USWEB CORP, 10-Q, 1998-04-29

USWEB CORP
10-Q, 1998-04-29
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1998

[_] 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)

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OUTSTANDING AT APRIL 7, 1998
------------------- ----------------------------
<S> <C>
Common Stock, $.001 par value 35,713,821
</TABLE>

================================================================================
<PAGE>

USWEB CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

QUARTER ENDED MARCH 31, 1998

<TABLE>
<CAPTION>
PAGE NO.
--------
PART I--FINANCIAL INFORMATION

<C> <S> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)..... 1
Condensed Consolidated Balance Sheet at March 31, 1998 and
1997....................................................... 1
Condensed Consolidated Statement of Operations for the three
months ended March 31, 1998 and 1997....................... 2
Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 1998 and 1997....................... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 12

PART II--OTHER INFORMATION

Item 1. Legal Proceedings........................................... 27
Item 2. Changes in Securities and Use of Proceeds................... 27
Item 3. Defaults Upon Senior Securities............................. 27
Item 4. Submission of Matters to Vote of Security Holders........... 27
Item 5. Other Information........................................... 27
Item 6. Exhibits and Reports on Form 8-K............................ 27
Signatures........................................................... 28
</TABLE>
<PAGE>

PART I

ITEM 1. FINANCIAL STATEMENTS

USWEB CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 14,186 $ 44,145
Short-term investments............................... 22,616 --
Accounts receivable, net............................. 14,687 7,903
Other current assets................................. 2,614 657
-------- --------
Total current assets............................... 54,103 52,705
Property and equipment, net............................ 8,214 6,202
Intangible assets, net................................. 43,213 19,019
Other assets........................................... 1,791 1,324
-------- --------
$107,321 $ 79,250
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 3,883 $ 2,923
Accrued expenses..................................... 10,367 7,997
Deferred revenue..................................... 957 470
Current portion of debt and lease obligations........ 5,743 799
-------- --------
Total current liabilities.......................... 20,950 12,189
Debt and lease obligations, long-term portion.......... 1,245 372
-------- --------
22,195 12,561
-------- --------
Commitments and contingencies
Stockholders' equity:
Common Stock......................................... 31 29
Additional paid-in capital........................... 173,599 138,804
Accumulated deficit.................................. (88,504) (72,144)
-------- --------
Total stockholders' equity ........................ 85,126 66,689
-------- --------
$107,321 $ 79,250
======== ========
</TABLE>

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

1
<PAGE>

USWEB CORPORATION

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues:
Services................................................ $ 13,455 $ 59
Other................................................... 196 436
--------- --------
Total revenues........................................ 13,651 495
--------- --------
Cost of revenues:
Services................................................ 8,835 165
Other................................................... 209 132
Stock compensation...................................... 1,681 --
--------- --------
Total cost of revenues................................ 10,725 297
--------- --------
Gross profit.............................................. 2,926 198
--------- --------
Operating expenses:
Marketing, sales and support............................ 4,540 3,751
General and administrative.............................. 3,848 1,444
Acquired in-process technology (Note 1)................. 4,323 711
Stock compensation...................................... 2,568 36
Amortization of intangible assets (Note 1).............. 4,495 106
--------- --------
Total operating expenses.............................. 19,774 6,048
--------- --------
Loss from operations...................................... (16,848) (5,850)
Interest income........................................... 538 7
Interest expense.......................................... (50) --
--------- --------
Net loss.................................................. $ (16,360) $ (5,843)
========= ========
Net loss per share:
Basic and diluted (Note 4).............................. $ (0.56) $ (2.00)
========= ========
Weighted average shares outstanding (Note 4)............ 29,441 2,915
========= ========
</TABLE>

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

2
<PAGE>

USWEB CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (16,360) $ (5,843)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization.......................... 767 140
Provision for doubtful accounts........................ 76 95
Stock, option and warrant expenses..................... 4,284 36
Amortization of intangible assets...................... 4,495 106
Acquired in-process technology......................... 4,323 711
Changes in assets and liabilities:
Accounts receivable................................... (2,465) (37)
Other current assets.................................. 107 (206)
Other assets.......................................... 228 18
Accounts payable...................................... 45 528
Accrued expenses...................................... (2,748) 927
Deferred revenues..................................... 234 --
--------- --------
Net cash used in operating activities................ (7,014) (3,525)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.................... (1,236) (429)
Cash received from acquisitions, net of cash used........ 333 53
Purchases of short-term investments...................... (24,094) --
Proceeds from maturities/sales of short-term investments. 1,478 --
--------- --------
Net cash used in investing activities................ (23,519) (482)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock................... 40 --
Proceeds from issuance of notes payable.................. -- 1,400
Proceeds from capital lease financing.................... 888 --
Principal payments on capital leases..................... (354) (153)
--------- --------
Net cash provided by financing activities............ 574 1,247
--------- --------
Decrease in cash and cash equivalents..................... (29,959) (2,760)
Cash and cash equivalents, beginning of period............ 44,145 3,220
--------- --------
Cash and cash equivalents, end of period.................. $ 14,186 $ 460
========= ========
</TABLE>

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

3
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--THE COMPANY:

USWeb Corporation ("USWeb" or 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.

During the year ended December 31, 1997, the Company recognized the
acquisition of all the outstanding stock of nineteen businesses, including
certain franchised Affiliates, ("Acquired Entities") in separate transactions
in exchange for shares of the Company's Common Stock.

During the quarter ended March 31, 1998, the Company recognized the
acquisition of all the outstanding stock of five businesses in separate
transactions in exchange for shares of the Company's Common Stock.
Additionally, the Company recognized the acquisition of one business whereby
the Company acquired various assets in exchange for the assumption by the
Company of specified liabilities and payment of a promissory note for an
aggregate purchase price of $4,976. The Acquired Entities as of March 31, 1998
are as follows:

<TABLE>
<CAPTION>
COMMON RECOGNIZED
EFFECTIVE SHARES PURCHASE
ACQUIRED ENTITY DATE ISSUED PRICE
- --------------- ------------------ --------- ----------
<S> <C> <C> <C>
XCom Corporation..................................... March 16, 1997 383,209 $ 1,609
Cosmix Corporation................................... April 1, 1997 119,774 503
Fetch Interactive, Inc. ............................. April 1, 1997 464,838 1,397
NewLink Corporation.................................. April 1, 1997 425,700 1,537
InterNetOffice, LLC.................................. May 1, 1997 510,646 1,578
NetWORKERS Corporation............................... May 1, 1997 135,415 569
Infopreneurs Inc. ................................... June 1, 1997 1,008,169 3,173
Netphaz Corporation.................................. June 1, 1997 235,205 776
Electronic Images, Inc. ............................. July 1, 1997 1,665,525 6,205
Multimedia Marketing & Design Inc. .................. July 24, 1997 332,536 1,397
KandH, Inc. ......................................... August 29, 1997 151,624 1,023
DreamMedia, Inc. .................................... August 29, 1997 359,094 2,424
Internet Cybernautics, Inc .......................... September 29, 1997 447,183 4,025
Synergetix Systems Integration, Inc. ................ September 30, 1997 151,716 1,365
Online Marketing Company............................. September 30, 1997 95,730 861
Zendatta, Inc. ...................................... September 30, 1997 176,360 1,587
W3-design............................................ November 5, 1997 410,274 3,473
USWeb--Apex, Inc. ................................... November 5, 1997 365,029 3,285
Reach Networks, Inc. ................................ November 13, 1997 511,656 4,605
InnoMate Online Marketing GmbH....................... February 27, 1998 151,310 1,030
Utopia Inc. ......................................... March 31, 1998 -- 4,976
Inter.logic.studios, inc............................. March 31, 1998 294,495 6,152
Quest Interactive.................................... March 31, 1998 73,624 1,538
Ensemble Corporation................................. March 31, 1998 543,678 11,555
Ikonic Interactive, Inc. ............................ March 31, 1998 498,457 10,413
--------- -------
9,511,247 $77,056
========= =======
</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 $6,077 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

4
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

approximated their fair values. Approximately $13,795 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 $4,705
was allocated to existing technology and is being amortized over its estimated
useful life of six months. The purchase price in excess of the fair value of
identified tangible and intangible assets and liabilities assumed in the
amount of $52,479 was allocated to goodwill and is being amortized over its
estimated useful life of one to two years.

The following table represents the allocation of the total recognized
purchase price on acquisitions that occurred during the quarter ended March
31, 1998 and the year ended December 31, 1997:

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------------ ------------
<S> <C> <C>
Net tangible assets............................. $ 2,652 $ 3,425
In-process technology........................... 4,323 9,472
Existing Technology............................. 1,095 3,610
Goodwill........................................ 27,594 24,885
</TABLE>

During the quarters ended March 31, 1998 and 1997 and the year ended
December 31, 1997, the Company charged to operations the following amounts as
they relate to acquired in-process technology and the amortization of
intangible assets:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
--------------------- DECEMBER 31,
1998 1997 1997
---------- --------- ------------
<S> <C> <C> <C>
Acquired in-process technology.............. $ 4,323 $ 711 $ 9,472
Amortization of intangible assets........... 4,495 106 9,476

The following unaudited pro forma consolidated amounts give effect to these
acquisitions as if they had occurred on January 1, 1998 and on January 1, 1997
by consolidating the results of operations of the Acquired Entities with the
results of USWeb for the quarters ended March 31, 1998 and 1997 and the year
ended December 31, 1997:

<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
--------------------- DECEMBER 31,
1998 1997 1997
---------- --------- ------------
<S> <C> <C> <C>
Revenues.................................... $ 19,106 $ 11,966 $ 55,584
Net loss.................................... (35,887) (37,958) (118,832)
Net loss per share:
Basic and diluted......................... $ (1.07) $ (4.32) $ (9.53)
Weighted average shares outstanding....... 33,525,000 8,782,000 12,463,000
</TABLE>

5
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

NOTE 2--BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation of USWeb's financial condition as of March
31, 1998, and the results of its operations and its cash flows for the three
months ended March 31, 1998 and 1997. These financial statements should be
read in conjunction with the Company's unaudited 1997 financial statements,
including the notes thereto, and the other information set forth therein
included in the Company's annual report on Form 10-K. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
operating results that may be expected for the year ending December 31, 1998.
The following discussions may contain forward-looking statements which are
subject to the risk factors set forth in "Risk Factors" contained in Item 2.

6
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

NOTE 3--PRO FORMA BALANCE SHEET

On April 7, 1998, the Company completed a follow-on offering whereby the
Company sold 1,581,216 shares of Common Stock. Net proceeds to the Company
from the follow-on offering aggregated approximately $33,016. In addition,
various option and warrant holders who participated as selling stockholders in
the offering exercised 387,118 stock options and 56,547 common stock warrants.
Net proceeds to the Company from the exercise of stock options and common
stock warrants aggregated approximately $2,698. The following table presents
the pro forma effect of the offering and exercise of stock options and common
stock warrants on the unaudited balance sheet as of March 31, 1998:

<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, MARCH 31,
1998 ADJUSTMENTS 1998
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 14,186 $35,714 $ 49,900
Short-term investments....................... 22,616 -- 22,616
Accounts receivable, net..................... 14,687 -- 14,687
Other current assets......................... 2,614 (1,373) 1,241
-------- ------- --------
Total current assets....................... 54,103 34,341 88,444
Property and equipment, net.................... 8,214 -- 8,214
Intangible assets, net......................... 43,213 -- 43,213
Other assets................................... 1,791 -- 1,791
-------- ------- --------
$107,321 $34,341 $141,662
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 3,883 $ -- $ 3,883
Accrued expenses............................. 10,367 -- 10,367
Deferred revenue............................. 957 -- 957
Current portion of debt and lease obliga-
tions....................................... 5,743 -- 5,743
-------- ------- --------
Total current liabilities.................. 20,950 -- 20,950
Debt and lease obligations, long-term portion.. 1,245 -- 1,245
-------- ------- --------
22,195 -- 22,195
-------- ------- --------
Commitments and contingencies
Stockholders' equity:
Common Stock................................. 31 2 33
Additional paid-in capital................... 173,599 34,339 207,938
Accumulated deficit.......................... (88,504) -- (88,504)
-------- ------- --------
Total stockholders' equity ................ 85,126 34,341 119,467
-------- ------- --------
$107,321 $34,341 $141,662
======== ======= ========
</TABLE>

7
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash, Cash Equivalents and Short-Term Investments

The Company invests its excess cash in debt instruments of the U.S.
Government, its agencies, and in high-quality corporate issuers. All highly
liquid instruments with an original maturity of three months or less are
considered cash equivalents, those with original maturities greater than three
months and current maturities less than twelve months from the balance sheet
date are considered short-term investments.

At March 31, 1998, short-term investments in marketable securities were
classified as available-for-sale and consisted of 87% corporate debt
securities, 9% debt securities of the U.S. Government and its agencies, and 4%
foreign debt securities. At March 31, 1998, the fair value of the investments
approximated cost. Fair value is determined based upon the quoted market
prices of the securities as of the balance sheet date.

Foreign Currency and International Operations

The functional currency of the Company's Germany subsidiary is the local
currency. The financial statements of this subsidiary are translated into
United States dollars using end-of-period rates of exchange for assets and
liabilities, and average rates for the period for revenues, costs, and
expenses. Translation losses, which are deferred and accumulated as a
component of shareholders' equity, were insignificant during the quarter ended
March 31, 1998. Net gains and losses resulting from foreign exchange
transactions are included in the consolidated statements of operations during
the period recognized and were not significant during the quarter ended March
31, 1998. International assets and revenues were not significant at March 31,
1998 and for the quarter ended March 31, 1998.

Net Loss Per Share and Supplemental Pro Forma 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 quarters ended
March 31, 1998 and 1997, 4,010,000 and 34,000 equivalent acquisition-related
shares held in escrow ("Acquisition Shares"), (ii) for the quarters ended
March 31, 1998 and 1997, 1,912,000 and 3,505,000, respectively, of equivalent
shares of Common Stock subject to repurchase rights ("Restricted Shares") and
(iii) for the quarter ended March 31, 1997, 9,276,000 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 restriction 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

8
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

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>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
SUPPLEMENTAL PRO FORMA NET LOSS PER SHARE:
Net loss......................................... $ (16,360) $ (5,843)
Net loss per share:
Basic and diluted.............................. $ (0.47) $ (0.90)
Weighted average shares outstanding............ 34,904,000 6,462,000
</TABLE>

Recent Accounting Pronouncements

The Company complies with the provisions of Emerging Issues Task Force Issue
No. 96-18 ("EITF 96-18") with respect to stock options granted to non-
employees who are consultants to the Company. EITF 96-18 requires variable
plan accounting with respect to such non-employee stock options, whereby
compensation associated with such options is measured on the date such options
vest, and incorporates the current fair market value of the Company's Common
Stock into the option valuation model. Compensation expenses associated with
such non-employee stock options granted to date have not been significant.

The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" in the quarter
ended March 31, 1998. SFAS No. 130 requires the Company to report in their
financial statements, in addition to its net income (loss), comprehensive
income (loss), which includes all changes in equity during a period from non-
owner sources including, as applicable, foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. During the quarter ended March 31,
1998, such items were not significant, and the Company's comprehensive loss
approximated its net loss.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance for determining whether computer software is internal-use software
and on accounting for the proceeds of computer software originally developed
or obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. The Company has not yet
determined the impact, if any, of adopting SOP 98-1, which will be effective
for the Company's year ending December 31, 1999.

9
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

NOTE 5--SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Supplemental disclosures:
Cash paid for interest................................. $ 20 $ 19
Non-cash financing and investing activities:
Common Stock issued for acquisitions................... 30,668 1,609
Assumption of liabilities for acquisitions............. 4,976 --
</TABLE>

NOTE 6--BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Accounts receivable, net:
Accounts receivable............................... $ 15,698 $ 8,722
Less: allowance for doubtful accounts............. (1,011) (819)
-------- -------
$ 14,687 $ 7,903
======== =======
Property and equipment, net:
Computers and equipment .......................... $ 8,850 $ 6,490
Furniture and fixtures............................ 1,135 834
Leasehold improvements............................ 723 605
-------- -------
10,708 7,929
Less: accumulated depreciation and amortization... (2,494) (1,727)
-------- -------
$ 8,214 $ 6,202
======== =======
Intangible assets, net:
Goodwill.......................................... $ 52,479 $24,885
Purchased technology.............................. 4,705 3,610
-------- -------
57,184 28,495
Less: accumulated amortization.................... (13,971) (9,476)
-------- -------
$ 43,213 $19,019
======== =======
Accrued expenses:
Compensation and benefits......................... $ 2,668 $ 1,900
Accrued financing costs........................... 2,536 1,450
Marketing costs................................... 1,499 1,155
Legal costs....................................... 767 466
Other............................................. 2,897 3,026
-------- -------
$ 10,367 $ 7,997
======== =======
</TABLE>

10
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

NOTE 7--SUBSEQUENT EVENTS

During the period from April 1, 1998 to April 21, 1998, the Company
completed its acquisition of all of the outstanding stock of Xplora Limited in
exchange for 230,859 shares of the Company's Common Stock valued at $5,030.

The acquisition has 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 $657 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 $91 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 $35 was allocated to existing technology and is being amortized
over its estimated useful life of six months. The purchase price in excess of
the fair value of identified tangible and intangible assets and liabilities
assumed in the amount of $4,247 was allocated to goodwill and is being
amortized over its estimated useful life of eighteen months.

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ITEM 2. 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. For additional information regarding the Company and factors that could
affect future performance, see the information contained in the Company's
public filings with the Securities and Exchange Commission.

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 an international 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.

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. Revenues from Company-owned offices represented approximately 99%
of total company revenues for the quarter ended March 31, 1998. This
transition in business strategy from a franchising model to one based on
Company-owned operations accounts for the primary differences in the results
of operations between the quarters ended March 31, 1998 and 1997. In addition,
because of this transition in business strategy, 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
March 31, 1998 had an accumulated deficit of $88.5 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."

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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. See Note 1 to Consolidated Financial Statements.

The Company generally 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 acquisition, 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; however,
in certain situations the Company may use other methodologies as appropriate.
The Company's acquisition program will result in further 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. In most cases, each option becomes exercisable over a 36-month
period. All options have 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 generally granted at the revaluation dates if the
target company's formula-based valuation increases. In most cases, 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 value when paid equal to the
aggregate exercise price of options granted at acquisition, vests at the same
rate as the corresponding option. The stock bonus is payable at the earlier of
three years from the date of grant or, to the extent vested, 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 quarter
ended March 31, 1998, stock compensation expense included in cost of revenues
totaled

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$1.7 million, stock compensation expense included in operating expenses
totaled $2.6 million and amortization of intangible assets totaled $4.5
million, all of which were related to the acquisition of the initial twenty-
five Company-owned offices. In addition, the Company has recognized an
aggregate cost of $4.3 million for acquired in-process technology related to
the six acquisitions during the quarter ended March 31, 1998. 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 quarter ended March 31, 1998, revenues from Affiliates were
insignificant.

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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

Revenues. Total revenues increased to $13.7 million for the quarter ended
March 31, 1998, from $495,000 for the quarter ended March 31, 1997. This
increase was primarily attributable to the Company's acquisition program,
which began in the first quarter of 1997. The Company recognized twenty-five
acquisitions as of March 31, 1998 compared to one as of March 31, 1997.
Service revenues for the quarter ended March 31, 1997 were minimal as the
Company derived its revenues from initial fees and monthly royalties from
Affiliates. The Company anticipates that revenues will vary 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 $10.7 million for the
quarter ended March 31, 1998, from $297,000 for the quarter ended March 31,
1997. The increase in cost of revenues was primarily attributable to the cost
of revenues associated with acquired companies subsequent to their respective
acquisition dates. The Company recognized twenty-five acquisitions as of March
31, 1998 compared to one as of March 31, 1997. The Company anticipates that
cost of revenues will increase in absolute dollars as a result of acquisitions
of additional Internet professional service firms, and as service fees
generated by the Company-owned offices and the level of services increases.

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Marketing, Sales and Support Expenses. Marketing, sales and support expenses
increased to $4.5 million for the quarter ended March 31, 1998, from $3.8
million for the quarter ended March 31, 1997. 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
during each period. The Company recognized twenty-five acquisitions as of
March 31, 1998 compared to one as of March 31, 1997. 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 $3.8 million for the quarter ended March 31, 1998, from $1.4
million for the quarter ended March 31, 1997. This increase was primarily
attributable to increases in personnel to support the internal growth in the
Company's operations and the consolidation of the operations of acquired
Internet professional services firms with those of the Company during each
period. The Company recognized twenty-five acquisitions as of March 31, 1998
compared to one as of March 31, 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. Acquired in-process technology increased to
$4.3 million for the quarter ended March 31, 1998, from $711,000 for the
quarter ended March 31, 1997. This increase was primarily attributable to the
recognition of five acquisitions by the Company during the quarter ended
March 31, 1998 compared to one during the quarter ended March 31, 1997. The
acquired in-process technology related to each company 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 increased to $2.6 million for the
quarter ended March 31, 1998, from $36,000 for the quarter ended March 31,
1997. This increase was primarily attributable to the recognition of twenty-
five acquisitions by the Company as of March 31, 1998 compared to one as of
March 31, 1997. 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, increased to $4.5
million for the quarter ended March 31, 1998, from $106,000 for the quarter
ended March 31, 1997. This increase was primarily attributable to the
recognition of twenty-five acquisitions by the Company as of March 31, 1998
compared to one as of March 31, 1997. 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.

Income Taxes. No provision for federal and state income taxes was recorded
for either of quarters ended March 31, 1998 and 1997 because the Company
incurred net operating losses in each of those periods.

Net Loss. Net losses for the quarters ended March 31, 1998 and 1997 were
$16.4 million and $5.8 million, respectively. The increase in the net loss was
primarily attributable to non-cash charges of $13.1 million associated with
the Company's acquisition program for the quarter ended March 31, 1998
compared to non-cash charges of $853,000 for the quarter ended March 31, 1997
and increases in general and administrative expenditures.

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RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
adoption of SFAS No. 131 is required for fiscal years beginning after December
15, 1997. 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. 131 to have any impact on the Company's consolidated financial
results and is currently assessing the disclosure requirements of the new
pronouncement.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company had approximately $36.8 million in cash, cash
equivalents and short-term investments. 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 March 31, 1998, the Company used
approximately $30.6 million and approximately $4.6 million to fund operating
activities and capital equipment purchases, respectively. These operating and
investing expenditures were financed primarily with the net proceeds from the
Company's initial public offering, 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.

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 March 31, 1998, borrowings outstanding
under the credit facility approximated $1.3 million. 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.

In April 1998, the Company completed a follow-on public offering of its
Common Stock, resulting in net proceeds to the Company of approximately $33.0
million. Additionally, various stock option and common stock warrant holders,
who participated as selling stockholders in the follow-on offering, exercised
their stock options and common stock warrants, resulting in net proceeds to
the Company of approximately $2.7 million.

The Company believes that the net proceeds from the initial public offering
and the follow-on offering, combined with current cash, cash equivalent and
short-term investment 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

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<PAGE>

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 March 31,1998
had an accumulated deficit of $88.5 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 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 March 31, 1998, the Company had acquired
twenty-five companies and signed an acquisition agreement with one other. 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 all
of the Company's acquisitions through March 31, 1998 were completed in just
over a year, 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

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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," 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 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.

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

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
March 31, 1998, the Company had grown to 813 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."

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

20
<PAGE>

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.

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, 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.

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

21
<PAGE>

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.

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 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.

Risks Associated with International Operations and Expansion. The Company
intends to expand its operations into international markets. However, to date
the Company has established only two consulting offices 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

22
<PAGE>

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
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.

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.

23
<PAGE>

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 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.

24
<PAGE>

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 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 has been and is likely to continue
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

25
<PAGE>

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. As of March 31, 1998, the Company's
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.

26
<PAGE>

PART II

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

a. Use of Proceeds:

As of March 31, 1997, the Company has used the net proceeds from its
initial public offering of Common Stock of the Company, registration
statement file number 333-36827, which became effective on December 5,
1997, for the following purposes: $1,100,000 for professional service fees,
$785,000 for marketing related costs, $748,000 for equipment purchases and
$13,200,000 for other operating activities. The initial public offering
commenced on the effective date and terminated after all the securities
registered under such registration statement were sold. The managing
underwriters for the initial public offering was Hambrecht & Quist LLC. The
number of shares of Common Stock registered was 5,750,000 shares of which
all have been sold. The offering price was $7.50 per share for an aggregate
offering price of $43,125,000. The underwriters' discount was $0.525 per
share, or an aggregate of $2,625,000. The net offering proceeds (including
underwriters' discount and expenses) was approximately $38,309,000.

b. Recent Sales of Unregistered Securities

On January 22, 1998, the Company issued 42,237 shares of Common Stock of
the Company to Advanced Video Communications, Inc., a Delaware corporation
("AVC"), which were not registered under the Securities Act of 1933 (the
"1933 Act"). The Company received 66,845 shares of Series C Cumulative
Convertible Preferred Stock, par value $.01 per share, of AVC in
consideration of such issuance. The Company relied upon the exemption from
registration provided under Section 4(2) of the 1933 Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a. Exhibits:

<TABLE>
<C> <S>
Exhibit 11.1 Statement of calculation of net loss per share.
Exhibit 27.1 Financial Data Schedule.
</TABLE>

b. Reports on Form 8-K:

No reports were filed on Form 8-K by the Company during the quarter ended
March 31, 1998.

27
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this 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 29, 1998

<PAGE>

EXHIBIT 11.1

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

<TABLE>
<CAPTION>
HISTORICAL (1) PRO FORMA (2)
------------------- ---------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, YEAR ENDED MARCH 31,
------------------- DECEMBER 31, --------------------
1997 1998 1997 1997 1998
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss................ $ (5,843) $ (16,360) $(118,632) $ (37,958) $ (35,887)
-------- --------- --------- --------- ---------
Weighted average common
shares outstanding..... 2,910 28,010 9,694 7,631 28,755
Shares deemed
outstanding under stock
bonus arrangements for
employees of acquired
companies.............. 5 1,446 2,769 1,151 4,770
-------- --------- --------- --------- ---------
Total weighted average
common shares
outstanding............ 2,915 29,456 12,463 8,782 33,525
======== ========= ========= ========= =========
Basic and diluted net
loss per share......... $ (2.00) $ (0.56) $(9.53) $ (4.32) $ (1.07)
======== ========= ========= ========= =========
</TABLE>
- ---------------------
(1) See computation of historical net loss per share in Note 4 to the
Condensed Consolidated Financial Statements.

(2) See computation of pro forma net loss per share in Note 1 to the Condensed
Consolidated Financial Statements.

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,186
<SECURITIES> 22,616
<RECEIVABLES> 15,698
<ALLOWANCES> 1,011
<INVENTORY> 0
<CURRENT-ASSETS> 54,103
<PP&E> 10,708
<DEPRECIATION> 2,494
<TOTAL-ASSETS> 107,321
<CURRENT-LIABILITIES> 20,950
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 85,095
<TOTAL-LIABILITY-AND-EQUITY> 107,321
<SALES> 0
<TOTAL-REVENUES> 13,651
<CGS> 0
<TOTAL-COSTS> 10,725
<OTHER-EXPENSES> 19,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> (16,360)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,360)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)

</TABLE>