USWEB CORP, 10-Q, 1999-11-15

USWEB CORP
10-Q, 1999-11-15
COMPUTER INTEGRATED SYSTEMS DESIGN

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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 September 30, 1999.

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

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USWEB CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware 87-0551650
(State or other jurisdiction (IRS Employer
of Incorporation or organization) Identification Number)

410 Townsend Street
San Francisco, California 94107
(Address of principal executive offices)

(415) 369-6700
(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. 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 September 30, 1999
------------------- ---------------------------------
<S> <C>
Common Stock, $.001 par value 85,803,197
</TABLE>

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<PAGE>

USWEB CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS
Quarter Ended September 30, 1999

PART I FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
ITEM 1. Condensed Consolidated Financial Statements............. 1

Condensed Consolidated Balance Sheet at September 30,
1999 (Unaudited) and December 31, 1998.................. 1

Condensed Consolidated Statement of Operations for the
Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited)............................................. 2

Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited)............................................. 3

Notes to Condensed Consolidated Financial Statements.... 4

ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 9

Quantitative and Qualitative Disclosures about Market
ITEM 3. Risk.................................................... 27

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings....................................... 29

ITEM 4. Submission of Matters to a Vote of Security Holders..... 29

ITEM 6. Exhibits................................................ 30

Signatures ........................................................ 31
</TABLE>

i
<PAGE>

PART I

ITEM 1. Financial Statements

USWEB CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 82,311 $ 64,956
Short-term investments............................. 34,325 36,230
Accounts receivable, net........................... 219,691 89,038
Other current assets............................... 20,644 9,946
Deferred tax assets................................ 637 637
--------- ---------
Total current assets............................. 357,608 200,807
Property and equipment, net.......................... 42,140 18,880
Marketable equity securities......................... 37,708 --
Intangible assets, net............................... 367,042 168,335
Deferred income taxes and other assets............... 19,887 15,152
--------- ---------
$ 824,385 $ 403,174
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 61,164 $ 38,251
Accrued expenses................................... 123,776 52,908
Deferred revenue................................... 40,800 4,210
Income taxes payable............................... 4,210 3,111
Borrowings and lease obligations, current.......... 16,301 3,445
--------- ---------
Total current liabilities........................ 246,251 101,925
Lease obligations, non-current....................... 2,633 1,377
--------- ---------
248,884 103,302
--------- ---------
Stockholders' equity:
Common Stock....................................... 82 66
Additional paid-in capital......................... 902,435 546,976
Accumulated other comprehensive income............. 38,411 --
Accumulated deficit................................ (365,427) (247,170)
--------- ---------
Total stockholders' equity....................... 575,501 299,872
--------- ---------
$ 824,385 $ 403,174
========= =========
</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)
(Unaudited)

<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues........................... $ 138,934 $ 62,586 $ 324,012 $ 155,952
--------- --------- --------- ---------
Cost of revenues:
Services......................... 84,446 39,741 199,557 100,353
Provision for (recovery of) loss
on contract..................... 8,562 (7,336) 4,071 2,094
Stock compensation............... 4,763 4,158 13,934 9,415
--------- --------- --------- ---------
Total cost of revenues......... 97,771 36,563 217,562 111,862
--------- --------- --------- ---------
Gross profit....................... 41,163 26,023 106,450 44,090
--------- --------- --------- ---------
Operating expenses:
Marketing, sales and support..... 11,774 7,268 29,843 19,600
General and administrative....... 25,114 10,968 56,047 31,223
Acquired in-process technology... -- 2,896 2,212 25,508
Stock compensation............... 9,315 7,860 27,983 23,962
Amortization of intangible
assets.......................... 38,906 23,552 103,793 45,776
Merger and integration costs..... -- -- 5,316 --
--------- --------- --------- ---------
Total operating expenses....... 85,109 52,544 225,194 146,069
--------- --------- --------- ---------
Loss from operations............... (43,946) (26,521) (118,744) (101,979)
Interest income, net............... 811 1,081 2,732 3,057
--------- --------- --------- ---------
Loss before income taxes........... (43,135) (25,440) (116,012) (98,922)
Provision for income taxes......... 874 2,325 2,245 5,210
--------- --------- --------- ---------
Net loss........................... $ (44,009) $ (27,765) $(118,257) $(104,132)
========= ========= ========= =========
Net loss per share:
Basic and diluted................ $ (0.54) $ (0.44) $ (1.56) $ (1.81)
========= ========= ========= =========
Weighted average shares
outstanding..................... 81,447 63,451 75,806 57,531
========= ========= ========= =========
</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)
(Unaudited)

<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(118,257) $(104,132)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 111,533 50,691
Provision for doubtful accounts...................... 3,960 1,391
Provision for loss on contract....................... 4,071 2,094
Stock compensation................................... 41,917 33,524
Acquired in-process technology....................... 2,212 25,508
Deferred income taxes................................ -- 3,332
Tax benefit from disqualifying dispositions.......... -- 110
Changes in assets and liabilities:
Accounts receivable................................ (90,166) (16,759)
Other assets....................................... (8,999) (5,680)
Accounts payable................................... 10,657 (3,282)
Accrued expenses................................... (8,767) (7,340)
Deferred revenue................................... 35,353 866
Income taxes payable............................... (1,061) 1,218
--------- ---------
Net cash used in operating activities............ (17,547) (18,459)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment.................. (22,279) (6,575)
Cash used in acquisitions, net of cash acquired........ (12,572) (5,526)
Purchase of short-term investments..................... (55,763) (88,644)
Proceeds from maturities and sales of short-term
investments........................................... 59,827 65,509
--------- ---------
Net cash used in investing activities............ (30,787) (35,236)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of Common Stock, net............ 48,464 44,591
Repayment of bank borrowings........................... -- (577)
Proceeds from bank borrowings and notes payable........ 2,241 --
Proceeds from issuance of warrants, net................ 15,000 --
Proceeds from capital lease financing.................. 841 2,570
Principal payments on capital leases................... (1,766) (1,630)
--------- ---------
Net cash provided by financing activities........ 64,780 44,954
--------- ---------
Effect of the foreign exchange rate changes.............. 909 --
Increase (Decrease) in cash and cash equivalents......... 17,355 (8,741)
Cash and cash equivalents, beginning of period........... 64,956 62,368
--------- ---------
Cash and cash equivalents, end of period................. $ 82,311 $ 53,627
========= =========
</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 share amounts)
(Unaudited)

Note 1--The Company:

USWeb Corporation (doing business as USWeb/CKS) and its subsidiaries
("USWeb/CKS" or the "Company") is a leading Internet professional services
firm that offers a comprehensive range of services to deliver Internet
solutions designed to improve clients' business processes. USWeb/CKS has built
a network of consulting offices and what it believes to be one of the most
recognized brands for Internet professional services. The Company provides
Internet professional services including strategy consulting, analysis and
design, technology development, systems implementation and integration,
audience development and maintenance. The Company also provides consulting
services in the areas of strategic corporate and product positioning,
corporate identity and product branding, new media, environmental design,
packaging, collateral systems, advertising, direct marketing, consumer and
trade promotions and media placement services.

On December 17, 1998, USWeb Corporation ("USWeb") issued 23,428,341 shares
of its common stock for all of the outstanding common stock of CKS Group, Inc.
("CKS Group") based on a conversion ratio of 1.5 shares of the Company's
Common Stock for each share of CKS Group's common stock. The transaction has
been accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the merger to combine the results of operations, financial position and cash
flows of both USWeb and CKS Group.

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/CKS' financial condition as of
September 30, 1999, the results of its operations for the three and nine
months ended September 30, 1999 and 1998 and its cash flows for the nine
months ended September 30, 1999 and 1998. These financial statements should be
read in conjunction with the Company's audited 1998 financial statements,
including the notes thereto, and the other information set forth therein
included in the Company's 1998 Annual Report on Form 10-K. Operating results
for the three and nine month periods ended September 30, 1999 are not
necessarily indicative of the operating results that may be expected for the
year ending December 31, 1999.

Note 3--Acquisitions:

On September 3, 1999, the Company acquired Mitchell Madison Group ("MMG")
for a total consideration of approximately $215,617, comprising $10,000 in
cash, 7,210,160 shares of the Company's Common Stock valued at $170,882,
warrants to purchase 1,665,000 shares of the Company's Common Stock issued to
financial advisors valued at $14,369 and other acquisition costs aggregating
approximately $20,366. The acquisition agreement also provides for additional
payments of up to 7,210,160 shares of the Company's Common Stock payable over
a two-year period to those former MMG partners ("Members") who remain
employees of the combined entity during that period.

During the nine months ended September 30, 1999, the Company also acquired
all of the outstanding ownership interests of Martha Felt Group, Inc.,
Internetworking Systems Group, Inc., BI Business Information SA, Modern
Business Technology and Case Consult International S.A./N.V. in separate
transactions in exchange for a total of $6,500 in cash, a $17,500 guaranteed
payment, payable within one year at the Company's option in cash and/or the
Company's Common Stock, 2,644,371 shares of the Company's Common Stock,
warrants issued

4
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
(Unaudited)

to financial advisors and other acquisition costs resulting in an aggregate
purchase price of $88,078.

The acquisitions have been accounted for as purchase business combinations
and, accordingly, purchase prices have 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 $12,104 of the
aggregate 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 $2,212 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 $4,401 was allocated to
existing technology and approximately $9,000 was allocated to customer list
which are being amortized over their estimated useful lives of one and seven
years, respectively. Approximately $275,978 of the aggregate purchase price
was allocated to goodwill, primarily work force in place, and is being
amortized over its estimated life of 18 to 60 months.

In addition, due to earnout valuations performed on past acquisitions,
typically at six and twelve months after acquisition, USWeb/CKS issued
additional shares of the Company's Common Stock to the former stockholders of
the acquired companies. The issuance of these additional shares, together with
residual acquisition costs, has resulted in purchase price adjustments
totaling approximately $13,119, which has been recorded as incremental
goodwill.

During 1999 and 1998, the Company acquired 19 businesses ("Acquired
Entities"). The following unaudited pro forma consolidated amounts give effect
to these acquisitions as if they had occurred on January 1, 1998 by
consolidating the results of operations of the Acquired Entities with the
results of USWeb/CKS for the three and nine months ended September 30, 1999
and 1998:

<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues....................... $ 169,335 $ 125,755 $ 445,975 $ 343,564
========= ========= ========= =========
Net loss....................... $ (60,622) $ (73,283) $(210,857) $(294,266)
========= ========= ========= =========
Net loss per share:
Basic and diluted............ $ (0.68) $ (0.94) $ (2.48) $ (3.90)
========= ========= ========= =========
Weighted average number of
shares outstanding.......... 88,501 78,135 84,958 75,452
========= ========= ========= =========
</TABLE>

Note 4--Strategic Alliances:

NBC Multimedia

In May 1998, the Company entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC") to expand production capabilities for NBC's
interactive properties and services. As part of the strategic alliance, the
Company was awarded a multi-year contract where revenues earned under the
contract are expected to approximate $11,000. In connection with the strategic
alliance, the Company issued warrants to NBC allowing them to purchase a total
of 2,100,000 shares of the Company's Common Stock, of which 1,600,000 are
exercisable at $22.50 per share and 500,000 are exercisable at $25.43 per
share. Warrants to purchase 1,050,000 shares are exercisable at any time prior
to their expiration in November 1999 (the "Fixed Warrants"). Warrants

5
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
(Unaudited)

to purchase the remaining 1,050,000 shares are subject to cancellation or, if
previously exercised, are subject to repurchase at the original exercise
price, in the event that the agreement is cancelled by NBC prior to May 2002
(the "Variable Warrants"). The warrants were initially valued at $12,568. Of
the total value ascribed to the NBC warrants, $6,286 was attributable to the
Fixed Warrants and recorded as part of stock compensation in operating
expenses. The remaining $6,282 of the initial value was attributed to the
Variable Warrants, which are included as part of the costs of the NBC
contract. The Variable Warrants are subject to revaluation at each balance
sheet date through the date the related cancellation or repurchase rights
lapse. The Variable Warrants were revalued at September 30, 1999, and the
cumulative charge of $5.5 million that had been recorded through June 30, 1999
was increased by $8.6 million based on current market data. Because the
inclusion of the value of the Variable Warrants as part of the NBC contract
results in an overall loss on the contract, the amount of any increase or
decrease in the value of the variable warrants is reflected in the Company's
Statement of Operations as a provision for or recovery of loss on contract for
each period presented.

Microsoft Corporation

In September 1999, the Company expanded its strategic alliance ("Alliance")
with Microsoft Corporation ("Microsoft") to assist in the development of the
USWeb/CKS Internet framework (iFrame), a standardized architecture for
developing integrated e-business solutions. Under terms of the strategic
alliance, Microsoft will provide the Company with a non-refundable $67.5
million, to be paid over twelve months, to offset the costs necessary for the
development, marketing and training needed to bring iFrame and associated
application services to market. Microsoft will also provide a joint technology
lab to assist in such development and will provide certain other funding,
including a joint marketing fund. During September 1999, the Company received
the first payment under the agreement in the amount of $33.8 million, which
has been recorded as deferred revenue and will be recorded as a reduction of
operating expenses as costs are incurred under the percentage-of-completion
method. As part of the agreement, Microsoft purchased, for $15.0 million, a
warrant allowing Microsoft to acquire up to 1,000,000 shares of USWeb/CKS
Common Stock at an exercise price of $27.59 per share, which represents the
fair value of the Company's Common Stock at the date of the alliance. The
warrant is exercisable anytime prior to its expiration in September 2004.
Should the Company be successful in developing iFrame and its associated
applications, the Company will pay to Microsoft a royalty, beginning in July
2001, equal to 8.9% of such revenues, if any. The royalty will continue until
the earlier of December 31, 2007, or the aggregate royalty paid totals $105
million.

Note 5--Supplemental Cash Flow Information:

<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Supplemental disclosures:
Cash paid for interest................................ $ 487 $ 50
Cash paid for income taxes............................ 1,279 128
Non-cash financing and investing activities:
Common Stock issued for acquisitions.................. 220,331 176,998
Assumption of liabilities in acquisitions............. -- 4,976
</TABLE>

6
<PAGE>

USWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
(Unaudited)

Note 6--Balance Sheet Components:

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable........................... $ 161,113 $ 68,817
Media receivable.............................. 23,131 9,929
Unbilled revenues............................. 47,388 15,533
Less: Allowance for doubtful accounts......... (11,941) (5,241)
--------- --------
$ 219,691 $ 89,038
========= ========
Property and equipment, net:
Computer equipment............................ $ 40,956 $ 25,445
Furniture and fixtures........................ 8,757 3,483
Leasehold improvements........................ 13,762 3,491
--------- --------
63,475 32,419
Less: Accumulated depreciation and
amortization................................. (21,335) (13,539)
--------- --------
$ 42,140 $ 18,880
========= ========
Intangible assets, net:
Goodwill, primarily workforce in place........ $ 528,865 $239,768
Customer lists................................ 9,000 --
Purchased technology.......................... 17,459 13,058
--------- --------
555,324 252,826
Less: Accumulated amortization................ (188,282) (84,491)
--------- --------
$ 367,042 $168,335
========= ========
Accrued expenses:
Compensation and benefits..................... $ 50,028 $ 14,331
Marketing costs............................... 2,608 3,458
Professional fees............................. 4,003 3,953
Merger and related costs...................... 1,105 17,892
Guaranteed acquisition payment................ 27,500 --
Acquisition related costs..................... 21,307 1,422
Other......................................... 17,225 11,852
--------- --------
$ 123,776 $ 52,908
========= ========
</TABLE>

Note 7--Comprehensive income:

Comprehensive income includes changes in the balances of items that are
reported directly as a separate component of stockholders' equity on the
condensed consolidated balance sheet. USWeb/CKS had comprehensive income
comprising net unrealized gain on equity securities and foreign currency
translation adjustments. The components of comprehensive income for the three
and nine months ended September 30, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss).............. $(44,009) $(27,765) $(118,257) $(104,132)
Net unrealized gain on equity
securities.................... 37,899 -- 37,502 --
Foreign currency translation
adjustments................... 1,623 -- 909 --
--------- --------- --------- ---------
Comprehensive income......... $ (4,487) $(27,765) $ (79,846) $(104,132)
========= ========= ========= =========
</TABLE>

7
<PAGE>

The components of accumulated other comprehensive income at September 30,
1999 and December 31, 1998 were as follows:

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Net unrealized gain on equity securities.......... $37,502 $ --
Foreign currency translation adjustments.......... 909 --
------- -----
Accumulated other comprehensive income.......... $38,411 $ --
======= =====
</TABLE>

Note 8--Recent Accounting Pronouncements:

Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. In June 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivatives
Instruments and Hedging Activities--Deferral of Effective Date of FASB
Statement No. 133." SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000, with
earlier applications encouraged. USWeb/CKS does not expect the adoption of
this pronouncement to have a material impact on its financial condition or
results of operations.

8
<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion and analysis of the financial condition and results
of operations of USWeb Corporation (which is also known and referred to as
"USWeb/CKS") should be read in conjunction with the Company's consolidated
financial statements for the year ended December 31, 1998 included in its
Annual Report on Form 10-K.

The following discussion contains forward-looking statements about matters
that involve risks and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions, as well as financial trends.
The discussion also includes cautionary statements about these matters. You
should read the cautionary statements made below as being applicable to all
related forward-looking statements wherever they appear in this document.
USWeb/CKS' actual results could differ materially from those discussed below.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors," as well as those discussed elsewhere herein.

Overview

USWeb/CKS is a leading Internet professional services firm that offers a
comprehensive range of services to deliver Internet solutions designed to
improve clients' business processes. USWeb/CKS has built a network of
consulting offices and what we believe to be one of the most recognized brands
for Internet professional services. We provide Internet professional services
including strategy consulting, analysis and design, technology development,
systems implementation and integration, audience development and maintenance.
We also provide consulting services in the areas of strategic corporate and
product positioning, corporate identity and product branding, new media,
environmental design, packaging, collateral systems, advertising, direct
marketing, consumer and trade promotions and media placement services.

On December 17, 1998, USWeb Corporation completed its merger with CKS Group,
Inc. ( "CKS Group") in a transaction accounted for as a pooling of interests.
Accordingly, our historical financial statements have been combined to present
the historical consolidated financial statements of USWeb Corporation and CKS
Group for all periods presented. Under terms of the merger agreement, each
outstanding share of CKS Group common stock was exchanged for 1.5 shares of
USWeb Corporation Common Stock.

The Company has 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 strategic expansion of its network of consulting offices, continue to
develop the strength and quality of its operations, maximize the value
delivered to clients, enhance the Company's brands, respond to competitive
developments and continue to attract, retain and motivate qualified employees.
The Company may not be successful in meeting these challenges and addressing
such risks, and the failure to do so could significantly harm the Company's
business, results of operations and financial condition. The Company has
incurred net losses since inception, and as of September 30, 1999 had an
accumulated deficit of $365 million. Although the Company has experienced
revenue growth in recent quarters, 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 1999, and may not achieve
or sustain profitability. See "Risk Factors--We Have Only a Limited Operating
History . . . " and "--We Have a Large Accumulated Deficit . . ."

Acquisitions

In 1996, we began to acquire selected Internet, marketing communications and
related technology services firms. We transitioned from a franchise-based
business model to one based on USWeb/CKS-owned operations to provide greater
economies of scale, enable the consulting offices to focus on providing
professional services and

9
<PAGE>

facilitate their growth by furnishing needed working capital. USWeb/CKS
typically determines the purchase price of each acquisition candidate based on
strategic fit, geographic coverage, historical revenues, profitability,
financial condition and contract backlog, and our qualitative evaluation of
the candidate's management team, operational scalability and customer base.

USWeb/CKS typically acquires suitable candidates through mergers in exchange
for shares of its Common Stock, cash, or a combination of both. Generally,
with respect to past domestic acquisitions, at least fifty percent of the
shares to be issued were deposited into a one-year escrow (or otherwise
deferred) and the remaining shares were 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 were issued to the
acquired company or escrowed shares were returned to USWeb/CKS depending on
whether the valuation has increased or decreased. After all such purchase
price adjustments have been made, all shares remaining in escrow were issued
to the acquired company's shareholders. In the most recent acquisitions, in
particular the acquisition of MMG, the Company has not deposited shares into
escrow. However, these acquisitions continue to include contingent
consideration to be paid to the acquired Company's shareholders, based either
on financial performance metrics, in which case the ultimate resolution is
recorded as an adjustment to the purchase price, or based on continued
employment, in which case the ultimate resolution is recorded as stock
compensation in the Company's statement of operations. We may increasingly use
cash to pay for acquisitions.

Of the 46 acquisitions completed by USWeb and CKS Group to date, 43 have
been accounted for as purchase business combinations and three, including
USWeb's acquisition of CKS Group, have been accounted for as poolings of
interests. For each purchase business combination to date, a portion of the
purchase price was 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:

. amounts allocated to in-process technology and immediately charged to
operations,

. amounts allocated to purchased technology and amortized on a straight-
line basis over the estimated period of benefit, generally, twelve
months,

. amounts allocated to customer list and amortized on a straight-line
basis over the estimated period of benefit of 7 years,

. amounts allocated to workforce in place and amortized on a straight-line
basis over the estimated period of benefit, which ranges from 1 to 5
years, and

. amounts allocated to goodwill and amortized on a straight-line basis
over 1 to 20 years

For each purchase business combination, the results of operations of an
acquired entity are consolidated with those of USWeb/CKS as of the date
USWeb/CKS acquires effective control of the entity, which may occur prior to
the formal legal closing of the transaction and the physical exchange of
acquisition consideration.

To determine the amounts to be allocated to acquired in-process technology
we used two distinct approaches. For all acquisitions except Gray Peak
Technologies, Inc. ("Gray Peak") and MMG, we performed internal detailed
valuations. For the acquisition of Gray Peak and MMG, which were individually
significant at the time they were acquired, we engaged valuation consultants
to perform independent valuations of the Gray Peak and MMG purchase prices
including an allocation of such purchase prices to assets acquired and
liabilities assumed. Should USWeb/CKS fail to complete the development of the
acquired in-process technology, we may not be able to recover the costs
invested in the development of such technology or realize any anticipated
future net cash flows.

Generally, the employees of acquired companies who become employees of
USWeb/CKS are granted options to purchase shares of USWeb/CKS' Common Stock,
which typically become exercisable over a 36-

10
<PAGE>

month period. These options have an exercise price per share equal to at least
the fair market value of USWeb/CKS Common Stock on the date of grant.
Additional options generally are 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 vests at the same rate as the corresponding
option and is equal in value to the aggregate exercise price of this option.
The stock bonus is payable at the earlier of three years from the date of
grant or, 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 either cost of revenues or operating expenses depending on
whether the optionee is acting in a service delivery or administrative
capacity.

During the year ended December 31, 1998, options for our Common Stock were
exchanged for outstanding vested options for the acquired entity 's Common
Stock only with respect to the acquisitions of Gray Peak, Ikonic Interactive,
Inc. ("Ikonic"), and CKS Group. In the acquisitions of Gray Peak and Ikonic,
which were accounted for as purchase business combinations, the value of such
options was determined using the Black-Scholes option pricing model and
included in the determination of purchase price. For transactions in which
option vesting was accelerated as a result of the merger transaction, the
vested options were exercised prior to acquisition and the resultant target
company shares exchanged for our Common Stock. Options granted to new
employees with exercise prices equal to the fair value of the Company's Common
Stock on the date of grant in exchange for future services are accounted for
in accordance with Accounting Principles Board Opinion No. 25, with no
compensation expense recognized in our consolidated financial statements.
Options granted to consultants with non-variable terms are valued on the date
of grant using the Black-Scholes option pricing model. The resulting
compensation cost is allocated to cost of revenues or operating expenses
depending on whether the optionee is acting in a services delivery or
administrative capacity.

On September 3, 1999, the Company entered into an agreement to acquire
substantially all of the assets and liabilities of MMG, a strategy consulting
firm focused on business-to-business commerce. MMG provides consulting
services related to global payment systems and e-commerce, sourcing and supply
chain transformation, electronic trading networks and settlement systems, and
risk management. Under the terms of the acquisition agreement, USWeb/CKS will
issue approximately 14.4 million shares of USWeb/CKS stock for substantially
all of the assets of MMG. Of the shares to be issued, 50 percent were issued
at closing and 25 percent will be issued on each of the first and second
closing date anniversaries, to those former MMG partners who remain employees
of the combined entity during that period. The company has established an
incentive option program for MMG employees.

To capitalize on the growth opportunities for a newly acquired consulting
office, USWeb/CKS generally hires a number of additional Internet
professionals during the three-month period following the office's integration
into the USWeb/CKS 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,
USWeb/CKS 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. We believe that this investment in
training and professional development will contribute to our ability to meet
growth targets.

The successful implementation of USWeb/CKS' acquisition strategy depends on
our ability to identify suitable acquisition candidates, acquire such
companies on acceptable terms and integrate their operations successfully with
those of the Company. USWeb/CKS may not be able to do so. Moreover, in
pursuing acquisitions USWeb/CKS may compete with companies with similar
acquisition strategies, certain of which competitors may be larger and have
greater financial and other resources than USWeb/CKS. 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 USWeb/CKS' 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

11
<PAGE>

acquired personnel. Client satisfaction or performance problems with an
acquired firm could also have a material adverse impact on the reputation of
USWeb/CKS as a whole, and any acquired subsidiary could significantly under-
perform relative to USWeb/CKS' expectations. For all of these reasons,
USWeb/CKS' pursuit of an overall acquisition strategy or any individual
completed, pending or future acquisition could significantly harm USWeb/CKS'
business, results of operations and financial condition. To the extent
USWeb/CKS chooses to use cash consideration in the future to pay for all or
part of any acquisitions, USWeb/CKS may be required to obtain additional
financing. Such financing may be unavailable on favorable terms, if at all.

Strategic Alliances

In May 1998, USWeb Corporation entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC") to expand production capabilities for NBC's
interactive properties and services. As part of the strategic alliance, we
were awarded a multi-year contract where revenues earned under the contract
are expected to approximate $11.0 million. In connection with the strategic
alliance, we issued warrants to NBC allowing them to purchase a total of
2,100,000 shares of the Company's Common Stock, of which 1,600,000 are
exercisable at $22.50 per share and 500,000 are exercisable at $25.43 per
share. Warrants to purchase 1,050,000 shares are exercisable at any time prior
to their expiration in November 1999 (the "Fixed Warrants"). If the agreement
is cancelled by NBC Multimedia, Inc. before May 2002, USWeb/CKS can cancel the
warrants to purchase the remaining 1,050,000 shares or, if the warrants have
been previously exercised, can repurchase the associated shares issued (the
"Variable Warrants"). The warrants were initially valued at $12.6 million. Of
the total value ascribed to the NBC warrants, $6.3 million was attributable to
the Fixed Warrants and recorded as part of stock compensation in operating
expenses. The remaining $6.3 million of the initial value was attributed to
the Variable Warrants, which are included as part of the costs of the NBC
contract. The Variable Warrants are subject to revaluation at each balance
sheet date through the date the related cancellation or repurchase rights
lapse. The Variable Warrants were revalued at September 30, 1999, and the
cumulative charge of $5.5 million that had been recorded through June 30, 1999
was increased by $8.6 million based on current market data. Because the
inclusion of the value of the Variable Warrants as part of the NBC contract
results in an overall loss on the contract, the amount of any increase or
decrease in the value of the variable warrants is reflected as a provision for
or recovery of loss on contract.

In September 1999, the Company expanded its strategic alliance ("Alliance")
with Microsoft Corporation ("Microsoft") to assist in the development of the
USWeb/CKS Internet framework (iFrame), a standardized architecture for
developing integrated e-business solutions. Under terms of the strategic
alliance, Microsoft will provide the Company with a non-refundable $67.5
million, to be paid over twelve months, to offset the costs necessary for the
development, marketing and training needed to bring iFrame and associated
application services to market. Microsoft will also provide a joint technology
lab to assist in such development and will provide certain other funding
including a joint marketing fund. During September 1999, the Company received
the first payment under the agreement in the amount of $33.8 million, which
has been recorded as deferred revenue and will be recorded as a reduction of
operating expenses as costs are incurred under the percentage-of-completion
method. As part of the agreement, Microsoft purchased, for $15.0 million, a
warrant allowing Microsoft to acquire up to 1,000,000 shares of USWeb/CKS
Common Stock at an exercise price of $27.59 per share, which represents the
fair value of the Company's Common Stock at the date of the alliance. The
warrant is exercisable anytime prior to its expiration in September 2004.
Should the Company be successful in developing iFrame and its associated
applications, the Company will pay to Microsoft a royalty, beginning in July
2001, equal to 8.9% of such revenues, if any. The royalty will continue until
the earlier of December 31, 2007, or the aggregate royalty paid totals $105.0
million.

Sources of Revenues and Revenue Recognition

USWeb/CKS consolidates the financial statements of acquired entities
beginning on the date USWeb/CKS assumes effective control of those entities.
Revenues primarily consist of fees from consulting services engagements
(including both time-and-materials and fixed-price engagements). We provide
Internet professional services including strategy consulting, analysis and
design, technology development, systems implementation and integration,
audience development and maintenance. We also provide consulting services in
the areas of strategic corporate and product positioning, corporate identity
and product branding, new media, environmental

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<PAGE>

design, packaging, collateral systems, advertising, direct marketing, consumer
and trade promotions and media placement services. Revenues from time-and-
materials engagements are recognized as services are provided and revenues
from fixed-price engagements are recognized using the percentage-of-completion
method. Billable rates vary by the service provided and geographical region.
Although a majority of engagements are currently performed on a time-and-
materials basis, USWeb/CKS intends to increase the percentage of its
engagements that are based on a fixed price. The pricing, management and
execution of individual engagements are the responsibility of the consulting
office that performs or coordinates the services.

Classification of Costs

Cost of revenues include 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. The
technology, sales, marketing and administrative costs of each USWeb/CKS-owned
office are classified as operating expenses. Corporate expenses are primarily
classified as operating expenses. Marketing and sales 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 administration,
accounting, legal and human resources costs.

Results of Operations

<TABLE>
<CAPTION>
Nine months
Three months ended
ended September
September 30, 30,
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Revenues..................................... 100% 100% 100% 100%
Cost of revenues:
Services................................... 61 63 62 65
Provision for (recovery of) loss on
contract.................................. 6 (12) 1 1
Stock compensation......................... 3 7 4 6
------ ------ ----- -----
Total cost of revenues................... 70 58 67 72
------ ------ ----- -----
Gross Profit................................. 30 42 33 28
------ ------ ----- -----
Operating Expenses:
Marketing, sales and support............... 9 12 9 13
General and administrative................. 18 17 17 20
Acquired in-process technology............. - 5 1 16
Stock compensation......................... 7 12 8 15
Amortization of intangible assets.......... 28 38 32 29
Merger and integration costs............... - - 2 -
------ ------ ----- -----
Total operating expenses................. 62 84 69 93
------ ------ ----- -----
Loss from operations......................... (32) (42) (36) (65)
Interest income, net......................... 1 2 1 2
------ ------ ----- -----
Loss before income taxes..................... (31) (40) (35) (63)
------ ------ ----- -----
Provision for income taxes................... 1 4 1 3
------ ------ ----- -----
Net loss..................................... (32)% (44)% (36)% (66)%
====== ====== ===== =====
</TABLE>

Three months ended September 30, 1999 and 1998

Revenues. Revenues increased $76.3 million or 122.0% during the three-month
period ended September 30, 1999, compared to the corresponding period of 1998.
This increase resulted from an increase in the number and relative size of
client engagements we have undertaken as well as revenues recognized by
companies acquired subsequent to September 30, 1998. During the three months
ended September 30, 1999, revenues recognized by entities acquired subsequent
to September 30, 1998 were $27.3 million. USWeb/CKS

13
<PAGE>

recognizes revenues related to fixed fee service projects using the
percentage-of-completion method based on the ratio of costs incurred to total
estimated project costs. USWeb/CKS updates its estimated costs on each project
monthly. Fees and expenditures in excess of billings represent the costs
incurred and anticipated profits earned on projects in progress in excess of
amounts billed, and are recorded as an asset. Billings in excess of fees and
expenditures represent amounts billed in advance of costs incurred and
estimated profits earned, and are recorded as a liability. To the extent costs
incurred and anticipated costs to complete projects in progress exceed
anticipated billings, a loss is accrued for the excess.

We generally generate higher profit margins when a greater percentage of our
services is performed by full-time employees rather than independent
consultants. Accordingly, USWeb/CKS actively monitors and manages its level of
full-time and temporary employees as compared to independent consultants to
ensure that future projects are adequately staffed. In certain instances,
USWeb/CKS has made a strategic decision to incur the incremental costs of
independent consultants to staff growth in projects rather than increase the
number of full-time employees until such time as USWeb/CKS has determined that
increased revenue levels are sustainable. We anticipate that revenues in
future periods will vary depending on our internal growth and management of
growth, and as a result of any acquisitions and the integration of acquired
firms.

Cost of Revenues. Cost of revenues increased $61.2 million or 167.4% during
the three-month period ended September 30, 1999 compared to the corresponding
period in 1998. This increase primarily resulted from increases in the number
and relative size of client engagements we have undertaken as well as cost of
revenues recognized by companies acquired subsequent to September 30, 1998.
During the three months ended September 30, 1999, cost of revenues incurred by
entities acquired subsequent to September 30, 1998 was $15.2 million. Included
in cost of revenues for the three-month period ended September 30, 1999 is a
provision for loss on contract of $8.6 million related to the NBC warrants
discussed above. The corresponding period of 1998 included a $7.3 million
recovery of loss on the contract. We anticipate that cost of revenues, other
than amounts associated with the NBC warrants (which may vary depending on the
volatility of the Company's Common Stock), will increase in absolute dollars
as a result of internal growth and as a result of acquisitions, if any.

Marketing, Sales and Support Expenses. Marketing, sales and support expenses
increased $4.5 million or 62.0% during the three-month period ended September
30, 1999 compared to the corresponding period of 1998. This increase resulted
from the consolidation of additional Internet consulting businesses acquired
during the respective periods and from increases in personnel to support the
growth of our operations. During the three months ended September 30, 1999,
sales and marketing expenses incurred by entities acquired subsequent to
September 30, 1998 were $2.3 million. We anticipate that sales and marketing
expenses will increase in future periods in absolute dollars as we continue to
pursue an aggressive brand building strategy and continue to acquire and
consolidate the results of additional Internet consulting firms.

General and Administrative Expenses. General and administrative expenses
increased $14.1 million or 129.0% in the three-month period ended September
30, 1999 compared to the corresponding period of the prior year. This increase
was primarily attributable to additional costs resulting from the
consolidation of the results of operations of acquired businesses as well as
increases in personnel and overhead costs to support the internal growth of
our operations. During the three months ended September 30, 1999, general and
administrative expenses incurred by entities acquired subsequent to September
30, 1998 were $4.4 million. USWeb/CKS believes that the absolute dollar level
of general and administrative expenses will increase in future periods.

Acquired In-Process Technology. Acquired in-process technology results from
our acquisition program. USWeb/CKS did not incur any acquired in-process
technology in the three-month period ended September 30, 1999, compared to the
$2.9 million incurred during the corresponding period in 1998. The acquired
in-process technology had not reached the stage of technological feasibility
as of the dates of acquisition and had no alternative future use. Accordingly,
such amounts were charged to operations in the period the respective

14
<PAGE>

acquisitions were consummated. The amount of acquired in-process technology,
if any, will fluctuate in future periods based upon the nature and timing of
future acquisitions, if any.

Stock Compensation. Stock compensation expense results primarily from stock
bonuses awarded to employees of acquired companies, as well as from stock
options granted with exercise prices below the fair market value of our Common
Stock on the date of grant. Stock compensation expense is classified as cost
of revenue or operating expense depending upon the classification of the
respective employees. Such expenses are recognized ratably over the related
vesting period, which is generally three to four years. Stock compensation
expense totaled $14.1 million in the three-month period ended September 30,
1999, an increase of $2.1 million or 17.1% from $12.0 million during the
corresponding period in 1998. This increase is primarily attributable to the
granting of options with an associated stock bonus to employees of newly
acquired companies. USWeb/CKS anticipates that such amounts will increase in
the near term as recent stock awards vest contemporaneously, and that such
amounts will fluctuate in future periods based upon the nature and timing of
any future acquisitions and related stock and option awards.

Amortization of Intangible Assets. Amortization of intangible assets
consists primarily of amortization of purchased technology, workforce in place
and goodwill resulting from our acquisitions. Amortization of intangible
assets totaled $38.9 million in the three months ended September 30, 1999, an
increase of $15.4 million or 65.2% from $23.6 million during the corresponding
period of 1998. Amortization periods range from twelve months to twenty years.
Amortization of intangible assets will fluctuate in future periods based upon
the nature and timing of future acquisitions, if any.

Interest Income, net. Interest income, net consists primarily of interest
earned on our holdings in cash, cash equivalents and short-term investments,
offset by interest expense incurred primarily on our capital lease facility.
The decrease in net interest income in 1999 as compared to 1998 was primarily
attributable to lower average cash, cash equivalents and marketable securities
balances.

Provision for Income Taxes. For the three months ended September 30, 1999,
provision for income taxes represents foreign and state taxes accrued for
USWeb/CKS subsidiaries. For the quarter ended September 30, 1998, provision
for income taxes represents the actual provision for income taxes of CKS Group
prior to its merger with USWeb Corporation. No provision for federal and state
income taxes was recorded by USWeb Corporation because USWeb Corporation
incurred net losses in that period.

Net Loss. Net losses for the three-month periods ended September 30, 1999
and 1998 were $44.0 million and $27.8 million, respectively. The increase in
net loss was primarily attributable to the increases in costs directly
associated with our acquisition program, including amortization of intangible
assets and stock compensation.

Nine months ended September 30, 1999 and 1998

Revenues. Revenues increased $168.1 million or 107.8% during the nine-month
period ended September 30, 1999, compared to the corresponding period of 1998.
This increase resulted from an increase in the number and relative size of
client engagements we have undertaken as well as revenues recognized by
companies acquired subsequent to September 30, 1998. During the nine months
ended September 30, 1999, revenues recognized by entities acquired subsequent
to September 30, 1998 were $43.5 million. USWeb/CKS recognizes revenues
related to fixed fee service projects using the percentage-of-completion
method based on the ratio of costs incurred to total estimated project costs.
USWeb/CKS updates its estimated costs on each project monthly. Fees and
expenditures in excess of billings represent the costs incurred and
anticipated profits earned on projects in progress in excess of amounts
billed, and are recorded as an asset. Billings in excess of fees and
expenditures represent amounts billed in advance of costs incurred and
estimated profits earned, and are recorded as a liability. To the extent costs
incurred and anticipated costs to complete projects in progress exceed
anticipated billings, a loss is accrued for the excess.

15
<PAGE>

Cost of Revenues. Cost of revenues increased $105.7 million or 94.5% during
the nine-month period ended September 30, 1999 compared to the corresponding
period in 1998. This increase resulted primarily from increases in the number
and relative size of client engagements we have undertaken as well as cost of
revenues recognized by companies acquired subsequent to September 30, 1998.
During the nine months ended September 30, 1999, cost of revenues incurred by
entities acquired subsequent to September 30, 1998 was $23.7 million. Included
in cost of revenues for the nine-month period ended September 30, 1999 is a
provision for loss on contract of $4.1 million related to the NBC warrants
discussed above. We anticipate that cost of revenues, other than the amounts
associated with the NBC warrants (which may vary depending on the volatility
of the Company's Common Stock), will increase in absolute dollars as a result
of internal growth and as a result of any acquisitions we may complete.

Marketing, Sales and Support Expenses. Marketing, sales and support expenses
increased $10.2 million or 52.3% during the nine-month period ended September
30, 1999 compared to the corresponding period of 1998. This increase resulted
from the consolidation of additional Internet consulting businesses acquired
during the respective periods and from increases in personnel to support the
growth of our operations, and was partially offset by decreases in marketing
expenses resulting from our transition away from an affiliate franchising
program. During the nine months ended September 30, 1999, sales and marketing
expenses incurred by entities acquired subsequent to September 30, 1998 were
$2.9 million. We anticipate that sales and marketing expenses will increase in
future periods in absolute dollars as we continue to pursue an aggressive
brand building strategy and continue to consolidate the results of additional
Internet consulting firms.

General and Administrative Expenses. General and administrative expenses
increased $24.8 million or 79.5% in the nine-month period ended September 30,
1999 compared to the corresponding period of prior year. This increase was
primarily attributable to additional costs resulting from the consolidation of
the results of operations of acquired businesses as well as increases in
personnel and overhead costs to support the internal growth of our operations.
During the nine months ended September 30, 1999, general and administrative
expenses incurred by entities acquired subsequent to September 30, 1998 were
$6.6 million. USWeb/CKS believes that the absolute dollar level of general and
administrative expenses will increase in future periods.

Acquired In-Process Technology. Acquired in-process technology results from
our acquisition program. Acquired in-process technology totaled $2.2 million
in the nine-month period ended September 30, 1999, a decrease of $23.3 million
or 91.3% from $25.5 million during the corresponding period in 1998. The
acquired in-process technology had not reached the stage of technological
feasibility as of the dates of acquisitions and had no alternative future use.
Accordingly, such amounts were charged to operations in the period the
respective acquisitions were consummated. The amount of acquired in-process
technology, if any, will fluctuate in future periods based upon the nature and
timing of future acquisitions, if any.

Stock Compensation. Stock compensation expense results primarily from stock
bonuses awarded to employees of acquired companies, as well as from stock
options granted with exercise prices below the fair market value of our Common
Stock on the date of grant. Stock compensation expense is classified as cost
of revenue or operating expense depending upon the classification of the
respective employees. Such expenses are recognized ratably over the related
vesting period, which is generally three to four years. Stock compensation
expense totaled $41.9 million in the nine-month period ended September 30,
1999, an increase of $8.5 million or 25.6% from $33.4 million during the
corresponding period in 1998. This increase resulted primarily from options
granted pursuant to the Company's acquisitions. USWeb/CKS anticipates that
such amounts will increase in the near term as recent stock awards vest
contemporaneously, and that such amounts will fluctuate in future periods
based upon the nature and timing of future acquisitions and related stock and
option awards.

16
<PAGE>

$58.0 million or 126.7% from $45.8 million during the corresponding period of
1998. Amortization periods range from twelve months to twenty years.
Amortization of intangible assets will fluctuate in future periods based upon
the nature and timing of any future acquisitions.

Merger and Integration Costs. We completed our merger with CKS Group on
December 17, 1998. Costs directly associated with the merger were $5.3 million
during the nine months ended September 30, 1999. Total merger and integration
costs, including $28.8 million recognized in the fourth quarter of 1998,
aggregated $34.1 million. Such costs included $20.9 million of professional
fees, including investment banking, legal, accounting and printing fees; $10.2
million of costs associated with lease termination, office consolidation and
employee severance and retention costs; and $3.0 million in other related
costs. As of September 30, 1999, $1.1 million of accrued merger and
integration costs, consisting primarily of lease termination and employee
related costs, remained unpaid. Such amounts are expected to be paid by
December 31, 1999. No significant merger and integration costs related to the
merger with CKS Group are expected to be incurred in future periods.

Provision for Income Taxes. For the nine months ended September 30, 1999,
provision for income taxes represents foreign and state taxes accrued for
USWeb/CKS subsidiaries. For the nine months ended September 30, 1998,
provision for income taxes represents the actual provision for income taxes of
CKS Group prior to merger with USWeb Corporation. No provision for federal and
state income taxes was recorded by USWeb Corporation because USWeb Corporation
incurred net operating losses in that period.

Net Loss. Net losses for the nine-month periods ended September 30, 1999 and
1998 were $118.2 million and $104.1 million, respectively. The increase in net
loss was primarily attributable to increases in costs directly associated with
our acquisition program. Acquisition costs include amortization of intangible
assets, stock compensation and merger and integration costs related to the
merger with CKS Group in 1998.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. In June 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of Effective Date of FASB
Statement No. 133." SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000, with
earlier applications encouraged. USWeb/CKS does not expect the adoption of
this pronouncement to have a material impact on its financial condition or
results of operations.

Liquidity and Capital Resources

The Company invests predominantly in instruments that are highly liquid,
investment grade, and have maturities of less than one year, with the intent
to make such funds readily available for operating purposes. At September 30,
1999, the Company had approximately $116.6 million in cash, cash equivalents
and short-term investments compared to $101.2 million at December 31, 1998. In
addition, the Company has investments in certain public companies with an
aggregate fair market value of $37.7 million at September 30, 1999. These
investment are classified as "available-for-sale" and have been classified as
long-term assets.

Cash used in operating activities was $17.5 million for the nine months
ended September 30, 1999 and resulted primarily from the net loss of $118.3
million, increases in accounts receivable of $90.2 million and

17
<PAGE>

decreases in accrued expenses of $8.8 million (net of acquisition related
accruals), partially offset by an increase in deferred revenue of $35.4
million and by non-cash charges of $163.7 million, which include stock
compensation, acquired in-process technology, amortization of intangible
assets and depreciation and amortization of fixed assets and leasehold
improvements. The increase in deferred revenue relates primarily to payments
received from Microsoft in connection with the Company's expanded alliance.
Cash used in operating activities was $18.5 million for the nine months ended
September 30, 1998, and was primarily due to the net loss from operations of
$104.1 million, increases in accounts receivable of $16.7 million and other
assets of $5.7 million, offset by non-cash charges of $ 116.6.

Cash used in investing activities was $30.8 million for the nine months
ended September 30, 1999. Purchases of the net assets of acquired companies
(net of cash acquired) during the period was $12.6 million and capital
expenditures totaled $22.3 million. Capital expenditures included purchases of
computer hardware and software as well as leasehold improvements related to
leased facilities and are expected to increase in future periods. Cash used in
investing activities was $35.2 million for the nine months ended September 30,
1998, and was primarily due to purchase of short-term investments (net of
sales and maturities) of $23.1 million.

Cash provided by financing activities was $64.8 million for the nine months
ended September 30, 1999. During this period, various stock option, employee
stock purchase and Common Stock warrant holders exercised or purchased their
stock options, employee shares and Common Stock warrants, resulting in net
proceeds to the Company of $48.5 million. In addition, the Company received
$15.0 million as part of the Company's expanded Alliance with Microsoft. Cash
provided by financing activities was $44.9 million for the nine months ended
September 30, 1998, and was primarily due to sale of Common Stock through the
Company's follow-on public offering of its Common Stock, employee stock
purchase plan purchases and exercise of options, resulting in net proceeds of
$44.6 million.

In connection with the acquisition of MMG, the Company assumed MMG's
existing credit facility. USWeb/CKS has a revolving line of credit with
maximum borrowing capacity of $30 million of which approximately $11 million
was outstanding at September 30, 1999. This credit agreement is scheduled to
expire on December 1, 1999. We currently have no other material commitments
except for those under operating lease agreements and costs incurred in
connection with the acquisition of MMG, which include certain professional
fees and severance and retention payments. We have experienced a substantial
increase in capital expenditures and operating lease arrangements since
inception, which is consistent with increased staffing, and anticipate that
this growth will continue in the future. Additionally, USWeb/CKS will continue
to evaluate possible acquisitions of or investments in businesses, products,
and technologies that are complementary to those of USWeb/CKS, which may
require the use of cash. USWeb/CKS believes that existing cash, investments,
and borrowings available under its credit facilities will be sufficient to
fund its requirements for working capital and capital expenditures for at
least the next 12 months. However, USWeb/CKS may sell additional equity or
debt securities or seek additional credit facilities if it believes such
actions would be a better way to fund acquisition-related or other costs.
Sales of additional equity or convertible debt securities would result in
additional dilution to our stockholders. We may need to raise additional funds
sooner in order to support more rapid expansion, develop new or enhanced
services and products, respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated opportunities.
USWeb/CKS' future liquidity and capital requirements will depend upon numerous
factors, including the success of our existing and new service offerings and
competing technological and market developments. See "Risk Factors--We Might
Need Significant Additional Capital and Might Not Be Able Obtain It."

Year 2000

Many computer systems and software and electronic 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. In addition, certain systems and products do not correctly
process "leap year" dates.

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As a result, computer systems and software ("IT Systems") and other property
and equipment not directly associated with information systems ("Non-IT
Systems"), such as elevators, phones, other office equipment used by many
companies, including USWeb/CKS, may need to be upgraded, repaired or replaced
to comply with such "Year 2000" requirements and " leap year" requirements.

USWeb/CKS has conducted an internal review of its principal internal
corporate headquarters IT Systems, including finance, human resources,
Intranet applications and payroll systems. We have contacted the vendors of
the principal IT Systems in our internal corporate headquarters to determine
potential exposure to Year 2000 issues. Those systems not certified as Year
2000 compliant by their vendors will be replaced by systems that are certified
as Year 2000 compliant. Although the principal internal corporate headquarters
IT Systems are Year 2000 compliant, some of our minor internal systems,
including our Windows NT operating system and internal networking systems are
not Year 2000 compliant or have not been evaluated. These systems will be
replaced or upgraded to Year 2000 compliance. USWeb/CKS has completed an
assessment of the status of the IT Systems at our subsidiaries and has a plan
in place to replace or upgrade these systems to Year 2000 Compliance.
USWeb/CKS has not yet completed an assessment of the Non-IT Systems for the
corporate headquarters and our subsidiaries.

USWeb/CKS has appointed a task force (the "Task Force") to oversee Year 2000
and leap year issues. The task force is expected to review all IT Systems and
Non-IT Systems that have not been determined to be Year 2000 and leap year
compliant and will attempt to identify and implement solutions to ensure such
compliance. USWeb/CKS expects to evaluate its systems for Year 2000 and leap
year compliance in accordance with the DISC PD2000-1 Year 2000 compliance
standards established by the British Standards Institute. To date, USWeb/CKS
has spent an immaterial amount to remediate its Year 2000 issues. USWeb/CKS
presently estimates that the total cost of addressing its Year 2000 and leap
year issues will be immaterial. These estimates were derived utilizing
numerous assumptions, including the assumption that we have already identified
our most significant Year 2000 and leap year issues and that the plans of our
third-party suppliers will be fulfilled in a timely manner without cost to us.
However, these assumptions may not be accurate, and actual results could
differ materially from those anticipated.

USWeb/CKS has been informed by most of its suppliers that they will be Year
2000 compliant by the Year 2000. Any failure of these third parties systems to
timely achieve Year 2000 compliance could significantly harm our business,
financial condition, results of operations and prospects.

USWeb/CKS has not determined the state of compliance of certain third-party
suppliers of services such as phone companies, long distance carriers,
financial institutions and electric companies. The failure of any one of these
services could severely disrupt our ability to carry on its business as well
as disrupt the business of our customers.

Failure to provide Year 2000 and leap year compliant business solutions to
their customers or to receive such business solutions from their suppliers
could result in liability to the Company or otherwise significantly harm our
business, results of operations, financial condition and prospects.
Furthermore, USWeb/CKS 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 USWeb/CKS, which
could significantly harm our business, results of operations and financial
condition. USWeb/CKS could be affected through disruptions in the operation of
the enterprises with which USWeb/CKS interacts or from general widespread
problems or an economic crisis resulting from noncompliant Year 2000 systems.
Despite our efforts to address the Year 2000 effect on its internal systems
and business operations, such effects could result in a severe disruption of
its business or could significantly harm our business, financial condition or
results of operations. USWeb/CKS has not developed a complete contingency plan
to respond to any of the foregoing consequences of internal and external
failures to be Year 2000 and leap year compliant, but expects the Task Force
to develop such a plan.

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RISK FACTORS

This section identifies risks that USWeb/CKS faces. If we are unable to
prevent these and other events that have a negative effect from occurring,
then USWeb/CKS will suffer. Negative events are likely to decrease our
revenues, increase our costs, make our financial results poorer and decrease
our financial strength. Negative events are also likely to cause our stock
price to decline, which may result in expensive litigation.

Risks Related To USWeb/CKS' Business

We Have A Large Accumulated Deficit And Expect To Continue To Incur Operating
Losses For Some Time.

USWeb Corporation has operated with a net loss since we were formed and our
expenses have always exceeded our revenues. As of September 30, 1999, we had
an accumulated deficit of $365 million. Although USWeb/CKS has experienced
revenue growth in recent months, we may not be able to sustain that growth or
those levels of revenue. You should not expect that operating results in the
future will be the same as in the past. They could be significantly worse. In
addition, we intend to continue to invest heavily in acquisitions,
infrastructure development and marketing. As a result, USWeb/CKS expects to
continue to incur substantial operating losses for at least the next 12
months. Continued operating losses will hurt our financial position and could
cause our stock price to fall.

Our Quarterly Results May Fluctuate Which May Lead To Reduced Prices For Our
Stock.

USWeb/CKS is likely to experience significant fluctuations in our quarterly
operating results. Such fluctuations make it more difficult to manage the
business, plan expenditures and maintain a reputation as a successful and
growing company. When these fluctuations are negative, they can result in
decreases in our stock trading price or others' view of the stability of our
business. Even positive fluctuations that are temporary or create unreasonably
high expectations can lead to eventual declines in stock price as investors
adopt more realistic expectations. In the event of decreased expectations
about our business or downgrading of our stock by securities analysts, our
stock trading price would probably decline rapidly, and investors might sue
the company. Such a lawsuit would be expensive and may result in our having to
pay large amounts in damages or settlement fees. Some important factors that
could affect our quarterly operating results, in addition to the other factors
discussed in this section, are:

. the productivity of our consulting offices

. the relative mix of lower cost full-time employees versus higher cost
independent contractors

. loss of an important customer or contract

. the amount and timing of expenditures by our clients for Internet
professional services, strategy consulting and integrated marketing
communications

. the amount and timing of our capital expenditures and other costs
relating to the expansion of our operations

. economic conditions specific to Internet technology usage

Our quarterly results are also affected by our ability to anticipate revenues
and to budget expenses appropriately. We intend to increase expenses
significantly to expand operations and enhance USWeb/CKS' brand names. We
often must commit to these and other expenses in advance of knowing what
revenues for a particular period will be. As a result, fluctuations in
revenues can cause amplified fluctuations in other financial measures, such as
profit or loss.

If USWeb/CKS experiences a shortfall in customer demand, or if our expenses
precede or are not rapidly followed by increased revenues, our results of
operations will suffer and our stock price may drop significantly and rapidly.
In addition, in order to compete effectively in its market, USWeb/CKS may need
to take actions that

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will change our business in significant ways. For example, we may change
pricing or service offerings, make key decisions about technology directions
or marketing strategies, or acquire additional businesses or technologies.
USWeb/CKS may also experience seasonality in demand for our services.

Our Success Depends On Our Ability To Manage Our Growth.

USWeb/CKS' rapid growth has placed a significant strain on our managerial,
operational, financial and other resources. This strain is likely to continue.
Our employee base has grown dramatically in the past year. We believe that we
will need to hire additional personnel to support our business. Our future
success will depend, in part, upon our ability to manage our growth
effectively.

To Succeed, We Need To Recruit And Retain Skilled Professionals Who Are In
Short Supply.

USWeb/CKS' business of delivering professional services is labor intensive.
Accordingly, USWeb/CKS' success depends in part on its ability to identify,
hire, train and retain highly skilled consulting professionals. There is a
shortage of these skilled people, which is likely to continue for some time,
and competition to hire them is intense. USWeb/CKS' performance is also
particularly dependent on the continued services and performance of its
executive officers and other key employees. The loss of the services of any of
its executive officers or other key employees could hurt USWeb/CKS.

Our Success Depends On Our Ability To Integrate Our Acquisitions.

A key component of our growth strategy has been the acquisition of selected
Internet professional service firms. If we do not retain key acquired
personnel, we will likely lose a significant portion of the potential benefits
of an acquisition. The integration of acquired companies also requires
substantial management attention and can divert attention from other aspects
of the business, including aspects that could affect our results of
operations. We have completed over 45 acquisitions and are currently facing
these challenges. Since we are a relatively new company, our ability to meet
these challenges has not been proven.

We Need To Maintain And Strengthen The USWeb/CKS Brands.

We believe that maintaining and strengthening our brands is essential to
attracting and retaining clients and that the importance of brand recognition
will increase due to the increasing number of companies entering the market
for Internet professional services and integrated marketing communications. If
we fail to promote and maintain our brands, or incur excessive expenses in an
attempt to promote and maintain our brands, our operating results and
prospects will suffer.

Some Of Our Key Strategic Relationships Are Not Based On Contractual
Arrangements And May Be Terminated Easily.

USWeb/CKS has established a number of strategic relationships with leading
hardware and software companies, some of which can be terminated on short
notice by the parties. Maintenance of these strategic relationships is based
primarily on an ongoing mutual business opportunity and a good overall working
relationship rather than legal contracts. The loss of any one of these
strategic relationships could deprive USWeb/CKS of the opportunity to receive
product development payments, gain early access to leading-edge technology,
market products cooperatively with the vendor, cross-sell additional services
and gain enhanced access to vendor training and support.

Our International Operations Are Difficult To Manage.

We have operations in several international markets. However, we have only
limited experience in acquiring and managing international consulting offices
and in marketing services to international clients. We expect to incur
significant costs to do both. We also face risks inherent in doing business on
an international level. These

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risks include unexpected changes in regulatory requirements, regional economic
downturns, changes in currency exchange rates, difficulties in staffing and
managing foreign operations, difficulties in using equity incentives for
employees, differences in business customs, longer payment cycles, and
political instability.

If We Do Not Perform To Our Clients' Expectations, We Face Potential
Liability.

Many of our consulting engagements involve projects that are critical to the
operations of our clients' businesses. Any failure or inability to meet a
client's expectations in the performance of our services could injure
USWeb/CKS' business reputation or result in a claim for substantial damages.
Many of our projects involve use of material that is confidential or
proprietary client information. The successful assertion of one or more large
claims against USWeb/CKS for failing to protect such confidential information
or failing to complete a project properly or on time could adversely affect
USWeb/CKS, even if the insurance we have were to reduce the immediate effect
of the problem.

We Could Lose Money On Projects Where We Set A Fixed Price.

We currently bill for most of our projects on a "time and materials" basis.
However, we intend to increase the percentage of our work that is billed at a
fixed price and the percentage of revenues from these fixed-price engagements.
If we fail to estimate accurately the resources and time required for a
project, to meet client expectations about the services to be performed, or to
complete projects within budget, we would have cost overruns and, in some
cases, penalties, which could hurt our business.

The Infringement or Misuse Of Intellectual Property Rights Could Hurt Our
Business.

We believe our copyrights, trademarks, and trade secrets are important to
our success. If others infringe or misappropriate our copyrights, trademarks
or similar proprietary rights, our business could be hurt. In addition,
although we are not aware that we are infringing the intellectual property
rights of anyone else, other parties might assert infringement claims against
us. Such claims, even if not true, could result in significant legal and other
costs and be a distraction to management. Protection of intellectual property
in many foreign countries is weaker and less reliable than in the U.S., so as
our business expands into foreign countries, risks associated with
intellectual property will increase.

Any Problems With Year 2000 Compliance In Our Internal Systems Or Customer
Solutions Could Harm Our Business.

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, throughout 1999, computer systems and
software used by many companies, including customers and potential customers
of USWeb/CKS, may need to be upgraded to comply with such Year 2000
requirements. Although USWeb/CKS believes that our principal internal systems
are Year 2000 compliant, some systems are not yet certified, and failure to
provide Year 2000 compliant business solutions to USWeb/CKS' customers could
materially harm our business. Furthermore, we believe 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
reduce funds available to purchase USWeb/CKS products and services.

We Might Need Significant Additional Capital And Might Not Be Able To Obtain
It.

USWeb/CKS' future liquidity and capital requirements will depend upon
numerous factors, including:

. the timing and amount of funds required for or generated by operations

. strategic relationship or acquisition opportunities

. unanticipated industry, business model or market events

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USWeb/CKS may seek to raise additional funds through public or private debt
or equity financing, strategic relationships or other arrangements. Such
additional funding may not be available on terms acceptable to USWeb/CKS, or
at all. Furthermore, we may have to sell stock at prices lower than those paid
by existing stockholders, which would result in dilution, or we may have to
sell stock or bonds with rights superior to rights of holders of common stock.
Any debt financing might involve restrictive covenants that would limit our
operating flexibility. Strategic arrangements may require us to relinquish our
rights to certain of our intellectual property or agree to limit our customer
base. If adequate funds are not available on acceptable terms, USWeb/CKS may
be unable to develop or enhance our services and products, take advantage of
future opportunities, or respond to competitive pressures.

We Are Involved In Potentially Expensive Litigation.

A lawsuit has been filed against CKS Group, a company that recently merged
with USWeb, and certain of its officers and directors on behalf of
stockholders of CKS Group. The lawsuit alleges violations of the Securities
Exchange Act. USWeb/CKS, as successor to the liabilities of CKS Group, will be
at risk financially in this lawsuit. Also, a lawsuit has been filed against
USWeb/CKS by US WEST alleging claims of trademark infringement, trademark
dilution, and unfair competition. US WEST seeks to enjoin all use by the
Company of "USWeb." USWeb/CKS believes that both lawsuits are without merit
and intends to defend both actions vigorously. However, if either lawsuit is
successful and insurance either does not cover the claim or is insufficient in
amount to cover payments made in connection with the claim, it could hurt the
financial position of USWeb/CKS. We are also a party to other lawsuits and
will likely from time to time to be the subject of additional lawsuits
typically filed against companies of our size and in our industry "Legal
Proceedings."

We Have Only A Limited Operating History.

USWeb Corporation was founded in December 1995 and is still evolving
rapidly. Accordingly, USWeb/CKS has only a limited operating history on which
to base an evaluation of our business and prospects. Because of our limited
operating history, we face extra risks, expenses and difficulties as we grow
and evolve. These risks, expenses and difficulties apply particularly to
USWeb/CKS because our markets, Internet professional services and integrated
marketing communications services, are new and rapidly evolving. If we are
also unable to successfully manage our growth in these evolving markets, our
business and prospects will suffer.

Our Acquisitions Carry Financial and Other Liabilities.

Our acquisitions generally involve increases in goodwill amortization,
acquired in-process technology, stock compensation expense, and increased
compensation expense resulting from newly hired employees, all of which
negatively affect our operating results. Acquisitions also require the
assumption of most or all of the liabilities of the acquired companies, some
of which may be hidden, significant, or not reflected in the final acquisition
price. If an acquired company turns out to be a poor performer, we will likely
face problems related to client satisfaction, have worse than expected
financial results, suffer a diminution in reputation, and we might have a
dispute with the sellers of the acquired entity.

There Have Been Significant Recent Changes In Our Management.

The company's success also depends on the ability of our executive officers
and senior management to operate effectively, both independently and as a
group. Some members of management, including Robert Shaw as Chief Executive
Officer, have recently joined or have new roles in the company, which adds to
the challenges of effectively managing the company, especially during its
early stage of development.

We Have Limited Control Over The Operations Of Our Franchisees.

USWeb/CKS has entered into franchise agreements with affiliates that manage
three of its smaller consulting offices. The operational autonomy granted to
each affiliate through the franchise structure might inhibit our control over
our market presence and the USWeb/CKS brand 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, a court may hold us responsible for some action or liability of
an affiliate. One claim was made alleging breach of contract against a former
affiliate, although that claim has been settled.

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Conflicts Of Interest Between Potential Clients May Reduce Our Business
Opportunities.

Conflicts of interest are inherent in certain segments of the marketing
communications industry, particularly in advertising. CKS Group, a company
that merged with USWeb Corporation in December 1998, has been in the past, and
USWeb/CKS likely will be in the future, unable to pursue potential advertising
and other opportunities because it would mean offering similar services to
direct competitors. In addition, USWeb/CKS risks alienating existing clients
if it agrees to provide services to even indirect competitors of existing
clients. Because such conflicts may jeopardize revenues generated from
existing clients and preclude access to business prospects, such conflicts
could cause our operating results to suffer.

Our Charter Documents Make It Difficult For Another Company To Acquire
USWeb/CKS.

Our board of directors has the authority to issue up to 1,000,000 shares of
preferred stock and to determine the terms of those shares without any further
action by the stockholders. The rights of holders of our common stock are
subject to the rights of the holders of any such preferred stock that may be
issued. 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 USWeb/CKS. We have no present
plans to issue shares of preferred stock. Some provisions of USWeb/CKS'
certificate of incorporation and bylaws and of Delaware law could delay or
make difficult a merger, tender offer or proxy contest involving USWeb/CKS.

Risks Associated With Our Industry

The Market In Which We Operate Is Highly Competitive And Has Low Barriers To
Entry.

The market for Internet professional services, strategic consulting and
integrated marketing communications is intensely competitive, rapidly evolving
and subject to rapid technological change. Our competitors include Internet
integrators and web presence providers such as iXL, Organic Online, Modem
Media.Poppe Tyson, Proxicom, Scient and Viant; advertising and media agencies
such as Foote, Cone & Belding and Ogilvy & Mather; large information
technology consulting service providers such as Andersen Consulting, Cambridge
Technology Partners and EDS; and computer hardware, software and service
vendors such as IBM, Compaq, Hewlett-Packard, Microsoft, Novell and Oracle.
Some of these competitors offer a full range of Internet professional
services, strategy consulting and integrated marketing communications and
several others have announced their intention to do so.

There are low barriers to entry into USWeb/CKS' business. We expect to face
additional competition from new entrants into the market. Furthermore, some of
our current and potential competitors have longer operating histories, longer
relationships with clients and greater financial, technical, marketing and
public relations resources than we do.

We Must Keep Pace With Technological Change To Remain Competitive.

Technology in the Internet industry changes very rapidly, and USWeb/CKS'
products and services, as well as the skills of our employees, could become
obsolete quickly. Our success will depend, in part, on our ability to improve
our existing services, develop new services and solutions that address the
increasingly sophisticated and varied needs of our current and prospective
clients, and respond to technological advances, emerging industry standards
and practices, and competitive service offerings.

Potential Clients May Not Widely Adopt Internet Solutions, And, If They Do,
May Not Outsource Such Projects.

The market for USWeb/CKS' services will depend upon the adoption of
intranet, extranet, Web site and Internet solutions by customers. If customers
and potential customers choose not to implement such solutions, USWeb/CKS will
address a smaller market and its revenues could be adversely affected. Some
critical unresolved

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issues concerning the use of Internet solutions are security, reliability,
cost, ease of deployment and administration and bandwidth of the Internet
itself. These issues may affect the use of such technologies to solve business
problems. Some entities would have to change significantly the way they do
business to adapt to the Internet. Even if these issues are resolved,
businesses might not elect to outsource the design, development and
maintenance of their intranets, extranets and Web sites to Internet
professional services firms such as USWeb/CKS.

Changes In The Law Or In Government Regulation Could Hurt Our Business.

Due to the increasing use of the Internet, a number of laws and regulations
concerning the Internet will probably be adopted or changed at the local,
state, national or international levels. Such laws are likely to cover 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. The adoption or change of any such laws or regulations may
decrease use of the Internet, which could in turn decrease the demand for our
services or increase the cost of doing business or in some other manner harm
our business.

Risks Related To Our Common Stock

As We Issue Additional Stock, All Other Stockholdings Will Be Diluted.

USWeb/CKS has a large number of stock options and warrants outstanding to
purchase USWeb/CKS' Common Stock. Many of these options and warrants were
issued at a time when the stock price was lower than it is now and therefore
have exercise prices significantly below the current market price. When and if
these options and warrants are exercised, there will be further dilution to
stockholders. Dilution occurs whenever more shares of the common stock are
issued. The effect of dilution is that any earnings of the company will have
to be divided among more shares. As a result, unless the issuance of the
shares involves an increase in the company's value or earnings, each
outstanding share will be worth a lesser amount. Because voting power is
shared among all outstanding shares, the issuance of more shares also reduces
the voting power of each previously outstanding share.

We expect to consider strategic acquisitions the coming year and to issue
additional stock, options and warrants in the future. USWeb/CKS may also be
required by acquisition agreements to issue additional shares, stock options
and stock bonuses to the shareholders and employees of acquired companies at
each of six and twelve months after acquisition. For these reasons, our
acquisition program has resulted and may continue to result in further
dilution to investors. This dilution is in addition to dilution that occurs
from employee stock option and purchase programs and financing activities.

Our Stock Price Is Very Volatile And You Could Suffer A Decline In Value.

The market price of our Common Stock has been and is likely to continue to
be volatile and could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products by USWeb/CKS or our competitors, changes in financial estimates
by securities analysts, overall equity market conditions or other events or
factors. Because our stock is more volatile than the market as a whole, our
stock is likely to be disproportionately harmed by factors that significantly
harm the market, such as economic turmoil and military or political conflict,
even if those factors do not relate to our business. In the past, following
periods of volatility in the market price of a company's securities,
securities class action litigation has often been brought against that
company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which would hurt our business.

Risks Related To Acquisition of Mitchell Madison Group

Our Success Depends On Our Ability to Integrate USWeb/CKS and MMG.

Following the acquisition of MMG in September 1999, to maintain and increase
profitability and to achieve the anticipated benefits of the acquisition,
USWeb/CKS will need to effectively and efficiently integrate the

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operations of USWeb/CKS and MMG in a timely manner. While this process has
begun, it is not yet completed. In particular, the combined company will need
to integrate (i) management personnel and strategy, technical, creative and
other personnel, (ii) strategy, technical and creative service offerings,
(iii) sales and marketing efforts and (iv) financial, accounting and other
operational controls, procedures, information systems and policies. The
integration process will be further complicated by the need to integrate
widely dispersed operations and distinct corporate cultures. Such integration
may not be accomplished in an efficient or effective manner, if at all. The
integration process will require the dedication of management and other
personnel which may distract their attention from the conduct of day-to-day
business activities, the formulation of strategy and the rapidly evolving
industry in which the combined company will compete. These factors, in turn,
could interrupt or cause a loss of momentum in the pre-acquisition activities
of either or both companies following the acquisition. The business of the
combined company also may be disrupted by employee departures or reductions in
employee productivity due to uncertainty during the integration process. The
integration of USWeb/CKS and MMG will be made more difficult by the recent
merger between USWeb and CKS Group. Difficulties encountered in the transition
and integration process, disruption caused by the process of combining the
companies, the diversion of management and employee attention from day-to-day
and other activities, or an inability to effectively and efficiently integrate
the operations of the companies in a timely manner could significantly harm
the business, financial condition, results of operations and prospects of the
combined company and significantly reduce the anticipated benefits of the
acquisition. See "--Risks Related to USWeb/CKS' Business, Our Success Depends
on Our Ability to Integrate Our Acquisitions."

If We Are Unable to Achieve Synergies from the Acquisition, Our Results Will
Suffer.

USWeb/CKS and MMG have combined with the expectation that the acquisition
will result in beneficial operating synergies. These expectations are based on
certain assumptions, including that clients desire integrated Internet
professional services and strategic consulting from a single vendor, that the
two companies will be able to sell their respective expertise to one another's
former customers, that the increased scale of the business will make the
combined company a more desirable partner for Fortune 500 accounts, and that
certain cost savings can be realized. The inability to achieve the desired
synergies for any reason could significantly harm the business, financial
condition, results of operations and prospects of the combined company and
significantly reduce the benefits anticipated from the acquisition.

The Fixed Exchange Ratio of the Acquisition Will Cause the Value of the
Acquisition to Fluctuate.

On the first and second anniversary following the closing date MMG will
receive an aggregate of 7,110,160 shares of USWeb/CKS common stock, subject to
certain adjustments. The specific market value of the shares of USWeb/CKS
Common Stock to be received by MMG in the acquisition will, therefore, depend
on the market price of the USWeb/CKS Common Stock on and after the closing.
USWeb/CKS' Common Stock historically has been subject to substantial price
volatility. As the market price of USWeb/CKS Common Stock, the market value of
the additional USWeb/CKS Common Stock to be received by MMG would
correspondingly decrease or increase.

We Must Retain Key Personnel from MMG and Integrate Them into the Combined
Company's Management.

The success of the combined company will depend upon the retention of senior
executives and other key employees who are critical to the continued
advancement, development and support of the companies' service offerings as
well as ongoing sales and marketing efforts. As commonly occurs with large
acquisitions by technology companies, during the pre-acquisition and
integration phases competitors may intensify their efforts to recruit key
employees. Employee uncertainty regarding the effects of the acquisition could
also cause increased turnover. USWeb/CKS and MMG employees are generally not
bound by employment agreements or noncompetition covenants. Any decline in the
stock price of USWeb/CKS will decrease the incentive value of stock options or
other equity held by employees and thereby increase the risk of employee
turnover, as could management changes. The combined company may not be able to
retain key creative, technical, sales or

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marketing personnel prior to or after the acquisition. The loss of the
services of any key personnel or of any significant group of employees could
significantly harm the combined company's business, results of operations,
financial condition and prospects and significantly reduce the benefits
anticipated from the acquisition. The combined company's success depends to a
large extent on the ability of its executive officers and other members of
senior management to operate effectively, both independently and as a group.
In addition, some members of management have recently joined or will have new
roles in the combined company. No assurance can be given that management will
succeed in their roles or that the combined company can efficiently allocate
management responsibilities and cause its officers and senior managers to
operate effectively as a group.

The Combined Company Must Build New Brand Recognition and Market Acceptance.

USWeb/CKS and MMG have each invested significant efforts in building brand
recognition and customer acceptance of their respective brand names. The
combined company believes that transferring market acceptance for the
USWeb/CKS and MMG brands to the combined company brands will be an important
aspect of its efforts to retain and attract clients. The combined company
expects that the importance of recognition and acceptance of the combined
company brands will increase due to the increasing number of companies
entering the market for Internet marketing and strategic consulting. Promoting
and positioning the combined company brands will depend largely on the success
of the combined company's marketing efforts and the ability of the combined
company to provide high quality, reliable and cost-effective services in the
areas of Internet marketing, strategy consulting, communications, analysis and
design, technology development, implementation and integration, audience
development, and maintenance. If clients do not perceive the combined
company's services as meeting their needs, or if the combined company fails to
market those services effectively, the combined company will be unsuccessful
in maintaining and strengthening its brands. In addition, although the
combined company intends to centralize its marketing efforts, it intends to
provide a significant part of its client services through individual
consulting offices and client dissatisfaction with the performance of a single
office could diminish the value of the combined company brands. Furthermore,
in order to promote the combined company brands in response to competitive
pressures, the combined company may find it necessary to increase its
marketing expenditures or otherwise increase its financial commitment to
creating and maintaining brand loyalty and awareness among existing and
potential clients. If the combined company fails to promote and maintain its
brands, or incurs excessive expenses in an attempt to promote and maintain its
brands, the combined company's business, financial condition, results of
operations and prospects could be significantly harmed and the combined
company will not achieve the benefits anticipated from the acquisition.

USWeb/CKS Will Have Substantial Amortization Expenses Resulting from the
Acquisition.

As a result of the acquisition of MMG, USWeb/CKS will record significant
intangible assets that will be amortized over future periods, which could
significantly harm USWeb/CKS' business, financial condition, results of
operations or prospects.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risks

USWeb/CKS is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments and, to a lesser extent, foreign
currency fluctuations. In the normal course of business USWeb/CKS establishes
policies and procedures to manage its exposure to fluctuations in interest
rates and foreign currency values.

Interest Rate Risks. USWeb/CKS' exposure to interest rate risks results
primarily from our short-term investments. To minimize exposure to interest
rate risks, we invest predominately in instruments that are highly liquid, are
of investment grade and generally have maturities of less than one year. We
intend to make such funds readily available for operating purposes. At
December 31, 1998, we had investments with maturities and weighted average
interest rates as follows:

<TABLE>
<CAPTION>
Maturities
--------------
1999 2000
------- ------
<S> <C> <C>
Balance.......................................................... $34,182 $2,048
Interest Rate.................................................... 5.6% 5.1%
</TABLE>

27
<PAGE>

Foreign Currency Risks. As of December 31, 1998, USWeb/CKS had operating
subsidiaries located in several countries including the United Kingdom,
Germany and France. After December 31, 1998, USWeb/CKS acquired subsidiaries
in Canada and Switzerland. These subsidiaries operate primarily in the
functional currency of their individual countries. As a result, we do not have
exposure to significant foreign currency risk related to the ongoing
operations of these subsidiaries. We have a foreign currency risk related to
one of our acquisitions. Our acquisitions are typically completed using our
Common Stock as consideration for the acquisitions. Generally, at least fifty
percent of the shares to be issued are deposited into a one-year escrow, and
the remaining shares are delivered to the acquired company's shareholders. The
acquired company is valued again, typically at each of six and twelve months
after the acquisition, and additional shares are issued to the acquired
company's shareholders or escrowed shares are returned to USWeb/CKS, depending
on whether the valuation has increased or decreased. Some acquisitions have
been completed using a cash component, typically denominated in United States
dollars. After December 31, 1998, we completed one acquisition under the
methodology described above, and the acquired company will be valued again in
February 2000. The value of the number of shares of Common Stock that are
potentially issuable in this transaction will be denominated in Swiss Francs.
The value of these shares of Common Stock, assuming financial performance
targets are met, is approximately nine million Swiss Francs.

28
<PAGE>

PART II

ITEM 1. Legal Proceedings.

On November 5, 1998, a putative class action lawsuit captioned Wilson v. CKS
Group, Inc., et al., was filed in the United States District Court for the
Northern District of California against CKS Group and three of its former
officers and directors. The complaint alleges that during the period March 20,
1997 to November 7, 1997 (the "Class Period"), the defendants violated the
Securities Exchange Act and the SEC rules and regulations thereunder by
issuing false and misleading statements about CKS Group's operations, revenues
and earnings which allegedly inflated CKS Group's reported revenues, earnings
and stock price. The complaint further alleges that those who purchased CKS
Group' s stock did so at artificially inflated prices. The plaintiff seeks to
recover damages in an unspecified amount (together with interest and
attorneys' fees) on behalf of all purchasers of CKS Group Common Stock during
the Class Period. Discovery in the case has not yet begun. USWeb/CKS has filed
a motion to dismiss the complaint, which is set to be heard on February 25,
2000. USWeb/CKS believes that this lawsuit is without merit and intends to
defend this action vigorously. We do not believe that the outcome of the
stockholder class action described above is likely to be material to us.

On September 15, 1998, U S WEST filed a complaint against USWeb/CKS and one
of our licensees in the United States District Court for the District of
Nebraska, alleging claims under federal and state law for trademark
infringement, trademark dilution, and unfair competition (the "Nebraska
Action"). U S WEST filed an Amended Complaint on October 5, 1998. U S WEST
seeks to enjoin all use by the Company of "USWeb." The case is expected to go
to trial in the summer of 2000. USWeb/CKS believes that U S WEST's claims are
without merit and intends to defend this action vigorously.

As is typical for companies in our business and of our size, we are from
time to time the subject of lawsuits. In addition to the lawsuits described
above, a number of legal proceedings are presently pending. Certain of such
proceedings may be covered under insurance policies or indemnification
agreements. Based upon information presently available, we believe that the
final outcome of pending proceedings should not materially harm our business,
financial condition or results of operations. However, due to the inherent
uncertainties of litigation, there is a risk that the outcome of pending or
any future litigation could materially harm our business, financial condition
or results of operations.

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

None

29
<PAGE>

ITEM 6.

(a) Exhibits

Exhibit 11.1 Statement of calculation of basic and diluted net loss per share.

Exhibit 27.1 Financial Data Schedule

(b) Reports on Form 8-K

Report on Form 8-K dated September 3, 1999 regarding the acquisition of
Mitchell Madison Group LLC, as filed with the Securities and Exchange
Commission on September 17, 1999.

Amendment filed on November 12, 1999 to Report on Form 8-K dated September 3,
1999 regarding the acquisition of Mitchell Madison Group LLC, as filed with
the Securities and Exchange Commission on September 17, 1999.

30
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

USWEB Corporation
Registrant

/s/ Carolyn V. Aver
By: _________________________________
Carolyn V. Aver
Executive Vice President and Chief
Financial Officer
(on behalf of the Registrant and
as principal financial officer)

Dated: November 12, 1999

<PAGE>

EXHIBIT 11.1

USWEB CORPORATION

CALCULATION OF NET LOSS PER SHARE
(In thousands, except per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------- ------------------------
September 30. September 30,
---------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss ........................................................... $(44,009) $(27,765) $(118,257) $(104,132)
======== ======== ========= =========
Weighted average common shares outstanding.......................... 78,310 62,000 73,515 56,605
Shares deemed outstanding under stock bonus arrangements for
employees of acquired companies............................... 3,137 1,451 2,291 926
-------- -------- --------- ---------
Total weighted average common shares outstanding.................... 81,447 63,451 75,806 57,531
======== ======== ========= =========
Basic and diluted net loss per share................................ $ (0.54) $ (0.44) $ (1.56) $ (1.81)
======== ======== ========= =========
</TABLE>

Net loss per share is computed in accordance with SFAS No. 128, "Earnings Per
Share," and SEC Staff Accounting Bulletin No. 98 for all periods presented. The
computation excludes: (i) acquisition-related shares held in escrow, and (ii)
Common Stock subject to repurchase rights. The computation of net loss and
diluted supplemental net loss per share excludes Common Stock issuable upon
exercise of certain employee stock options and upon exercise of certain
outstanding warrants, as their effect is antidilutive.

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

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 82,311
<SECURITIES> 34,325
<RECEIVABLES> 219,691
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 357,608
<PP&E> 42,140
<DEPRECIATION> 0
<TOTAL-ASSETS> 824,385
<CURRENT-LIABILITIES> 246,251
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 575,419
<TOTAL-LIABILITY-AND-EQUITY> 824,385
<SALES> 0
<TOTAL-REVENUES> 324,012
<CGS> 0
<TOTAL-COSTS> 217,562
<OTHER-EXPENSES> 225,194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,732)
<INCOME-PRETAX> (116,012)
<INCOME-TAX> 2,245
<INCOME-CONTINUING> (118,257)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118,257)
<EPS-BASIC> (1.56)
<EPS-DILUTED> (1.56)

</TABLE>