since
January 1996. Prior to January 1996, Mr. Rieschel served as Vice President of
Marketing for nCube from September 1994 to December 1995; as Director of
Channel Sales for Cisco Systems from July 1993 to October 1994; and as General
Manager, Asia for Sequent Computer from January 1989 to July 1993. Mr.
Rieschel is a director of Concentric Networks and several privately held
companies.

Mr. Barry Rubenstein has served as a Director of the Company since May 1997.
Mr. Rubenstein is President, a director and a shareholder of InfoMedia
Associates, Ltd. which is a General Partner of the 21st Century Partnerships.
Mr. Rubenstein is also Chief Executive Officer of Wheatley Partners, L.L.C.,
the General Partner of Wheatley Foreign Partners, L.P. Seneca Ventures and
Woodland Venture Fund, each of which is an investment partnership. Prior to
his experience as an investor, Mr. Rubenstein served as the founder of several
technology companies, including Applied Digital Data Systems, Inc. and
Cheyenne Software, Inc. Mr. Rubenstein also serves as a director of
Infonautics, Inc., The Milbrook Press, Inc. and Source Media Inc.

ITEM 2. PROPERTIES

The Company's principal administrative, sales, marketing, training, and
research and development facilities occupy approximately 27,100 square feet in
a single building in Santa Clara, California, pursuant to a lease that expires
in January 2007. All Company-owned offices also lease their facilities. The
Company believes its current facilities are adequate to meet its needs for the
foreseeable future. No facilities have been identified for acquisition in
connection with potential acquisition candidates and the Company does not
anticipate acquiring property or buildings in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

16
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock, $0.001 par value, has been traded on the Nasdaq
National Market System under the symbol USWB since December 5, 1997. Prior to
that, there was no public market for the Company's Common Stock. The high and
low per share closing prices for the Company's Common Stock for the period
from December 5, 1997 through December 31, 1997 are set forth below. Price
data reflect actual transactions, but do not reflect mark-ups, mark-downs or
commissions.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997 HIGH LOW
----------------------------------- ------ -----
<S> <C> <C>
Fourth Quarter (from December 5, 1997)...................... $13.13 $8.50
</TABLE>

The trading price of the Company's Common Stock has been and in the future
could be subject to wide fluctuations in response to quarterly variations in
operating results, announcements of new services or business acquisitions by
the Company or its competitors, the gain or loss of client accounts, changes
in estimates of revenues or earnings by securities analysts, changes in the
mix of revenues derived by the Company from new projects as compared to other
projects and other events or factors. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations that have
particularly affected the market price of many technology-oriented companies
and that often have been unrelated or disproportionate to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. The trading prices of
many high technology and Internet-related companies' stocks, including the
Common Stock of the Company, are at or near their historical highs and reflect
price/earning ratios substantially above historical norms. There can be no
assurance that the trading price of the Company's Common Stock will remain at
or near its current level.

As of April 7, 1998, there were approximately 455 stockholders of record.

The Company currently intends to retain future earnings to fund the
development and growth of its business and therefore does not anticipate
paying cash dividends within the foreseeable future. Any future payment of
dividends will be determined by the Company's Board of Directors and will
depend on the Company's financial condition, results of operations and other
factors deemed relevant by its Board of Directors.

REPORT OF OFFERING OF SECURITIES AND USE OF PROCEEDS THEREFROM

In December 1997, the Company completed a firm commitment underwritten
initial public offering of 5,750,000 shares (the "Shares") of its Common
Stock, including 750,000 shares related to the underwriter's over-allotment
option, at a price of $7.50 per share. The Shares were registered with the
Securities and Exchange Commission pursuant to a Registration Statement on
Form S-1 (No. 333-36827), which was declared effective on December 5, 1997.
The public offering was underwritten by a syndicate of underwriters led by
Hambrecht & Quist LLC, Donaldson, Lufkin & Jenrette Securities Corporation,
Wessels Arnold & Henderson, L.L.C. and First Albany Corporation, as their
representatives. After deducting underwriting discounts and commissions of
$3,018,750 and expenses of approximately $1,797,000, the Company received net
proceeds of approximately $38,309,250.

As of December 31, 1997, the Company has used the net proceeds from its
initial public offering for the following purposes: $531,000 for professional
service fees and $2,500,000 for other operating activities.

17
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The statement of operations data set forth below
with respect to the years ended December 31, 1997 and 1996 and the balance
sheet data at December 31, 1997 and 1996 are derived from, and are qualified
by reference to, the audited consolidated financial statements of the Company
included elsewhere in this Annual Report on Form 10-K. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." No
cash dividends were declared in any of the periods presented.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA (1):
Revenues:
Services........................................... $ 18,366 $ --
Other.............................................. 912 1,820
----------- -----------
Total revenues................................... 19,278 1,820
----------- -----------
Cost of revenues:
Services........................................... 13,468 --
Other.............................................. 1,294 208
Stock compensation (2)............................. 2,420 --
----------- -----------
Total cost of revenues........................... 17,182 208
----------- -----------
Gross profit......................................... 2,096 1,612
----------- -----------
Operating expenses:
Marketing, sales and support....................... 20,672 12,764
General and administrative......................... 10,271 2,813
Acquired in-process technology (2)................. 9,472 --
Stock compensation (2)............................. 6,698 --
Amortization of intangible assets (2).............. 9,476 --
----------- -----------
Total operating expenses......................... 56,589 15,577
----------- -----------
Loss from operations................................. (54,493) (13,965)
Interest income...................................... 233 215
Interest expense..................................... (76) (58)
Impairment of investee carried at cost............... (4,000) --
----------- -----------
Net loss............................................. $ (58,336) $ (13,808)
=========== ===========
Net loss per share:
Basic and diluted (3).............................. $ (7.98) $ (10.35)
=========== ===========
Weighted average shares outstanding (3)............ $ (7,312) $ 1,334
=========== ===========
Supplemental pro forma net loss per share:
Basic and diluted (3).............................. $ (4.78) $ (2.46)
=========== ===========
Weighted average shares outstanding (3)............ 12,193 5,620
=========== ===========
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................................... $44,145 $ 3,220
Working capital............................................... 40,516 73
Total assets.................................................. 79,250 7,482
Lease obligations, long term portion.......................... 372 436
Mandatorily Redeemable Convertible Preferred Stock............ -- 16,200
Stockholders' equity.......................................... 66,689 (12,492)
</TABLE>
- ---------------------
(1) The Company was incorporated on December 6, 1995 and had insignificant
activities from inception through December 31, 1995, which have been
included in the 1996 financial statements to facilitate presentation.
(2) These expenses are non-cash acquisition-related charges incurred as a
result of the Company's acquisition program. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 1
to Consolidated Financial Statements.
(3) See computation of net loss per share in Note 2 to the Consolidated
Financial Statements.

19
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements that involve risks and
uncertainties, including statements regarding the Company's strategy,
financial performance, and revenue sources. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth under "Risk Factors" below
and elsewhere in this report.

OVERVIEW

From December 6, 1995 (inception) to March 31, 1997, the Company's operating
activities related primarily to recruiting personnel, raising capital,
preparing and securing approval of its Uniform Franchise Offering Circular and
conducting business as a franchisor of Internet professional services firms.
Each such firm that entered into a franchise agreement with USWeb was
designated an "Affiliate." In March 1997, the Company entered into its last
Affiliate agreement and does not expect to enter into any additional Affiliate
agreements. In the first quarter of 1997, the Company initiated the second
phase of its corporate development strategy and began to acquire Internet
professional services firms, starting with certain qualified Affiliates. To
date, the Company has derived its revenues from a combination of service
revenues generated by its Company-owned offices and fees paid by its
Affiliates. The Company expects that revenues attributable to its Company-
owned offices, which represented approximately 95% of total revenues for the
year ended December 31, 1997, will increase as a percentage of total revenues.
Because of this transition in business strategy from a franchising model to
one based on Company-owned operations, the Company believes that its
historical financial statements for periods ending on or before March 31, 1997
are not indicative of future operating results.

The Company has only a limited operating history upon which to base an
evaluation of its business and prospects. The Company and its prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development, particularly
companies in new and rapidly evolving markets such as Internet professional
services. Such risks for the Company include, but are not limited to, an
evolving business model and the management of both internal and acquisition-
based growth. To address these risks, the Company must, among other things,
continue to expand its network of consulting offices, continue to develop the
strength and quality of its operations, maximize the value delivered to
clients, enhance the USWeb brand, respond to competitive developments and
continue to attract, retain and motivate qualified employees. There can be no
assurance that the Company will be successful in meeting these challenges and
addressing such risks, and the failure to do so could have a material adverse
effect on the Company's business, results of operations and financial
condition. The Company has incurred net losses since inception, and as of
December 31, 1997 had an accumulated deficit of $72.1 million. Although the
Company has experienced revenue growth in recent months, such growth rates may
not be sustainable or indicative of future operating results. The Company
expects to continue to incur substantial operating losses through at least
1998, and there can be no assurance that the Company will achieve or sustain
profitability. See "Risk Factors--Limited Operating History; Accumulated
Deficit."

20
<PAGE>

ACQUISITION OF INTERNET PROFESSIONAL SERVICES FIRMS

The Company began to acquire selected Internet professional services firms
in the first quarter of 1997. The Company transitioned from a franchise-based
business model to one based on Company-owned operations to provide greater
economies of scale, enable the consulting offices to focus on providing
Internet professional services and facilitate their growth by furnishing
needed working capital. All acquisitions to date have been structured as
stock-for-stock mergers. However, the Company is currently negotiating one
asset acquisition and one international acquisition that include consideration
other than stock. See Note 1 to Consolidated Financial Statements.

The Company uses a consistent valuation and process methodology for its
acquisitions. The Company determines the initial purchase price of each
candidate company based on quantitative factors, including historical
revenues, profitability, financial condition and contract backlog, and the
Company's qualitative evaluation of the candidate's management team,
operational scalability and customer base. The Company typically acquires
suitable candidates through mergers in exchange for shares of USWeb Common
Stock. Generally, on the closing date of the acquisition, at least fifty
percent of the shares to be issued are deposited into a one-year escrow and
the remaining shares are delivered to the acquired company's shareholders. The
acquired company is valued again, typically at each of six and twelve months
after the date of consolidation, and additional shares are issued or escrowed
shares are returned depending on whether the valuation has increased or
decreased. After all such purchase price adjustments have been made, all
shares remaining in escrow are issued to the acquired company's shareholders.
The Company expects to continue using this valuation methodology for future
acquisitions. The Company's acquisition program will result in substantial
ownership dilution to investors. See "Risk Factors--Dilution" and Note 1 to
Consolidated Financial Statements.

The acquisitions have been accounted for using the purchase method of
accounting. For each acquisition, a portion of the purchase price is allocated
to the tangible and identifiable intangible assets acquired and liabilities
assumed based on their respective fair values on the acquisition date.
Identifiable intangible assets include both (i) amounts allocated to in-
process technology and immediately charged to operations and (ii) amounts
allocated to completed technology and amortized on a straight-line basis over
the estimated useful life of the technology of six months. The portion of the
purchase price in excess of tangible and identifiable intangible assets and
liabilities assumed is allocated to goodwill and amortized on a straight-line
basis over the estimated period of benefit, which ranges from one to two
years. The results of operations of the acquired entity are consolidated with
those of the Company as of the date the Company acquires effective control of
the entity, which generally occurs prior to the formal legal closing of the
transaction and the physical exchange of acquisition consideration.

All target company employees and non-employee shareholders that enter into
consulting agreements are granted options to purchase shares of the Company's
Common Stock. Each option becomes exercisable over a 36-month period and has
an exercise price per share equal to at least the fair market value of a share
of USWeb Common Stock on the date of grant. Additional options are granted at
the six and twelve-month re-valuation dates if the target company's formula-
based valuation increases. Each optionee is also given the right to receive a
stock bonus at the time an option is granted. The stock bonus, which has a
share price equal to the fair market value of USWeb Common Stock at the time
of exercise, vests at the same rate as the corresponding option and is equal
in value to the aggregate exercise price of this option. The stock bonus is
payable at the earlier of three years from the date of grant or upon
termination of employment. The stock bonus amount is amortized ratably over a
36-month period and recorded as compensation expense. This charge is
identified as "Stock Compensation" and allocated to cost of revenues or
operating expenses depending on whether the optionee is acting in a service
delivery or administrative capacity.

As a result of both the purchase accounting adjustments and the stock
compensation charges described above, the Company has incurred significant
non-cash expenses related to its acquisitions. For example, for the year ended
December 31, 1997, stock compensation expense included in cost of revenues
totaled

21
<PAGE>

$2.4 million, stock compensation expense included in operating expenses
totaled $6.7 million and amortization of intangible assets totaled $9.5
million, all of which were related to acquisition of the initial nineteen
Company-owned offices. In addition, the Company has recognized an aggregate
cost of $9.5 million for acquired in-process technology related to these
acquisitions. The Company expects these acquisition-related non-cash expenses
to increase as it continues its acquisition program.

To capitalize on the growth opportunities for a newly acquired consulting
office, the Company generally hires a number of additional Internet
professionals during the three-month period following the office's integration
into the USWeb network. The capacity utilization rates of these new employees
are initially not as high as those of seasoned employees because of the time
spent on training and professional development. Consequently, the Company
expects that the cost of service revenues as a percentage of service revenues
of an integrated office will generally increase during the first three months
following such integration. The Company believes that this investment in
training and professional development will contribute to its ability to meet
its growth targets.

The successful implementation of the Company's acquisition strategy depends
on the Company's ability to identify suitable acquisition candidates, acquire
such companies on acceptable terms and integrate their operations successfully
with those of the Company. There can be no assurance that the Company will be
able to do so. Moreover, in pursuing acquisitions the Company may compete with
companies with similar acquisition strategies, certain of which competitors
may be larger and have greater financial and other resources than the Company.
Competition for these acquisition targets could also result in increased
prices for acquisition targets and a diminished pool of companies available
for acquisition. Acquisitions also involve a number of other risks, including
adverse effects on the Company's reported operating results from increases in
goodwill amortization, acquired in-process technology, stock compensation
expense and increased compensation expenses resulting from newly hired
employees, the diversion of management attention, risks associated with the
subsequent integration of acquired businesses, potential disputes with the
sellers of one or more acquired entities and the failure to retain key
acquired personnel. Client satisfaction or performance problems with an
acquired firm could also have a material adverse impact on the reputation of
the Company as a whole, and any acquired subsidiary could significantly under-
perform relative to the Company's expectations. For all of these reasons, the
Company's pursuit of an overall acquisition strategy or any individual
completed, pending or future acquisition may have a material adverse effect on
the Company's business, results of operations and financial condition. To the
extent the Company chooses to use cash consideration in the future to pay for
all or part of any acquisitions, the Company may be required to obtain
additional financing, and there can be no assurance that such financing will
be available on favorable terms, if at all. See "Risk Factors--Risks Related
to Acquisitions" and "--Future Capital Needs; Uncertainty of Additional
Financing."

SOURCES OF REVENUES

The Company operated under its Affiliate model from December 1995
(inception) through the first quarter of 1997. During that period, revenues
were derived almost exclusively from initial fees and monthly royalties from
Affiliates. Initial fees were typically recognized when received because all
obligations required of USWeb by the Affiliate agreement were substantially
performed concurrently with the execution of the agreement. Monthly royalties
are equal to the greater of (a) a minimum monthly payment or (b) the aggregate
of a five percent royalty and a two percent marketing promotion fee applied to
each Affiliate's "Adjusted Gross Revenues," defined as the Affiliate's gross
revenues from Internet professional services less (i) rebates, discounts and
taxes the Affiliate is required to collect, (ii) the Affiliate's direct cost
for third-party hardware and software resold to clients, (iii) Internet access
services purchased from USWeb-approved suppliers and resold to clients, and
(iv) certain other goods and services purchased and resold to clients. Monthly
royalty revenue is recognized as reported by the Affiliate to the Company.
During the year ended December 31, 1997, revenues from Affiliates were
insignificant.

22
<PAGE>

In the first quarter of 1997, the Company ended its program for attracting
new Affiliates and initiated the acquisition phase of its corporate
development strategy. As discussed above under "--Acquisition of Internet
Professional Services Firms," the Company consolidates the financial
statements of acquired entities beginning on the date the Company assumes
effective control of those entities. Revenues from Company-owned operations
consist of fees for consulting services rendered over the course of an
engagement, recognized primarily on a percentage-of-completion basis. The
services offered by the Company include strategy consulting; analysis and
design; technology development; implementation and integration; audience
development; and maintenance. Each engagement is billed over the course of the
engagement on either a time and materials basis or a fixed-price basis.
Billable rates vary by the service provided and geographical region and
typically range from $100 to $250 per hour. Although a majority of engagements
are currently performed on a time and materials basis, the Company intends to
increase the percentage of engagements billed on a fixed-price basis. The
pricing, management and execution of individual engagements are the
responsibility of the consulting office that performs or coordinates the
services. The Company also recognizes revenues from third-party hardware,
software, Internet access and hosting services (which include hardware,
software, connectivity and support that allows users to access a website) and
certain other goods and services purchased and resold to clients; however,
revenues from such activities have been immaterial to date.

To date, the Company has had only limited experience with fixed-price
engagements. The Company's failure to estimate accurately the resources and
time required for an engagement, to manage effectively client expectations
regarding the scope of services to be delivered for the estimated fees or to
complete fixed-price engagements within budget, on time and to clients'
satisfaction would expose the Company to risks associated with cost overruns
and, in certain cases, penalties, any of which could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Risk Factors--Risks of Fixed-Price Engagements."

COST STRUCTURE

Consulting offices owned by the Company recognize revenues primarily using
the percentage-of-completion method. Direct costs, such as personnel salaries
and benefits and the cost of any third-party hardware or software included in
an Internet solution, and related overhead expenses, such as depreciation and
occupancy charges, associated with the generation of the revenues are
classified as cost of revenues. The technology, sales, marketing and
administrative costs of each Company-owned office are classified as operating
expenses. Corporate expenses are primarily classified as operating expenses.
Marketing, sales and support expenses include product and service research,
advertising, brand name promotions and lead-generation activities, as well as
the salary and benefits costs of the personnel in these functions. General and
administrative expenses include accounting, legal and human resources costs.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997 AND 1996

Revenues. Total revenues increased to $19.3 million for the year ended
December 31, 1997 from $1.8 million for the year ended December 31, 1996. This
increase was primarily attributable to the Company beginning its acquisition
program in the first quarter of 1997. No service revenues were recorded for
the year ended December 31, 1996 because during this period the Company did
not have any Company-owned offices and instead derived its revenues from
initial fees and monthly royalties from Affiliates. The Company anticipates
that revenues will be impacted in future periods as a result of internal
growth and as a result of acquisitions of additional Internet professional
service firms.

Cost of Revenues. Cost of revenues increased to $17.2 million for the year
ended December 31, 1997 from $208,000 for the year ended December 31, 1996.
The increase in cost of revenues was primarily attributable to the cost of
revenues associated with Company-owned offices subsequent to their respective
acquisition dates. The Company anticipates that cost of revenues will increase
in absolute dollars as service

23
<PAGE>

fees generated by the Company-owned offices and the level of services
increases, and as a result of acquisitions of additional Internet professional
service firms.

Marketing, Sales and Support Expenses. Marketing, sales and support expenses
increased to $20.7 million for the year ended December 31, 1997 from $12.8
million for the year ended December 31, 1996. This increase was primarily
attributable to USWeb branding campaigns, increases in personnel to support
the growth in the Company's operations and the consolidation of the results of
operations of Internet professional services firms with those of the Company
throughout 1997. In addition, during December 1997, the Company recognized a
non-cash charge of $1.25 million associated with the discounted sale of Common
Stock to Intel Corporation. The Company anticipates that marketing, sales and
support expenses will increase in future periods in absolute dollars as it
continues to pursue an aggressive brand building strategy and continues to
acquire and consolidate the results of Internet professional service firms.

General and Administrative Expenses. General and administrative expenses
increased to $10.3 million for the year ended December 31, 1997, from $2.8
million for the year ended December 31, 1996. This increase was primarily
attributable to a non-cash compensation charge of $1.1 million during the
quarter ended September 30, 1997, related to the Company's decision to end its
program for attracting new Affiliates and increases in personnel to support
the internal growth in the Company's operations and the consolidation of the
results of operations of acquired Internet professional services firms with
those of the Company throughout 1997. The Company believes that the absolute
dollar level of general and administrative expenses will increase in future
periods, as a result of increased staffing, fees for professional services,
and costs associated with acquiring and consolidating the results of Internet
professional service firms with those of the Company.

Acquired In-Process Technology. The Company recognized the cost of acquired
in-process technology totaling $9.5 million during the year ended December 31,
1997. The Company did not record any such expenses for the year ended December
31, 1996, because the Company did not acquire any entities during such period.
The acquired in-process technology had not reached the stage of technological
feasibility at the date of acquisition and had no alternative future use. The
Company anticipates that acquired in-process technology expenses will increase
in future periods in absolute dollars as it continues to acquire Internet
professional service firms with in-process technology.

Stock Compensation. Stock compensation expense relating to stock bonus
awards to employees of acquired entities totaled $6.7 million for the year
ended December 31, 1997. The Company did not record any such expenses for the
year ended December 31, 1996 because the Company did not acquire any entities
during such period. The Company anticipates that stock compensation expense
will increase in future periods in absolute dollars as it continues to acquire
Internet professional service firms.

Amortization of Intangible Assets. Amortization of intangible assets,
consisting primarily of purchased technology and goodwill, was $9.5 million
for the year ended December 31, 1997. The Company did not record any such
expenses for the year ended December 31, 1996 because the Company did not
acquire any entities during such period. The Company anticipates that costs
related to the amortization of intangible assets will increase in future
periods in absolute dollars as it continues to acquire Internet professional
service firms.

Impairment of Investee. During June 1997, the Company recognized an
impairment provision totaling $4.0 million, representing the total amount of
its cost basis investment in Utopia, Inc., an independent Internet consulting
firm. In assessing the level of impairment, the Company considered the
entity's current financial position, recent operating performance and the
likelihood of recovery of some or all of its investment in the event of
liquidation, sale or merger.

Income Taxes. No provision for federal and state income taxes was recorded
for either of the years ended December 31, 1997 and 1996 because the Company
incurred net operating losses in each of those periods.

24
<PAGE>

Net Loss. Net losses for the years ended December 31, 1997 and 1996 were
$58.3 million and $13.8 million, respectively. The increase in the net loss
was primarily attributable to increases in marketing, sales and support
expenditures, approximately $28.1 million of non-cash charges associated with
the Company's acquisition program and a $4.0 million impairment charge
relating to an investee carried at cost.

FACTORS AFFECTING OPERATING RESULTS

The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside the Company's
control. These factors include the level of demand for Intranet, Extranet and
Web site development; the productivity of the Company's consulting offices;
the Company's success in finding and acquiring suitable acquisition
candidates; the Company's ability to attract and retain personnel with the
necessary strategic, technical and creative skills required to service clients
effectively; the cost of advertising and related media; the amount and timing
of expenditures by USWeb clients for Internet professional services; client
budgetary cycles; the amount and timing of capital expenditures and other
costs relating to the expansion of the Company's operations; the introduction
of new products or services by the Company or its competitors; pricing changes
in the industry; technical difficulties with respect to the use of the
Internet; economic conditions specific to Internet technology usage; and
general economic conditions. As a strategic response to changes in the
competitive environment, the Company may from time to time make certain
pricing, service, technology or marketing decisions or business or technology
acquisitions that could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company may also
experience seasonality in its business in the future, resulting in diminished
revenues to the Company as a consequence of decreased demand for Internet
professional services during summer and year-end vacation and holiday periods.
Due to all of the foregoing factors, in some future period the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Company's Common Stock
would likely be materially and adversely affected. See "Risk Factors--
Potential Fluctuations in Quarterly Results."

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The adoption of both
statements are required for fiscal years beginning after December 15, 1997.
Under SFAS No. 130, companies are required to report in their financial
statements, in addition to net income, comprehensive income including, as
applicable, foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and equity
securities. SFAS No. 131 requires that companies report separately in their
financial statements certain financial and descriptive information about
operating segments, if applicable. The Company does not expect the adoption of
SFAS No. 130 or SFAS No. 131 to have any financial impact on the Company's
consolidated financial statements and is currently assessing the disclosure
requirements of the new pronouncements.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, the Company had approximately $44.1 million in cash
and cash equivalents. In December 1997, the Company completed an initial
public offering of its Common Stock, resulting in net proceeds to the Company
of approximately $38.3 million. The Company has also financed its operations
through private sales of equity securities. For the period from December 6,
1995 (inception) to December 31, 1997, the Company used approximately $34.2
million and approximately $4.4 million to fund operating activities and
capital equipment purchases, respectively. These operating and investing
expenditures were financed primarily with the net proceeds from private sales
of Preferred Stock totaling approximately $32.5 million, the issuance of
Common Stock totaling approximately $2.0 million, the issuance of $500,000 in
promissory notes that were subsequently converted into Common Stock and
equipment lease obligations totaling approximately $1.0 million.

25
<PAGE>

In October 1997, the Company entered into a credit facility with a bank that
allows the Company to borrow up to a maximum of $3.0 million to finance
various equipment purchases. As of December 31, 1997, borrowings outstanding
under the credit facility approximated $431,000. Expenditures for property and
equipment, including those subsequently financed under capitalized equipment
leases, are primarily for purchases of computer hardware and software used in
the Company's operations, including expenditures for management information
and communications systems.

In November 1997, the Company obtained a bridge loan facility from a bank.
Under the terms of the facility the Company borrowed $2.0 million, which was
secured by substantially all of the Company's assets. The loan accrued
interest at the bank's prime rate plus 1%. On December 10, 1997, the Company
repaid the outstanding amount.

In addition to the 5,750,000 shares of Common Stock sold by the Company in
its initial public offering, including the underwriter's over-allotment
option, contemporaneously with that offering the Company sold to Intel in a
private placement 1,666,666 shares of unregistered Common Stock at a price of
$6.00 per share. Such sale was effected pursuant to a separate agreement with
Intel entered into in November 1997 and not pursuant to the Underwriting
Agreement entered into by the Company in connection with its initial public
offering.

During March and April 1998, the Company completed a follow-on public
offering. As part of such offering, the Company sold 1,581,216 shares of
Common Stock, including the underwriters' over-allotment, at $22.00 per share,
resulting in net proceeds of $32.3 million, after commissions and related
expenses. Additionally, the Company received $2.7 million from the exercise of
stock options and warrants exercised by option and warrant holders who
participated as selling stockholders in the follow-on offering.

The Company believes that current cash and cash equivalent balances,
borrowings available under its credit facilities and proceeds from the private
placement, will be sufficient to fund its requirements for working capital and
capital expenditures for at least the next 12 months. Thereafter the Company
may sell additional equity or debt securities or seek additional credit
facilities. Sales of additional equity or convertible debt securities would
result in additional dilution to the Company's stockholders. The Company may
need to raise additional funds sooner in order to support more rapid
expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or
take advantage of unanticipated opportunities. The Company's future liquidity
and capital requirements will depend upon numerous factors, including the
success of the Company's existing and new service offerings and competing
technological and market developments. See "Risk Factors--Future Capital
Needs; Uncertainty of Additional Financing."

RISK FACTORS

Limited Operating History; Accumulated Deficit. The Company was founded in
December 1995 and enrolled its first franchisee ("Affiliate") in April 1996.
Accordingly, the Company has only a limited operating history on which to base
an evaluation of its business and prospects. The Company and its prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development, particularly
companies in new and rapidly evolving markets such as Internet professional
services. Such risks for the Company include, but are not limited to, an
evolving business model and the management of both internal and acquisition-
based growth. To address these risks, the Company must, among other things,
continue to expand its network of consulting offices, continue to develop the
strength and quality of its operations, maximize the value delivered to
clients by the USWeb Internet Strategy and Solutions Center (the "Strategy and
Solutions Center"), enhance the USWeb brand, respond to competitive
developments and continue to attract, retain and motivate qualified employees.
There can be no assurance that the Company will be successful in meeting these
challenges and addressing such risks and the failure to do so could have a
material adverse effect on the Company's business, results of operations and
financial condition.

The Company has incurred net losses since inception, and as of December
31,1997 had an accumulated deficit of $72.1 million. Although the Company has
experienced revenue growth in recent months, such growth rates may not be
sustainable or indicative of future operating results. In addition, the
Company intends

26
<PAGE>

to continue to invest heavily in acquisitions, infrastructure development and
marketing. As a result, the Company expects to continue to incur substantial
operating losses at least through 1998, and there can be no assurance that the
Company will achieve or sustain profitability. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Risks Related to Acquisitions. A key component of the Company's growth
strategy is the acquisition of Internet professional service firms that meet
the Company's criteria for revenues, profitability, growth potential and
operating strategy. The successful implementation of this strategy depends on
the Company's ability to identify suitable acquisition candidates, acquire
such companies on acceptable terms and integrate their operations successfully
with those of the Company. As of April 7, 1998, the Company had acquired 21
companies and five additional acquisitions were probable. These agreements
contain protective rights and certain conditions to closing, and there can be
no assurance that such protective rights and closing conditions will be
satisfied or that these acquisitions will be consummated. In addition, there
can be no assurance that the Company will be able to continue to identify
additional suitable acquisition candidates or that the Company will be able to
acquire such candidates on acceptable terms. Moreover, in pursuing acquisition
opportunities the Company may compete with other companies with similar growth
strategies, certain of which competitors may be larger and have greater
financial and other resources than the Company. Competition for these
acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. Acquisitions also involve a number of other risks, including
adverse effects on the Company's reported operating results from increases in
goodwill amortization, acquired in-process technology, stock compensation
expense and increased compensation expense resulting from newly hired
employees, the diversion of management attention, potential disputes with the
sellers of one or more acquired entities and the possible failure to retain
key acquired personnel. Client satisfaction or performance problems with an
acquired firm could also have a material adverse impact on the reputation of
the Company as a whole, and any acquired subsidiary could significantly
underperform relative to the Company's expectations. Because substantially all
of the Company's acquisitions were completed in the past 12 months, the
Company is currently facing all of these challenges and its ability to meet
them over the long term has not been established. For all these reasons, the
Company's pursuit of an overall acquisition strategy or any individual
completed, pending or future acquisition may have a material adverse effect on
the Company's business, results of operations and financial condition. To the
extent the Company chooses to use cash consideration for acquisitions in the
future, the Company may be required to obtain additional financing, and there
can be no assurance that such financing will be available on favorable terms,
if at all. As the Company issues stock to complete future acquisitions,
existing stockholders will experience further ownership dilution. See "--
Dilution," "--Future Capital Needs; Uncertainty of Additional Financing,"
"Business--Consulting Office Network Development" and Note 1 to Consolidated
Financial Statements.

Potential Fluctuations in Quarterly Results. As a result of the Company's
limited operating history, rapid growth and the emerging nature of the markets
in which it competes, the Company's historical financial data is of limited
value in planning future operating expenses. Accordingly, the Company's
expense levels are based in part on its expectations concerning future
revenues and are fixed to a large extent. The Company's revenues are derived
primarily from consulting fees for Internet solution engagements, which are
difficult to forecast accurately. The Company may be unable to adjust spending
in a timely manner to compensate for any unexpected shortfall in revenues.
Accordingly, a significant shortfall in demand for the Company's services
could have an immediate and material adverse effect on the Company's business,
results of operations and financial condition. Further, the Company intends to
increase its business development and marketing expenses significantly to
expand operations and enhance the Company's brand name and to increase other
operating expenses as required to build the Strategy and Solutions Center and
support the operations of the Company's consulting offices. To the extent that
such expenses precede or are not rapidly followed by increased revenues, the
Company's business, results of operations and financial condition may be
materially adversely affected.

The Company's quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside the
Company's control. These factors include the level of demand for Intranet,
Extranet and Web site development; the productivity of the Company's
consulting offices; the

27
<PAGE>

Company's success in finding and acquiring suitable acquisition candidates;
the Company's ability to attract and retain personnel with the necessary
strategic, technical and creative skills required to service clients
effectively; the cost of advertising and related media; the amount and timing
of expenditures by USWeb clients for Internet professional services; client
budgetary cycles; the amount and timing of capital expenditures and other
costs relating to the expansion of the Company's operations; the introduction
of new products or services by the Company or its competitors; pricing changes
in the industry; technical difficulties with respect to the use of the
Internet; economic conditions specific to Internet technology usage;
government regulation and legal developments regarding the use of the
Internet; and general economic conditions. As a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing, service, technology or marketing decisions or business or technology
acquisitions that could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company may also
experience seasonality in its business in the future, resulting in diminished
revenues to the Company as a consequence of decreased demand for Internet
professional services during summer and year-end vacation and holiday periods.
Due to all of the foregoing factors, in some future quarter the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Company's Common Stock
would likely be materially and adversely affected and litigation may ensue.

Recruitment and Retention of Internet Solutions Professionals. The Company's
business of delivering Internet professional services is labor intensive.
Accordingly, the Company's success depends in part on its ability to identify,
hire, train and retain consulting professionals who can provide the Internet
strategy, technology, marketing, audience development and creative skills
required by clients. There is currently a shortage of such personnel, and this
shortage is likely to continue for the foreseeable future. The Company
competes intensely for qualified personnel with other companies, and there can
be no assurance that the Company will be able to attract, assimilate or retain
other highly qualified technical, marketing and managerial personnel in the
future. The inability to attract and retain the necessary technical, marketing
and managerial personnel would have a material adverse effect on the Company's
business, results of operations and financial condition.

Competition; Low Barriers to Entry. The market for Internet professional
services is relatively new, intensely competitive, rapidly evolving and
subject to rapid technological change. The Company expects competition to
persist, intensify and increase in the future. The Company's competitors can
be divided into several groups: computer hardware and service vendors such as
IBM, DEC and Hewlett-Packard; advertising and media agencies such as CKS,
Foote, Cone & Belding and Ogilvy & Mather; Internet integrators and Web
presence providers such as iXL, Organic Online, Poppe Tyson and Proxicom;
large information technology consulting service providers such as Andersen
Consulting, Cambridge Technology Partners and EDS; telecommunications
companies such as AT&T and MCI; Internet and online service providers such as
America Online, NETCOM and UUNet; and software vendors such as Lotus,
Microsoft, Netscape, Novell and Oracle. Although only a few of these
competitors have to date offered a full range of Internet professional
services, several have announced their intention to offer comprehensive
Internet technology solutions. Furthermore, most of the Company's current and
potential competitors have longer operating histories, larger installed
customer bases, longer relationships with clients and significantly greater
financial, technical, marketing and public relations resources than the
Company, and could decide at any time to increase their resource commitments
to the Company's market. In addition, the market for Intranet, Extranet and
Web site development is relatively new and subject to continuing definition,
and, as a result, may better position the Company's competitors to compete in
this market as it matures. Competition of the type described above could
materially adversely affect the Company's business, results of operations and
financial condition.

There are relatively low barriers to entry into the Company's business.
Because professional services firms such as the Company rely on the skill of
their personnel and the quality of their client service, the Company has no
patented technology that would preclude or inhibit competitors from entering
the Internet professional services market. The Company expects that it will
face additional competition from new entrants into the market in the future.
There can be no assurance that existing or future competitors will not develop
or offer services that provide significant performance, price, creative or
other advantages over those offered by the

28
<PAGE>

Company, which could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Competition."

Management of Growth; Integration of Acquisitions. The Company's rapid
growth has placed, and is expected to continue to place, a significant strain
on the Company's managerial, operational, financial and other resources. As of
February 28, 1997, the Company had grown to 606 employees since its inception
in December 1995, and the Company expects that continued hiring of new
personnel will be required to support its business. The Company's future
success will depend, in part, upon its ability to manage its growth
effectively, which will require that the Company continue to implement and
improve its operational, administrative and financial and accounting systems
and controls and to expand, train and manage its employee base. There can be
no assurance that the Company's systems, procedures or controls will be
adequate to support the Company's operations or that the Company's management
will be able to achieve the rapid execution necessary to exploit the market
for the Company's business model. Furthermore, the Company's future
performance will depend on the Company's ability to integrate the
organizations acquired by the Company, which, even if successful, may take a
significant period of time, will place a significant strain on the Company's
resources, and could subject the Company to additional expenses during the
integration process. As a result, there can be no assurance that the Company
will be able to integrate acquired businesses successfully or in a timely
manner in accordance with its strategic objectives. If the Company is unable
to manage internal or acquisition-based growth effectively, the Company's
business, results of operations and financial condition will be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Strategy," "--Consulting
Office Network Development" and "--Employees."

Dilution. The Company has outstanding a large number of stock options and
warrants to purchase the Company's Common Stock with exercise prices
significantly below the current market price. To the extent such options or
warrants are exercised, there will be further dilution. The Company expects to
continue its acquisition program through at least the end of 1998, and
pursuant to a "shelf" Registration Statement has registered 16,666,667 shares
of its Common Stock which the Company intends to issue as acquisition
consideration and grant additional stock options and stock bonuses to the
employees of the acquired companies. Furthermore, the Company may be required,
pursuant to the terms of the definitive acquisition agreements, to issue
additional shares, stock options and stock bonuses to the shareholders and
employees of the acquired companies at each of six and twelve months after
acquisition of the acquired companies. For these reasons, the Company's
acquisition program will result in further substantial ownership dilution to
investors.

Uncertain Maintenance and Strengthening of the USWeb Brand. The Company
believes that maintaining and strengthening the USWeb brand is an important
aspect of its efforts to attract clients and that the importance of brand
recognition will increase due to the increasing number of companies entering
the market for Internet professional services. Promoting and positioning the
USWeb brand will depend largely on the success of the Company's marketing
efforts and the ability of the Company to provide high quality, reliable and
cost effective Internet solution strategy consulting, analysis and design,
technology development, implementation and integration, audience development
and maintenance services. If clients do not perceive the Company's services as
meeting their needs, or if the Company fails to market those services
effectively, the Company will be unsuccessful in maintaining and strengthening
its brand. In addition, while the Company centralizes its marketing efforts,
it provides client service through the individual consulting offices and
client dissatisfaction with the performance of a single office could tarnish
the perception of the USWeb brand as a whole. Furthermore, in order to promote
the USWeb brand in response to competitive pressures, the Company may find it
necessary to increase its marketing budget or otherwise increase its financial
commitment to creating and maintaining brand loyalty among clients. If the
Company fails to promote and maintain its brand, or incurs excessive expenses
in an attempt to promote and maintain its brand, the Company's business,
results of operations and financial condition will be materially adversely
affected. See "Business--Marketing" and "--Services."

Reliance Upon Key Strategic Relationships. The Company has established a
number of strategic relationships with leading hardware and software
companies, including Intel Corporation ("Intel"), Microsoft,

29
<PAGE>

Hewlett-Packard, Pandesic LLC ("Pandesic," the Internet company from Intel and
SAP America Inc. ("SAP")), Sun Microsystems, Inc. ("Sun Microsystems") and
Reuters Ltd. ("Reuters"). The loss of any one of these strategic relationships
would deprive the Company of the opportunity to gain early access to leading-
edge technology, cooperatively market products with the vendor, cross-sell
additional services and gain enhanced access to vendor training and support.
Maintenance of the Company's strategic relationships is based primarily on an
ongoing mutual business opportunity and a good overall working relationship.
The legal contracts associated with these relationships, certain of which are
terminable at-will by the parties, would not be sufficient to force the
strategic relationship to continue effectively if that were otherwise not in
the strategic partners' best interests. In the event that any strategic
relationship is terminated, the Company's business, results of operations and
financial condition may be materially adversely affected. See "Business--
Strategy" and "--Strategic Relationships."

Uncertain Adoption of Internet Solutions; Dependence on Client
Outsourcing. The market for the Company's services will depend upon the
adoption of Internet solutions by companies to improve their business
processes. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, lack of
development of complementary products, such as high speed modems and high
speed communication lines, implementation of competing technology, delays in
the development or adoption of new standards and protocols required to handle
increased levels of Internet activity, governmental regulation, or other
reasons. The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and volume of traffic.
There can be no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it by this continued growth. Moreover,
critical issues concerning the use of Internet solutions (including security,
reliability, cost, ease of deployment and administration and quality of
service) remain unresolved and may affect the growth of the use of such
technologies to solve business problems. The adoption of Internet solutions
for commerce and communications, particularly by those individuals and
enterprises that have historically relied on alternative means of commerce and
communication, generally requires the acceptance of a new way of conducting
business and exchanging information, which may be difficult for those with
substantial investments in alternate means that might be made obsolete. If
critical issues concerning the ability of Internet solutions to improve
business processes are not resolved or if the necessary infrastructure is not
developed, the Company's business, results of operations and financial
condition will be materially adversely affected.

Even if these issues are resolved, there can be no assurance that businesses
will elect to outsource the design, development and maintenance of their
Intranets, Extranets and Web sites to Internet professional services firms.
Companies may decide to assign the design, development and implementation of
Internet solutions to their internal information technology divisions, which
have ready access to both key client decision makers and the information
required to prepare proposals for such solutions. If independent providers of
Internet professional services prove to be unreliable, ineffective or too
expensive, or if software companies develop tools that are sufficiently user-
friendly and cost-effective, enterprises may choose to design, develop or
maintain all or part of their Intranets, Extranets or Web sites in-house. If
the market for the Company's services does not continue to develop or develops
more slowly than expected, or if the Company's services do not achieve market
acceptance, the Company's business, results of operations and financial
condition will be materially adversely affected. See "Business--Industry
Background" and "--Strategy."

Rapid Technological Change. The market for Internet professional services is
characterized by rapid technological change, changes in user and client
requirements and preferences, frequent new product and service introductions
embodying new processes and technologies and evolving industry standards and
practices that could render the Company's existing service practices and
methodologies obsolete. The Company's success will depend, in part, on its
ability to improve its existing services, develop new services and solutions
that address the increasingly sophisticated and varied needs of its current
and prospective clients, and respond to technological advances, emerging
industry standards and practices, and competitive service offerings. There can
be no assurance that the Company will be successful in responding quickly,
cost-effectively and sufficiently to these developments. If the Company is
unable, for technical, financial or other

30
<PAGE>

reasons, to adapt in a timely manner in response to changing market conditions
or client requirements, its business, results of operations and financial
condition would be materially adversely affected. See "Business--Strategy" and
"--Clients."

Risks Associated with International Operations and Expansion. The Company
intends to expand its operations into international markets. However, to date
the Company has not established any consulting office outside of the United
States and has no experience in either managing an international network of
consulting offices or in marketing services to international clients. The
Company expects to incur significant costs to do both. If revenues from
international consulting offices are not adequate to offset the expenses of
establishing and maintaining an international network and of localizing the
Company's marketing programs, the Company's business, results of operations
and financial condition could be materially adversely affected. There can be
no assurance that the Company will be able to establish and maintain
international consulting offices or market its services to international
clients. In addition to the uncertainty as to the Company's ability to
generate revenues from foreign operations and expand its international
presence, there are certain risks inherent in doing business on an
international level, such as unexpected changes in regulatory requirements,
export and import restrictions, tariffs and other trade barriers; difficulties
in staffing and managing foreign operations; potentially adverse differences
in business customs, practices, and norms; longer payment cycles; problems in
collecting accounts receivable; political instability; fluctuations in
currency exchange rates; software piracy; seasonal reductions in business
activity; and potentially adverse tax consequences, any of which could
adversely affect the Company's international operations. There can be no
assurance that one or more of the factors described above will not have a
material adverse effect on the Company's future international operations and,
consequently, on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Risks of Fixed-Price Engagements. The Company intends to increase the
percentage of its engagements that are billed on a fixed-price basis, as well
as the percentage of revenues derived from fixed-price engagements, as
distinguished from the Company's current principal method of billing on a time
and materials basis. To date, the Company has had only limited experience with
fixed-price engagements. The Company's failure to estimate accurately there
sources and time required for an engagement, to manage client expectations
effectively regarding the scope of services to be delivered for the estimated
fees or to complete fixed-price engagements within budget, on time and to
clients' satisfaction would expose the Company to risks associated with cost
overruns and, in certain cases, penalties, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

Risks of Franchising. USWeb has entered into franchise agreements with
Affiliates, which manage a number of its consulting offices. While these
agreements permit the Company to terminate the franchise relationship if an
Affiliate continues to under perform relative to other Affiliates, such an
Affiliate must be given at least 12 months to improve its performance.
Consequently, a significantly under performing Affiliate could adversely
affect the Company's reputation. In addition, a terminated Affiliate may
refuse to comply with the terms of the franchise agreement relating to
relinquishment of the USWeb brand and other Company intellectual property or
initiate litigation against the Company. The operational autonomy granted to
each Affiliate through the franchise structure, together with the absence of
certain territorial restrictions on its activities, may inhibit the Company's
control over its market presence or enable the Affiliate to compete with
Company-owned offices for client engagements. Further, despite implementation
of contractual safeguards and insurance against such a possibility, USWeb may
be held by a court to be responsible for some action or liability of an
Affiliate. Varying rights and protections under different state laws, lack of
control of Affiliate actions, or findings of vicarious liability for Affiliate
actions could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, if a significant
portion of the Affiliates chose not to work cooperatively, or if any
significant Affiliate or group of Affiliates were to leave the USWeb network,
the network would be correspondingly weaker. Furthermore, although for a
period of two years after the end of the Affiliate relationship the Affiliate
and key persons associated with the Affiliate are prohibited from certain
activities in competition with USWeb and from soliciting USWeb employees for

31
<PAGE>

alternate employment, enforceability of these restrictions will vary depending
on applicable state law. To the extent that the action or inaction of any
Affiliate proves deleterious to the reputation associated with the USWeb
brand, the Company's business, results of operations and financial condition
could be materially adversely affected.

Dependence on Key Personnel. The Company's performance is substantially
dependent on the continued services and on the performance of its executive
officers and other key employees, many of whom have worked together for only a
short period of time. Particularly in light of the Company's relatively early
stage of development, the Company is dependent on retaining and motivating
highly qualified personnel, especially its senior management. The Company does
not have "key person" life insurance policies on any of its executive
officers. The loss of the services of any of its executive officers or other
key employees could have a material adverse effect on the business, results of
operations or financial condition of the Company. See "Management."

Intellectual Property Risks. The Company regards its copyrights, trademarks,
trade secrets (including its methodologies, practices and tools) and other
intellectual property rights as critical to its success. To protect its rights
in these various intellectual properties, the Company relies on a combination
of trademark and copyright law, trade secret protection and confidentiality
agreements and other contractual arrangements with its employees, Affiliates,
clients, strategic partners, acquisition targets and others to protect its
proprietary rights. The Company has also registered several of its trademarks
in the U.S. and internationally. Effective trademark, copyright and trade
secret protection may not be available in every country in which the Company
offers or intends to offer its services. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate
or that third parties will not infringe or misappropriate the Company's
copyrights, trademarks and similar proprietary rights, or that the Company
will be able to detect unauthorized use and take appropriate steps to enforce
its rights. In addition, although the Company believes that its proprietary
rights do not infringe on the intellectual property rights of others, there
can be no assurance that other parties will not assert infringement claims
against the Company. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.

Potential Liability to Clients. Many of the Company's consulting engagements
involve the development, implementation and maintenance of applications that
are critical to the operations of its clients' businesses. The Company's
failure or inability to meet a client's expectations in the performance of its
services could injure the Company's business reputation or result in a claim
for substantial damages against the Company, regardless of the Company's
responsibility for such failure. In addition, the Company aggregates and makes
available through the Strategy and Solutions Center methodologies,
technologies and content, which may include confidential or proprietary client
information. Although the Company has implemented policies to prevent such
client information from being disclosed to unauthorized parties or used
inappropriately, any such unauthorized disclosure or use could result in a
claim for substantial damages. The Company attempts to limit contractually its
damages arising from negligent acts, errors, mistakes or omissions in
rendering Internet professional services; however there can be no assurance
that any contractual protections will be enforceable in all instances or would
otherwise protect the Company from liability for damages. Although the Company
maintains general liability insurance coverage, including coverage for errors
and omissions, there can be no assurance that such coverage will continue to
be available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The successful assertion of one or more large claims
against the Company that are uninsured, exceed available insurance coverage or
result in changes to the Company's insurance policies, including premium
increases or the imposition of a large deductible or co-insurance
requirements, could adversely affect the Company's business, results of
operations and financial condition.

Year 2000 Compliance. 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 to distinguish
21st century dates from 20th century dates. As a result, in less than two
years, computer systems and software used by many companies, including
customers and potential customers of the Company, may

32
<PAGE>

need to be upgraded to comply with such "Year 2000" requirements. Although the
Company believes that its internal systems are Year 2000 compliant, failure to
provide Year 2000 compliant business solutions to its customers could have a
material adverse effect on the Company's business, results of operations and
financial condition. Furthermore, the Company believes that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may
result in reduced funds available to purchase products and services such as
those offered by the Company, which could result in a material adverse effect
on the Company's business, results of operations and financial condition.

Future Capital Needs; Uncertainty of Additional Financing. The Company
currently anticipates that its available cash resources and credit facilities
will be sufficient to meet its presently anticipated working capital and
capital expenditure requirements for at least the next 12 months. However, the
Company may need to raise additional funds in order to support more rapid
expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or
take advantage of unanticipated opportunities. The Company's future liquidity
and capital requirements will depend upon numerous factors, including the
success of the Company's existing and new service offerings and competing
technological and market developments. The Company may be required to raise
additional funds through public or private financing, strategic relationships
or other arrangements. There can be no assurance that such additional funding,
if needed, will be available on terms acceptable to the Company, or at all.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants, which may
limit the Company's operating flexibility with respect to certain business
matters. Strategic arrangements, if necessary to raise additional funds, may
require the Company to relinquish its rights to certain of its intellectual
property. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the stockholders of the Company will
be reduced, stockholders may experience additional dilution in net book value
per share, and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. If
adequate funds are not available on acceptable terms, the Company may be
unable to develop or enhance its services and products, take advantage of
future opportunities or respond to competitive pressures, any of which could
have a material adverse effect on the Company's business, results of
operations and financial condition.

Government Regulation and Legal Uncertainties. The Company is not currently
subject to direct government regulation, other than pursuant to certain
franchising regulations, the securities laws and the regulations thereunder
applicable to all publicly owned companies, and laws and regulations
applicable to businesses generally, and there are currently few laws or
regulations directly applicable to access to or commerce on the Internet.
However, due to the increasing popularity and use of the Internet, it is
likely that a number of laws and regulations may be adopted at the local,
state, national or international levels with respect to the Internet covering
issues such as user privacy, freedom of expression, pricing of products and
services, taxation, advertising, intellectual property rights, information
security or the convergence of traditional communications services with
Internet communications. For example, the Telecommunications Act of 1996
imposes criminal penalties on anyone who distributes obscene or indecent
communications over the Internet. Although the federal courts have declared
the anti-indecency provisions of the Telecommunications Act unconstitutional,
the increased attention focused upon these liability issues as a result of the
Telecommunications Act could adversely affect the growth of the Internet and
therefore demand for the Company's services. In addition, because of the
growth in the electronic commerce market, Congress has held hearings on
whether to regulate providers of services and transactions in the electronic
commerce market, which regulations could negatively affect client demand for
Internet solutions that facilitate electronic commerce. Moreover, the adoption
of any such laws or regulations may decrease the growth of the Internet, which
could in turn decrease the demand for the Company's services or increase the
cost of doing business or in some other manner have a material adverse effect
on the Company's business, results of operations or financial condition. In
addition, the applicability to the Internet of existing laws governing issues
such as property ownership, copyrights and other intellectual property issues,
taxation, libel and personal privacy is

33
<PAGE>

uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
such laws intended to address these issues, including some recently proposed
changes, could create uncertainty in the marketplace which could reduce demand
for the Company's services or increase the cost of doing business as a result
of costs of litigation or increased service delivery costs, or could in some
other manner have a material adverse effect on the Company's business, results
of operations and financial condition.

Volatility of Stock Price. Prior to the Company's initial public offering in
December 1997, there was no public market for the Company's Common Stock. The
market price of the Company's Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to quarterly variations in
operating results, announcements of technological innovations or new products
by the Company or its competitors, changes in financial estimates by
securities analysts, or other events or factors. In addition, the stock market
has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many
technology companies and that often have been unrelated to the operating
performance of such companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Such litigation could result
in substantial costs and a diversion of management's attention and resources,
which would have a material adverse effect on the Company's business,
operating results and financial condition.

Effect of Certain Charter Provisions; Antitakeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law. The Board of Directors has the
authority to issue up to 1,000,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected 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 the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock.
Further, certain provisions of the Company's Amended and Restated Certificate
of Incorporation and Bylaws and of Delaware law could delay or make difficult
a merger, tender offer or proxy contest involving the Company.

Concentration of Stock Ownership. The present directors, executive officers
and their respective affiliates beneficially own a substantial portion,
although less than a majority, of the outstanding Common Stock. As a result,
these stockholders will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in
control of the Company.

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<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Accountants....................................... 36
Consolidated Balance Sheet at December 31, 1997 and 1996................ 37
Consolidated Statement of Operations for the years ended December 31,
1997 and 1996.......................................................... 38
Consolidated Statement of Stockholders' Equity (Deficit) for the years
ended December 31, 1997 and 1996....................................... 39
Consolidated Statement of Cash Flows for the years ended December 31,
1997 and 1996.......................................................... 40
Notes to Consolidated Financial Statements.............................. 41
Financial Statement Schedule:
For the years ended December 31, 1997 and 1996
II--Valuation and Qualifying Accounts................................... 57
</TABLE>

All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or
notes thereto.

35
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of USWeb Corporation and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years then ended, in conformity with generally accepted accounting principles.
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 of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP

San Jose, California
January 20, 1998,
except as to Note
12, which is as
of April 6, 1998

36
<PAGE>

USWEB CORPORATION

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 44,145 $ 3,220
Accounts receivable, net................................. 7,903 137
Other current assets..................................... 657 54
-------- --------
Total current assets................................... 52,705 3,411
Property and equipment, net................................ 6,202 1,084
Intangible assets, net..................................... 19,019 --
Investment in affiliate.................................... -- 2,850
Other assets............................................... 1,324 137
-------- --------
$ 79,250 $ 7,482
======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 2,923 $ 906
Accrued expenses......................................... 7,997 2,190
Deferred revenue ........................................ 470 --
Current portion of debt and lease obligations............ 799 242
-------- --------
Total current liabilities.............................. 12,189 3,338
Lease obligations, long-term portion....................... 372 436
-------- --------
12,561 3,774
-------- --------
Commitments and contingencies (Notes 1 and 11)
Mandatorily Redeemable Convertible
Preferred Stock (Note 7)................................. -- 16,200
-------- --------
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value, 1,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common Stock, $0.001 par value, 100,000,000 shares autho-
rized; 33,811,085 and 6,381,000 shares issued and out-
standing................................................ 29 2
Additional paid-in capital............................... 138,804 2,714
Note receivable.......................................... -- (1,400)
Accumulated deficit...................................... (72,144) (13,808)
-------- --------
Total stockholders' equity (deficit)................... 66,689 (12,492)
-------- --------
$ 79,250 $ 7,482
======== ========
</TABLE>

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

37
<PAGE>

USWEB CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Services................................................. $ 18,366 $ --
Other.................................................... 912 1,820
-------- --------
Total revenues......................................... 19,278 1,820
-------- --------
Cost of revenues:
Services................................................. 13,468 --
Other.................................................... 1,294 208
Stock compensation (Note 9).............................. 2,420 --
-------- --------
Total cost of revenues................................. 17,182 208
-------- --------
Gross profit............................................... 2,096 1,612
-------- --------
Operating expenses:
Marketing, sales and support............................. 20,672 12,764
General and administrative............................... 10,271 2,813
Acquired in-process technology (Note 1).................. 9,472 --
Stock compensation (Note 9).............................. 6,698 --
Amortization of intangible assets (Note 1)............... 9,476 --
-------- --------
Total operating expenses............................... 56,589 15,577
-------- --------
Loss from operations....................................... (54,493) (13,965)
Interest income............................................ 233 215
Interest expense........................................... (76) (58)
Impairment of investee carried at cost..................... (4,000) --
-------- --------
Net loss................................................... $(58,336) $(13,808)
======== ========
Net loss per share:
Basic and diluted (Note 2)............................... $ (7.98) $ (10.35)
======== ========
Weighted average shares outstanding (Note 2)............. 7,312 1,334
======== ========
</TABLE>

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

38
<PAGE>

USWEB CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL ACCUMU- STOCKHOLDERS'
------------------ PAID-IN NOTE LATED EQUITY
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT (DEFICIT)
---------- ------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock.................. 5,000,000 $ -- $ 1 $ -- $ -- $ 1
Issuance of Common Stock
for trade name rights.. 66,667 -- -- -- -- --
Conversion of notes
payable into
Common Stock........... 500,000 1 499 -- -- 500
Issuance of Common Stock
for note receivable.... 533,333 1 1,999 (2,000) -- --
Collection of note
receivable............. -- -- -- 600 -- 600
Exercise of stock
options................ 281,000 -- 30 -- -- 30
Issuance of Affiliate
warrants............... -- -- 169 -- -- 169
Stock compensation
expense................ -- -- 16 -- -- 16
Net loss................ -- -- -- -- (13,808) (13,808)
---------- ----- -------- ------- -------- --------
Balance December 31,
1996................... 6,381,000 2 2,714 (1,400) (13,808) (12,492)
Exercise of stock
options................ 103,079 -- 500 -- -- 500
Common Stock issued for
acquired businesses.... 7,949,683 8 41,384 -- -- 41,392
Issuance of Common
Stock, net ............ 7,638,889 7 51,202 -- -- 51,209
Conversion of
Mandatorily Redeemable
Convertible Preferred
Stock.................. 12,094,359 12 32,478 -- -- 32,490
Repurchase of Common
Stock.................. (355,925) -- -- -- -- --
Issuance of Affiliate
warrants............... -- -- 150 -- -- 150
Collection of note
receivable............. -- -- -- 1,400 -- 1,400
Stock compensation
expense................ -- -- 10,376 -- -- 10,376
Net loss................ -- -- -- -- (58,336) (58,336)
---------- ----- -------- ------- -------- --------
Balance December 31,
1997................... 33,811,085 $ 29 $138,804 $ -- $(72,144) $ 66,689
========== ===== ======== ======= ======== ========
</TABLE>

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

39
<PAGE>

USWEB CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $(58,336) $(13,808)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization............................... 1,464 263
Provision for doubtful accounts............................. 819 --
Stock, option and warrant costs and expenses................ 10,376 185
Discounted sale of Common Stock............................. 1,250 --
Amortization of intangible assets........................... 9,476 --
Acquired in-process technology.............................. 9,472 --
Impairment of investee carried at cost...................... 4,000 --
Changes in assets and liabilities:
Accounts receivable........................................ (4,080) (137)
Other current assets....................................... (187) (54)
Other assets............................................... (690) (137)
Accounts payable........................................... 177 906
Accrued expenses........................................... 2,194 2,190
Deferred revenues.......................................... 470 --
-------- --------
Net cash used in operating activities..................... (23,595) (10,592)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment......................... (3,335) (1,059)
Cash received from acquisitions, net of cash used............. 1,129 --
Purchase of investment in affiliate........................... (1,150) (2,850)
-------- --------
Net cash used in investing activities..................... (3,356) (3,909)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Mandatorily Redeemable
Convertible Preferred Stock.................................. 16,290 16,200
Proceeds from issuance of Common Stock........................ 50,459 31
Proceeds from bank borrowings................................. 2,000 --
Repayment of bank borrowings.................................. (2,000) --
Proceeds from issuance of notes payable....................... -- 500
Proceeds from collection of note receivable................... 1,400 600
Proceeds from capital lease financing......................... 431 599
Principal payments on capital lease........................... (704) (209)
-------- --------
Net cash provided by financing activities................. 67,876 17,721
-------- --------
Increase (decrease) in cash and cash equivalents............... 40,925 3,220
Cash and cash equivalents, beginning of period................. 3,220 --
-------- --------
Cash and cash equivalents, end of period....................... $ 44,145 $ 3,220
======== ========
</TABLE>

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

40
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

NOTE 1--THE COMPANY:

USWeb Corporation (the "Company") was incorporated in Utah on December 6,
1995 ("inception") and reincorporated in Delaware on December 2, 1997. Through
a nationwide network of wholly owned subsidiaries and franchised Affiliates,
the Company provides Internet professional services including strategy
consulting, analysis and design, technology development, implementation and
integration, audience development and maintenance.

From inception through May 31, 1996, the Company's operating activities
related primarily to recruiting personnel, raising capital, preparing and
securing approval of its Uniform Franchise Offering Circular, acquiring
operating assets and developing technical and marketing materials. The Company
signed its first franchise agreement in April 1996, recognized its first
revenues in June 1996 and signed its first definitive acquisition agreement in
March 1997.

During the year ended December 31, 1997, the Company recognized the
acquisition of all of the outstanding shares of nineteen businesses, including
certain franchised Affiliates ("Controlled Entities") in separate transactions
as follows:

<TABLE>
<CAPTION>
COMMON RECOGNIZED
EFFECTIVE SHARES PURCHASE
ACQUIRED ENTITY (FORMER BUSINESS NAME) DATE ISSUED PRICE
- -------------------------------------- ------------------ --------- ----------
<S> <C> <C> <C>
USWeb San Francisco (XCom Corporation)............... March 16, 1997 383,209 $ 1,609
USWeb Seattle (Cosmix Corporation)................... April 1, 1997 119,774 503
USWeb Milwaukee (Fetch Interactive, Inc.)............ April 1, 1997 464,838 1,397
USWeb LA Metro (NewLink Corporation)................. April 1, 1997 425,700 1,537
USWeb Atlanta (InterNetOffice, LLC).................. May 1, 1997 510,646 1,578
USWeb Silicon Valley (NetWORKERS Corporation)........ May 1, 1997 135,415 569
USWeb DC (Infopreneurs Inc.)......................... June 1, 1997 1,008,169 3,173
USWeb Phoenix (Netphaz Corporation).................. June 1, 1997 235,205 776
USWeb Pittsburgh (Electronic Images, Inc.)........... July 1, 1997 1,665,525 6,205
USWeb Chicago Metro (Multimedia Marketing &
Design Inc.)........................................ July 24, 1997 332,536 1,397
USWeb Hollywood (KandH, Inc.)........................ August 29, 1997 151,624 1,023
USWeb Hollywood (DreamMedia, Inc.)................... August 29, 1997 359,094 2,424
USWeb Marin (Internet Cybernautics, Inc)............. September 29, 1997 447,183 4,025
USWeb Long Island (Synergetix Systems Integration,
Inc.)............................................... September 30, 1997 151,716 1,365
USWeb Detroit (Online Marketing Company)............. September 30, 1997 95,730 861
USWeb San Mateo (Zendatta, Inc.)..................... September 30, 1997 176,360 1,587
USWeb LA Central (W3-design)......................... November 5, 1997 410,274 3,473
USWeb Houston (USWeb--Apex, Inc.).................... November 5, 1997 365,029 3,285
USWeb New York Central (Reach Networks, Inc.)........ November 13, 1997 511,656 4,605
--------- -------
7,949,683 $41,392
========= =======
</TABLE>

The acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the recognized purchase price has been allocated
to the tangible and identifiable intangible assets acquired and liabilities
assumed on the basis of their fair values on the acquisition dates.
Approximately $3,425 of the aggregate recognized purchase price was allocated
to net tangible assets consisting primarily of cash, accounts receivable,
property and equipment and accounts payable. The historical carrying amounts
of such net assets approximated their fair values. Approximately $9,472 was
allocated to in-process technology and was immediately charged to operations
because such in-process technology had not reached the stage of technological
feasibility at the acquisition dates and had no alternative future use.
Approximately $3,610 was allocated to existing technology and is being
amortized over its estimated useful life of six months. The purchase price in
excess of identified tangible and intangible assets and liabilities assumed in
the amount of $24,885 was allocated to goodwill and is being amortized over
its estimated useful life of one to two years. See Note 2.

41
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The acquisitions of the Controlled Entities have been structured as tax free
exchanges of stock, therefore, the differences between the recognized fair
values of the acquired assets, including intangible assets, and their
historical tax bases is not deductible for income tax purposes.

The fair value of the Company's Common Stock issued as consideration for the
acquisitions was determined, based upon a number of considerations. For
acquisitions recognized through July 24, 1997, the fair value of the Company's
Common Stock was estimated to be $4.20 per share, determined primarily by
reference to the $15,811 amount allocated to 2,818,193 shares of Series C
Mandatorily Redeemable Convertible Preferred Stock (excluding approximately
$1,690 allocated to detachable warrants to acquire 704,549 shares of Series C
Mandatorily Redeemable Convertible Preferred Stock). See Note 7. For
acquisitions recognized from August 29, 1997 through November 13, 1997, the
fair value of the Company's Common Stock was estimated to be $6.75 to $9.00
per share based upon a number of factors, including growth in the Company's
business and the private sale, in October, 1997, of 222,222 shares of Common
Stock to an independent third party at a price of $9.00 per share. See Note 8.
The fair values of purchased existing and in-process technologies were
determined by management using a risk-adjusted income valuation approach.

The various purchase agreements require that fifty percent of the shares
issuable at the acquisition date be placed in escrow for a period of twelve
months. The shares placed in escrow will either be issued to the previous
owners of the acquired entities or returned to the Company based upon the
results of the purchase price adjustments, as defined for each Controlled
Entity. The Company has excluded from the recognized purchase price
calculations approximately 818,500 shares that it estimates are not probable
of issuance at the end of the respective escrow periods. Additionally, the
purchase price adjustment for each Controlled Entity allows for the issuance
of additional stock-based consideration in the event a Controlled Entity's
valuation calculated at the six and twelve month dates following the
acquisition increases. The number of additional shares that are potentially
issuable at the completion of the six and twelve month valuation periods is
not presently known, however, management estimates that approximately 418,000
additional shares are probable of issuance at the completion of the respective
valuation periods. Any purchase price changes resulting from such adjustments
will be recognized as adjustments to goodwill and will be amortized over the
remaining period of expected benefit. As of December 31, 1997, no adjustments
have been made to the escrow shares for any acquisition.

The terms of the signed definitive agreements for each acquisition provide
for the transfer of effective control of the target entity on dates that
precede the legal consummation of the transaction and physical exchange of
consideration. On the designated effective dates, the Company (1) assumes
effective control and the risks and rewards of ownership including the rights
to all revenues and responsibility for all operating costs and expenses,
(2) the target company employees become employees of the Company and (3) the
terms of purchase price adjustment provisions become effective. For business
acquisitions recognized through November 13, 1997, the purchase accounting
effects of transactions occurring between the designated effective dates and
the legal closing dates were not material.

The following unaudited pro forma consolidated amounts give effect to these
acquisitions as if they had occurred on January 1, 1996 (or date of inception,
if later) and on January 1, 1997 by consolidating the results of operations of
the Acquired Entities with the results of USWeb for the years ended December
31, 1997 and 1996.

<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Revenues........................................... $ 34,812 $ 19,765
Net loss........................................... (84,939) (57,069)
Net loss per share:
Basic and diluted................................ $ (8.04) $ (9.24)
Weighted average shares outstanding.............. 10,571,000 6,175,000
</TABLE>

42
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Prior to June 30, 1997 the Company had invested $4,000 for an approximate
20% investment in Utopia, Inc. ("Utopia") an Internet consulting company
located in Boston, Massachusetts. The Company's investment was accounted for
on the cost basis. Through June 30, 1997 Utopia had incurred significant
losses, was experiencing significant cash flow deficits and had a net asset
deficiency. During June 1997, the Company determined that it was unlikely that
the Company would recover any of its investment in Utopia and, accordingly,
recorded an impairment loss equal to the carrying amount of its investment.

On October 9, 1997, the Company entered into a non-binding term sheet to
purchase specified assets of Utopia. Under the preliminary terms of the
arrangement, the Company would acquire selected computer hardware and software
assets and would agree to enter at will employment agreements with most Utopia
employees. In addition, the Company would obtain all rights and
responsibilities relating to specified Utopia customer contracts effective
October 1, 1997. In consideration for the acquired net assets the Company
would agree to assume a note payable to Utopia's former majority shareholder
in the amount of $3,000. The Company has determined that the acquisition, if
consummated, will be accounted for as an acquisition of a business. The
Company will account for the acquisition using the purchase method of
accounting, and, accordingly, the purchase price will be allocated to the
various assets, including intangible assets acquired and liabilities assumed
on the basis of their fair values at the date of acquisition. Substantially
all of the purchase price is expected to be allocated to goodwill and will be
amortized over its estimated useful life of one year.

The note payable to be assumed by the Company would be payable in cash on
October 1, 1998 and would bear interest at a referenced prime rate plus 1%.
Beginning ninety days subsequent to the closing of the Company's public
offering, the note would be convertible, at the option of the holder, into
restricted shares of the Company's Common Stock based upon the fair value of
such stock at the conversion date.

The purchase price consideration would be subject to adjustment at six and
twelve month intervals subsequent to the closing, based upon the standard
valuation formula used in the Company's acquisition program. The increase in
value, if any, attributable to the period subsequent to the closing would be
payable in shares of and options to purchase shares of the Company's Common
Stock.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates

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

Principles of Consolidation

The accompanying financial statements as of December 31, 1997 and the year
then ended, include the consolidated accounts of the Company and its wholly
owned subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.

The Company's financial statements as of December 31, 1995 and for the
period from December 6, 1995 ("Inception") through December 31, 1995, reflect
immaterial transactions and have been included in the 1996 financial
statements to facilitate presentation.

43
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the remaining lease term, not to exceed five years.

Intangible Assets

Goodwill resulting from the acquisition of Internet technology businesses is
estimated by management to be primarily associated with the acquired workforce
and technological know how. As a result of the rapid technological changes
occurring in the Internet industry and the intense competition for qualified
Internet professionals, recorded goodwill is amortized on the straight-line
basis over the estimated periods of benefit, which range from one to two
years. For certain acquisitions where the Company expects to issue additional
shares at the end of the 12 month purchase price adjustment periods,
amortization rates have been increased to reflect amortization of the total
expected consideration based upon the estimated fair value of the incremental
shares at the end of the purchase price adjustment periods.

At each balance sheet date, the Company assesses the value of recorded
goodwill for possible impairment based upon a number of factors, including
turnover of the acquired workforce and the undiscounted value of expected
future operating cash flows in relation to its net investment in each
subsidiary. Since inception, the Company has not recorded any provisions for
possible impairment of intangible assets.

Completed technologies obtained through acquisition or merger are
capitalized and amortized on the straight-line basis over the estimated period
of benefit of six months.

Costs of in-process technology acquired prior to the achievement of
technological feasibility determined using the working model approach, and any
costs associated with internally developed proprietary technologies prior to
the achievement of technological feasibility determined using the working
model approach are expensed in the period incurred.

Investments

Investments where the Company has an equity interest of less than 20% and
does not have the ability to exert significant influence are accounted for
using the cost method. At each balance sheet date, the Company assesses the
value recorded for cost-based investments and recognizes any identified
impairment.

Revenue Recognition

The Company derives its revenues from consulting service agreements
(including both fixed price and time and materials arrangements), initial
franchise fees, monthly royalties from Affiliates and hosting service fees.
The initial franchise fee was waived for the first ten Affiliates and was set
at $25 for the next 40 Affiliates and $50 thereafter. The Company last entered
into a franchise agreement in March 1997 and does not expect to enter into any
additional franchise agreements.

44
<PAGE>

USWEB CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Service revenues are recognized over the period of each engagement using
primarily the percentage of completion method using labor hours incurred as
the measure of progress towards completion. Provisions for contract
adjustments and losses are recorded in the period such items are identified.
Unearned revenues represent the amount of cash received in advance of services
being performed.

Revenues from Affiliates are included in Other Revenues and are recognized
in accordance with Statement of Financial Accounting Standards No. 45,
"Accounting for Franchise Fee Revenue." Initial franchise fees, including area
franchise sales which do not depend significantly on the number of individual
franchises to be established, are recognized when all obligations required by
the franchise agreement have been substantially performed and no other
material conditions or obligations exist. Initial franchise fees are
recognized as received because all obligations required by the franchise
agreement are substantially performed concurrently with the signing of the
franchise agreement. Monthly royalties are determined by aggregating a five
percent royalty and a two percent marketing promotion fee, each of which is
calculated based on each Affiliate's adjusted gross revenues, as defined, and
are recognized as the fees are earned and become receivable from the
Affiliate.

Revenues from web-site hosting services are included in Other Revenues, have
been insignificant to date and are recognized monthly as services are
provided.

Advertising Costs

Advertising costs are expensed as incurred in accordance with Statement of
Position 93-7, "Reporting on Advertising Costs." Advertising costs for the
year ended December 31, 1997 and 1996 totaled $4,060 and $3,223, respectively.

Affiliate Warrants

The fair value of warrants granted to Affiliates upon the execution of a
franchise agreement are measured at the grant date using the Black-Scholes
formula and are recognized when material, over the three year vesting period
as a cost of revenues. The fair value of warrants to be granted upon the
achievement of future Affiliate revenues (AGR Warrants) are measured on the
date such warrants are earned using the Black-Scholes formula. When material,
the fair value of AGR Warrants is charged to cost of revenues over the three
year vesting period beginning with the month such warrants are earned. The
exercise price of all warrants issued and issuable to an individual Affiliate
is fixed at the time of signing of the related franchise agreement. Warrant
costs in excess of the present value of expected future franchise fees and
royalties, less any direct costs, would be recognized immediately. See Note
10--Affiliate Warrant Program.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, on the date of grant between
the fair value of the Company's stock and the amount an employee must pay to
acquire the stock.

Income Taxes

Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax

45
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

consequences of events that have been recognized in the Company's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.

Net Loss Per Share and Supplemental Net Loss Per Share

The Company computes net loss per share in accordance with the provisions of
SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No. 98.
Under SFAS No. 128, and SAB No. 98, basic net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
shares outstanding during the period. The weighted average shares used to
compute basic net loss per share include outstanding shares of Common Stock
from the date of issuance and shares vested under stock bonus arrangements
computed for each period by dividing cumulative amortization of deferred
compensation expense by the weighted average price of the Company's Common
Stock during the period. The computation excludes (i) for the year ended
December 31, 1997, 2,051,000 equivalent acquisition-related shares held in
escrow ("Acquisition Shares"), (ii) for the years ended December 31, 1997 and
1996, 2,830,000 and 4,286,000, respectively, of equivalent shares of Common
Stock subject to repurchase rights ("Restricted Shares") and (iii) for the
years ended December 31, 1997 and 1996, 10,278,000 and 5,375,000 respectively,
of equivalent shares of Mandatorily Redeemable Convertible Preferred Stock
("Preferred Stock") prior to their conversion into Common Stock on December 5,
1997. In addition, the calculation of diluted net loss per share excludes
Common Stock issuable upon exercise of employee stock options and upon
exercise of outstanding warrants, as their effect in all periods presented is
antidilutive.

In future periods, the weighted average shares used to compute basic and
diluted earnings per share are expected to include (i) Acquisition Shares as
they are released from escrow, generally 12 months from the date of
acquisition, and (ii) Restricted Shares as the repurchase rights lapse over
the remaining 24-month restricted period. In addition, the weighted average
shares used to compute diluted earnings per share will include the incremental
shares of Common Stock relating to outstanding options and warrants to the
extent such incremental shares are dilutive. The Company believes that the
Acquisition Shares are probable of issuance and that the remaining repurchase
rights on Restricted Shares will lapse upon the continued employment by the
owners of such shares. The following table presents the unaudited supplemental
pro forma net loss per share giving effect to the inclusion of the Acquisition
Shares and Restricted Shares in the determination of weighted average shares
outstanding. Such supplemental pro forma net loss per share should not be
considered in isolation or as a substitute for other information prepared in
accordance with generally accepted accounting principles:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
SUPPLEMENTAL PRO FORMA NET LOSS PER SHARE:
Net loss......................................... $ (58,336) $ (13,808)
Net loss per share
Basic and diluted:............................. $ (4.78) $ (2.46)
Weighted average shares outstanding............ 12,193,000 5,620,000
</TABLE>

46
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company limits its exposure to credit loss by
depositing its cash and cash equivalents with high credit quality financial
institutions. The Company believes the risk with respect to trade receivables
is mitigated, to some extent, by the fact that the Company's customer base is
geographically dispersed and is highly diversified. The Company has not
experienced any significant credit losses to date.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The adoption of the both
statements are required for fiscal years beginning after December 15, 1997.
Under SFAS No. 130, companies are required to report in the financial
statements, in addition to net income, comprehensive income including, as
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. SFAS No. 131 requires that companies report separately, in the
financial statements, certain financial and descriptive information about
operating segments, if applicable. The Company does not expect the adoption of
SFAS No. 130 or SFAS No. 131 to have any financial impact on its consolidated
financial statements and is currently assessing the impact of the disclosure
provisions of the new pronouncements.

NOTE 3--SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1996
------- ------
<S> <C> <C>
Supplemental disclosures:
Cash paid for interest..................................... $ 76 $ 58
Non-cash financing and investing activities:
Common Stock issued for note receivable.................... -- 2,000
Notes payable converted into Common Stock.................. -- 500
Equipment acquired through capital lease................... 578 288
Common Stock issued for acquisitions....................... 40,263 --
Common stock issued for services........................... 1,250 --
</TABLE>

47
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

NOTE 4--BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
-------- ------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable...................................... $ 8,722 $ 137
Less: allowance for doubtful accounts.................... (819) --
-------- ------
$ 7,903 $ 137
======== ======
Property and equipment, net:
Computers and equipment.................................. $ 6,490 $1,149
Furniture and fixtures................................... 834 124
Leasehold improvements................................... 605 74
-------- ------
7,929 1,347
Less: accumulated depreciation and amortization.......... (1,727) (263)
-------- ------
$ 6,202 $1,084
======== ======
Intangible assets, net:
Goodwill................................................. $ 24,885 $ --
Purchased technology..................................... 3,610 --
-------- ------
28,495 --
Less: accumulated amortization........................... (9,476) --
-------- ------
$ 19,019 $ --
======== ======
Accrued expenses:
Marketing costs.......................................... $ 1,155 $1,271
Compensation and benefits................................ 1,900 549
Accrued financing costs.................................. 1,450 --
Legal costs.............................................. 466 --
Other.................................................... 3,026 370
-------- ------
$ 7,997 $2,190
======== ======
</TABLE>

NOTE 5--NOTES PAYABLE:

In November 1997, the Company obtained a bridge loan facility from a bank.
Under the terms of the facility the Company borrowed $2,000 (the maximum
amount available), which was secured by substantially all of the Company's
assets. The loan accrued interest at the bank's prime rate plus 1%. On
December 10, 1997, the Company repaid the outstanding amount, plus interest of
$14.

On October 6, 1997, the Company entered into a credit facility with a bank
that allows the Company to borrow up to a maximum of $3,000 to finance various
equipment purchases. Advances accrue interest at the bank's prime lending rate
plus 1% (9.5% at December 31, 1997) and are repayable over a thirty-six month
period. As of December 31, 1997, borrowings outstanding under the credit
facility approximated $431. The credit facility is secured by the assets of
the Company and expires on September 29, 2001. In addition, the bank requires
the Company to comply with certain financial covenants relating to
profitability and cash flow ratios; the Company was in compliance with all
covenants at December 31, 1997.

48
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

In January 1996, the Company received $500 in exchange for unsecured
convertible promissory notes. The notes were part of a bridge financing
arrangement associated with the Series A financing, were payable on demand and
bore interest at 6% per annum. The notes were repayable, at the option of the
holder, by the issuance of the Company's Common or Preferred Stock. In
February 1996 in connection with the Series A financing, the holder exercised
its conversion option and the notes were extinguished through the issuance of
500,000 shares of the Company's Common Stock.

NOTE 6--INCOME TAXES:

No provision for income taxes has been recognized for the years ended
December 31, 1997 and 1996, as the Company incurred net operating losses for
income tax purposes and has no carryback potential.

Deferred tax assets of approximately $17,000 at December 31, 1997, consist
primarily of federal and state net operating loss carryforwards. Based on a
number of factors, including the lack of a history of profits and the fact
that the Company competes in a developing market that is characterized by
rapidly changing technology, management believes that there is sufficient
uncertainty regarding the realization of deferred tax assets such that a full
valuation allowance has been provided.

The Company's various acquisitions have been structured as tax free stock
exchanges, therefore, the differences between the historical bases and the
fair value recognized by the Company, including intangible assets, are not
deductible for income tax purposes.

At December 31, 1997, the Company had federal and state net operating loss
carryforwards of approximately $42,000 and $26,000, respectively, available to
reduce future taxable income, which expire in varying amounts through 2012.
The Company's ability to utilize net operating loss carryforwards and tax
credits are subject to limitations as set forth in applicable federal and
state tax laws. As specified in the Internal Revenue Code, an ownership change
of more than 50% by a combination of the Company's significant stockholders
during any three-year period would result in certain limitations on the
Company's ability to utilize its net operating loss and credit carryforwards.

NOTE 7--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

At December 31, 1996, a total of 9,329,500 shares of Mandatorily Redeemable
Convertible Preferred Stock were authorized for issuance, of which 6,226,167
and 3,103,333 shares were designated as Series A and Series B, respectively.
In 1996, the Company issued 6,172,833 shares of Series A and 3,103,333 shares
of Series B Mandatorily Redeemable Convertible Preferred Stock ("Series A" and
"Series B") for cash at $1.62 and $2.01 per share, respectively. In 1997, the
Company authorized an additional 3,400,000 shares of Mandatorily Redeemable
Convertible Preferred Stock designated as Series C and issued 2,818,193 shares
of Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C")
for cash at $6.21 per share. Holders of Series A, Series B and Series C were
entitled to receive noncumulative dividends at the annual rate of $0.10, $0.12
and $0.37 per share, respectively, or, if greater (as determined on an as-
converted basis), an amount equal to that paid on the outstanding shares of
Common Stock, when, as and if declared by the Board of Directors. No such
dividends were declared. In the event of liquidation (but not upon a merger,
sale or acquisition of the Company), holders of Series A, Series B and Series
C were entitled to a per share distribution in preference to holders of Common
Stock equal to the original issue price of $1.62, $2.01, and $6.21,
respectively, plus any declared but unpaid dividends. On December 5, 1997, the
Company completed its initial public offering of its Common Stock. At that
time, all of the Company's Mandatorily Redeemable Convertible Preferred Stock
outstanding was converted into an aggregate of 12,094,359 shares of Common
Stock.

49
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

NOTE 8--STOCKHOLDERS' EQUITY:

Preferred Stock

The Company is authorized to issue 100,000,000 shares of $.001 par value
Common Stock and 1,000,000 shares of $.001 par value Preferred Stock, and the
Board of Directors has the authority to issue the undesignated Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof.

Common Stock

On December 5, 1997, the Company completed its initial public offering of
5,750,000 shares of its Common Stock. Net proceeds to the Company aggregated
approximately $38,309. In addition, the Company sold 1,666,666 shares of
Common Stock to Intel Corporation in a private placement that closed
contemporaneously with the Offering. Net proceeds to the Company aggregated
approximately $9,650. In connection with the discounted sale of Common Stock
to Intel Corporation, the Company recognized a $1,250 non-cash charge that is
included in marketing, sales and support expense.

On September 30, 1997, the Company sold 222,222 shares of Common Stock in a
private transaction to an independent third party in exchange for a note
receivable in the amount of $2,000. On October 14, 1997, the note receivable
was collected in full.

During 1996, 5,000,000 shares of Common Stock were purchased by the
Company's five founders ("the Founders Shares"). In the event that any one of
the founders ceased to be an employee of the Company, the Company had the
right to repurchase ("the Repurchase Right"), at the original purchase price,
a declining percentage of the shares issued. During August 1997, a Company
Founder terminated his employment. In connection with the termination the
Company accelerated the vesting of 111,205 shares of Founder's Stock and
accordingly recognized a charge in the amount of $1,080. Additionally, 349,502
shares of unvested Founder's Stock were repurchased by the Company at their
original issuance price of $.0003 per share. In the event of a change in
control of the Company, the Founders Shares shall become immediately vested in
full and the Repurchase Rights shall lapse.

Warrants

In connection with the issuance of the Series C shares, the Company issued
warrants to purchase a total of 704,549 shares of Series C at $7.50 per share.
Upon completion of the Company's initial public offering, these warrants were
exchanged for warrants to purchase Common Stock. The warrants are exercisable
at any time prior to their expiration in May 2000. Approximately $1,690 of the
proceeds received from the issuance of Series C were allocated to the Series C
warrants. The accretion of the amount allocated to the Series C warrants for
the year ended December 31, 1997, was immaterial. No warrants had been
exercised at December 31, 1997.

In December 1996, the Company issued warrants to purchase 33,333 shares of
Common Stock at $3.75 per share to an individual employed as a consultant to
the Company. The fair value of the warrants was not material on the date of
grant. The warrants are exercisable at any time prior to their expiration in
December 2001. No warrants had been exercised at December 31, 1997.

In July 1996, the Company issued warrants to purchase 18,055 shares of
Common Stock at $0.90 per share to an individual employed as a consultant to
the Company. The fair value of the warrants was not material on the date of
grant. The warrants are exercisable at any time prior to their expiration in
July 2001. No warrants had been exercised at December 31, 1997.

50
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

In connection with a master lease agreement in May 1996, the Company issued
warrants to purchase 33,333 shares of Series A at $1.62 per share. Upon
completion of the Company's initial public offering, these warrants were
exchanged for warrants to purchase Common Stock. The fair value of the
warrants was not material on the date of grant. The warrants are exercisable
at any time prior to their expiration in May 2001. No warrants had been
exercised at December 31, 1997.

In connection with the lease of its facility in January 1996, the Company
issued warrants to purchase 20,000 shares of Series A at $1.62 per share. Upon
completion of the Company's initial public offering, these warrants were
exchanged for warrants to purchase Common Stock. The fair value of the
warrants was not material on the date of grant. The warrants are exercisable
at any time prior to their expiration in February 2006. No warrants had been
exercised at December 31, 1997.

NOTE 9--STOCK-BASED COMPENSATION:

At December 31, 1997, the Company has three stock-based compensation plans,
which are described below. The Company applies APB No. 25 and related
Interpretations and SFAS No. 123 with respect to grants to other than
employees in accounting for its plans. During the period from June through
October 1996, the Company granted options to purchase an aggregate of 98,667
shares of Common Stock at exercise prices ranging from $0.30 to $0.90 per
share and recorded $165 of unearned compensation relating to such options.
This amount is being amortized over the four-year vesting period of the
related options. Had compensation cost for the Company's three stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method prescribed by SFAS No.
123, the Company's net loss and net loss per share would have been increased
to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1997 1996
-------- ---------
<S> <C> <C>
Net Loss:
As reported.............................................. $(58,336) $(13,808)
Pro forma................................................ (59,281) (13,815)
Net loss per share:
Basic and diluted, as reported........................... $ (7.98) $ (10.35)
Basic and diluted, pro forma............................. (8.11) (10.36)
</TABLE>

STOCK OPTION PLANS

1996 Stock Option Plan

The Company has reserved an aggregate of 600,000 shares of Common Stock for
issuance under its 1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan
provides for grants of options to employees and consultants (including
officers and directors) of the Company, its parent and its subsidiaries.

The exercise price of options granted under the 1996 Plan is determined by
the 1996 Plan Administrator, as defined. With respect to incentive stock
options granted under the 1996 Plan, the exercise price must be at least equal
to the fair market value per share of the Common Stock on the date of grant,
and the exercise price of any incentive stock option granted to a participant
who owns more than 10% of the voting power of all classes of the Company's
outstanding capital stock must be equal to at least 110% of fair market value
of the Common Stock on the date of grant.

51
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Each option outstanding under the 1996 Plan may be exercised in whole or in
part at any time. Exercised but unvested shares are subject to repurchase by
the Company. Options generally vest, assuming continued service by the
optionee as an employee or consultant, at the rate of 25% of the shares
subject to the option on the first anniversary of the commencement of vesting
date and 1/48th of the shares each month thereafter, such that all shares
under the option vest in full four years from the date of commencement of
vesting, assuming continued service as an employee or consultant. Options
outstanding under the 1996 Plan generally have a term of ten years.

1996 Equity Compensation Plan

The Company's 1996 Equity Compensation Plan (the "1996 Equity Plan")
provides for the granting to employees of incentive stock options, and for the
granting to employees and consultants of nonstatutory stock options and stock
purchase rights ("SPRs"). A total of 2,000,000 shares of Common Stock are
currently reserved for issuance pursuant to the 1996 Equity Plan.

The 1996 Equity Plan Administrator, as defined, has the power to determine
the terms of the options or SPRs granted, including the exercise price, the
number of shares subject to each option or SPR, the exercisability thereof,
and the form of consideration payable upon such exercise.

Each option outstanding under the 1996 Equity Plan may be exercised in whole
or in part at any time. Exercised but unvested shares are subject to
repurchase by the Company. Options generally vest, assuming continued service
by the optionee as an employee or consultant, at the rate of 25% of the shares
subject to the option on the first anniversary of the commencement of vesting
date and 1/48th of the shares each month thereafter, such that all shares
under the option vest in full four years from the date of commencement of
vesting, assuming continued service as an employee or consultant. Options
outstanding under the 1996 Equity Plan generally have a term of ten years.

The restricted stock purchase agreement pursuant to which the SPR is
exercised shall grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability).

The repurchase option shall lapse at a rate determined by the 1996 Equity
Plan Administrator. The exercise price of all incentive stock options granted
under the 1996 Equity Plan must be at least equal to the fair market value of
the Common Stock on the date of grant. The exercise price of nonstatutory
stock options and SPRs granted under the 1996 Equity Plan is determined by the
1996 Equity Plan Administrator, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation", the exercise price
must at least be equal to the fair market value of the Common Stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of the Company's outstanding
capital stock, the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date and the term of
such incentive stock option must not exceed five years. The term of all other
options granted under the 1996 Equity Plan may not exceed ten years. As of
December 31, 1997, no SPRs had been granted.

1997 Acquisition Stock Option Plan

The Company's 1997 Acquisition Stock Option Plan (the "1997 Plan") provides
for the grant of incentive stock options to employees (including officers and
employee directors) and for the grant of nonstatutory stock options and SPRs
to employees, directors and consultants. A total of 10,000,000 shares of
Common Stock, plus annual increases equal to the lesser of (i) 400,000 shares,
(ii) 5% of the outstanding shares, or (iii) a lesser amount determined by the
Board of Directors, are currently reserved for issuance pursuant to the 1997
Plan.

52
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The 1997 Plan Administrator, as defined, has the power to determine the
terms of the options or SPRs granted, including the exercise price of the
option or SPR, the number of shares subject to each option or SPR, the
exercisability thereof, and the form of consideration payable upon such
exercise.

The exercise price of all incentive stock options granted under the 1997
Plan must be at least equal to the fair market value of the Common Stock on
the date of grant. The exercise price of nonstatutory stock options and SPRs
granted under the 1997 Plan is determined by the 1997 Plan Administrator, but
with respect to nonstatutory stock options intended to qualify as
"performance-based compensation", the exercise price must at least be equal to
the fair market value of the Common Stock on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of the outstanding capital stock of the Company, its parent and
its subsidiaries, the exercise price of any incentive stock option granted
must equal at least 110% of the fair market value on the grant date and the
term of such incentive stock option must not exceed five years. The term of
all other options granted under the 1997 Plan may not exceed ten years. As of
December 31, 1997, no SPRs had been granted.

Fair Value Estimates

For purposes of complying with the disclosure provisions of SFAS No. 123,
prior to the Company's initial public offering in December 1997, the fair
value of each option grant was determined on the date of grant using the
minimum value method. Subsequent to the offering, the fair value was
determined using the Black-Scholes option pricing model. Except for the
volatility assumption, which was only used under the Black-Scholes model, the
following weighted-average assumptions were used for grants during the years
ended December 31, 1997 and 1996, respectively: dividend yield of 0.0% for all
periods; expected volatility of 60.0% and 0.0% for all periods; risk-free
interest rates of 6.0% and 6.1% for the 1996 Plan options, 6.0% and 6.1% for
the 1996 Equity Plan options, and 6.2% and 6.1% for the 1997 Acquisition Plan
options; and expected lives of 4 years for all plans in all periods.

A summary of the status of the Company's three fixed stock option plans as
of December 31, 1997 and 1996, and changes during the years then ended is
presented below:

<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FIXED STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------------- --------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period............... 234,833 1.84 -- $ --
Granted.................. 9,559,746 8.11 567,500 .83
Exercised................ (103,079) 4.85 (281,000) .10
Canceled................. (199,097) 6.21 (51,667) .22
--------- --------
Outstanding at end of pe-
riod.................... 9,492,403 8.03 234,833 1.84
========= ========
Options exercisable at
end of period........... 2,698,610 234,833
========= ========
Weighted-average fair
value of options granted
during the period....... $ 1.47 $ .07
========= ========
</TABLE>

53
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.03.................... 4,688 8.1 years $ .03 4,688 $ .03
$.30.................... 69,167 8.4 years .30 69,167 .30
$.90.................... 29,167 8.7 years .90 29,167 .90
$3.75................... 9,834 8.8 years 3.75 9,834 3.75
$6.75 to $9.75.......... 9,379,547 9.2 years 8.12 2,585,754 8.51
--------- ---------
9,492,403 2,698,610
========= =========
</TABLE>

Acquisition Stock Bonus Plan

During the year ended December 31, 1997, the Company agreed to issue bonuses
contingent on future employment that are payable in shares of Common Stock to
employees previously employed by Acquired Entities (each a "New Employee").

Under the agreements, the stock bonuses vest over a thirty-six month period
from the date of first employment by the Company and will be paid at the
conclusion of the vesting period. However, to the extent that a New Employee's
status as an employee is terminated, the New Employee will be entitled only to
the vested portion of the stock bonus and such bonus shall become due and
payable upon such New Employee's termination. The aggregate stock bonus for
awards through December 31, 1997, totaled $62,118, and will be paid in shares
of Common Stock at the fair market value of the Common Stock at the date of
issuance. Stock bonus awards are recognized as compensation expense over the
thirty-six month vesting periods and comprise stock compensation expense in
the accompanying consolidated financial statements.

Employee Stock Purchase Plan

In September 1997, the Board of Directors approved the 1997 Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 1,000,000 shares of Common
Stock have been reserved for issuance under this plan. Terms of the plan
permit eligible employees to purchase Common Stock through payroll deductions
of up to 15% of the employee's compensation. Amounts deducted and accumulated
by the participant are used to purchase shares of the Company's Common Stock
at 85% of the lower of the fair value of the Common Stock at the beginning or
the end of the offering period, as defined. During the year ended December 31,
1997, the weighted average fair value of rights granted under the Plan was
$2.86 per share. There were no shares issued under the Purchase Plan during
1997.

NOTE 10--AFFILIATE WARRANT PROGRAM:

In June 1996, the Company adopted the Affiliate Warrant Program (the
"Program") with the intent of attracting new Affiliates to the USWeb network
and to create performance incentives for such Affiliates. Under the Program,
each Affiliate was granted a warrant to purchase a fixed number of shares of
the Company's Common Stock upon execution of the franchise agreement (a
"Signing Warrant") and earns warrants ("AGR Warrants") to purchase additional
shares of Common Stock at the rate of one share of Common Stock per fifty
dollars of Affiliate adjusted gross revenue, as defined. The exercise price of
all warrants issued and issuable to an individual Affiliate was set at the
time of signing of the franchise agreement.

54
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Warrants vest 25% after one year and then ratably each month over the
remaining thirty-six month period. Warrants are exercisable for a maximum
period of five years from the effective date of the Affiliate agreement.
Warrants may not be exercised prior to the earlier of the closing of an
initial public offering of the Company's Common Stock or an acquisition of the
Company. A total of 333,333 shares of Common Stock have been reserved for
issuance under the Program. No Signing Warrants are available for grant after
March 31, 1997. However, all Affiliates entering into an Affiliate agreement
prior to of such date will continue to be entitled to AGR Warrants upon
generating qualifying revenues until such time when no warrants remain
available for grant.

During the years ended December 31, 1997 and 1996, the Company issued
Signing Warrants to purchase shares of Common Stock, AGR Warrants to purchase
shares of Common Stock and recognized costs estimated using the Black-Scholes
formula as follows:

<TABLE>
<CAPTION>
DESCRIPTION 1997 1996
----------- -------------- --------------
<S> <C> <C>
Signing Warrants............................... 4,000 shares 106,834 shares
AGR Warrants................................... 138,532 shares 17,918 shares
Estimated cost................................. $150 $167
</TABLE>

NOTE 11--COMMITMENTS AND CONTINGENCIES:

The Company and its subsidiaries lease facilities under non-cancelable
operating leases which expire through 2011. The leases provide for escalating
monthly payments which are being charged to operations ratably over the lease
terms. In addition to the minimum lease payments, the Company is responsible
for property taxes, insurance and certain other operating costs. The Company
also leases certain equipment under long-term lease agreements that are
classified as capital leases. These capital leases terminate at various dates
through January 2002.

Total equipment acquired under capitalized leases was as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ -----
<S> <C> <C>
Computers and equipment....................................... $1,234 $ 702
Furniture and fixtures........................................ 154 108
------ -----
1,388 810
Less: accumulated depreciation................................ (877) (214)
------ -----
$ 511 $ 596
====== =====
</TABLE>

The Company has a master lease agreement with a leasing company which
expires in 1999. The agreement provides a line of credit of $600 for capital
equipment purchases. At December 31, 1997, approximately $1 was available
under this agreement for equipment purchases.

55
<PAGE>

USWEB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Future minimum lease payments under all non-cancelable operating and capital
leases as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER OPERATING CAPITAL
31, LEASES LEASES
----------- --------- -------
<S> <C> <C>
1998..................................................... $ 2,556 $ 466
1999..................................................... 2,505 309
2000..................................................... 2,297 30
2001..................................................... 2,080 10
2002..................................................... 1,775 1
Thereafter............................................... 6,857 --
------- -----
Total minimum payments.................................... $18,070 816
=======
Less: amount representing interest........................ (76)
-----
Present value of capital lease obligations................ 740
Less: current portion..................................... (368)
-----
Lease obligations, long-term.............................. $ 372
=====
</TABLE>

Rent expense under operating leases totaled $1,429 and $278 for the years
ended December 31, 1997 and 1996, respectively.

NOTE 12--SUBSEQUENT EVENTS

On March 30, 1998, the Company's follow-on public offering became effective,
whereby the Company sold 1,000,000 million shares of its Common Stock for net
proceeds of $20,180, after deducting underwriters commissions and related
expenses. Additionally, the Company received $2,698 from the exercise of
options and warrants exercised by option and warrant holders who participated
as selling shareholders in the offering. On April 1, 1998, the Company's
underwriters exercised their option to sell additional shares as part of the
follow-on offering. Accordingly, the Company sold an additional 581,000 shares
for net proceeds of $12,136.

During the period from January 1, 1998 to April 6, 1998, the Company
completed its acquisition of all of the outstanding shares of Common Stock of
USWeb Germany in exchange for 151,310 shares of the Company's Common Stock,
valued at $1,527 and completed the acquisition of certain assets of USWeb
Boston (formerly Utopia Inc.) in exchange for the assumption by the Company of
specified liabilities and payment of a promissory note for an aggregate
purchase price of approximately $5,000.

These acquisitions will be accounted for using the purchase method of
accounting, and accordingly, the recognized purchase price will be allocated
to the tangible and identifiable intangible assets acquired and liabilities
assumed on the basis of their fair values on the acquisition dates. On a
combined basis, approximately $32 of the aggregate purchase price of the
completed acquisitions is expected to be allocated to net tangible assets
consisting primarily of cash, accounts receivable, property and equipment and
accounts payable. Approximately $374 is expected to be allocated to in-process
technology, which will be immediately charged to operations because such in-
process technology had not reached the stage of technological feasibility at
the acquisition dates and has no alternative future use. Approximately $149 is
expected to be allocated to existing technology and will be amortized over its
estimated useful life of six months. The purchase price in excess of
identified tangible and intangible assets and liabilities assumed in the
amount of approximately $5,972 is expected to be allocated to goodwill and
will be amortized over its estimated useful life of one year.

56
<PAGE>

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO WRITE- END OF
THE YEAR EXPENSES OFFS THE YEAR
------------ ---------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997:
Allowance for doubtful accounts....... $ -- $ 819 $ -- $ 819
Reserve for sales returns............. -- -- -- --
----- ----- ----- -----
$ -- $ 819 $ -- $ 819
===== ===== ===== =====
1996:
Allowance for doubtful accounts....... $ -- $ -- $ -- $ --
Reserve for sales returns............. -- -- -- --
----- ----- ----- -----
-- -- -- --
===== ===== ===== =====
</TABLE>

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

57
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information with respect to persons who are executive officers of
the Company is set forth under the caption "Executive Officers" in Part I of
this report. The section entitled "Election of Directors" appearing in the
Company's proxy statement for the annual meeting of stockholders sets forth
certain information with respect to the directors of the Company and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The section entitled "Executive Compensation" appearing in the Company's
proxy statement for the annual meeting of stockholders sets forth certain
information with respect to the compensation of management of the Company and
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section entitled "Election of Directors" appearing in the Company's
proxy statement for the annual meeting of stockholders sets forth certain
information with respect to the ownership of the Company's Common Stock and is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section entitled "Certain Relationships and Related Transactions"
appearing in the Company's proxy statement for the annual meeting of
stockholders sets forth certain information with respect to certain business
relationships and transactions between the Company, its five percent
stockholders and their respective affiliates, and its directors and officers
and is incorporated herein by reference.

58
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S>
2.1+ Agreement and Plan of Reorganization dated as of March 16, 1997 by and
among the Registrant, USWeb Acquisition Corporation 101 and XCom Corpo-
ration.
2.2+ Agreement and Plan of Reorganization dated as of March 31, 1997 by and
among the Registrant, USWeb Acquisition Corporation 103 and Fetch Inter-
active, Inc.
2.3+ Agreement and Plan of Reorganization dated as of March 31, 1997 by and
among the Registrant, USWeb Acquisition Corporation 106 and Newlink Com-
munications Corporation.
2.4+ Agreement and Plan of Reorganization dated as of April 30, 1997 by and
among the Registrant, USWeb Acquisition Corporation 107 and
InterNetOffice, LLC.
2.5+ Agreement and Plan of Reorganization dated as of March 31, 1997 by and
among the Registrant, USWeb Acquisition Corporation 102 and Infopreneurs
Inc.
2.6+ Agreement and Plan of Reorganization dated as of August 28, 1997 by and
among the Registrant, USWeb Acquisition Corporation 108 and Electronic
Images, Inc.
2.7+ Agreement and Plan of Reorganization dated as of July 1, 1997 by and
among the Registrant, USWeb Acquisition Corporation 110 and Multimedia
Marketing & Design Inc.
2.8+ Agreement and Plan of Reorganization dated as of August 29, 1997 by and
among the Registrant, USWeb Acquisition Corporation 111 and KandH., Inc.
2.9+ Agreement and Plan of Reorganization dated as of August 29, 1997 by and
among the Registrant, USWeb Acquisition Corporation 111 and DreamMedia,
Inc.
2.10+ Agreement and Plan of Reorganization dated as of September 26, 1997 by
and among the Registrant, USWeb Acquisition Corporation 113 and Internet
Cybernautics, Inc.
2.11+ Agreement and Plan of Reorganization dated as of July 31, 1997 by and
among the Registrant, USWeb Acquisition Corporation 114 and Synergetic
Systems Integration, Inc.
2.12+ Agreement and Plan of Reorganization dated as of September 30, 1997 by
and among the Registrant, USWeb Acquisition Corporation 119 and Online
Marketing Company.
2.13+ Agreement and Plan of Reorganization dated as of September 30, 1997 by
and among the Registrant, USWeb Acquisition Corporation 117 and
Zendatta, Inc.
2.14+ Agreement and Plan of Reorganization dated as of October 10, 1997 by and
among the Registrant, USWeb Acquisition Corporation 118 and W3-design.
2.15+ Agreement and Plan of Reorganization dated as of October 29, 1997 by and
among the Registrant, USWeb Acquisition Corporation 122 and USWeb-Apex,
Inc.
2.16+ Agreement and Plan of Reorganization dated as of October 24, 1997 by and
among the Registrant, USWeb Acquisition Corporation 112 and Reach Net-
works, Inc.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant
(post-initial public offering).
3.2+ Bylaws of the Registrant.
4.1+ Form of Registrant's Common Stock Certificate.
4.2+ Amended and Restated Investors' Rights Agreement dated May 2, 1997 among
the Registrant and the other parties named therein.
4.3+ Form of Registrant's Series A Preferred Stock Purchase Warrant.
4.4+ Form of Registrant's Series C Preferred Stock Purchase Warrant.
4.5+ Form of Registrant's Common Stock Purchase Warrant.
</TABLE>

59
<PAGE>

<TABLE>
<C> <S>
4.6+ Form of Registrant's Signing Warrant.
4.7+ Form of Registrant's AGR Warrant.
4.8+ Form of Amended and Restated Investor Rights Agreement dated November
7, 1997 among the Registrant and the other parties named therein.
10.1+ Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2+ 1996 Stock Option Plan and related agreements.
10.3+ 1996 Equity Compensation Plan and related agreements.
10.4+ 1997 Acquisition Stock Option Plan and related agreements.
10.5+ 1997 Employee Stock Purchase Plan.
10.6+ Form of Restricted Stock Purchase Agreement between the Registrant and
certain executive officers.
10.7+ Management Continuity Agreement between the Registrant and Joseph P.
Firmage.
10.8+ Management Continuity Agreement between the Registrant and Tobin Co-
rey.
10.9+ Management Continuity Agreement between the Registrant and Sheldon
Laube.
10.10+ Management Continuity Agreement between the Registrant and James J.
Heffernan.
10.11+ Form of Affiliate Agreement.
10.12+ Loan and Security Agreement dated September 29, 1997 between the Reg-
istrant and Silicon Valley Bank.
10.13+ Amendment, dated November 5, 1997 to Loan and Security Agreement dated
September 29, 1997 between the Registrant and Silicon Valley Bank.
10.14+ Intel-USWeb Relationship Agreement dated as of November 7, 1997 be-
tween the Registrant and Microsoft Corporation.
10.15** Lease Agreement dated December 16, 1996 by and between the Company and
LAKESIDE DRIVE, INC. for 2880 Lakeside Drive, Santa Clara, CA 95054.
10.16** First Amendment to Lease Agreement dated July 23, 1997 by and between
the Company and LAKESIDE DRIVE, INC. for 2880 Lakeside Drive, Santa
Clara, CA 95054.
11.1 Statement of calculation of net loss per share.
21.1+ Subsidiaries of the Registrant.
24.1*** Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
+Incorporated by reference from the Company's Registration Statement on Form
S-1 (No. 333-36827).
**Incorporated by reference from the Company's Registration Statement on Form
S-4 (No. 333-38351).
***Previously filed.

60
<PAGE>

SIGNATURES

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

USWEB CORPORATION Registrant

/s/ James Heffernan
By: _________________________________
JAMES HEFFERNAN
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER
SECRETARY AND DIRECTOR

Dated: April 14, 1998

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
* Chairman of the Board and
____________________________________ Chief Executive Officer
JOSEPH P. FIRMAGE (Principal Executive
Officer)

/s/ James Heffernan Executive Vice President, April 14, 1998
____________________________________ Chief Financial Officer,
JAMES HEFFERNAN Secretary and Director
(Principal Financial and
Accounting Officer)

* Director
____________________________________
JEFFREY BALLOWE

* Director
____________________________________
ROBERT HOFF

* Director
____________________________________
GARY RIESCHEL

* Director
____________________________________
BARRY RUBENSTEIN

*By: /s/ James Heffernan April 14, 1998
---------------------------
JAMES HEFFERNAN
ATTORNEY-IN-FACT
</TABLE>

<PAGE>

EXHIBIT 11.1

USWEB CORPORATION
CALCULATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL (1) PRO FORMA (1)
------------------ ------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss............................... $(58,336) $(13,808) $(84,939) $(57,069)
-------- -------- -------- --------
Weighted average common shares out-
standing.............................. 6,828 1,334 8,913 4,725
Shares deemed outstanding under stock
bonus arrangements for employees of
acquired companies.................... 484 -- 1,658 1,450
-------- -------- -------- --------
Total weighted average common shares
outstanding........................... 7,312 1,334 10,571 6,175
======== ======== ======== ========
Basic and diluted net loss per share... $ (7.98) $ (10.35) $ (8.04) $ (9.24)
======== ======== ======== ========
</TABLE>
- ---------------------
(1) See computations of historical and pro forma net loss per share in Note 2
to the Consolidated Financial Statements.

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 44,145 3,220
<SECURITIES> 0 0
<RECEIVABLES> 8,722 137
<ALLOWANCES> 819 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 52,705 3,411
<PP&E> 7,929 1,347
<DEPRECIATION> 1,727 263
<TOTAL-ASSETS> 79,250 7,482
<CURRENT-LIABILITIES> 12,189 3,338
<BONDS> 0 0
<COMMON> 29 2
0 16,200
0 0
<OTHER-SE> 66,660 (12,494)
<TOTAL-LIABILITY-AND-EQUITY> 79,250 7,482
<SALES> 0 0
<TOTAL-REVENUES> 19,278 1,820
<CGS> 0 0
<TOTAL-COSTS> 17,182 208
<OTHER-EXPENSES> 56,589 15,577
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 76 58
<INCOME-PRETAX> (58,336) (13,808)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (58,336) (13,808)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (58,336) (13,808)
<EPS-PRIMARY> (7.98) (10.35)
<EPS-DILUTED> (7.98) (10.35)

</TABLE>