CYBERSHOP INTERNATIONAL INC
424B1, 1998-03-24
COMPUTER PROCESSING & DATA PREPARATION
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                                                FILED PURSUANT TO RULE 424(B)(1)
                                                      REGISTRATION NO. 333-42707

P R O S P E C T U S

                                2,800,000 SHARES

                      [CYBERSHOP INTERNATIONAL, INC. LOGO]

                          CYBERSHOP INTERNATIONAL, INC.
                                  COMMON STOCK

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

     All the shares of Common Stock  offered  hereby are being sold by CyberShop
International,  Inc. ("CyberShop" or the "Company"). Prior to this offering (the
"Offering"),  there  has  been no  public  market  for  the  Common  Stock.  See
"Underwriting"  for certain factors considered in determining the initial public
offering  price.  The Common Stock has been approved for quotation on The Nasdaq
SmallCap Market/SM/ under the symbol "CYSP."

                                -----------------
     THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.

                                -----------------
          THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
           SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
            COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
               OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
                  ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
                        REPRESENTATION TO THE CONTRARY IS
                               A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
                          PRICE TO       UNDERWRITING     PROCEEDS TO
                           PUBLIC         DISCOUNT(1)     COMPANY(2)
                       -----------       ------------     -----------
Per Share .........    $      6.50       $     0.46       $    6.04
Total(3) ..........    $18,200,000       $1,274,000       $16,926,000
- --------------------------------------------------------------------------------

(1)  Excludes warrants sold to C.E. Unterberg,  Towbin and Fahnestock & Co. Inc.
     (collectively,  the  "Underwriters")  to purchase an  aggregate  of 230,000
     shares of Common  Stock at an  exercise  price equal to 110% of the initial
     public  offering  price (the  "Underwriters'  Warrants").  The  Company has
     agreed to indemnify the Underwriters against certain liabilities, including
     liabilities  under the Securities Act of 1933, as amended (the  "Securities
     Act").

(2)  Before deducting  expenses of the Offering payable by the Company estimated
     at $534,000.

(3)  The Company has granted the Underwriters an option,  exercisable  within 30
     days of the date  hereof,  to purchase up to 420,000  additional  shares of
     Common  Stock,  on the same terms as set forth  above,  for the  purpose of
     covering over-allotments,  if any. If such option is exercised in full, the
     total price to public,  underwriting  discount and proceeds to Company will
     be   $20,930,000,    $1,465,100   and   $19,464,900,    respectively.   See
     "Underwriting."

     The  shares of Common  Stock are  offered by the  Underwriters,  subject to
receipt and  acceptance  of such shares by them.  The  Underwriters  reserve the
right to reject any order in whole or in part. It is expected that the shares of
Common Stock will be ready for delivery on or about March 26, 1998.

                                -----------------
C.E. UNTERBERG, TOWBIN                                     FAHNESTOCK & CO. INC.

                                 MARCH 23, 1998

<PAGE>











     CERTAIN PERSONS  PARTICIPATING  IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT  STABILIZE,  MAINTAIN,  OR OTHERWISE  AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING  TRANSACTIONS,
AND  IMPOSING  PENALTY  BIDS.  FOR  A  DESCRIPTION  OF  THESE  ACTIVITIES,   SEE
"UNDERWRITING."





<PAGE>



                               PROSPECTUS SUMMARY

     The  following  summary is qualified in its entirety by, and should be read
in conjunction  with, the more detailed  information and consolidated  financial
statements and notes thereto included elsewhere in this Prospectus.  The Company
was  incorporated  in  Delaware  in October  1997 and is the  parent  company of
CyberShop,   L.L.C.,  a  New  Jersey  limited  liability  corporation  that  was
established  on December 1, 1994. As of March 18, 1998 the members of CyberShop,
L.L.C.  contributed all of their membership  interests in exchange for 4,000,000
shares  of the  Common  Stock of the  Company  (the  "Contribution").  Except as
otherwise specified, all information in this Prospectus: (i) assumes no exercise
of the Underwriters'  over-allotment  option or the  Underwriters'  Warrants and
(ii) gives effect to the Contribution.  The term "Company" includes,  unless the
context otherwise requires, CyberShop International, Inc. and CyberShop, L.L.C.

                                   THE COMPANY

     CyberShop is an online retailer that currently  offers over 40,000 products
from more than 400  manufacturers  through its online stores on the Internet and
America Online, Inc. ("AOL"). The Company seeks to provide a convenient shopping
experience  that  incorporates   traditional  department  store  and  mail-order
features into an interactive, easy-to-use and compelling online environment.

     The  Company  believes  that  online   technology,   and  the  Internet  in
particular, is an advantageous medium for the selling of merchandise relative to
traditional retail stores and mail-order catalogs.  Leveraging online technology
and the global  reach of the  Internet,  the  online  retailing  model  provides
CyberShop with virtually unlimited online shelf space and the ability to reach a
geographically  unlimited  consumer  base 24 hours a day.  The online  retailing
model also  enables  the Company to avoid the  facilities  and  personnel  costs
associated with maintaining  traditional retail stores and the costs of printing
and  distributing  catalogs and staffing  large "call centers"  associated  with
mail-order  companies.  The Company's strategy is to offer quality  merchandise,
provide effective customer service,  and capitalize on the inherent economies of
the online retailing  model.  The Company,  which launched its Internet store in
September  1995, is still in early stages of development.  The Company  believes
that its ability to achieve  profitability  will depend primarily on its ability
to increase revenues generated by transactions  relating to sales of merchandise
through its online stores. CyberShop's management team has experience in a broad
range  of  retailing  environments,   including  department  stores,   specialty
retailing stores, television merchandising and direct mail.

     CyberShop's online stores are accessed at CYBERSHOP.COM on the Internet and
in the Department Store and Gift areas of the AOL Shopping Channel.  CyberShop's
online  stores  provide high  quality  color  pictures and detailed  information
relating to products that are  conveniently  organized into departments by brand
and category such as housewares,  consumer electronics,  gifts and gourmet food,
similar to those of  traditional  department  stores.  Shoppers  can search for,
browse and select products  throughout the store and place selected  merchandise
in a virtual  shopping bag that  facilitates  the process of  collecting  items,
subtotaling  purchases  and  reaching  the  purchase  decision.  In  addition to
offering  a broad  selection  of  quality  branded  merchandise  at a  guranteed
competitive price, the Company's customers benefit from cost savings,  including
free  domestic  delivery for most  purchases  over $100 and  discounts on future
purchases under the Company's  frequent buyer program.  Most customer orders are
completed by credit cards utilizing industry standard secured encryption.

     The Company believes that relationships with merchandise  manufacturers are
important to its business.  CyberShop has  established  strategic  relationships
with manufacturers which allow for prompt updates on merchandise information and
for most products to be rapidly shipped directly from suppliers. Supplier direct
shipping  enables the Company to avoid inventory  related risks,  limit overhead
costs and provide  prompt  delivery.  Through its Gifts Wrapped & Ready boutique
the Company also offers  pre-wrapped gift items which are shipped from inventory
maintained at an independent  warehouse facility or from the Company's suppliers
within 24 hours after an order is placed.

     As part of its  marketing  strategy,  the  Company  has formed a  strategic
alliance with AOL pursuant to a marketing agreement. This agreement provides for
CyberShop  to be featured  on the AOL  Shopping  Channel as one of three  anchor
tenants within the Department Store area and to be prominently


                                        3

<PAGE>



featured in the Gift area. In addition, the Company plans to establish strategic
alliances with other online companies and begin a targeted  advertising campaign
to attract additional  customers to its online stores. The Company believes both
online  and  traditional   media  exposure  are  critical  to  maximizing  brand
recognition and driving traffic to its online stores.  The Company leverages its
database of customer  demographic profiles to proactively market merchandise via
e-mail.

     International  Data  Corporation  ("IDC"),  an independent  market research
organization,  estimates that the total value of goods and services purchased on
the Internet was $296 million in 1995, $2.6 billion in 1996 and will increase to
$220  billion  by the year  2001.  The  number of  Company  customers  grew from
approximately 2,250 at December 31, 1996 to approximately 12,800 at December 31,
1997. The Company believes it has effectively positioned itself to capitalize on
the potential growth of online commerce by selectively targeting quality branded
manufacturers and strategic online partners.

     The Company's  office is located at 130 Madison Avenue,  New York, New York
10016 and its telephone number is 212-532-3553.

                                  THE OFFERING


Common Stock offered hereby ...................   2,800,000 shares
Common Stock outstanding after the Offering ...   6,800,000 shares (1)
Use of proceeds ...............................   The  net  proceeds   from  the
                                                  Offering  will  be used by the
                                                  Company  to  expand  marketing
                                                  and  advertising  efforts  and
                                                  potential  strategic alliances
                                                  with Internet  search  engines
                                                  and    guides    and    online
                                                  communities,    to   repay   a
                                                  secured   loan   made  by  the
                                                  Trustees    of   the   General
                                                  Electric   Pension  Trust,  to
                                                  develop  and  market an online
                                                  gift    registry,    to   fund
                                                  payments  due to AOL,  and for
                                                  working   capital   and  other
                                                  general  corporate   purposes,
                                                  including   expansion  of  the
                                                  Company's            technical
                                                  infrastructure   and  possible
                                                  future strategic alliances and
                                                  acquisitions.   See   "Use  of
                                                  Proceeds."
Proposed Nasdaq SmallCap Market Symbol ........   CYSP

- ----------
(1)  Excludes (i) an aggregate of 1,343,634  shares of Common Stock reserved for
     issuance  under the Company's  stock option plans of which  273,634  shares
     were issuable upon the exercise of stock options outstanding as of December
     31, 1997 and (ii) 230,000  shares of Common Stock issuable upon exercise of
     the  Underwriters'  Warrants.  The weighted  average  exercise price of all
     outstanding  options  as of  December  31,  1997 was $2.48 per  share.  See
     "Management," "Description of Capital Stock" and "Underwriting."

                                  RISK FACTORS

     In connection with this Offering,  prospective  investors  should carefully
consider the factors set forth under Risk Factors,  including  limited operating
history; accumulated deficit; anticipated losses; uncertainty of future results;
competition; dependence upon strategic alliances; reliance on certain suppliers;
Internet  related risks;  risk of capacity  constraints;  reliance on internally
developed  transaction-processing  systems; system development risks; management
of growth; dependence on key personnel; need for additional personnel; potential
fluctuations  in  quarterly  operating  results;  seasonality;  risk  of  system
failure;  rapid  technological  change;  need for  additional  funds;  potential
inability to protect trademarks and proprietary  rights;  sales and other taxes;
control of the Company;  possible "year 2000" problems;  anti-takeover effect of
certain  charter  provisions;  shares  eligible  for future  sale;  registration
rights;  absence of prior public  market;  possible  volatility  of stock price;
management's  broad  discretion  in  allocating  a  substantial  portion  of the
proceeds; immediate and substantial dilution; and absence of dividends.

                                        4

<PAGE>



                          SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------------
                                                        1995            1996              1997
                                                   -------------   --------------   ---------------
<S>                                                <C>             <C>              <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues:
 Product sales .................................    $   18,670       $  272,560      $  1,284,489
 Set up fees ...................................       112,365          232,325           187,058
 Other revenues ................................         8,800            8,500            23,070
                                                    ----------       ----------      ------------
   Total revenues ..............................       139,835          513,385         1,494,617
Cost of revenues ...............................        13,769          155,274           933,187
                                                    ----------       ----------      ------------
Gross profit ...................................       126,066          358,111           561,430
Operating expenses .............................       772,744        1,011,257         2,389,773
                                                    ----------       ----------      ------------
Loss from operations ...........................      (646,678)        (653,146)       (1,828,343)
Net loss .......................................    $ (640,656)      $ (649,932)     $ (1,806,069)
                                                    ==========       ==========      ============
Net loss per common share:
 Basic .........................................    $    (0.22)      $    (0.21)     $      (0.48)
                                                    ==========       ==========      ============
 Diluted .......................................    $    (0.22)      $    (0.21)     $      (0.48)
                                                    ==========       ==========      ============
Pro forma net loss data (unaudited)(1):
 Net loss ......................................    $ (640,656)      $ (649,932)     $ (1,806,069)
 Pro forma income tax benefit ..................      (256,262)        (259,973)         (722,428)
                                                    ----------       ----------      ------------
 Pro forma net loss ............................    $ (384,394)      $ (389,959)     $ (1,083,641)
                                                    ==========       ==========      ============
Pro forma net loss per common share (unaudited):
 Basic .........................................    $    (0.13)      $    (0.13)     $      (0.29)
                                                    ==========       ==========      ============
 Diluted .......................................    $    (0.13)      $    (0.13)     $      (0.29)
                                                    ==========       ==========      ============
Weighted average shares outstanding:
 Basic .........................................     2,872,935        3,096,517         3,780,662
 Diluted .......................................     2,872,935        3,096,517         3,780,662

</TABLE>

                                               AS OF DECEMBER 31, 1997
                                           -------------------------------
                                               ACTUAL       AS ADJUSTED(2)
                                           -------------   ---------------
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents ..............    $  787,171       $17,179,171
Working capital (deficit) ..............      (327,453)       16,064,547
Total assets ...........................     1,226,910        17,618,910
Stockholders' equity (deficit) .........        (4,672)       16,387,328

- ----------
(1)  The Company was an L.L.C.  and as a result was treated as a partnership for
     both Federal and state income tax purposes for all periods from December 1,
     1994  (inception)  through  December 31, 1997. The net loss of the business
     for those  periods  was  included  in the  individual  tax  returns  of the
     stockholders.  The pro forma net loss data  reflects the income tax benefit
     that the Company would have incurred had it operated as a C Corporation for
     Federal and state income tax purposes from its inception.

(2)  Adjusted to give effect to the sale by the Company of  2,800,000  shares of
     Common Stock offered hereby,  after deducting  estimated  Offering expenses
     and the underwriting discount. See "The Company," "Management's  Discussion
     and Analysis of Financial  Condition  and Results of  Operations,"  "Use of
     Proceeds" and "Capitalization."

                     NOTICE TO CALIFORNIA AND OHIO INVESTORS

     THE COMMON STOCK IS SUBJECT TO A LIMITED  QUALIFICATION  IN CALIFORNIA  AND
OHIO AND MAY ONLY BE SOLD TO (1)  "ACCREDITED  INVESTORS"  WITHIN THE MEANING OF
REGULATION  D UNDER THE  SECURITIES  ACT OF 1933,  (2) BANKS,  SAVINGS  AND LOAN
ASSOCIATIONS,   TRUST  COMPANIES,  INSURANCE  COMPANIES,   INVESTMENT  COMPANIES
REGISTERED UNDER THE INVESTMENT  COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING
TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR
OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO
THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN
REVIEWED,  BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000  AND  SUBSIDIARIES  OF THE FOREGOING OR (3) ANY PERSON (OTHER THAN A
PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING  THE COMMON STOCK BEING OFFERED
HEREBY) WHO PURCHASES AT LEAST  $1,000,000  AGGREGATE AMOUNT OF THE COMMON STOCK
OFFERED  HEREBY,  OR (4) ANY PERSON  WHO (A) HAS AN INCOME OF $65,000  AND A NET
WORTH OF $250,000,  OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE,  EXCLUDING
HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES).

                                        5

<PAGE>



                                  RISK FACTORS

     The statements  contained in this Prospectus that are not historical  facts
are  forward-looking   statements.   Such  forward-looking   statements  may  be
identified by, among other things, the use of  forward-looking  terminology such
as  "believes,"  "expects,"  "may,"  "will,"  "should" or  "anticipates"  or the
negative thereof or other variations  thereon or comparable  terminology,  or by
discussions of strategy that involve risks and uncertainties. From time to time,
the  Company  or its  representatives  have  made  or may  make  forward-looking
statements,  orally  or in  writing.  Such  forward-looking  statements  may  be
included in various filings made by the Company with the Securities and Exchange
Commission (the  "Commission"),  or press releases or oral statements made by or
with the  approval of an  authorized  executive  officer of the  Company.  These
forward-looking  statements involve  predictions.  The Company's actual results,
performance or achievements  could differ  materially from the results expressed
in,  or  implied  by,  these  forward-looking  statements.  Potential  risks and
uncertainties  that could affect the Company's future operating results include,
but  are not  limited  to,  the  risk  factors  set  forth  below  and  economic
conditions,  including  economic  conditions  related  to  the  online  commerce
industry.

     In  addition  to  the  other  information  contained  in  this  Prospectus,
investors should carefully  consider the following risk factors before making an
investment decision concerning the Common Stock.

LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES; UNCERTAINTY
OF FUTURE RESULTS

     The Company was in a test period from its  inception in December 1994 until
it commenced its  operations in September  1995 and is still in the early stages
of  development.  Accordingly,  the Company has a limited  operating  history on
which  to base an  evaluation  of its  business  and  prospects.  The  Company's
prospects  must be considered in light of the risks,  expenses and  difficulties
frequently  encountered  by  companies  in their  early  stage  of  development,
particularly  companies  in new and  rapidly  evolving  markets  such as  online
commerce. To address these risks, the Company must, among other things, continue
to expand its manufacturer  channels and buyer resources,  manage pricing risks,
maintain its customer  base and attract  significant  numbers of new  customers,
respond to  competitive  developments,  implement and  successfully  execute its
business  and   marketing   strategy,   continue  to  develop  and  upgrade  its
technologies  and  retailing  services and  commercialize  products and services
incorporating   such   technologies,   continue   to  develop  and  upgrade  its
transaction-processing  systems,  improve its website, provide superior customer
service  and order  fulfillment,  and  attract,  retain and  motivate  qualified
personnel.  There can be no  assurance  that the Company will be  successful  in
addressing  such risks,  and the failure to do so could have a material  adverse
effect on the Company.  Since  inception,  the Company has incurred  significant
losses,  and as of December 31, 1997, had an  accumulated  deficit of $3,144,115
prior to its  conversion  from a limited  liability  company  to a  corporation.
Achieving profitability given the Company's planned operations depends primarily
upon the  Company's  ability to  generate  and sustain  substantially  increased
revenue levels.  However,  the Company  believes that it will incur  substantial
operating  losses for the foreseeable  future.  In view of the rapidly  evolving
nature of the Company's business and its limited operating history,  the Company
believes that  period-to-period  comparisons  of its  operating  results are not
necessarily  meaningful and should not be relied upon as an indication of future
performance.  See "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations."

     The Company's  current and future  expense  levels are based largely on its
planned operations and estimates of future revenues. Sales and operating results
generally  depend on the volume  of,  timing of and  ability  to fulfill  orders
received,  which  are  difficult  to  forecast.   Accordingly,  any  significant
shortfall in revenues in relation to the Company's  planned  expenditures  would
have an immediate adverse effect on the Company. See "Business."

COMPETITION

     The  online  commerce  market  is  new,   rapidly  evolving  and  intensely
competitive.  The Company  expects  competition in the online commerce market to
intensify  in the  future.  Barriers to entry are  minimal,  and current and new
competitors  can launch new sites at a relatively  low cost.  In  addition,  the
retail  shopping  industry is intensely  competitive.  The Company  currently or
potentially competes with a

                                        6

<PAGE>



variety  of  other  companies,  including  traditional  stores,  non-traditional
retailers,  such as  television  retailers  and mail order  catalogs,  and other
online retailers.  Competitive  pressures created by any one of these companies,
or by the  Company's  competitors  collectively,  could have a material  adverse
effect on the Company.

     The Company believes that the principal  competitive  factors in its market
are brand recognition,  selection,  personalized services,  convenience,  price,
accessibility,  customer  service,  quality  of search  tools,  quality  of site
content, reliability and speed of fulfillment. Many of the Company's current and
potential  competitors have longer operating  histories,  larger customer bases,
greater brand recognition and  significantly  greater  financial,  marketing and
other resources than the Company. In addition,  online retailers may be acquired
by, receive  investments from or enter into other commercial  relationships with
larger,  well-established and well-financed companies as use of the Internet and
other online  services  increases.  Certain of the Company's  competitors may be
able to secure  merchandise from  manufacturers on more favorable terms,  devote
greater resources to marketing and promotional campaigns,  adopt more aggressive
pricing  or  inventory  availability  policies  and  devote  substantially  more
resources  to  website  and  systems  development  than the  Company.  Increased
competition may result in reduced operating margins,  loss of market share and a
diminished brand  franchise.  There can be no assurance that the Company will be
able to  compete  successfully  against  current  and  future  competitors,  and
competitive pressures faced by the Company may have a material adverse effect on
the  Company.  Further,  as a strategic  response to changes in the  competitive
environment,  the Company may from time to time make certain pricing, service or
marketing decisions or acquisitions that could have a material adverse effect on
the Company.  New  technologies  and the expansion of existing  technologies may
increase  the   competitive   pressures  on  the  Company.   See   "Business  --
Competition."

DEPENDENCE UPON STRATEGIC ALLIANCES

     The Company relies on certain  strategic  alliances to attract  shoppers to
purchase its  products.  The Company has entered into a strategic  alliance with
AOL  pursuant  to a  marketing  agreement.  The  Company's  ability to  generate
revenues from online commerce  depends,  among other things,  upon the increased
traffic,  purchases,  advertising and  sponsorships  that the Company  generates
through its  strategic  alliance  with AOL.  The  Company's  agreement  with AOL
terminates  on December 31, 1998.  There can be no assurance  that the Company's
relationship  with AOL will be extended beyond its initial term or on what terms
such relationship will be extended. In addition, the Company is seeking to enter
into  long-term  exclusive  marketing  agreements  with  several of the  largest
Internet search engines, guides and online communities, as well as entering into
other  strategic  alliances.  There  can also be no  assurance  that  additional
third-party  alliances will be available to the Company on acceptable commercial
terms or at all. The Company's  inability to enter into new strategic  alliances
or to maintain its existing  strategic  alliances could have a material  adverse
effect on the Company. See "Business -- Strategic Alliances."

RELIANCE ON CERTAIN SUPPLIERS

     The Company believes that relationships with merchandise  manufacturers are
important to its business.  Suppliers for the  Company's  online stores  include
manufacturers  and a limited number of distributors.  Sales of products from the
Company's top 50 manufacturers  accounted for approximately 52% of the Company's
total  revenues  during the year ended  December  31,  1997.  Since the  Company
warehouses  limited  inventory,  mainly during  certain  holiday and gift giving
periods,  it  relies  on rapid  fulfillment  of orders  from its  suppliers  and
warehouses.  There can be no assurance that the Company's current suppliers will
continue to sell merchandise to the Company on current terms or that the Company
will be able to maintain any of its exclusivity  arrangements  with suppliers or
that the  Company  will be able to  establish  new or  extend  current  supplier
relationships  to ensure  acquisition  of  merchandise in a timely and efficient
manner and on acceptable  commercial  terms. Loss of these  relationships  could
have a material  adverse effect on the Company.  The Company also relies on most
of its  suppliers to process and ship  merchandise  directly to  customers.  The
Company has limited control over the shipping  procedures of its suppliers,  and
shipments by these suppliers have at times been subject to delays. Although most
merchandise sold by the Company carries a warranty supplied by the manufacturer,
the

                                        7

<PAGE>



Company  provides  a 30-day  money  back  guarantee.  If the  quality of service
provided  by such  suppliers  falls  below  a  satisfactory  standard  or if the
Company's  level of  returns  exceeds  its  expectations,  the  Company  will be
materially adversely affected. See "Business -- Supplier Relationships."

INTERNET RELATED RISKS

     Dependence on Continued Growth of Online Commerce

     The  Company's  future  revenues  and  future  profits  are   substantially
dependent  upon the  widespread  acceptance  and use of the  Internet and online
services as an effective  medium of commerce by  consumers.  Rapid growth in the
use of and  interest in the Internet  and online  services  like AOL is a recent
phenomenon,  and there can be no assurance that acceptance and use will continue
to develop  or that a  sufficiently  broad base of  consumers  will  adopt,  and
continue to use,  the  Internet  and online  services  as a medium of  commerce.
Demand and market acceptance for recently  introduced services and products over
the Internet are subject to a high level of  uncertainty.  The Company relies on
consumers who have  historically  used traditional means of commerce to purchase
merchandise.  For the Company to be successful,  these consumers must accept and
utilize novel ways of conducting business and exchanging information.  Moreover,
critical issues  concerning the commercial use of the Internet,  such as ease of
access,  security,  reliability,  cost and quality of service, remain unresolved
and may affect the growth of Internet use or the  attractiveness  of  conducting
commerce online.

     In  addition,  the  Internet  and online  services may not be accepted as a
viable  commercial  marketplace for a number of reasons,  including  potentially
inadequate  development  of the  necessary  network  infrastructure  or  delayed
development of enabling technologies and performance improvements. To the extent
that the Internet and online services continue to experience significant growth,
there can be no  assurance  that the  infrastructure  of the Internet and online
services will prove adequate to support increased user demands. In addition, the
Internet  or online  services  could lose their  viability  due to delays in the
development  or  adoption  of new  standards  and  protocols  required to handle
increased  levels  of  Internet  or  online  service  activity.  Changes  in  or
insufficient availability of telecommunications services to support the Internet
or online  services  also could result in slower  response  times and  adversely
affect usage of the Internet and online  services  generally  and the Company in
particular. If use of the Internet and online services does not continue to grow
or grows more slowly than expected,  if the  infrastructure for the Internet and
online  services does not  effectively  support growth that may occur, or if the
Internet and online services do not become a viable commercial marketplace,  the
Company would be materially adversely affected. See "Business -- Online Shopping
Industry."

     Online Commerce Security Risks

     The Company relies on encryption  and  authentication  technology  licensed
from third  parties to provide the  security  and  authentication  necessary  to
effect secure transmission of confidential information,  such as customer credit
card numbers.  There can be no assurance that advances in computer capabilities,
new  discoveries in the field of  cryptography,  or other events or developments
will not result in a compromise or breach of the algorithms  used by the Company
to protect customer  transaction data. Any compromise of the Company's  security
could have a material adverse effect on the Company and its reputation.  A party
who is able to circumvent the Company's  security measures could  misappropriate
proprietary information or cause interruptions in the Company's operations.  The
Company may be required to expend  significant  capital and other  resources  to
protect against such security  breaches or to alleviate  problems caused by such
breaches.   To  the  extent  that  activities  of  the  Company  or  third-party
contractors  involve the storage and  transmission  of proprietary  information,
such as credit  card  numbers,  security  breaches  could  damage the  Company's
reputation  and expose the Company to a risk of loss or litigation  and possible
liability  which  could  have a  material  adverse  effect on the  Company.  See
"Business -- Technology."

     Governmental Regulation and Legal Uncertainties

     The Company is not currently  subject to direct  regulation by any domestic
or foreign governmental agency, other than regulations  applicable to businesses
generally,  and laws or  regulations  directly  applicable  to  access to online
commerce. However, due to the increasing popularity and use of the Internet

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and other online services,  it is possible that a number of laws and regulations
may be adopted with respect to the  Internet or other online  services  covering
issues such as user privacy, pricing,  content,  copyrights,  distribution,  and
characteristics  and quality of products and services.  Furthermore,  the growth
and  development  of the market for online  commerce  may prompt more  stringent
consumer  protection laws that may impose additional  burdens on those companies
conducting  business online.  The adoption of any additional laws or regulations
may decrease the growth of the Internet or other online  services,  which could,
in turn,  decrease  the demand  for the  Company's  products  and  services  and
increase the  Company's  cost of doing  business,  or otherwise  have an adverse
effect on the Company.  Moreover,  the  applicability  to the Internet and other
online services of existing laws in various jurisdictions  governing issues such
as property  ownership,  sales and other taxes and personal privacy is uncertain
and may take  years  to  resolve.  In  addition,  as the  Company's  service  is
available over the Internet in multiple states and foreign countries, and as the
Company  sells  to  numerous  consumers  residing  in such  states  and  foreign
countries,  such jurisdictions may claim that the Company is required to qualify
to do business as a foreign  corporation in each such state and foreign country.
The Company is qualified  to do business in only two states,  and failure by the
Company  to  qualify  as a foreign  corporation  in a  jurisdiction  where it is
required  to do so could  subject  the  Company to taxes and  penalties  for the
failure to qualify.  Any such new legislation or regulation,  the application of
laws and regulations from jurisdictions whose laws do not currently apply to the
Company's  business,  or the application of existing laws and regulations to the
Internet and other online  services could have a material  adverse effect on the
Company.

     Liability for Information Retrieved from the Internet

     Due to  the  fact  that  material  may  be  downloaded  from  websites  and
subsequently  distributed  to others,  there is a potential  that claims will be
made against the Company for negligence,  copyright or trademark infringement or
other theories  based on the nature and content of such  material.  Although the
Company carries general  liability  insurance,  the Company's  insurance may not
cover  potential  claims of this type or may not be  adequate to cover all costs
incurred  in defense of  potential  claims or to  indemnify  the Company for all
liability that may be imposed.  Any costs or imposition of liability that is not
covered by insurance or in excess of  insurance  coverage  could have a material
adverse effect on the Company.

RISK   OF   CAPACITY    CONSTRAINTS;    RELIANCE   ON    INTERNALLY    DEVELOPED
TRANSACTION-PROCESSING SYSTEMS; SYSTEM DEVELOPMENT RISKS

     The satisfactory performance, reliability and availability of the Company's
store on the Internet, transaction-processing systems and network infrastructure
are critical to the Company's  reputation  and its ability to attract and retain
customers and maintain adequate customer service levels.  The Company's revenues
depend on the number of visitors  who shop at its store on the  Internet and the
volume  of orders it  fulfills.  Any  system  interruptions  that  result in the
unavailability  of  the  Company's  store  on  the  Internet  or  reduced  order
fulfillment   performance  would  reduce  the  volume  of  goods  sold  and  the
attractiveness of the Company's product  offerings.  The Company has experienced
periodic  system  interruptions,  which it believes  will continue to occur from
time to time.

     There may be a  significant  need to upgrade the capacity of the  Company's
store on the Internet in order to handle thousands of simultaneous shoppers. The
Company's  inability to add  additional  software and hardware or to develop and
upgrade  further  its  existing  technology,  transaction-processing  systems or
network  infrastructure  to  accommodate  increased  traffic on its store on the
Internet or increased  sales volume through its  transaction-processing  systems
may cause unanticipated system disruptions,  slower response times,  degradation
in  levels  of  customer  service  and  impaired  quality  and  speed  of  order
fulfillment,  any of which could have a material  adverse effect on the Company.
See "Business -- Technology."

RISK OF SYSTEM FAILURES

     The Company's  success,  in particular its ability to successfully  receive
and fulfill orders and provide high-quality customer service, largely depends on
the efficient  and  uninterrupted  operation of its computer and  communications
hardware systems. The Company's systems and operations are vulnerable to

                                        9

<PAGE>



damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events. The Company presently has very limited
redundant systems.  It does not have a formal disaster recovery plan and carries
limited  business  interruption  insurance to  compensate it for losses that may
occur.  Despite the  implementation of network security measures by the Company,
its servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of data
or the inability to accept and fulfill customer orders. In addition, the Company
relies on transaction  processing systems operated by AOL to receive and fulfill
orders  in its AOL  stores.  Disruptions  or  failures  in the  AOL  transaction
processing  system  could have a material  adverse  effect on the  Company.  The
Company's AOL stores are also  vulnerable to AOL system-wide  interruptions  and
failures.  The  occurrence of any of the  foregoing  risks could have a material
adverse  effect on the Company.  See "Business --  Facilities"  and "Business --
Technology."

RAPID TECHNOLOGICAL CHANGE

     To remain competitive, the Company must continue to enhance and improve the
responsiveness,  functionality  and features of its online stores.  The Internet
and the  online  commerce  industry  are  characterized  by rapid  technological
change, changes in user and customer requirements and preferences,  frequent new
product and service  introductions  embodying new technologies and the emergence
of new industry standards and practices that could render the Company's existing
store on the Internet  and  proprietary  technology  and systems  obsolete.  The
Company's  success  will  depend,  in part,  on its  ability to license  leading
technologies useful in its business,  enhance its existing services, develop new
services and technology that address the increasingly  sophisticated  and varied
needs of its prospective  customers,  and respond to technological  advances and
emerging industry  standards and practices on a cost-effective and timely basis.
The  development  of a store on the  Internet and other  proprietary  technology
entails significant technical and business risks. There can be no assurance that
the Company will  successfully  use new  technologies  effectively  or adapt its
store on the Internet, proprietary technology and transaction-processing systems
to customer  requirements or emerging industry standards.  The Company's failure
to adapt in a timely manner for technical, legal, financial or other reasons, to
changing  market  conditions  or  customer  requirements,  could have a material
adverse effect on the Company. See "Business -- Technology."

NEED FOR ADDITIONAL FUNDS

     Based on current  levels of  operations  and  planned  growth,  the Company
anticipates  that its existing capital  resources,  together with cash generated
from  operations and the proceeds of this  Offering,  will enable it to maintain
its  operations  for at least 12 months  from the date of this  Prospectus.  The
Company  may  require  additional  funds to  sustain  and  expand  its sales and
marketing   activities   and  its  strategic   alliances,   particularly   if  a
well-financed  competitor emerges or if there is a shift in the type of Internet
services that are developed and ultimately receive customer acceptance. Adequate
funds for these and other purposes on terms  acceptable to the Company,  whether
through additional equity financing, debt financing or other sources, may not be
available  when  needed  or may  result  in  significant  dilution  to  existing
stockholders.  The Company's lack of tangible assets to pledge could prevent the
Company from  establishing  a source for additional  financing.  There can be no
assurance  that  such  financing  will  be  available  in  amounts  or on  terms
acceptable to the Company,  if at all. The inability to obtain  sufficient funds
from operations and external sources would have a material adverse effect on the
Company.  See "Use of Proceeds"  and  "Management's  Discussion  and Analysis of
Financial   Condition  and  Results  of  Operations  --  Liquidity  and  Capital
Resources."

MANAGEMENT OF GROWTH

     To manage the expected growth of its operations and personnel,  the Company
will be required to improve  existing and implement new  transaction-processing,
operational and financial systems, procedures and controls, and to expand, train
and manage its already  growing  employee  base.  Further,  the Company  will be
required to  maintain  and expand its  relationships  with  various  merchandise
manufacturers,  distributors,  Internet and other online  service  providers and
other third parties necessary to the

                                       10

<PAGE>



Company's business.  If the Company is unable to manage growth effectively,  the
Company will be materially adversely affected. See "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations"  and  "Business --
Employees."

DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL

     The  Company's  performance  is  substantially  dependent on the  continued
services  and  on the  performance  of  its  senior  management  and  other  key
personnel,  particularly  Jeffrey S.  Tauber,  its  President,  Chief  Executive
Officer and Chairman of the Board. The Company's performance also depends on the
Company's  ability to retain and motivate its other  officers and key employees.
The loss of the services of any of its executive officers or other key employees
could have a material adverse effect on the Company.  The Company has employment
agreements  with  only  two of its key  personnel,  its  Vice  President,  Chief
Financial  Officer and  Treasurer and its Vice  President and Chief  Information
Officer.  The Company has obtained a $2,000,000 key person life insurance policy
on the life of Mr. Tauber,  naming the Company as beneficiary under such policy.
The Company's  future success also depends on its ability to identify,  attract,
hire,  train,  retain and motivate other highly skilled  technical,  managerial,
editorial, merchandising,  marketing and customer service personnel. Competition
for such  personnel is intense,  and there can be no assurance  that the Company
will  be  able  to  successfully  attract,  assimilate  or  retain  sufficiently
qualified  personnel which could have a material  adverse effect on the Company.
See "Business -- Employees" and "Management."

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY

     The Company  expects to experience  significant  fluctuations in its future
quarterly  operating  results  due to a variety  of  factors,  many of which are
outside the Company's  control.  Factors that may adversely affect the Company's
quarterly  operating  results  include,  without  limitation,  (i) the Company's
ability to retain existing customers, attract new customers at a steady rate and
maintain  customer  satisfaction,  (ii) the mix of products sold by the Company,
(iii) the  announcement or  introduction of new sites,  services and products by
the Company and its competitors, (iv) price competition in the industry, (v) the
level  of use of the  Internet  and  online  services  and  increasing  consumer
acceptance  of the  Internet  and other  online  services  for the  purchase  of
consumer  products  such as those  offered by the  Company,  (vi) the  Company's
ability to upgrade and develop  its systems and  infrastructure  and attract new
personnel in a timely and  effective  manner,  (vii) the level of traffic on the
Company's website,  (viii) technical  difficulties,  system downtime or Internet
brownouts,   (ix)  the  amount  and  timing  of  operating   costs  and  capital
expenditures  relating to expansion of the Company's  business,  operations  and
infrastructure, (x) the implementation of strategic alliances, (xi) the level of
merchandise returns experienced by the Company,  (xii) governmental  regulation,
and (xiii) general economic  conditions and economic  conditions specific to the
Internet and online commerce.

     The Company  expects that it will  experience  seasonality in its business,
reflecting  a  combination  of  seasonal  fluctuations  in  Internet  usage  and
traditional retail seasonality patterns. Internet usage and the rate of Internet
growth may be  expected  to decline  during the  summer.  Further,  sales in the
traditional  retail  industry are  significantly  higher in the fourth  calendar
quarter of each year than in the preceding three quarters.  Due to the foregoing
factors, in one or more future quarters the Company's operating results may fall
below the expectations of securities analysts and investors.  In such event, the
trading price of the Common Stock would likely be materially adversely affected.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations."

POTENTIAL INABILITY TO PROTECT TRADEMARKS AND PROPRIETARY RIGHTS

     The  Company's  performance  and  ability to  compete  are  dependent  to a
significant  degree on its  proprietary  technology.  The  Company  regards  its
copyrighted  material,  service  marks,  trademarks,  trade  secrets and similar
intellectual  property as critical to its success,  and relies on trademark  and
copyright  law,  trade secret  protection  and  confidentiality  and/or  license
agreements  with its  employees,  customers,  partners and others to protect its
proprietary rights. The Company has the registered service mark CyberShop in the
United States. There can be no assurance that the Company will be able to secure
significant protection for these trademarks.  It is possible that competitors of
the Company or others will

                                       11

<PAGE>



adopt product or service names similar to  "CyberShop"  and the Company's  other
trademarks,  thereby impeding the Company's  ability to build brand identity and
possibly leading to customer confusion.  The inability of the Company to protect
the name  "CyberShop"  adequately  would have a material  adverse  effect on the
Company.   The  Company   generally  has  entered  into  agreements   containing
confidentiality and non-disclosure provisions with its employees and consultants
and limits access to and distribution of its software,  documentation  and other
proprietary  information.  There can be no assurance that the steps taken by the
Company will  prevent  misappropriation  of its  technology  or that  agreements
entered  into  for  that  purpose  will  be  enforceable.   Notwithstanding  the
precautions taken by the Company, it might be possible for a third party to copy
or  otherwise  obtain  and use  the  Company's  software  or  other  proprietary
information without authorization or to develop similar software  independently.
Policing unauthorized use of the Company's technology is difficult, particularly
because the global  nature of the  Internet  makes it  difficult  to control the
ultimate destination or security of software or other data transmitted. The laws
of other  countries may afford the Company little or no effective  protection of
its intellectual  property.  Effective  trademark,  service mark,  copyright and
trade  secret  protection  may not be  available  in every  country in which the
Company's  products and services are made available online.  In the future,  the
Company may also need to file  lawsuits to enforce  the  Company's  intellectual
property rights, protect the Company's trade secrets, and determine the validity
and  scope  of the  proprietary  rights  of  others.  Such  litigation,  whether
successful or unsuccessful,  could result in substantial  costs and diversion of
resources, which could have a material adverse effect on the Company.

     The Company also relies on a variety of  technology  that it licenses  from
third parties,  including its database and Internet  server  software,  which is
used  in the  Company's  website  to  perform  key  functions.  There  can be no
assurance  that these  third  party  technology  licenses  will  continue  to be
available  to the  Company  on  commercially  reasonable  terms.  The loss of or
inability  of the  Company  to  maintain  or  obtain  upgrades  to any of  these
technology  licenses  could  result  in  delays in  completing  its  proprietary
software  enhancements and new developments until equivalent technology could be
identified,  licensed or developed and integrated.  Any such delays would have a
material  adverse  effect  on  the  Company.  See  "Business  --  Technology  --
Proprietary Technology."

SALES AND OTHER TAXES

     Except in certain  limited  cases,  the Company does not currently  collect
sales or other  similar  taxes for shipments of goods into states other than New
York and New Jersey.  However,  the Federal government or one or more states may
seek to impose sales tax collection obligations on out-of-state companies,  such
as the Company,  which engage in online commerce. In addition, any new operation
in states  outside of New York and New Jersey could subject  shipments into such
states to state sales taxes under current or future laws. A successful assertion
by one or more states or any foreign  country  that the Company  should  collect
sales or other taxes on the sale of  merchandise  could have a material  adverse
effect on the Company.

CONTROL OF THE COMPANY

     Immediately  upon completion of this Offering,  approximately  40.6% of the
outstanding  Common Stock will be beneficially  owned by Jeffrey S. Tauber,  the
Company's  President,  Chief  Executive  Officer and Chairman of the Board,  and
members of Mr. Tauber's family (38.3% if the over-allotment  option is exercised
in full). As a result, upon completion of this Offering,  the Tauber family will
have a  dominant  voting  position  with  respect  to the  ability  to elect the
Company's  directors,  amend  the  Company's  Certificate  of  Incorporation  or
By-Laws, or effect a merger, sale of assets or other corporate transaction.  The
extent of ownership by the Tauber  family may also have the effect of preventing
a change in control of the Company or  discouraging  a potential  acquiror  from
making a tender offer or otherwise  attempting to obtain control of the Company,
which in turn  could have an  adverse  effect on the market  price of the Common
Stock. See "Management," "Certain Transactions" and "Principal Stockholders."

POSSIBLE "YEAR 2000" PROBLEMS

     Although the Company's  currently  installed  computer systems and software
products have been tested for year 2000  problems and the Company  believes that
its computer systems and software products are fully year 2000 compatible, it is
possible that certain computer systems or software products of

                                       12

<PAGE>



the Company's suppliers or customers may not accept input of, store,  manipulate
and  output  dates  prior  to the  year  2000 or  thereafter  without  error  or
interruption.  The Company has  conducted a review of its computer  systems,  to
attempt to identify  ways in which its systems  could be affected by problems of
its  customers  and  suppliers  in correctly  processing  date  information.  In
addition,  the Company is requesting  assurances from all software  vendors from
which it has purchased or from which it may purchase software that such software
will  correctly  process all date  information  at all times.  Furthermore,  the
Company  is  querying  its  customers  and  suppliers  as to their  progress  in
identifying  and addressing  problems that their  computer  systems will face in
correctly  processing  date  information as the year 2000  approaches.  However,
there can be no  assurance  that the Company  will  identify  all  date-handling
problems of its customers and suppliers in advance of their occurrence,  or that
the Company will be able to  successfully  remedy  problems that are discovered.
The expenses of the Company's efforts to identify and address such problems,  or
the expenses or  liabilities to which the Company may become subject as a result
of such problems, could have a material adverse effect on the Company.

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

     The  Company's  Board of Directors  will have the  authority to issue up to
5,000,000  shares  of  Preferred  Stock  and to  determine  the  price,  rights,
preferences,  privileges and  restrictions,  including  voting rights,  of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common  Stock will be subject to, and may be  adversely  affected by,
the  rights of the  holders  of any  Preferred  Stock  that may be issued in the
future.  The  issuance  of  Preferred  Stock may have the  effect  of  delaying,
deferring  or  preventing  a change in control of the  Company  without  further
action by the  stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. The Company has no present plans to issue shares
of Preferred Stock. Further,  certain provisions of the Company's Certificate of
Incorporation  and By-Laws and Delaware law could delay or make more difficult a
merger, tender offer or proxy contest involving the Company. See "Description of
Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

     After the  completion of this  Offering,  6,800,000  shares of Common Stock
will be  outstanding.  Of such  shares,  the  2,800,000  shares of Common  Stock
offered  hereby will be  tradeable  without  restriction  by persons  other than
"affiliates"  of the Company.  The  remaining  4,000,000  shares of Common Stock
which will be outstanding after this Offering are "restricted securities" within
the  meaning  of Rule 144  under the  Securities  Act,  and may not be  publicly
resold,  except  in  compliance  with  the  registration   requirements  of  the
Securities  Act or pursuant to an exemption  from  registration,  including that
provided by Rule 144 promulgated under the Securities Act. The Company,  and all
of its directors, officers, existing stockholders and option holders have agreed
to "lock-up" arrangements under which they may not offer to sell, sell, contract
to  sell,  pledge,  or  otherwise  dispose  of any  shares  of  Common  Stock or
securities  convertible  into or  exercisable or  exchangeable  for Common Stock
without  the prior  written  consent  of the  Underwriters,  subject  to certain
exceptions,  for a period of one year  after the date of this  Prospectus.  Upon
expiration  of the one year  period,  278,777  shares  of Common  Stock  held by
non-affiliates  will be saleable pursuant to Rule 144(k) and 3,721,223 shares of
Common  Stock  will be  saleable  pursuant  to Rule 144  promulgated  under  the
Securities Act;  subject to the volume  limitations  under Rule 144. The Company
has outstanding  options  covering 432,634 shares of Common Stock. The shares of
Common Stock  issuable upon  exercise of such options may be resold  pursuant to
Rule 701. In addition,  certain stockholders of the Company are entitled to both
demand and  piggyback  registration  rights  with  respect to 663,930  shares of
Common Stock.  Upon  completion  of the  Offering,  the Company will sell to the
Underwriters  the  Underwriters'  Warrants which are exercisable  from the first
anniversary of the date of this Offering until the fifth anniversary of the date
of this  Offering and which  require that the Company  register the Common Stock
for which such  Underwriters'  Warrants are exercisable within one year from the
date hereof.  Sales of  substantial  amounts of Common Stock,  or the perception
that such sales could occur,  could adversely affect the prevailing market price
of the Common Stock. See "Description of Capital Stock -- Registration  Rights,"
"Shares Eligible for Future Sale" and "Underwriting."

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<PAGE>



ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

     Prior to this  Offering,  there has been no public  market  for the  Common
Stock.  The Common Stock has been approved for quotation on The Nasdaq  SmallCap
Market  under the symbol  "CYSP".  The initial  public  offering  price has been
determined through  negotiations  between the Company and the Underwriters,  and
may not be  indicative  of the  market  price  for the  Common  Stock  after the
completion of this Offering.  Among the factors  considered in  determining  the
initial public offering price have been the Company's record of operations,  its
current financial condition,  its future prospects, the market for its products,
the  experience  of its  management,  the economic  conditions  of the Company's
industry in general,  the general condition of the equity securities market, the
demand for similar securities of companies considered  comparable to the Company
and other relevant factors. See "Underwriting."

     The trading  price of the Common Stock is likely to be highly  volatile and
could be subject to wide  fluctuations  in response to factors such as actual or
anticipated   variations  in  quarterly  operating  results,   announcements  of
technological innovations,  new sales formats or new products or services by the
Company  or its  competitors,  changes  in  financial  estimates  by  securities
analysts,  conditions or trends in the Internet and online commerce  industries,
changes in the market  valuations of other  Internet,  online  service or retail
companies,  announcements by the Company of significant acquisitions,  strategic
partnerships, joint ventures or capital commitments,  additions or departures of
key personnel,  sales of Common Stock and other events or factors, many of which
are beyond the Company's control. In addition,  the stock market in general, and
The Nasdaq  SmallCap Market and the market for  Internet-related  and technology
companies in particular,  has experienced  extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating  performance
of such  companies.  These broad market and industry  factors may materially and
adversely  affect  the  market  price of the  Common  Stock,  regardless  of the
Company's operating performance.

MANAGEMENT'S  BROAD  DISCRETION  IN  ALLOCATING  A  SUBSTANTIAL  PORTION  OF THE
PROCEEDS

     Except for  approximately  $4,500,000,  the Company has not  designated any
specific use for the net proceeds  from the sale by the Company of the 2,800,000
shares of Common Stock offered hereby. The Company expects to use the portion of
the net proceeds not designated for any specific use (approximately $11,892,000,
or $14,431,000 if the Underwriters'  over-allotment option is exercised in full,
after deducting the underwriting discount and estimated Offering expenses),  for
general  corporate  purposes,  including  working  capital  to fund  anticipated
operating  losses and capital  expenditures.  The Company may use an unspecified
portion of the net  proceeds to acquire or invest in  complementary  businesses,
products  and   technologies.   The  Company  has  no  present   understandings,
commitments  or  agreements  with  respect  to any  acquisition  or  investment.
Accordingly,  management will have  significant  flexibility in applying the net
proceeds  of this  Offering.  The  failure  of  management  to apply  such funds
effectively  could have a material  adverse  effect on the Company.  See "Use of
Proceeds."

IMMEDIATE AND SUBSTANTIAL DILUTION

     Purchasers  of the  2,800,000  shares of Common Stock  offered  hereby will
experience immediate and substantial dilution in the net tangible book value per
share of $4.09.  In addition,  as of December  31, 1997,  the Company had issued
options  to  purchase  273,634  shares  of Common  Stock.  If such  options  are
exercised in full,  the dilution in the net tangible  book value per share would
continue to be $4.09 per share. See "Dilution."

ABSENCE OF DIVIDENDS

     The Company has never  declared or paid any  dividends  on the Common Stock
and does not  anticipate  paying any cash  dividends  on the Common Stock in the
foreseeable future. See "Dividend Policy."

                                       14

<PAGE>



                                 USE OF PROCEEDS

     The net  proceeds to the Company from the sale of the  2,800,000  shares of
Common Stock  offered  hereby,  after  deducting the  underwriting  discount and
estimated  Offering  expenses,  are  estimated to be  approximately  $16,392,000
(approximately  $18,931,000  if  the  Underwriters'   over-allotment  option  is
exercised in full).  The net  proceeds  from this  Offering  will be used by the
Company  as  follows:  (i)  approximately  $3,000,000  to expand  marketing  and
advertising  efforts and potential  strategic  alliances  with  Internet  search
engines guides and online  communities;  (ii) approximately  $500,000 to repay a
secured loan made to the Company by the Trustees of the General Electric Pension
Trust  which  accrues  interest  at the rate of 15% per annum and matures on the
earlier of the closing of this  Offering,  the raising of  additional  equity or
debt by the Company or March 31, 1999; (iii)  approximately  $500,000 to develop
and market an online gift registry; (iv) approximately $500,000 to fund payments
due to AOL pursuant to a marketing  agreement  with AOL; and (v) the balance for
working capital and other general corporate purposes, including expansion of the
Company's  technical  infrastructure and possible future strategic alliances and
acquisitions. The proceeds of the loan from the Trustees of the General Electric
Pension Trust are being utilized for working capital purposes. Jeffrey S. Tauber
pledged  172,500 of his shares of Common  Stock as  security  for the loan.  See
"Risk  Factors --  Management's  Broad  Discretion  in  Allocating a Substantial
Portion of the  Proceeds,"  "Management's  Discussion  and Analysis of Financial
Conditions and Results of Operations,"  "Business -- Certain  Transactions"  and
"Principal Stockholders."

     From  time to  time,  in the  ordinary  course  of  business,  the  Company
evaluates possible acquisitions of, or investments in, businesses,  products and
technologies  that are  complementary to those of the Company.  A portion of the
net proceeds may  therefore be used to fund  acquisitions  or  investments.  The
Company currently has no arrangements,  agreements or understandings, and is not
engaged  in  active  negotiations,  with  respect  to any  such  acquisition  or
investment.

     Pending the application of the net proceeds from this Offering, the Company
intends   to  invest  the  net   proceeds   in   short-term,   investment-grade,
interest-bearing  instruments or money market funds. To the extent  necessary to
avoid being subject to the registration  requirements of the Investment  Company
Act of 1940,  as amended,  the Company would invest the balance in United States
Treasury  obligations.  Returns on such  investments may be less than those that
might otherwise result if the Company were able to use such funds immediately in
its operations.

                                 DIVIDEND POLICY

     The Company has never  declared or paid any  dividends on its Common Stock.
The Company does not anticipate  paying any dividends on the Common Stock in the
foreseeable  future and  intends to retain  all  available  funds for use in the
operation and  development  of its business.  The Board of Directors  intends to
review the Company's dividend policy from time to time. Any payment of dividends
in the future will be at the  discretion  of the Board of Directors  and will be
dependent on the earnings and  financial  requirements  of the Company and other
factors,  including restrictions imposed by the Delaware General Corporation Law
("GCL") on the  payment  of  dividends,  and such other  factors as the Board of
Directors deems relevant.

                                       15

<PAGE>



                                    DILUTION

     The net tangible  book value  (deficit) of the Company at December 31, 1997
was $(4,672) or approximately  $(.00) per outstanding share of Common Stock. Net
tangible book value per share is  determined by dividing the Company's  tangible
net worth  (tangible  assets less total  liabilities) by the number of shares of
Common  Stock  outstanding.  After  giving  effect to the sale of the  2,800,000
shares of Common  Stock  offered by the  Company  hereby and the  receipt of the
estimated net proceeds therefrom after deducting estimated Offering expenses and
the underwriting  discount,  the adjusted net tangible book value of the Company
at  December  31,  1997 would  have been  $16,387,328  or $2.41 per share.  This
represents  an immediate  increase in net tangible book value of $2.41 per share
to existing stockholders and an immediate dilution to new investors of $4.09 per
share to purchasers of Common Stock.  Dilution is determined by subtracting  the
adjusted net tangible  book value per share after the Offering  from the initial
public offering price per share. The following table illustrates this dilution:

<TABLE>
<S>                                                                   <C>           <C>
Initial public offering price per share ...........................                  $  6.50
 Net tangible book value (deficit) per share at December 31,
   1997 ...........................................................     $ (0.00)
 Net increase per share attributable to the new investors .........        2.41
                                                                        -------
 Adjusted net tangible book value per share after the Offering.....                     2.41
                                                                                     -------
Dilution to new investors .........................................                  $  4.09
                                                                                     =======
</TABLE>

     The  following  table  summarizes as of December 31, 1997,  the  difference
between the existing  stockholders  and the new investors  purchasing  shares of
Common  Stock in the  Offering  with  respect  to the number of shares of Common
Stock purchased from the Company,  the total consideration paid therefor and the
average price per share.

<TABLE>
<CAPTION>
                                     SHARES PURCHASED          TOTAL CONSIDERATION
                                  -----------------------   --------------------------    AVERAGE PRICE
                                     NUMBER      PERCENT        AMOUNT        PERCENT       PER SHARE
                                  -----------   ---------   --------------   ---------   --------------
<S>                               <C>           <C>         <C>              <C>         <C>
Existing stockholders .........   4,000,000        58.8%     $ 3,139,443        14.7%    $ 0.78
New investors .................   2,800,000        41.2%      18,200,000        85.3%    $ 6.50
                                  ---------       -----      -----------       -----
 Total ........................   6,800,000       100.0%     $21,339,443       100.0%
                                  =========       =====      ===========       =====

</TABLE>

     The foregoing  computations assume no exercise of stock options outstanding
as of December 31, 1997. As of December 31, 1997, an aggregate of 273,634 shares
of Common  Stock were  issuable  upon the exercise of  outstanding  options at a
weighted average exercise price per share of $2.48 per share. To the extent that
shares of Common Stock are issued upon exercise of these options the dilution to
new  investors  would  continue  to be $4.09  per  share.  The  exercise  of the
additional  options to purchase  159,000  shares of Common Stock  granted  since
December  31, 1997 would not result in further  dilution to new  investors.  See
"Management."


                                       16

<PAGE>



                                 CAPITALIZATION

     The following table sets forth (i) the  capitalization of the Company as of
December 31, 1997 and (ii) the capitalization of the Company as adjusted to give
effect to the sale of the  Common  Stock  offered  hereby  after  deducting  the
underwriting discount and estimated Offering expenses. This table should be read
in  conjunction  with the Financial  Statements of the Company and notes thereto
included elsewhere in this Prospectus. See "Description of Capital Stock."

<TABLE>
<CAPTION>
                                                                    AS OF DECEMBER 31, 1997
                                                                 -----------------------------
                                                                   ACTUAL      AS ADJUSTED (1)
                                                                 ----------   ----------------
<S>                                                              <C>          <C>
Current portion of capital lease obligations .................    $ 13,000       $    13,000
                                                                  ========       ===========
Capital lease obligations, less current portion ..............    $ 15,196       $    15,196
                                                                  --------       -----------
Stockholders' equity (deficit):
Preferred Stock,  $0.001 par value,  5,000,000  authorized;  0
 shares issued and outstanding; 0 shares issued and outstand-
 ing, as adjusted ............................................          --                --
Common Stock, $0.001 par value, 25,000,000 authorized;
 4,000,000 shares issued and outstanding; 6,800,000 shares is-
 sued and outstanding, as adjusted(2) ........................       4,000             6,800
Additional paid-in capital ...................................      (8,672)       16,380,528
                                                                  --------       -----------
Total stockholders' equity (deficit) .........................      (4,672)       16,387,328
                                                                  --------       -----------
Total capitalization .........................................    $ 10,524       $16,402,524
                                                                  ========       ===========
</TABLE>

(1)  Adjusted to give effect to the sale by the Company of  2,800,000  shares of
     Common  Stock  offered  hereby and the  application  of the  estimated  net
     proceeds therefrom as described in "Use of Proceeds."

(2)  Actual  information  excludes an aggregate  of  1,343,634  shares of Common
     Stock  reserved for  issuance  under the  Company's  stock option plans and
     other stock options, of which 273,634 shares are issuable upon the exercise
     of stock options  outstanding as of December 31, 1997. The weighted average
     exercise  price of all  outstanding  options at December 31, 1997 was $2.48
     per share. As adjusted  information excludes 230,000 shares of Common Stock
     issuable  upon  exercise  of the  Underwriters'  Warrants  and  options for
     159,000  additional shares of Common Stock granted since December 31, 1997.
     See "Management," "Description of Capital Stock" and "Underwriting."


                                       17

<PAGE>



                             SELECTED FINANCIAL DATA

     The selected consolidated statements of operations data for the years ended
December 31, 1995,  1996 and 1997 and the selected  consolidated  balance  sheet
data as of  December  31,  1996 and 1997  have  been  derived  from the  audited
consolidated  Financial  Statements  included elsewhere in this Prospectus.  The
selected  consolidated  balance  sheet  data as of  December  31,  1995 has been
derived from the audited consolidated  financial statements not included in this
Prospectus.  The  Company  was  an  L.L.C.  and as a  result  was  treated  as a
partnership  for both Federal and state income tax purposes for all periods from
December 1, 1994 (inception) through December 31, 1997.  Accordingly,  there was
no tax loss carry-forward. The selected financial data set forth below should be
read in  conjunction  with  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations" and the Consolidated  Financial  Statements
of the Company and the notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
                                                           FISCAL YEAR ENDED DECEMBER 31,
                                                   -----------------------------------------------
                                                        1995            1996             1997
                                                   -------------   -------------   ---------------
<S>                                                <C>             <C>             <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenues:
 Product sales .................................    $   18,670      $  272,560      $  1,284,489
 Set up fees ...................................       112,365         232,325           187,058
 Other revenues ................................         8,800           8,500            23,070
                                                    ----------      ----------      ------------
  Total revenues ...............................       139,835         513,385         1,494,617
Cost of revenues ...............................        13,769         155,274           933,187
                                                    ----------      ----------      ------------
Gross profit ...................................       126,066         358,111           561,430
Operating expenses .............................       772,744       1,011,257         2,389,773
                                                    ----------      ----------      ------------
Loss from operations ...........................      (646,678)       (653,146)       (1,828,343)
Other income ...................................         6,022           3,214            22,274
                                                    ----------      ----------      ------------
Net loss .......................................    $ (640,656)     $ (649,932)     $ (1,806,069)
                                                    ==========      ==========      ============
Net loss per common share:
 Basic .........................................    $    (0.22)     $    (0.21)     $      (0.48)
                                                    ==========      ==========      ============
 Diluted .......................................    $    (0.22)     $    (0.21)     $      (0.48)
                                                    ==========      ==========      ============
Pro forma net loss data (unaudited)(1):
 Net loss ......................................    $ (640,656)     $ (649,932)     $ (1,806,069)
 Pro forma income tax benefit ..................      (256,262)       (259,973)         (722,428)
                                                    ----------      ----------      ------------
 Pro forma net loss ............................    $ (384,394)     $ (389,959)     $ (1,083,641)
                                                    ==========      ==========      ============
Pro forma net loss per common share (unaudited):
 Basic .........................................    $    (0.13)     $    (0.13)     $      (0.29)
                                                    ==========      ==========      ============
 Diluted .......................................    $    (0.13)     $    (0.13)     $      (0.29)
                                                    ==========      ==========      ============
Weighted average shares outstanding:
 Basic .........................................     2,872,935       3,096,517         3,780,662
 Diluted .......................................     2,872,935       3,096,517         3,780,662
</TABLE>

<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                           -------------------------------------------------------------
                                                1995           1996           1997        AS ADJUSTED(2)
                                           -------------   -----------   -------------   ---------------
<S>                                        <C>             <C>           <C>             <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents ..............    $  110,687      $509,727      $  787,171       $17,179,171
Working capital (deficit) ..............      (182,154)      143,345        (327,453)       16,064,547
Total assets ...........................       332,379       669,987       1,226,910        17,618,910
Stockholders' equity (deficit) .........       (98,671)      251,397          (4,672)       16,387,328
</TABLE>

(1)  The Company was an L.L.C.  and as a result was treated as a partnership for
     both Federal and state income tax purposes for all periods from December 1,
     1994  (inception)  through  December 31, 1997. The net loss of the business
     for those  periods  was  included  in the  individual  tax  returns  of the
     stockholders.  The pro forma net loss data  reflects the income tax benefit
     that the Company would have incurred had it operated as a C Corporation for
     Federal and state income tax purposes from its inception.

(2)  Adjusted to give effect to the sale by the Company of  2,800,000  shares of
     Common Stock offered hereby,  after deducting  estimated  Offering expenses
     and the underwriting discount. See "The Company," "Management's  Discussion
     and Analysis of Financial  Condition  and Results of  Operations,"  "Use of
     Proceeds" and "Capitalization."


                                       18

<PAGE>



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

     This Prospectus contains forward-looking statements which involve risks and
uncertainties.  Actual  events or  results  may  differ  materially  from  those
discussed  in  forward-looking  statements  as  a  result  of  various  factors,
including, but not limited to, those discussed in "Risk Factors."

OVERVIEW

     CyberShop was in a test period from its inception in December 1994 until it
commenced its  operations in September  1995 and is still in the early stages of
development. The Company did not have revenues, cost of revenues or gross profit
from  inception  on December 1, 1994  through  December  31,  1994.  In 1995 and
throughout  most  of  1996,  the  Company's   primary   activities   related  to
establishing relationships with manufacturers,  which resulted in the payment of
set up fees by certain manufacturers to display products in the Company's online
stores, and developing the Company's  proprietary systems operating  procedures.
The Company has been selling  merchandise on the Internet  since  September 1995
and on AOL since November 1996. Accordingly, the Company has a limited operating
history and is still in the early stages of development.

     The  Company  recognizes  product  revenues  when goods are  shipped to the
customer.  Typically,  the Company receives  payment from the customer's  credit
card  through a financial  institution  within two to four  business  days.  The
amount  received  by the  Company is net of any  credit  card  transaction  fees
deducted by the financial institution. The Company carries minimal inventory and
typically pays its vendors for goods within 30 to 60 days.

     The Company  intends to increase its operating  expenses to fund  increased
marketing and advertising, to enhance existing stores and to establish strategic
relationships  important  to the success of the  Company.  The  Company  expects
negative cash flow from operations to continue for the foreseeable future.

RESULTS OF OPERATIONS

     Revenues.  Revenue  is  comprised  of  sales  of  products  offered  in the
Company's online stores, manufacturer set up fees and advertising fees. Revenues
were $139,835 in 1995,  with set up fees  representing  $112,365,  or 80% of the
total revenues and product sales representing $18,670, or 13% of total revenues.
Revenues increased 267% to $513,385 in 1996 due to a $119,960 increase in set up
fees and a $253,890  increase in product sales. The increase in product sales in
1996 was primarily attributable to increased marketing efforts and the launch of
the Company's store on AOL. Revenues  increased 191% in 1997 to $1,494,617.  The
increase  was  primarily  attributable  to a 371%  increase in product  sales to
$1,284,489,  primarily due to increased  marketing efforts, an expanded customer
base, repeat purchases from existing customers, an increased presence on AOL and
the addition of the consumer electronics category.

     Cost of  Revenues.  Cost of  revenues  consists  of payments to third party
suppliers related to product sales.  Cost of revenues  increased from $13,769 in
1995 to $155,274 in 1996 to $933,187 in 1997. Such increases  reflect  increases
in product sales from one period to the next.  Gross profit  margins  related to
product sales were 26.3% in 1995,  43.0% in 1996 and 27.3% in 1997. The decrease
from  1996  to  1997  is  primarily  attributed  to  the  1997  introduction  of
promotional  discount programs and the addition of consumer  electronics,  which
typically yield lower than average gross profit margins.

     Operating  expenses.  Operating  expenses  consist  primarily  of personnel
expenses,  online,  radio  and print  advertising,  public  relations  and other
promotional expenses, including payments to AOL, and general corporate expenses.

     Operating  expenses  increased  $238,513  or 31% from  $772,744  in 1995 to
$1,011,257 in 1996 and increased $1,378,516, or 136%, to $2,389,773 in 1997. The
increases were primarily  attributable to higher  personnel costs related to the
increased  infrastructure  of the Company,  higher  advertising  and promotional
expenses and an increase in AOL fees.


                                       19

<PAGE>



     Other  Income.  The  changes  in other  income  from  period to period  are
primarily  attributable  to  increases or decreases in the amount of excess cash
invested in short-term investments.

SELECTED QUARTERLY RESULTS OF OPERATIONS

     The following table sets forth unaudited  results of operations for each of
the  Company's  last eight  fiscal  quarters.  In the  opinion of the  Company's
management,  this unaudited  quarterly  information has been prepared on a basis
consistent  with the Company's  audited  consolidated  financial  statements and
includes all adjustments  (consisting of normal and recurring  adjustments) that
management  considers  necessary  for a fair  presentation  of the  data.  These
quarterly   results  are  not  necessarily   indicative  of  future  results  of
operations. This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                           -------------------------------------------------------------------------------------------------------
                             MARCH 31,    JUNE 30,    SEPT. 30,     DEC. 31,    MARCH 31,     JUNE 30,    SEPT. 30,     DEC. 31,  
                                1996        1996         1996         1996         1997         1997         1997         1997    
                           ------------ ----------- ------------ ------------ ------------ ------------ ------------ -------------
<S>                        <C>          <C>         <C>          <C>          <C>          <C>          <C>          <C>          
Revenues:                                                                                                                         
Product sales ............  $   20,205   $  15,228    $  21,812   $  215,315   $  134,824   $  196,117   $  165,209   $  788,339  
Set up fees ..............      59,602      63,215       55,909       53,599       62,525       48,405       39,789       36,339  
Other revenues ...........          --       1,500        7,000           --           --          123          386       22,561  
                            ----------   ---------    ---------   ----------   ----------   ----------   ----------   ----------  
 Total revenues ..........      79,807      79,943       84,721      268,914      197,349      244,645      205,384      847,239  
Cost of revenues .........      12,384      14,490        3,806      124,594      100,291      144,521      110,790      577,585  
                            ----------   ---------    ---------   ----------   ----------   ----------   ----------   ----------  
 Gross profit ............      67,423      65,453       80,915      144,320       97,058      100,124       94,594      269,654  
Operating expenses .......     202,313     112,096      105,305      591,543      438,602      449,016      435,497    1,066,658  
                            ----------   ---------    ---------   ----------   ----------   ----------   ----------   ----------  
  Loss from operations ...    (134,890)    (46,643)     (24,390)    (447,223)    (341,544)    (348,892)    (340,903)    (797,004) 
Other, net ...............         132         346          249        2,487        4,726        1,103        9,466        6,979  
                            ----------   ---------    ---------   ----------   ----------   ----------   ----------   ----------  
  Net loss ...............  $ (134,758)  $ (46,297)   $ (24,141)  $ (444,736)  $ (336,818)  $ (347,789)  $ (331,437)  $ (790,025) 
                            ==========   =========    =========   ==========   ==========   ==========   ==========   ==========  
</TABLE>

     Total  revenues,  cost of revenues and gross profit in each of the quarters
ended March 31, 1997,  June 30, 1997,  September  30, 1997 and December 31, 1997
showed  increases as compared to the same quarterly period of the previous year.
In  general,  these  increases  were  attributable  to  increased  sales  volume
resulting from the Company's  expanded  marketing efforts as well as significant
expansion of customer base, repeat purchases from existing  customers and launch
of the  Company's  stores on AOL.  The  Company's  revenues  have  followed  the
seasonal  pattern  typical of the retail  industry,  with  product  sales in the
quarter ended December 31 increasing significantly compared to the quarter ended
September  30 and  product  sales  in the  quarter  ended  March  31  decreasing
significantly compared to the December 31 quarter. The Company expects that this
seasonal pattern of sales volume will continue in the future.

LIQUIDITY AND CAPITAL RESOURCES

     Since  inception,  the Company has financed its  operations  primarily from
capital contributions from private investors. During the year ended December 31,
1997,  the Company  received  $1,550,000 in capital  contributions  from private
investors.  The Company believes that its existing capital  resources,  together
with cash  generated  from  operations  and the proceeds of this  Offering  will
enable it to  maintain  its  operations  for at least 12 months from the date of
this Prospectus.

     Net  cash  used  in  operating  activities  was  $347,534,   $532,708,  and
$1,176,102 for the years ended December 31, 1995, 1996, and 1997,  respectively.
The Company has financed these activities through private  investments  totaling
an aggregate of approximately $3.1 million.

     Capital  expenditures,  primarily for computers and  peripheral  equipment,
totaled  $88,699,  $67,812 and $89,454 for the years ended  December  31,  1995,
1996,  and 1997,  respectively.  The  purchases  were  required  to support  the
Company's expansion and increased infrastructure.

     The Company has entered  into a marketing  agreement  with AOL  pursuant to
which AOL will market the products  offered by the  Company.  Under the terms of
such agreement,  the Company will pay a total of  approximately  $500,000 during
1998.


                                       20

<PAGE>



     In January and February 1998, the Company  entered into one year employment
agreements  with its Vice President,  Chief Financial  Officer and Treasurer and
its Vice President and Chief Information Officer,  respectively.  The agreements
provide for a base salary of $140,000 and $125,000  upon the  completion of this
Offering  ($120,000  and $96,000  prior to  completion  of this  Offering).  See
"Management" and "Certain Transactions."

     The Trustees of General  Electric Pension Trust loaned the Company $500,000
at an  interest  rate of 15% per  annum.  The  proceeds  of the loan  are  being
utilized by the Company for working capital purposes.  Jeffrey S. Tauber pledged
172,500 of his shares of Common  Stock as  security  for the loan.  The  Company
intends to repay the principal  and accrued  interest on the loan with a portion
of  the  proceeds  of  this   Offering.   See  "Use  of  Proceeds,"   "Principal
Stockholders" and "Certain Transactions."

     The Company  believes that its computer  systems and software  products are
fully year 2000  compatible.  However,  it is  possible  that  certain  computer
systems or software  products of the  Company's  suppliers or customers  may not
accept  input  of,  store,  manipulate  and  output  dates in the  year  2000 or
thereafter  without error or  interruption.  The Company may be required to make
significant expenditures to identify,  address or remedy any potential year 2000
problems,  or in  connection  with  liabilities  to which the Company may become
subject as a result of such problems.

RECENT ACCOUNTING PRONOUNCEMENTS

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 requires dual  presentation of basic and diluted  earnings per share for
complex  capital  structures  on the  face  of  the  statements  of  operations.
According to SFAS No. 128,  basic  earnings per share,  which  replaces  primary
earnings per share,  is  calculated  by dividing net income  available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted  earnings per share,  which replaces fully diluted earnings per
share,  reflects  the  potential  dilution  from the exercise or  conversion  of
securities into common stock, such as stock options. SFAS No. 128 is required to
be  adopted  for the  Company's  1997  year-end  financial  statements;  earlier
application  is not  permitted.  The Company  adopted  SFAS No. 128 for the year
ended December 31, 1997.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting  Comprehensive  Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related  Information."  SFAS No. 130 establishes  standards
for reporting and display of comprehensive income and its components  (revenues,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements and requires that all items that are required to be recognized  under
accounting  standards  as  components  of  comprehensive  income be  reported in
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  SFAS No. 130 is required to be adopted for the Company's
fiscal year ending  December 31, 1998.  The  adoption of this  pronouncement  is
expected  to have no impact on the  Company's  financial  position or results of
operations.  SFAS No. 131 establishes standards for the way that public business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas, and major  customers.  SFAS No. 131 is required to be adopted
for the Company's 1998 year-end financial  statements.  The Company is currently
evaluating  the impact,  if any, of the  adoption of this  pronouncement  on the
Company's existing disclosures.


                                       21

<PAGE>



                                    BUSINESS

     CyberShop is an online retailer that currently  offers over 40,000 products
from more than 400  manufacturers  through its online stores on the Internet and
AOL.  The  Company  seeks to  provide  a  convenient  shopping  experience  that
incorporates  traditional  department  store  and  mail-order  features  into an
interactive, easy-to-use and compelling online environment.

     The  Company  believes  that  online   technology,   and  the  Internet  in
particular, is an advantageous medium for the selling of merchandise relative to
traditional retail stores and mail-order catalogs.  Leveraging online technology
and the global  reach of the  Internet,  the  online  retailing  model  provides
CyberShop with virtually unlimited online shelf space and the ability to reach a
geographically  unlimited  consumer  base 24 hours a day.  The online  retailing
model also  enables  the Company to avoid the  facilities  and  personnel  costs
associated  with  maintaining   traditional  retail  stores  and  the  costs  of
publishing  and   distributing   catalogs  and  staffing  large  "call  centers"
associated with mail-order companies. The Company's strategy is to offer quality
merchandise,  provide effective customer service, and capitalize on the inherent
economies  of the online  retailing  model.  The  Company,  which  launched  its
Internet store in September 1995, is still in early stages of  development.  The
Company believes that its ability to achieve profitability will depend primarily
on its ability to increase revenues generated by transactions  relating to sales
of  merchandise  through  its online  stores.  CyberShop's  management  team has
experience  in a broad range of  retailing  environments,  including  department
stores, specialty retailing stores, television merchandising and direct mail.

     CyberShop's online stores are accessed at CYBERSHOP.COM on the Internet and
in the Department Store and Gift areas of the AOL Shopping Channel.  CyberShop's
online  stores  provide high  quality  color  pictures and detailed  information
relating to products that are  conveniently  organized into departments by brand
and category such as housewares,  consumer electronics,  gifts and gourmet food,
similar to those of  traditional  department  stores.  Shoppers  can search for,
browse and select products  throughout the store and place selected  merchandise
in a virtual  shopping bag that  facilitates  the process of  collecting  items,
subtotaling  purchases  and  reaching  the  purchase  decision.  In  addition to
offering  a broad  selection  of quality  branded  merchandise  at a  guaranteed
competitive price, the Company's customers benefit from cost savings,  including
free  domestic  delivery for most  purchases  over $100 and  discounts on future
purchases under the Company's frequent buyers program.  Most customer orders are
completed by credit cards utilizing industry standard secured encryption.

     The Company believes that relationships with merchandise  manufacturers are
important to its business.  CyberShop has  established  strategic  relationships
with manufacturers which allow for prompt updates on merchandise information and
for most products to be rapidly shipped directly from suppliers. Supplier direct
shipping  enables the Company to avoid inventory  related risks,  limit overhead
costs and provide  prompt  delivery.  Through its Gifts Wrapped & Ready boutique
the Company also offers  pre-wrapped gift items which are shipped from inventory
maintained at an independent  warehouse facility or from the Company's suppliers
within 24 hours after an order is placed.

     As part of its  marketing  strategy,  the  Company  has formed a  strategic
alliance with AOL pursuant to a marketing agreement. This agreement provides for
CyberShop  to be featured  on the AOL  Shopping  Channel as one of three  anchor
tenants within the Department  Store area and to be prominently  featured in the
Gift area. In addition,  the Company plans to establish strategic alliances with
other  online  companies  and begin a targeted  advertising  campaign to attract
additional  customers to the its online stores. The Company believes both online
and traditional  media exposure are critical to maximizing brand recognition and
driving  traffic to its online  stores.  The Company  leverages  its database of
customers to proactively market merchandise through E-mail.

     IDC estimates  that the total value of goods and services  purchased on the
Internet  was $296 million in 1995,  $2.6  billion in 1996 and will  increase to
$220  billion  by the year  2001.  The  number of  Company  customers  grew from
approximately 2,250 at December 31, 1996 to approximately 12,800 at December 31,
1997. The Company believes it has effectively positioned itself to capitalize on
the potential growth of online commerce by selectively targeting quality branded
manufacturers and strategic online partners.


                                       22

<PAGE>



ONLINE SHOPPING INDUSTRY

     IDC estimates  that the total value of goods and services  purchased on the
Internet  was $296 million in 1995,  $2.6  billion in 1996 and will  increase to
$220  billion  by the year  2001.  IDC  estimates  that the  number  of  devices
accessing  the  Internet in the United  States will grow from 32 million at year
end 1996 to more than 300  million  by year end 2001 and the  number of users in
the United  States  associated  with those  devices will grow from 28 million at
year end 1996 to 175 million at year end 2001.  In  addition,  according to IDC,
the  percentage  of such users  buying  goods and  services  on the  Internet is
projected to grow from 25% in December 1996 to 39% in December  2001.  According
to a CommerceNet/Nielsen  survey, as of March 1997, shopping was one of the most
popular  activities on the  Internet,  and the number of people who shop and buy
products on the  Internet is growing.  This survey also  indicates  that a large
majority  of  Internet  users  (73%)  spend some  portion  of their time  online
searching for information about a specific product or service.

     The Company  believes  that the Internet is  particularly  well-suited  for
promoting,  marketing  and  selling  merchandise.  The  Internet  permits  users
throughout  the world to have direct access to  merchandisers.  A retail site on
the Internet  can provide  direct  product  service and  information  to a large
number of users at the same time with a  substantially  smaller  sales staff and
has the ability to rapidly and  continually  update such  information.  Internet
merchandisers,  unlike  traditional  department  stores,  are not limited by the
constraints  or expense of store  construction,  rental and extensive  personnel
costs, or the difficulty of consumers  traveling to their stores. In contrast to
catalog  merchandisers,  Internet  retailers  can react  quickly  to the need to
change product  description,  pricing or mix and are not subject to the costs of
catalog  publication and  distribution or maintaining  large "call centers." The
Internet is a highly  interactive  medium  through which  shopper  responses and
preferences can be tracked,  thereby  enabling the merchandiser to customize the
online stores and target specific consumer groups and individuals.

BUSINESS STRATEGY

     The Company's business strategy includes the following key elements:

     Maximize Online Economic Advantage.  The Company believes that the Internet
is a  particularly  well-suited  medium for  promoting,  marketing  and  selling
merchandise.  The Company believes there are many advantages to retailing via an
online store compared to traditional retail locations.  The Internet  diminishes
the limitations and expenses associated with traditional retail operations, such
as store  construction  and rent,  and  enables  the  Company  to reach a global
customer base. An online store has virtually unlimited shelf space,  enabling it
to offer a broad  selection  of products 24 hours a day,  without the expense of
carrying  inventory  at  a  physical  location.  In  addition,  direct  shipping
arrangements  with suppliers  allow the Company to avoid owning and  maintaining
substantial  inventories,  thereby  enabling  the  Company to reduce the risk of
over-stocking  merchandise.  In addition,  the online structure of the Company's
store enables the Company to cross promote related brands and products,  drawing
the  shopper's  attention  to  products  the  shopper  otherwise  may  not  have
considered  purchasing.  The Company  intends to  capitalize on the advantage of
online  retailing  and  achieve  higher  operating  margins  because  of the low
overhead of the online retailing model.

     Create Strong Brand  Recognition.  The Company believes that building brand
recognition  of CyberShop is critical to  attracting  and expanding its customer
base.  The  Company  intends  to  promote,  advertise  and  increase  its  brand
recognition   through  various  marketing  and  advertising   media,   including
traditional  magazines  and  newspapers,  hyperlinked  banner  ads,  listings in
manufacturers'  national advertising programs and hyperlinks from manufacturers'
websites,  conducting  an  ongoing  public  relations  campaign  and  developing
business alliances and partnerships. See "-- Sales and Marketing."

     Develop  Strategic  Alliances.  The Company  seeks to  establish  strategic
alliances  with global media  companies to attract  additional  shoppers to, and
increase brand  recognition of, the Company's  online stores.  The Company views
the AOL alliance as an important strategic  alliance.  The Company is seeking to
establish additional arrangements with major Internet search engines, guides and
online  communities.  In  addition,  the  Company  has  recently  established  a
"Partners Program," whereby third-party websites may register with CyberShop and
establish  hyperlinks  to  CyberShop  for  online  shopping.  See "--  Sales and
Marketing -- Store Promotion" and "Strategic Alliances."


                                       23

<PAGE>



     Develop Customer  Loyalty.  The Company  believes that satisfied  customers
will return to the  Company's  online  stores and will  contribute  to increased
traffic to the store  through  word-of-mouth  referrals.  The  Company  seeks to
provide its customers with a satisfying shopping experience by making its online
stores  entertaining,  convenient  and easy to use,  by  offering  an  extensive
selection  of  products,  an  attractive  presentation  of product  information,
outstanding customer service and fulfillment, and compelling incentive programs.
The Company plans to provide a more customized  shopping experience by utilizing
the valuable  demographic data aggregated from customers upon registering on the
store  and  by  analyzing  previous  browsing  and  purchasing  behavior  of its
customers.

     Selective  Merchandising.  The Company typically selects  manufacturers who
offer quality  products that are not subject to widespread  discounting  or high
rates of customer returns.  The Company also seeks manufacturers who are willing
to respond on a timely basis to the Company's  purchase orders and ship products
directly to its  customers.  The  Company's  online  structure  and  proprietary
operating  system enable the Company to add and remove products on a daily basis
based on product  availability  and  customer  demand.  The  Company  intends to
increase the number of categories and products offered.

THE CYBERSHOP ONLINE STORES

     The Company's store on the Internet is accessed at CYBERSHOP.COM and at the
Department Store and Gift areas of the AOL Shopping Channel.

     The CyberShop Store on the Internet

     The CyberShop Internet address, CYBERSHOP.COM,  leads to the Company's home
page which  contains a store  directory in addition to direct links to CyberShop
feature departments, including Gourmet Collection, Gift Emporium, Home Style and
Electronics  Plus.  CyberShop  displays  new  products,  best brands and special
offers  in each of the  departments.  By  clicking  on the  store  directory  or
featured products, shoppers are presented with detailed product information. The
home page also serves as a familiar  base to which  shoppers  can return to find
key destinations within the store. Shoppers choose desired locations by clicking
on a  navigation  bar or  hyperlinked  text  enabling  them  to (i)  search  for
products,  brands or  departments,  (ii)  access the Help and e-mail  functions,
(iii) browse and order products,  (iv) enter other  departments and (v) register
as a  "CyberShopper,"  which  opens a  personal  account  for the  customer.  In
addition, as part of the registration process, the Company requests the customer
to provide basic demographic  information.  The Company currently  utilizes this
data to analyze  customer  shopping trends and  demographics,  and is evaluating
ways in which it may utilize  this data to  customize  marketing  programs.  The
Company encourages shoppers to register by offering incentives,  including a 10%
discount  coupon and 1,000 points towards the Company's  frequent buyer program.
See "-- Sales and Marketing-Merchandising and Customer Programs."

     The Company's  store on the Internet  offers over 40,000 products from over
400  manufacturers.  The Company's  products  range in price from $10 to $5,500.
Many  products  are  featured  with a high  quality  color  picture and detailed
information  relating  to  product  specifics,   service,   care  or  purchasing
instructions. The Company's average order has been approximately $100 during the
year ended December 31, 1997.




                                       24

<PAGE>



     The  following  table shows the major  categories  of products  sold by the
Company and examples of specific products,  and its principal  manufacturers and
brands:

<TABLE>
<CAPTION>
PRODUCT CATEGORIES AND
EXAMPLES OF PRODUCTS                                                  MANUFACTURERS/BRANDS
- -------------------------------------   --------------------------------------------------------------------------------
<S>                                     <C>                           <C>                        <C>
HOUSEWARES
Cookware, Cutlery, Small Kitchen        American Harvest              Cuisinart                  Sabatier
Appliances, Kitchen Tools               Black & Decker                DeLonghi                   Scanpan
and Gadgets                             Bodum                         Joyce Chen                 Thermos
                                        Braun                         KitchenAid                 VIA!
                                        Calphalon                     Krups                      Vitantonio
                                        Chantal                       Le Creuset                 Waring
                                        Chef's Choice                 Oral-B                     Wusthof
                                        Circulon                      Polder                     Zojirushi
                                        Copco                         Rival Select
CONSUMER ELECTRONICS
TV's, VCR's, Phones, Audio,             Bissell                       Minolta                    Panasonic
Cameras, Camcorder, Home                Bose                          Mitsubishi                 Sanyo
Care, Computers, Office Equipment,      Brother                       Nikon                      Seiko Instruments
Electronic Reference Device             Canon                         Nintendo                   Sony Playstation
                                        Fisher                        Olympus                    Telemania
                                        Franklin                      Oreck                      Toshiba
                                        Hewlett Packard               Oregon Scientific          Total Recall
                                        JVC                           PalmPilot                  Ultradata

GOURMET FOOD
Chocolate, Candy, Baked                 Bittersweet Pastries          Cheesecake Lady            First Colony
Goods, Fresh Foods, Gift                Bob's Brownstone Brownies     Citterio                   Karl Bissinger
Baskets, Delicacies                     Caf--Tasse                    Crabtree & Evelyn          Lazzaroni
                                        Candy Cottage                 DiCamillo                  Maxim's de Paris
                                        Capalbo's                     Erica's Rugelach           Perugina

TABLETOP
China/Dinnerware,                       Bernardaud                    Oneida                     Schott Zwiesel
Silver/Flatware,                        Christofle                    Orrefors                   Spode
Crystal/Glassware                       Dansk                         Pfaltzgraff                Towle
                                        Daum                          Reed & Barton              Villeroy & Boch
                                        Denby                         Rosenthal                  Wallace Silversmith
                                        Kosta Boda                    Royal Doulton              Waterford
                                        Lenox                         Royal Worcester            Wedgwood
                                        Limoge Imports                Sasaki                     Yamazaki
                                        Luigi Bormioli
JEWELRY, BEAUTY &
 FASHION ACCESSORIES
Jewelry, Watches, Cosmetics,            1928                          Gale Hayman                Ray-Ban
Fragrance, Small Leather Goods,         Adrienne Vittadini            Hugo Bosca                 Reebok
Sun Glasses, Scarves, Handbags,         Ahava                         Hush Puppies               Revo
Men's Furnishings                       Aya Azrielant                 K. Bauman Design           Seiko
                                        Bharat                        Kenneth Cole               Serengeti Eyewear
                                        Burberrys                     Michael Graves             Swiss Army
                                        Cigar Savor                   Moschino                   Upper Canada
                                        Crabtree & Evelyn             Nature's One               Vivian Alexander
                                        DKNY                          NEI                        Wittnauer
                                        Dart Mart                     Nikon Eyewear              Zagat
                                        Dolce & Gabbana               Paco Rabanne               Zelco
                                        Fendi                         Perlier
                                        Fossil                        Peter Brams
HOME FURNISHINGS
Sheets, Comforters, Pillows,            AeroBed                       Godley-Schwan              Perfect Fit Industries
Towels, Bath Accessories,               Burlington                    Imperial Home Fashions     Regal
Slipcovers, Lamps, Decorative           Creative Bath                 Independent Vision         Replogle
Pillows, Ready-to-Assemble              Croscill                      John Boosh                 Revman Industries
Furniture, Globes, Clocks               Crown Crafts                  Lady Slipper Designs       Rug Barn
                                        Down, Inc.                    MFA                        Seth Thomas
                                        Early's of Whitney            Newport                    Sure Fit
                                        Faribo                        Pacific Coast Feather      Ziro Designs
                                        Galbraith & Paul

CHILDRENS
Accessories, Toys                       Classic Pooh                  Gerry                      Step 2
                                        Evenflo                       In Step                    Teaching Togs
                                        Hedstrom                      Kolcraft
                                                                      Radio Flyer

SPORTS & FITNESS
Exercise Equipment, Sporting Goods,     Bell Sports                   Huffy                      ProForm
Outdoor Living                          Budoff                        Jump King                  Weider
                                        Felco                         Mueller Sports             Weslo
</TABLE>


                                       25

<PAGE>



     The Company's store on the Internet is designed to accommodate the needs of
both the  browser  and the  directed  shopper.  The browser can view an array of
products  by  simply  clicking  on one of the  feature  departments  or  product
categories. The directed shopper is able to quickly locate a specific product by
category or brand by using the store's search  function or store  directory.  By
clicking on the picture of a product,  the customer is presented  with  detailed
information  relating  to  product  specifics,   service,   care  or  purchasing
instructions.

     The Company seeks to provide a compelling  shopping  environment  that will
attract customers and encourage shoppers to purchase. The Company intends to add
sound and video  features to its Internet store in 1998 that will guide shoppers
through the store and announce special offers. The Company also aims to make the
shopping experience as simple and convenient as possible. CYBERSHOP.COM features
a  virtual   shopping  bag  function  that  allows  the  shopper  to  accumulate
merchandise for purchase while browsing through the store. Items can be added to
or subtracted  from the shopping bag at any time. As a registered  CyberShopper,
the  customer is able to retain items in the  shopping  bag  indefinitely,  even
after leaving the store or logging-off. After selecting an item to purchase, the
customer is prompted  to  complete an order.  In choosing a payment  method when
placing an order,  customers have the option of securely  submitting credit card
information  online or telephoning or faxing the information to customer service
representatives.  The Company  also  provides  the option of payment by check or
money order. The Company sends e-mail  notifications  that confirm the order and
shipment and promote special offers and events.

     The Company's  Gifts  Wrapped & Ready  boutique  located  within its online
stores  offers a range of  pre-wrapped  gifts which are  available  for shipment
within 24 hours after an order is placed. These items are shipped from inventory
maintained at an independent warehouse facility or from the Company's suppliers.
The Company realized approximately 31% of its revenues from this boutique during
the quarter ended December 31, 1997 and  anticipates  substantial  demand during
other gift giving periods such as Valentine's Day and Mother's and Father's Day.
The products  offered in the Gifts  Wrapped & Ready  boutique  will be regularly
updated to reflect  consumer demand and the special  requirements  for each gift
giving period.

     The Company  intends to offer  additional  services which are  particularly
well-suited  to online  retailing.  The  Company is  developing  an online  gift
registry  service,  including a bridal  registry  service that is expected to be
available in the second half of 1998. The bridal  registry will allow  customers
to create, view and modify their own personal registry.  To create a registry, a
couple will be able to search products  displayed in CyberShop's  online stores,
which  will  provide  links  to  detailed   product   information   and  product
suggestions.  Once the registry has been created, an automatic reminder function
will alert the couple if an  important  category  has been  neglected.  Delivery
options  will enable the couple to return and exchange  gifts  before  shipping.
E-mail  notifications  regarding  gifts purchased will be provided to the couple
and a  comprehensive  status  screen  will  show  the  purchase  status  of  all
registered items detailing items purchased and items still available. The bridal
registry  will  provide  convenient  online  access for gift givers with an easy
online ordering process  requiring only the submission of a password selected by
the couple. Ordering by phone using a 24-hour 800-number will also be available.

     CyberShop's AOL Stores

     AOL, which has over 10 million users,  has  established an online  shopping
mall that is comprised of more than 100 stores.  This mall is a service  offered
exclusively  to its users.  The Company has chosen to  establish  retail  stores
within the AOL  proprietary  service in order to access this large customer base
in a medium familiar to AOL users.  The Company's  proprietary  operating system
interfaces with transaction  processing  systems operated by AOL and enables the
Company to receive and fulfill orders in its AOL stores.

     The Department Store Area of AOL

     Users of AOL's  online  service  can access  the  Company's  online  stores
through the AOL Shopping  Channel.  CyberShop is one of the three anchor tenants
in the  Department  Store area of the AOL  Shopping  Channel,  which the Company
believes  will be a popular  and  heavily  trafficked  area of the AOL  Shopping
Channel.  This store  generally  has the same  extensive  product  offerings and
features as


                                       26

<PAGE>



the Company's  store on the Internet and is maintained  using AOL's  proprietary
technology  and order systems.  The Company  believes that because this store is
presented to the AOL user in the familiar  AOL  environment,  the users are more
comfortable  shopping  there  than  they  might be in a less  familiar  Internet
environment. However, the store on AOL does not include certain features such as
CyberShopper  registration  and online status  reports of shipping  information.
Pursuant to the marketing  agreement  with AOL, the Company  maintains  both its
anchor  button and a promotional  button to promote its store and products,  and
has its products featured for a minimum of five days per month on the Department
Store area's main screen.  Additionally,  the Company's products are featured in
select AOL shopping  events stores such as Santa's  Workshop,  Valentine's  Day,
Mother's  and  Father's  Days,  and  Back-to-School,  all of which are  promoted
throughout the AOL service.

     The Gift Area of AOL

     CyberShop  maintains a store in the Gift area of the AOL  Shopping  Channel
called  "CyberGift."  This store links to the  Company's  Gifts  Wrapped & Ready
boutique  and has the same  features as the  Company's  store in the  Department
Store area on the AOL Shopping Channel. CyberGift currently offers for sale gift
items sorted by theme and price which are available for shipment within 24 hours
after an order is placed.  Pursuant to the  marketing  agreement  with AOL,  the
Company  maintains its tenant button and shares  rotations of both a promotional
button  and an  advertising  banner  to  promote  its store  and  products.  The
Company's  products  are  featured  for a minimum of three days per month on the
Gift area main screen. Additionally, the CyberGift boutique is featured in AOL's
Quick Gifts area as well as in select AOL shopping events stores such as Santa's
Workshop,  Valentine's Day, Mother's and Father's Days, and Back-to-School,  all
of which are promoted throughout the AOL service.

STRATEGIC ALLIANCES

     The Company  seeks to  establish  strategic  alliances  with  global  media
companies to attract additional  shoppers to, and increase brand recognition of,
the Company's online stores. The first such alliance  established by the Company
is a marketing agreement which provides, among other things, for CyberShop to be
featured as one of three anchor tenants within the Department  Store area of the
AOL Shopping Channel and to be prominently  featured in the Gift area of the AOL
Shopping  Channel.  As described above, the agreement also allows the Company to
participate in a variety of banner advertising opportunities and to have certain
of the Company's  products and special offers  featured  within the AOL Shopping
Channel or AOL's special event stores. The AOL agreement  terminates on December
31, 1998, unless it is renewed. The agreement requires monthly payments of fixed
fees. See "Use of Proceeds."

     The  Company  is  currently   negotiating   long-term  exclusive  marketing
arrangements   with  leading   Internet  search   engines,   guides  and  online
communities.  The Company  believes  that such  strategic  alliances  will drive
additional  traffic to the Company's  website and enhance brand  recognition  of
CyberShop.  Additionally,  the  Company  has  recently  established  a "Partners
Program"  whereby  third  party  websites  may  register  with the  Company  and
establish  hyperlinks to CyberShop for online  shopping.  See "Business -- Sales
and Marketing -- Store Promotion."

     The  Company  also  considers  its  relationships  with  its  manufacturers
strategically  important. As of December 31, 1997, the Company maintained online
marketing  agreements with many of its manufacturers  that provide the exclusive
right to market online,  subject to certain  exceptions.  In addition to certain
exclusive  online  marketing  rights  of  the  manufacturers'   products,   such
agreements provide for co-marketing efforts by the Company and manufacturers. An
important  factor in the selection of a  manufacturer  for the Company's  online
stores is the  manufacturer's  willingness  to respond on a timely  basis to the
Company's purchase orders and ship products directly to the Company's customers.

SALES AND MARKETING

     The Company's  sales and marketing  strategy is to effectively  merchandise
quality  products  by  building  brand   recognition  and  driving  traffic  and
attracting repeat customers to the Company's online stores. The Company utilizes
a  combination  of  advertising,   creative  product  merchandising  and  online
co-marketing programs to accomplish these objectives.


                                       27

<PAGE>



     Store Promotion

     The Company  utilizes  numerous sales and marketing  techniques to increase
brand  recognition and drive traffic to the Company's  online stores,  including
both online and traditional  advertising and promotion campaigns.  The Company's
online  marketing  tactics include the purchase of banner  advertising on search
engines and Internet directories such as Yahoo!, Excite, Lycos,  AltaVista,  AOL
Netfind,  Go2Net,  and Webcrawler.  The banner  advertisements  purchased by the
Company that  hyperlink to the  Company's  online  stores are  displayed  when a
search engine user searches for information relating to certain keywords such as
gift, sale, holiday and shopping.  The Company also promotes the CyberShop brand
through  banner  advertisements  on key  websites,  which also  hyperlink to the
store.

     The Company also promotes its online stores through print  advertising  and
intends to develop  advertising through other media. The Company has a proactive
public relations  program which targets customers through national media outlets
such as magazines, newspapers, and radio and television broadcasts. In addition,
the Company  places  advertisement  inserts into mail order catalogs of selected
retailers,  the  packaging  of items  shipped  from its  Gifts  Wrapped  & Ready
boutique,  and packaging for shipments from certain suppliers.  The Company also
employs an electronic direct response program to promote certain offers or store
events via e-mail,  targeting  specific customers based on such customers' prior
visits and purchases.

     The  Company  has also  created a Partners  Program  which is  designed  to
attract  customers and drive  traffic by linking the CyberShop  store with other
websites  that  participate  in  the  Partners  Program.  The  Partners  Program
incentivizes  participants  by offering a commission  on sales volume  generated
from a  participating  website,  by  offering  a  commission  on every  customer
directed to CyberShop from the website,  and by offering a discount on CyberShop
merchandise  for  employees  of  the  participant.   The  Company  has  numerous
co-promotion  arrangements with companies such as MasterCard,  American Express,
Transmedia,  Virtual  Emporium,  and New York Style  through  which the  Company
receives customer referrals.

     Merchandising and Customer Programs

     Essential  to the  Company's  merchandising  and customer  acquisition  and
retention  strategy are its experienced  merchandising  team and its proprietary
system operating procedures.

     In-Store Merchandising. The Company utilizes numerous merchandising tactics
to enhance a  customer's  shopping  experience.  The Company  believes  that the
shopper's  ability to browse and search from a broad  selection of products is a
compelling  incentive to shop at CyberShop.  While the CyberShop store currently
offers over 40,000  products,  online  technology  offers the Company  virtually
unlimited  online shelf space through  which to increase its product  offerings.
The online stores also provide color pictures and detailed  information relative
to  product  specifics,  service  or  care  for  many  products  in the  stores.
Management believes that access to clear pictures and helpful information at the
point of purchase assists the customer in reaching an educated purchase decision
and reduces the risk of product returns.  To date, the Company has experienced a
return rate of approximately 3% of all products sold.

     Pricing.  Through the use of its proprietary  online operating system,  the
Company's  merchandise  managers  are able to rapidly  change  product  pricing,
product   information  and  featured  products.   The  Company  adjusts  pricing
strategies to maintain  competitiveness with other retailers. If, within 10 days
of  purchase,  a customer  finds the product for a lower price from a nationally
recognized retailer, the Company will match that price or refund the difference.
This price  matching  policy  applies only to specific  models,  in stock,  with
United  States  warranties.  Sales tax,  shipping and  handling  charges are not
included in the price check and remain the  responsibility of the customer.  The
Company  seeks to encourage  online  purchasing  by offering  free  shipping and
handling on most  shipments to one  customer  location  totaling  more than $100
within the  continental  United  States.  In  addition,  the Company  frequently
provides free delivery by UPS three-day service,  within certain size and weight
limits,  to expedite  delivery and enhance  customer  satisfaction.  The Company
believes that such value added  services are  important to attracting  consumers
from other retailing channels.


                                       28

<PAGE>



     Corporate Gift Services and Gift Certificates. Management targets corporate
customers as a source of high volume and repeat purchases.  The Company offers a
portfolio  of  gifts  specially  targeted  for  corporate  customers.  Corporate
services include discounts on special gift packaging,  gift cards,  personalized
options and professional consultation.  The Company has also created a system to
permit customers to purchase and redeem gift certificates online.

     Customer  Attraction,   Conversion  and  Retention.   Many  of  CyberShop's
customers  are attracted to the Company's  online stores  through  hyperlinks on
search  engines  and guides and  advertisements  on AOL.  The  Company  seeks to
encourage  shoppers  to purchase  at its online  stores by offering  competitive
pricing, free delivery for shipments to one customer location totaling more than
$100 within the continental  United States, a convenient  shopping venue, and an
extensive selection of quality brand name products.  The Company seeks to retain
customers by providing  outstanding  customer service,  including reliable order
fulfillment,  incentive programs such as its frequent buyer program, and product
quality guarantees.

     Frequent Buyer Program.  The Company seeks to enhance  customer loyalty and
encourage  customers  to make  repeat  purchases  through  the use of  incentive
programs.  The  Company  has  designed a frequent  buyer  program  that  rewards
customers  of  CyberShop  with ten points  per dollar  spent that can be used as
credits towards earning savings certificates that can be redeemed at its store.

     Personalized Marketing. The Company believes that a strong understanding of
the customer  demographic profile and purchasing habits is critical to effective
and successful  merchandising.  The Company aggregates  demographic  information
relating to its customer base by requesting  certain  information,  such as age,
address,   employment  and  education,  upon  a  customer's  registration  as  a
CyberShopper.  See "The  CyberShop  Online Stores -- The CyberShop  Store on the
Internet." Through this collection of demographic consumer data, the Company has
the  ability  to target  promotional  e-mail  directly  to  customers,  based on
previous purchasing and browsing behavior.

SUPPLIER RELATIONSHIPS

     The Company believes its relationships  with suppliers will be a key factor
to its success in the online retail industry.  In general,  except for the Gifts
Wrapped  & Ready  boutique,  the  Company  does not  maintain  an  inventory  of
merchandise.  Upon  receipt  of a customer  order,  the  Company  electronically
transmits a purchase order to the appropriate supplier,  who, in turn, ships the
products directly to the customer. The suppliers provide shipping and back-order
information, which the Company provides to customers by telephone or via e-mail.

     The  manufacturers  provide  the  Company  with  pictures  and  information
necessary to display the products  online.  CyberShop  often receives a one-time
set up fee for each image placed on the Company's system. Set up fees range from
$150 to $500 per image.  Often,  a  manufacturer  will commit between one and 75
images at a total cost of $500 to $15,000. The Company does not expect that such
set up fees will be material  to total  revenues  in the  future.  However,  the
Company  expects  that it will receive  cooperative  marketing  allowances  from
certain of its manufacturers as its sales volume  increases,  although it is not
currently receiving any such marketing allowances.

     During  the year  ended  December  31,  1997,  sales of  products  from the
Company's top 50 manufacturers  accounted for approximately 52% of the Company's
total revenues. Pursuant to marketing agreements, the manufacturers grant to the
Company the right to market and sell the manufacturers'  products and to use the
manufacturers' names, trademarks and copyrights in connection with the Company's
store. Many of these manufacturers  include in their print advertisements and on
their  websites an Internet  address  reference to the  Company's  store.  As of
December 31, 1997, the Company maintained online marketing  agreements with many
of its manufacturers that provide the exclusive right to market online,  subject
to certain exceptions.

CUSTOMER SERVICE

     The Company  believes that high levels of customer  service and support are
critical  to the  value of its  services  and to  retaining  and  expanding  its
customer base. Customer service  representatives are available from 9:00 a.m. to
12:00 p.m. EST on weekdays, and 10:00 a.m. to 11:00 p.m. EST on weekends


                                       29

<PAGE>



for  customer  service  via  e-mail,  fax  and a  toll  free  telephone  number,
1-800-347-3900.  Customer service is assisted by automated e-mail  notifications
which  greatly  assist in keeping  customers  up-to-date  on the status of their
orders.  Company  representatives  handle general  questions about the Company's
online  stores and  provide  product  information  over the phone.  The  Company
believes that these  representatives are a valuable source of feedback regarding
customer satisfaction, which the Company uses to improve its services. Customers
of the Company are not charged for service and support.

     The Company  believes that its ability to establish and maintain  long-term
relationships  with its customers  and encourage  repeat visits and purchases is
dependent,  in  part,  on the  strength  of its  customer  support  and  service
operations and staff.  The Company  currently  employs a staff of five full-time
customer support and service personnel who are responsible for handling customer
inquiries,  answering  customer  questions about the ordering process,  tracking
shipments,  investigating  problems  with  merchandise,  and acting as  liaisons
between  the  customers  and  manufacturers.  The  customer  support and service
organization  is  augmented  by  temporary  employees  when  required  to handle
seasonal or other increases in order volume.

TECHNOLOGY

     Proprietary Technology

     Over  the  past  two  years,   the  Company  has  developed   sophisticated
information  services  delivery  and  shopper  tracking  systems by  integrating
third-party systems,  when available,  and by developing  proprietary tools. The
Company's  information systems can be viewed as three integrated systems:  (i) a
publishing system,  (ii) a selling system and (iii) and order processing system,
all of which are supported by relational databases.

     Publishing  System.  The publishing  system contains  information about all
items in the Company's online stores,  including  retail price,  cost, color and
size   characteristics,   group   information  and  all   manufacturer   related
information.  Once the  manufacturers  have offered their products to CyberShop,
the datasets are published to the Company's online stores.

     Selling System.  CyberShop's  main selling system is the Company's store on
the  Internet,  which was  designed  to give  customers  a  convenient  and safe
environment to effect their purchases.  The Company's store on the Internet uses
the Internet  Factory's  Commerce Builder web server to handle the transactional
events,  queries and updates to the SQL Server  database.  All  transactions are
secured by using Secure  Sockets Layer  ("SSL")  encryption  which  protects the
information as it is transmitted  between the customer browser and the Company's
store on the Internet.

     Ordering  System.   The  Company's   ordering  system  retrieves   ordering
information from selling systems,  validates credit cards, processes the orders,
creates and issues  purchase orders to  manufacturers  and handles all post-sale
marketing  efforts.  The ordering system also allows for orders to be taken over
the telephone.  The ordering system software was designed by the Company to give
customer service representatives instant access to all customer information,  to
automatically  update all changes to a customer's  order and inform the customer
of order status by automated  e-mail  communications.  The customer  service and
marketing departments can access this customer profile information to search and
analyze  customer  demographics  and buying  patterns  in order to  suggest  new
programs  and  offers  to  customers.  The  system  also  communicates  with the
warehousing  facilities  in real time for updates on order  shipments  and stock
status positions.

     Commercially Available Licensed Technology

     CyberShop uses commercially available software as well as its own developed
proprietary  software.   The  Company  uses  Microsoft  Access  as  a  front-end
development  tool that  connects  to a  Microsoft  NT and  Microsoft  SQL Server
database.  In addition,  Commerce  Builder from the Internet  Factory is used to
manage the Company's  store on the  Internet.  CyberShop has licensed a Verisign
encrypted key that authenticates  transactions received from the Company's store
on the Internet.


                                       30

<PAGE>



     The  Company has  implemented  a broad  array of site  management,  search,
customer  interaction,   transaction-processing  and  fulfillment  services  and
systems.  These  systems  combine the  Company's  proprietary  technologies  and
commercially available, licensed technologies. The Company's current strategy is
to license  commercially  available  technology to augment internally  developed
solutions.  CyberShop focuses its development efforts on improving and enhancing
its  specialized  proprietary  software  with  the  goal of  automating  as many
processes as possible and increasing customer satisfaction.

     A group of systems  administrators and network managers monitor and operate
the   Company's    store   on   the    Internet,    network    operations    and
transaction-processing  systems.  The continued  uninterrupted  operation of the
Company's store on the Internet and transaction-processing  systems is essential
to its business,  and it is the job of the site operations  staff to ensure,  to
the greatest  extent  possible,  the  reliability  of these  systems.  CyberShop
Internet  connectivity  is provided by Exodus  Communications,  Inc.,  a website
provider  that  specializes  in providing  scalable  business  solutions to high
volume Internet sites.

     Technological Enhancements

     The  Company   continually   evaluates   emerging   technologies   and  new
developments in web  technologies  with the objective of optimizing its customer
interfaces,  website features and operational  systems.  Technologies with which
the Company is currently working include Emblaze  technology to add audio to its
website, which would enrich the online shopping experience and allow the Company
to deliver more effective marketing  messages,  and Sun's Java language to allow
the  Company to provide  customized  services  to  shoppers  in its store on the
Internet.

     Security

     A critical  issue for the success of online  retailing is  maintaining  the
integrity  of  information,  particularly  the security of  information  such as
credit card  numbers.  The Company  believes,  however,  that  security  systems
currently  in place  are at  least  as  secure  as  those  used for  traditional
transactions (i.e., in-store or mail order purchases). The Company believes that
it has a comprehensive security strategy.

     The Company  believes that there are two potential areas for possible fraud
by shopping electronically.  The first is theft of credit card numbers traveling
through  phone lines and the second is theft of credit card numbers  residing on
the Company's  system.  The Company  addresses the possibility of theft over the
phone lines by using SSL  encryption.  The credit card number is encrypted while
it is traveling and is translated only once it reaches  CyberShop.  This form of
encryption  is only  available to  customers  using the SSL  encryption  enabled
browsers.

     To deter the theft of credit card numbers residing in the Company's system,
the Company has secure "fire walls" installed in the Company  hardware,  and all
credit card  numbers are  encrypted  in the  Company's  system  until either the
customer  or the  Company  requires  them.  Fire walls will  protect  the system
against "hacker"  break-ins.  Moreover,  anyone who successfully breaks into the
system will find nothing but encrypted  codes that would be extremely  difficult
to decipher.

     The  Company  also  offers  other  payment  alternatives.  The  Company has
installed a toll-free  telephone  number for taking  orders,  handling  customer
service, and receiving credit card information.  The Company posts the toll free
phone number for the customer during the checkout phase.  After a customer calls
this phone number,  the Company's customer service  representatives  ask for the
customer's  CyberShop order number and the credit card number. The order is then
processed  through normal channels.  The Company also can receive order requests
by fax and accept payments by money order or check.

COMPETITION

     The retail shopping  industry is very  competitive.  The Company  currently
competes  with a  variety  of other  companies,  including  traditional  stores,
non-traditional retailers, such as television retailers and mail order catalogs,
and with other online retailers. The Company potentially competes with a variety
of other stores depending on the type of merchandise and sales format offered to
customers. The Company expects there will be many more online competitors in the
future,  as barriers to entry are minimal,  and new competitors can launch sites
at a relatively low cost.


                                       31

<PAGE>



     The Company believes that the principal  competitive  factors in its market
are brand recognition,  selection,  personalized services,  convenience,  price,
accessibility,  customer  service,  quality  of search  tools,  quality  of site
content, reliability and speed of fulfillment. Many of the Company's current and
potential  competitors have longer operating  histories,  larger customer bases,
greater brand recognition and  significantly  greater  financial,  marketing and
other resources than the Company. In addition,  online retailers may be acquired
by, receive  investments from or enter into other commercial  relationships with
larger,  well-established and well-financed companies as use of the Internet and
other online  services  increases.  Certain of the Company's  competitors may be
able to secure  merchandise from  manufacturers on more favorable terms,  devote
greater resources to marketing and promotional campaigns,  adopt more aggressive
pricing  or  inventory  availability  policies  and  devote  substantially  more
resources  to  website  and  systems  development  than the  Company.  Increased
competition may result in reduced operating margins,  loss of market share and a
diminished  brand  franchise.  New  technologies  and the  expansion of existing
technologies may increase the competitive pressures on the Company.

EMPLOYEES

     As of March 1, 1998,  the Company  had 21  full-time  employees  (including
management), including six in operations and development, eight in merchandising
and marketing,  five in customer service and two in general and  administrative.
As of March 1, 1998,  the  Company  also had one  part-time  employee  primarily
focused  on  customer   service  and  two  consultants   primarily   focused  on
merchandising.  The Company's future success depends,  in significant part, upon
the continued  service of its key  technical,  marketing  and senior  management
personnel and on its ability to attract and retain highly  qualified  employees.
The  Company's  employees  are  not  represented  by any  collective  bargaining
organization.  The Company has never  experienced  a work stoppage and considers
relations with its employees to be good.

TRADEMARKS AND PATENTS

     CyberShopSM  (and its related logo) is a United States  service mark of the
Company. The Company has filed intent to use applications with the United States
Patent and Trademark Office for the following  trademarks  and/or service marks:
CyberGift, the @home department store and Gifts Wrapped & Ready. All other trade
names, trademarks or service marks appearing in this Prospectus are the property
of their respective owners and are not the property of the Company.

FACILITIES

     The Company's corporate headquarters are located at 130 Madison Avenue, New
York,  New York. The Company  leases  approximately  2,500 square feet of office
space at these  facilities at a cost of $2,700 per month.  The term of the lease
expires in August,  2006. The Company believes that its existing  facilities are
adequate for its current  requirements and that additional space can be obtained
to meet its requirements for the foreseeable future.

     The Company's website is hosted by Exodus  Communications,  Inc. located in
Jersey City,  New Jersey with a back-up system in the Company's New York office.
The Company's  entire back end  processing  system  resides in the Company's New
York office.  The Company's  systems and  operations are vulnerable to damage or
interruption from fire, flood, power loss,  telecommunications  failure,  break-
ins,  earthquake  and similar  events.  The Company  presently  has very limited
redundant systems. It does not have a formal disaster recovery plan and does not
carry  business  interruption  insurance  to  compensate  it for losses that may
occur.  Despite the  implementation of network security measures by the Company,
its servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of data
or the inability to accept and fulfill customer orders.


                                       32

<PAGE>





     The Company has an oral  agreement  with  Rainbow  Packaging  Company  Inc.
("Rainbow")  under which  products  for the Gifts  Wrapped & Ready  boutique and
certain  other  products  acquired as inventory by the Company are placed in the
warehouse  facilities  of Rainbow  located  in North  Babylon,  N.Y.  Rainbow is
responsible for gift wrapping  products and shipping them in accordance with the
instructions of the Company.  Rainbow is compensated for its services  through a
per package charge plus reimbursement for all supplies required for wrapping and
shipment. The arrangement is terminable by either party at any time. The Company
believes that there are a number of other facilities that offer similar services
at competitive rates.

LITIGATION

     The Company is not a party to any material legal proceedings.






                                       33

<PAGE>



                                   MANAGEMENT

OFFICERS AND DIRECTORS

     The  following  table  sets  forth the  names,  ages and  positions  of the
Company's  executive  officers  and members of the Board of  Directors as of the
date of this Prospectus:

<TABLE>
<CAPTION>
                NAME                 AGE                   POSITION WITH COMPANY
- ----------------------------------- ----- ------------------------------------------------------
<S>                                 <C>   <C>
Jeffrey S. Tauber(1) ..............  36   Chief Executive Officer, President and
                                          Chairman of the Board of Directors
Linda Wiatrowski ..................  38   Vice President, General Merchandise Manager
Jill Markus .......................  34   Vice President, Store Development
Tomas Montgomery ..................  35   Vice President, Operations
Gary S. Finkel ....................  40   Vice President, Chief Financial Officer and Treasurer
Francis O'Connor ..................  37   Vice President and Chief Information Officer
Michael Kempner(1)(2)(3) ..........  40   Director
Warren Struhl(2)(3) ...............  36   Director
</TABLE>

- ----------
(1)  A member of the Executive Committee.
(2)  A member of the Compensation Committee.
(3)  A member of the Audit Committee.

     Jeffrey  S.  Tauber has been the Chief  Executive  Officer,  President  and
Chairman of the Board of the Company  since  October 1997 and has been  Managing
Director of CyberShop,  L.L.C.  since December 1994. Mr. Tauber was President of
Avanti Linens, a leading U.S.  manufacturer of decorative bath towels,  from May
1988 to May 1994.  In August 1993,  Mr. Tauber  founded a multi-head  embroidery
business  that he sold in 1994.  Prior to working at Avanti,  he was a buyer and
divisional  Merchandise  Manager for  Bloomingdale's  from  February 1984 to May
1988.  His areas of  responsibility  included  bed  pillows,  blankets,  sheets,
women's  swimwear,  and  ready-to-wear.  In 1987, Mr. Tauber was named Federated
Buyer of the year.  Mr. Tauber  received his B.A. in Economics  from  Washington
University in St. Louis in 1983.

     Linda Wiatrowski has been the Vice President,  General  Merchandise Manager
of the  Company  since  October  1997 and has been the Vice  President,  General
Merchandise Manager of CyberShop,  L.L.C. since January 1997. From December 1994
to January 1997 she was Merchandise Manager for housewares,  tabletop and gifts,
and gourmet  food of  CyberShop,  L.L.C.  Ms.  Wiatrowski  was Home  Furnishings
General  Merchandise  Manager  of the "Can We  Shop"  television  shopping  show
starring Joan Rivers from November 1993 to July 1994. Ms. Wiatrowski worked as a
freelance merchant from April 1992 to November 1993. Her clients included Linens
'n Things, a 150-store home furnishings chain, where she launched the profitable
housewares and tabletop  divisions.  Ms.  Wiatrowski began her career in 1981 at
Bloomingdale's in the merchandising  training program. She held the positions of
giftware assistant buyer, housewares department manager, confectionery buyer and
lifestyle  furniture  buyer,  before joining  Bloomingdale's  by Mail ("BBM") in
1989.  At BBM, she was group buyer  responsible  for  tabletop,  housewares  and
gourmet food, gross volume of $15 million,  and 150  merchandising  pages in ten
catalogs annually. Ms. Wiatrowski received a B.A. with honors in Human Relations
from Connecticut College in 1981.

     Jill Markus has been Vice President, Store Development of the Company since
October 1997 and has been Vice President, Store Development of CyberShop, L.L.C.
since  January  1997.  From  December  1994 to January 1997 she was  Merchandise
Manager of CyberShop, L.L.C. Ms. Markus was the Home Retail Buyer of the "Can We
Shop"  television  shopping  show starring Joan Rivers from January 1994 to July
1994. Ms. Markus was with  Bloomingdales from September 1987 until January 1994,
where she  served as the  Retail  Buyer for the Ralph  Lauren  home  furnishings
department,  the blanket  department,  and the towel  department.  In 1992,  Ms.
Markus  was named as  "Bloomingdale's  Buyer of the  Year" for her $1.0  million
sales and 39% profit  increases  over plan.  From 1985 through 1987,  she was at
Sibley's  in  Rochester,  New  York,  with  management  responsibilities  in the
housewares and tabletop areas, and buying responsibilities in the bath, luggage,
candy and book departments.  Ms. Markus received her B.A. in Economics from SUNY
Binghamton in 1985.

                                       34

<PAGE>



     Tomas  Montgomery has been Vice President,  Operations of the Company since
October 1997 and has been Vice President,  Operations of CyberShop L.L.C.  since
December 1994. Mr.  Montgomery  worked at the Centre for European Policy Studies
(CEPS), a leading European think tank in Brussels, Belgium, from January 1994 to
July 1994, where he created the marketing department. From 1987 to 1992, as Vice
President  of Gravity  Graphics,  Inc., a  sportswear  company,  he oversaw that
company's rapid expansion.  Gravity Graphics, Inc. was listed in Inc. magazine's
list of the 500 fastest  growing  companies in the U.S. in 1991. Mr.  Montgomery
graduated with honors in Modern  European  Studies from  Connecticut  College in
1985.

     Gary S. Finkel has been the Vice  President,  Chief  Financial  Officer and
Treasurer of the Company since  January 1998.  From October 1995 to January 1998
Mr. Finkel was Vice President, Chief Financial Officer and Treasurer of AlphaNet
Solutions,  an  information  technology  services  company  which  completed its
initial  public  offering in March 1996.  From August 1989 to October 1995,  Mr.
Finkel worked for Continental  Health  Affiliates,  a publicly-held  health care
provider,  in various financial management  positions,  including Vice President
and Chief Financial Officer from February 1993 to October 1995. He also was Vice
President and Chief Financial Officer of Infu-Tech,  a publicly-held  subsidiary
of  Continental  Health  Affiliates,  from April 1992 to October 1995.  Prior to
that, from 1982 to 1989, Mr. Finkel held various financial  management positions
at Sony Corporation of America,  and from 1979 to 1982 was at Price  Waterhouse.
Mr. Finkel received his B.S. in Accounting from SUNY Binghamton in 1979 and is a
Certified Public Accountant.

     Francis O'Connor has been Vice President and Chief  Information  Officer of
the Company since February 1998. Mr. O'Connor was Director of Software Group for
De La Rue  Systems  Americas,  a leading  worldwide  supplier  of cash  handling
systems,  from December 1994 to December 1997, where he led the software systems
group.  From November 1993 to 1994, as Vice  President of  Professionals  Choice
Sports  Medicine  Products,  Inc.,  Mr.  O'Connor  oversaw  and  automated  that
company's  manufacturing and order processing  functions.  From 1988 to 1992, as
Director of  Management  Information  Services of Jenny Craig  International,  a
weight  loss  company,  he oversaw  the rapid  growth of the food  distribution,
telecommunciations  and and computer  networks to facilitate the company's rapid
growth.  Mr. O'Connor started his career with  Periphonics,  an integrated voice
response system manufacturer in 1983 as a systems engineer and later worked as a
sales  engineer.  Mr.  O'Connor  studied  electrical  engineering  at  Rochester
Institute of Technology and later  received a B.A. in Computer  Science from New
York Institute of Technology in 1982.

     Mr. Kempner has served as a director of the Company since October 1997. Mr.
Kempner,  the founder of MWW Group, a public relations,  investor  relations and
marketing firm ("MWW"), has been its President and Chief Executive Officer since
1986.  Prior to founding MWW, Mr.  Kempner was  president of the nation's  first
liquor-filled chocolate company,  Winters Chocolates from 1984 to 1986. Prior to
that, Mr. Kempner held several  positions in government at the state and Federal
levels,  including the post of Legislative  Director for  Representative  Robert
Torricelli  (D-NJ)  from 1982 to 1984.  He has also  served  as  Deputy  Finance
Director of the Democratic  National Committee from 1980 to 1982. He is a member
of the American Bankruptcy Institute,  the Turnaround Management Association and
the Retail Marketing Association. Mr. Kempner is the author of a six-part series
for  Successful  Restructurings  magazine and an  authoritative  article in Risk
Management  magazine.  Mr.  Kempner  earned a Bachelor  of Science  degree  from
American University in 1981.

     Mr. Struhl has served as a director of the Company since October 1997.  Mr.
Struhl is the  founder and has been  President  and Chief  Executive  Officer of
Genesis Direct Inc., a catalog and direct  marketing  company,  since June 1995.
Mr.  Struhl  founded  PaperDirect  Inc.,  a mail  catalog,  in 1988  and was its
President  from 1989 until 1995.  From 1984 to 1988 he was Vice President of JMB
Realty Corporation, a real estate investment company. Mr. Struhl received a B.A.
in Sociology from Tulane University in 1984.

     Following the Offering,  it is expected that Robert Matluck will be named a
director  of the Company and a member of the Audit  Committee.  Mr.  Matluck has
been a  Managing  Director  of C.E.  Unterberg,  Towbin,  since  1989 and  Chief
Operating Officer of C.E. Unterberg, Towbin since December 1997. Mr. Matluck has
been a Managing Director of C.E. Unterberg, Towbin Advisors since February 1993.
Mr. Matluck was an Assistant Vice President in the private client services group
of L.F. Rothschild Unterberg


                                       35

<PAGE>



Towbin  from  February  1985 to January  1987 and a Vice  President  at Shearson
Lehman Brothers from January 1987 to November 1989. Mr. Matluck  received a B.A.
in Finance from Washington University in St. Louis in 1983.

     Following  the  Offering  it is  expected  that the  Company  will elect an
additional director.

     Each director holds office until the next annual meeting of stockholders or
until a  successor  has been duly  elected  and  qualifies,  or until his or her
earlier death,  resignation  or removal.  The Company's  executive  officers are
appointed  annually by the Board of Directors and serve at the discretion of the
Board of Directors.

     The Company has obtained  key-person  life  insurance  coverage in the face
amount of $2,000,000 for Mr. Tauber naming the Company as beneficiary under such
policy.

     Mr. Tauber may be deemed a founder of the Company.

LIMITATIONS ON LIABILITY

     The Company's Certificate of Incorporation  provides that a director of the
Company shall not be personally  liable to it or its  stockholders  for monetary
damages to the fullest extent permitted by the Delaware GCL.  Section  102(b)(7)
of the Delaware GCL currently provides that a director's liability for breach of
fiduciary duty to a corporation  may be eliminated  except for liability (i) for
any  breach  of  the  director's  duty  of  loyalty  to the  corporation  or its
stockholders,  (ii) for acts or  omissions  not in good  faith or which  involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware  GCL,  for unlawful  dividends  or unlawful  stock  repurchases  or
redemptions,  and (iv) for any  transaction  from which the director  derives an
improper personal benefit. The Delaware GCL does afford persons who serve on the
board of  directors  of a  Delaware  corporation  protection  against  awards of
monetary damages for negligence in the performance of their duties as directors.
The Delaware GCL does not affect the availability of equitable  remedies such as
an injunction or rescission based upon a director's  breach of his duty of care.
Any  amendment to these  provisions  of the Delaware GCL will  automatically  be
incorporated  by reference  into the  Company's  Certificate  of  Incorporation,
without any vote on the part of its stockholders, unless otherwise required.

     The  Company's  By-Laws  provide that the Company may indemnify any person,
including officers and directors, with regard to any action or proceeding to the
fullest extent permitted by Delaware law.

     Upon completion of this Offering, the Company and each of its directors and
officers  will  enter  into  indemnification   agreements.  The  indemnification
agreements  will provide  that the Company  will  indemnify  its  directors  and
officers  against  certain  liabilities  (including  settlements)  and  expenses
actually and  reasonably  incurred by them in  connection  with any  threatened,
pending or completed  legal  action,  proceeding  or  investigation  (other than
actions  brought by or in the right of the Company) to which any of them was, is
or is  threatened  to be  made a  party  by  reason  of his or her  status  as a
director,  officer or agent of the  Company or his or her serving at the request
of the Company in any other  capacity for or on behalf of the Company,  provided
that (i) such  director or officer  acted in good faith and in a manner at least
not opposed to the best  interests  of the  Company,  and (ii) such  director or
officer had no reasonable cause to believe his or her conduct was unlawful. With
respect to any action  brought by or in the right of the Company,  directors and
officers may also be  indemnified,  to the extent not  prohibited  by applicable
laws or as determined by a court of competent  jurisdiction,  against reasonable
costs and expenses  incurred by them in connection  with such action if (i) they
acted in good faith and in a manner  they  reasonably  believed  to be in or not
opposed to the best interests of the Company,  (ii) they had no reasonable cause
to believe their conduct was unlawful, and (iii) such director or officer is not
finally adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the Company, unless the court takes the view that in light of
the  circumstances   the  director  or  officer  is  nevertheless   entitled  to
indemnification.

     It is the  position  of  the  Commission  that  insofar  as  the  Company's
Certificate of Incorporation,  By-Laws or any  indemnification  agreement may be
invoked by any director,  officer or stockholder as a means of indemnifying them
against  liabilities  arising under the Securities Act, such  indemnification is
against  public  policy as  expressed  in the  Securities  Act, and is therefore
unenforceable.


                                       36

<PAGE>



COMMITTEES OF THE BOARD OF DIRECTORS

     The Board of Directors has Executive,  Audit and  Compensation  Committees.
The  Executive  Committee  consists of Mr. Tauber and Mr.  Kempner.  Among other
functions,  the Executive Committee will exercise all the power and authority of
the Board of  Directors  in the  management  and affairs of the Company  between
meetings of the Board of Directors,  to the extent  permitted by law. Mr. Struhl
and Mr.  Kempner are  members of the Audit  Committee.  It is expected  that Mr.
Matluck will become a member of the Audit  Committee  following the Offering and
Mr. Kempner will resign from such committee.  Among other  functions,  the Audit
Committee  makes  recommendations  to  the  Board  of  Directors  regarding  the
selection of independent  auditors,  reviews and evaluates the results and scope
of the audit and other services provided by the Company's  independent auditors,
reviews  the  Company's  financial  statements  and reviews  and  evaluates  the
Company's internal control functions. The Compensation Committee consists of Mr.
Struhl and Mr. Kempner.  The  Compensation  Committee  administers the Company's
stock option and stock purchase plans,  determines  executive  compensation  and
makes  recommendations  to  the  Board  of  Directors  concerning  salaries  and
incentive compensation for employees and consultants of the Company.

COMPENSATION OF DIRECTORS

     Non-employee  directors  currently  receive a fee of $500 per  meeting  for
their service on the Board of Directors or any committee thereof.  Directors are
eligible to receive  options under the Company's 1998 Stock Option Plan and 1998
Directors' Stock Option Plan.

EXECUTIVE COMPENSATION

     The following table sets forth a summary of certain  information  regarding
compensation  paid or accrued by the Company during the last fiscal year to each
of the  Company's  Chief  Executive  Officer  and  each of the  other  executive
officers of the Company  whose total annual salary and bonus  exceeded  $100,000
during such period (collectively, the "Named Executives"). The current positions
of the Named Executives are also included in the table.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                      LONG-TERM
                                                         ANNUAL COMPENSATION                        COMPENSATION
                                               ----------------------------------------   ---------------------------------
                                                                                              SECURITIES
              NAME AND                                                   OTHER ANNUAL         UNDERLYING        ALL OTHER
         PRINCIPAL POSITION            YEAR       SALARY      BONUS      COMPENSATION      OPTIONS/(#)SARS     COMPENSATION
- -----------------------------------   ------   -----------   -------   ----------------   -----------------   -------------
<S>                                   <C>      <C>           <C>       <C>                <C>                 <C>
Jeffrey S. Tauber(1)
Chairman of the Board of Directors,
 Chief Executive Officer and Pres-
 ident ............................   1997      $162,500       --                --                 --             --
Linda Wiatrowski
Vice President, General Merchan-
 dise Manager .....................   1997      $ 99,000       --         $  33,000(2)          49,570             --
</TABLE>

(1)  Effective upon consummation of the Offering, Jeffrey S. Tauber will receive
     a base salary of $250,000, subject to periodic increases.

(2)  Ms.  Wiatrowski  served as an independent  contractor  from January 1, 1997
     through March 31, 1997.

EMPLOYMENT AGREEMENTS

     The Company  entered into  employment  agreements  with its Vice President,
Chief  Financial  Officer  and  Treasurer  and  its  Vice  President  and  Chief
Information Officer. See "-- Stock Plans" and "Certain Transactions."

OPTION/SAR GRANTS IN LAST FISCAL YEAR

     The following table summarizes certain  information with respect to Company
stock  options  granted to the Named  Executives  during  the fiscal  year ended
December 31, 1997.


                                       37

<PAGE>



<TABLE>
<CAPTION>
                                                          INDIVIDUAL GRANTS
                              -------------------------------------------------------------------------
                                                PERCENT OFTOTAL
                                 NUMBER OF       OPTIONS/SARS
                                SECURITIES        GRANTED TO        EXERCISE      MARKET
                                UNDERLYING         EMPLOYEES        OR BASE      PRICE ON
                               OPTIONS/SARS        IN FISCAL       PRICE PER     DATE OF     EXPIRATION
            NAME                GRANTED(#)         YEAR 1997         SHARE        GRANT         DATE
- ---------------------------   --------------   ----------------   -----------   ---------   -----------
<S>                           <C>              <C>                <C>           <C>         <C>
Jeffrey S. Tauber .........           --                --              --           --            --
Linda Wiatrowski ..........       49,570              29.8%         $ 3.00       $ 3.00       9/10/04
</TABLE>

AGGREGATED  OPTION/SAR  EXERCISES  IN  LAST  FISCAL  YEAR  AND  FISCAL  YEAR-END
OPTION/SAR VALUES

     The following table shows the number of shares covered by both  exercisable
and  unexercisable  stock  options  as of fiscal  year-end,  and the  values for
exercisable and unexercisable  options. No Named Executive exercised any Company
stock options during 1997.

<TABLE>
<CAPTION>
                              NUMBER OF SECURITIES UNDERLYING          VALUE OF
                                  UNEXERCISED OPTIONS AT         IN-THE-MONEY OPTIONS
                                     DECEMBER 31, 1997           AT DECEMBER 31, 1997
                              -------------------------------   ---------------------
            NAME               EXERCISABLE     UNEXERCISABLE         EXERCISABLE
- ---------------------------   -------------   ---------------   ---------------------
<S>                           <C>             <C>               <C>
Jeffrey S. Tauber .........           --            --                       --
Linda Wiatrowski ..........      100,334            --                 $368,518
</TABLE>

STOCK PLANS

     The  Company  has  historically  utilized  stock  options  as  an  integral
component of its compensation program for directors,  officers and key employees
of the  Company.  The Company  believes  that stock  options  provide  long-term
incentives to such persons and encourage the ownership of the Common Stock.

     As of December 31, 1997, the Company had granted options  covering  273,634
shares of Common Stock having an average  exercise  price of $2.48 per share and
ranging  from  $1.67 to $3.00 per share to  executive  officers,  employees  and
consultants  of the  Company,  including  100,334  shares of Common Stock to Ms.
Wiatrowski,  60,917  shares of Common Stock to Ms.  Markus and 72,264  shares of
Common  Stock to Mr.  Montgomery.  Such  options are either fully vested or will
fully  vest by  September  1999.  Such  options  have a five to seven year term,
except  that in the event of the  termination  of the  employment  of the option
holder (i) for "cause," as defined in the option agreements,  the option holders
may exercise the options for a period of three months after such  termination if
the options are then vested, and (ii) for reasons other than "cause," the option
holder may  exercise  options at any time after  termination  if the options are
then vested.

     1998 Stock  Option  Plan.  In March  1998,  the Board of  Directors  of the
Company  adopted,  and the stockholders of the Company  approved,  the Company's
1998 Stock  Option Plan (the "1998 Option  Plan").  The 1998 Option Plan and the
Directors' Plan (as  hereinafter  defined) are  collectively  referred to as the
"Stock Option  Plans." Under the 1998 Option Plan,  stock options may be granted
to directors, executives, other key employees and consultants of the Company and
its  subsidiaries.  The maximum  number of shares of Common  Stock  reserved for
issuance  under the 1998 Option  Plan is  1,000,000  shares.  Subject to certain
adjustments,  options to acquire 65,000 and 64,000 shares of Common Stock of the
Company have been granted to Gary S. Finkel and Francis O'Connor,  respectively,
under the 1998 Option Plan, at an exercise price equal to $5.00 per share.  Such
options vest one third  annually over three years and expire five years from the
date of grant. See "Certain Transactions." In addition, in March 1998 options to
acquire 30,000 shares of Common Stock were granted under the 1998 Option Plan at
an exercise price equal to $6.50 per share.

     Options  granted under the 1998 Option Plan may be either  incentive  stock
options  which are  intended to satisfy the  requirements  of Section 422 of the
Internal  Revenue  Code,  or  options  that do not  qualify as  incentive  stock
options. Generally, options granted under the 1998 Option Plan vest ratably over
a  four-year  period on each  anniversary  of the date of grant.  At the Board's
discretion,  however,  options may be made exercisable at any other time or upon
the  occurrence of certain events or the  achievement  of certain  conditions or
performance goals. Options granted under the 1998 Option Plan


                                       38

<PAGE>



are  exercisable  for a period  not to exceed  ten years from the date of grant,
except that upon a participant's  termination of employment for any reason,  all
vested  options  shall  expire upon the earlier of three months  following  such
termination date or expiration of the option, and any nonvested options shall be
immediately  forfeited.  Pursuant  to the  terms of the 1998  Option  Plan,  the
exercise  price of all incentive  stock options and  nonqualified  stock options
granted  under  the Plan  shall not be less  than the fair  market  value of the
Common Stock at the time of grant. If qualified  options are granted to a person
owning more than 10% of the Company's  Common Stock,  then the exercise price of
such  options  shall be no less than 110% of the fair market  value per share of
Common Stock at the time of grant.  In the event of a "change of control" of the
Company  (as  defined  in  the  1998  Option  Plan)  or  the  termination  of  a
participant's  employment other than for cause,  death,  disability or voluntary
departure,  the Board may provide that unvested stock options previously granted
shall be immediately  exercisable  and that such options,  if not exercised by a
prescribed  date,  shall  terminate.  The Board of Directors  may amend the 1998
Option Plan at any time,  except  that  stockholder  approval  is  required  for
certain  amendments to the extent it is required by law,  agreement or the rules
of any exchange upon which the Common Stock is listed.

     Directors'  Stock Option  Plan.  In March 1998,  the Board  adopted and the
stockholders of the Company approved, the 1998 Directors' Stock Option Plan (the
"Directors'  Plan")  pursuant to which each member of the Board of Directors who
is not an employee of the Company who is elected or continues as a member of the
Board of Directors  is entitled to receive  annually  options to purchase  3,000
shares of Common  Stock at an exercise  price equal to fair market  value on the
date of  grant.  A  Compensation  Committee  administers  the  Directors'  Plan;
however,  it cannot  direct the  number,  timing or price of options  granted to
eligible recipients thereunder.

     Each  option  grant  under  the  Directors'  Plan  vests  after  the  first
anniversary of the date of grant and expires three years thereafter.  The number
of shares of Common  Stock  related to awards  that  expire  unexercised  or are
forfeited,  surrendered,  terminated or canceled are available for future awards
under the Directors'  Plan. If a director's  service on the Board terminates for
any reason  other  than  death,  all vested  options  may be  exercised  by such
director  until  the  expiration  date of the  option  grant.  In the event of a
director's  death,  any options  which such director was entitled to exercise on
the date immediately preceding his or her death may be exercised by a transferee
of such  director  for the  six-month  period  after the date of the  director's
death;  provided that such options may not be exercised  after their  expiration
date. In the case of a director who represents an  institutional  investor which
is entitled to the  compensation  paid by the Company to such  director,  option
grants shall be made directly to the institutional investor on whose behalf such
director serves on the Board.

     The maximum  number of shares of Common Stock  reserved for issuance  under
the  Directors'  Plan is 70,000  shares.  No options have been granted under the
Directors' Plan.

                              CERTAIN TRANSACTIONS

     In  November  1994,  Jeffrey S.  Tauber  and Jane S.  Tauber  purchased  an
aggregate of 1,702,407 shares of Common Stock for $200,000.

     In  January  1995,  Jeffrey  S.  Tauber  and Jane S.  Tauber  purchased  an
aggregate of 1,044,848 shares of Common Stock for $139,442.

     In February 1995,  Donald J. Weiss purchased 179,169 shares of Common Stock
for $150,000.

     In December 1995,  Genesis Direct L.L.C.  purchased 59,723 shares of Common
Stock for $100,000.

     In October 1996,  Trustees of General  Electric  Pension Trust,  Leonard J.
Fassler,  Gerald A. Poch and  Porridge  Partners II  purchased  an  aggregate of
497,347 shares of Common Stock for $1,000,000.

     In June 1997,  Jeffrey  S.  Tauber,  Jane S.  Tauber,  Trustees  of General
Electric  Pension Trust,  Gerald A. Poch,  Leonard J. Fassler,  Big Wave, NV and
Cairnton  Partnership  purchased an aggregate of 516,506  shares of Common Stock
for $1,550,000.

                                       39

<PAGE>



     The Trustees of General  Electric Pension Trust loaned the Company $500,000
at an  interest  rate of 15% per  annum.  The  proceeds  of the loan  are  being
utilized by the Company for working capital purposes.  Jeffrey S. Tauber pledged
172,500 of his shares of Common  Stock as  security  for the loan.  The  Company
intends to repay the principal  and accrued  interest on the loan with a portion
of the  proceeds  of  this  Offering.  See  "Use  of  Proceeds"  and  "Principal
Stockholders."

     In January  1998 and February  1998,  the Company  entered into  employment
agreements  with Gary S.  Finkel  to serve as Vice  President,  Chief  Financial
Officer and Treasurer and with Francis  O'Connor to serve as Vice  President and
Chief Information Officer of the Company, respectively.  Both agreements are for
a term of one year, with automatic annual renewal  thereafter  unless terminated
by either party at least 60 days prior to the end of the term of the  agreement.
Pursuant to the terms of the  agreements,  both Mr. Finkel and Mr.  O'Connor are
required  to devote  their  full time,  efforts,  skills  and  attention  to the
Company's business and affairs.  Mr. Finkel and Mr. O'Connor will receive a base
salary of $120,000 and $96,000 per annum, respectively,  which salaries shall be
increased to $140,000 and  $125,000 per annum,  respectively,  if, and as of the
date, the Offering is consummated.  Subject to certain  adjustments,  Mr. Finkel
and Mr.  O'Connor have been granted options to purchase 65,000 and 64,000 shares
of Common Stock, respectively,  at an exercise price of $5.00 per share. Each of
Mr.  Finkel's  and  Mr.  O'Connor's   employment   agreement   contains  certain
confidentiality and non-competition provisions.

     For options granted to other executive officers see "Management."

     The  Board of  Directors  has  adopted a policy,  which  will be  effective
simultaneously  with the  completion  of this  Offering,  to provide that future
transactions  between  the  Company  and  its  officers,   directors  and  other
affiliates  must (i) be  approved  by a majority  of the members of the Board of
Directors  and by a  majority  of the  disinterested  members  of the  Board  of
Directors,  (ii) be on terms no less  favorable  to the  Company  than  could be
obtained  from  unaffiliated  third  parties and (iii) be for bona fide business
purposes only.




                                       40

<PAGE>



                             PRINCIPAL STOCKHOLDERS

     The  table  below  sets  forth  certain  information  regarding  beneficial
ownership  of  Common  Stock  held by (i) each  director  and each of the  Named
Executives  who own shares of Common  Stock,  (ii) all  directors  and executive
officers of the Company as a group and (iii) each person known by the Company to
own  beneficially  more than 5% of the Common Stock.  Each  individual or entity
named has sole  investment  and voting  power  with  respect to shares of Common
Stock beneficially owned by them, except where otherwise noted.

<TABLE>
<CAPTION>
                                                                                   PERCENTAGE
                                                                SHARES       BENEFICIALLY OWNED(1)
                                                          BENEFICIALLY OWNED ---------------------
                                                             IMMEDIATELY       BEFORE     AFTER
                                                           BEFORE OFFERING    OFFERING   OFFERING
                                                         ------------------- ---------- ---------
<S>                                                      <C>                 <C>        <C>
Jeffrey S. Tauber(1) ...................................      2,763,878          69.1%     40.6%
The Jeffrey S. Tauber Grantor Retained Annuity Trust(2)         522,424          13.1       7.7
Jane S. Tauber(3) ......................................      2,763,878          69.1      40.6
The Jane S. Tauber Grantor Retained Annuity Trust(4) ...        522,424          13.1       7.7
Trustees of General Electric Pension Trust .............        531,022          13.3       7.8
Linda Wiatrowski(5) ....................................        100,334           2.4       1.5
Michael Kempner ........................................             --            --        --
Warren Struhl(6) .......................................             --            --        --
All Directors and Executive Officers as a Group (8) Per-
 sons)(7): .............................................      2,997,407          70.8      44.1
</TABLE>

(1)  Includes  522,424 shares of Common Stock held in the name of The Jeffrey S.
     Tauber Grantor  Retained  Annuity  Trust,  with Kevin S. Miller and Jane S.
     Tauber as trustees,  and 1,381,939  shares of Common Stock held in the name
     of Jeffrey S. Tauber's wife, Jane Tauber,  including 522,424 shares held in
     the name of The Jane S. Tauber Grantor Retained  Annuity Trust,  with Kevin
     S. Miller and Jeffrey S. Tauber as  trustees.  Jeffrey S. Tauber  disclaims
     beneficial  ownership  of all of the shares held in the name of the Jane S.
     Tauber Grantor Retained Annuity Trust. Jeffrey S. Tauber has pledged to the
     Trustees of General  Electric  Pension Trust 172,500 shares of Common Stock
     to secure the Company's repayment of principal and interest on the $500,000
     loan from the Trustees of General  Electric  Pension  Trust to the Company.
     See "Use of Proceeds,"  "Management's  Discussion and Analysis of Financial
     Condition and Results of Operations" and "Certain Transactions."

(2)  All shares owned by The Jeffrey S. Tauber  Grantor  Retained  Annuity Trust
     are included in the beneficial ownership of Jeffrey S. Tauber, as explained
     above.

(3)  Includes  522,424  shares of Common  Stock  held in the name of The Jane S.
     Tauber Grantor Retained Annuity Trust,  with Kevin S. Miller and Jeffrey S.
     Tauber as trustees,  and 1,381,939  shares of Common Stock held in the name
     of Jeffrey S. Tauber,  Jane S. Tauber's  husband,  including 522,424 shares
     held in the name of The Jeffrey S. Tauber  Grantor  Retained  Annuity Trust
     with  Kevin S.  Miller  and Jane S.  Tauber  as  trustees.  Jane S.  Tauber
     disclaims beneficial ownership of all of the shares held in the name of the
     Jeffrey S. Tauber Grantor Retained Annuity Trust.

(4)  All shares owned by The Jane S. Tauber Grantor  Retained  Annuity Trust are
     included in the beneficial ownership of Jane S. Tauber, as explained above.

(5)  Represents fully vested stock options.

(6)  Does not include  59,723  shares of Common  Stock owned by Genesis  Direct,
     Inc. Warren Struhl is a director of Genesis Direct, Inc. and owns less than
     a 10% interest in such company.

(7)  Includes  233,515 shares of Common Stock issuable upon exercise of options,
     of which 233,515 are currently exercisable. There are no additional options
     which  will  become  exercisable  within  60 days  after  the  date of this
     Prospectus.


                                       41

<PAGE>



                          DESCRIPTION OF CAPITAL STOCK

     The Company's  authorized  capital stock  consists of 25,000,000  shares of
Common  Stock,  par value $.001 per share,  and  5,000,000  shares of  Preferred
Stock.  Immediately prior to the consummation of this Offering,  the Company had
outstanding  4,000,000  shares of Common Stock and no shares of Preferred  Stock
outstanding.  Immediately prior to the consummation of this Offering, there were
13 holders of record of Common Stock. The following  summary  description of the
capital  stock of the Company is  qualified  in its entirety by reference to the
Certificate of Incorporation and By-Laws.

COMMON STOCK

     Following  this  Offering,   6,800,000  shares  of  Common  Stock  will  be
outstanding.  All of the issued and outstanding  shares of Common Stock are, and
upon the  completion  of this  Offering  the  2,800,000  shares of Common  Stock
offered hereby will be, fully paid and non-assessable.  Each holder of shares of
Common  Stock is entitled to one vote per share on all matters to be voted on by
stockholders  generally,  including  the  election  of  directors.  There are no
cumulative voting rights.  The holders of Common Stock are entitled to dividends
and other  distributions  as may be  declared  from time to time by the Board of
Directors  out of  funds  legally  available  therefor,  if any.  See  "Dividend
Policy." Upon the  liquidation,  dissolution  or winding up of the Company,  the
holders of shares of Common  Stock  would be  entitled  to share  ratably in the
distribution of all of the Company's assets remaining available for distribution
after  satisfaction  of all its  liabilities  and the payment of the liquidation
preference of any outstanding Preferred Stock as described below. The holders of
Common Stock have no preemptive or other subscription  rights to purchase shares
of stock of the Company,  nor are such  holders  entitled to the benefits of any
redemption or sinking fund provisions.

PREFERRED STOCK

     The  Certificate  of  Incorporation  authorizes  the Board of  Directors to
create and issue one or more series of Preferred  Stock and determine the rights
and  preferences of each series,  to the extent  permitted by the Certificate of
Incorporation and applicable law. Among other rights, the Board of Directors may
determine, without the further vote or action by the Company's stockholders, (i)
the number of shares constituting the series and the distinctive  designation of
the series; (b) the dividend rate on the shares of the series, whether dividends
will be cumulative, and if so, from which date or dates, and the relative rights
of  priority,  if any, of payment of  dividends  on shares of the series;  (iii)
whether the series shall have voting  rights,  in addition to the voting  rights
provided by law and, if so, the terms of such voting  rights;  (iv)  whether the
series shall have conversion privileges, and, if so, the terms and conditions of
such  conversion,  including  provision for adjustment of the conversion rate in
such events as the Board of Directors  shall  determine;  (v) whether or not the
shares of that series shall be redeemable or exchangeable, and, if so, the terms
and conditions of such redemption or exchange, as the case may be, including the
date or dates upon or after which they shall be redeemable or  exchangeable,  as
the case may be, and the amount per share payable in case of  redemption,  which
amount may vary under different  conditions and at different  redemption  dates;
(vi) whether the series shall have a sinking fund for the redemption or purchase
of shares of that series and, if so, the terms and amount of such sinking  fund;
and (vii) the rights of the shares of the  series in the event of  voluntary  or
involuntary  liquidation,  dissolution  or  winding  up of the  Company  and the
relative rights or priority,  if any, of payment of shares of the series. Except
for any  difference  so  provided by the Board of  Directors,  the shares of all
series of  Preferred  Stock will rank on a parity with respect to the payment of
dividends  and to the  distribution  of assets upon  liquidation.  Although  the
Company has no present  plans to issue any shares of Preferred  Stock  following
the consummation of this offering, the issuance of shares of Preferred Stock, or
the issuance of rights to purchase such shares, may have the effect of delaying,
deterring  or  preventing  a change of control of the Company or an  unsolicited
acquisition proposal. See "Risk Factors -- Anti-Takeover Provisions."

REGISTRATION RIGHTS

     Trustees of General Electric Pension Trust,  Leonard J. Fassler,  Gerald A.
Poch and Porridge  Partners II, the holders of an aggregate of 663,930 shares of
the Common Stock  (collectively,  the  "Registration  Rights Holders") have been
granted by the Company certain demand and piggyback registration


                                       42

<PAGE>



rights.  Subject to  certain  conditions,  including  the terms of the "lock up"
arrangement,  a majority in interest of the Registration Rights Holders have the
right at any time on or after six months from the date of the this Prospectus to
cause the Company to register certain holdings of Common Stock (the "Registrable
Securities")  under the Securities  Act. The Company is obligated to effect only
one such demand registration. The Registration Rights Holders are also entitled,
if the Company  decides to file a  registration  statement  covering  any of its
securities under the Securities Act (with the exception of an offering  pursuant
to a  registration  statement on Form S-8 or S-4 or an offering of securities in
connection  with an exchange  offer or an offering of  securities  solely to the
Company's existing stockholders or a registration  statement filed in connection
with an initial public  offering by the Company),  to receive  written notice of
such a proposed filing at least 30 days before the  anticipated  filing date and
to require the  Company to use its  reasonable  commercial  efforts to include a
requested  amount of their  Registrable  Securities in the Company's  registered
offering,  subject to reduction if the Company or managing  underwriters for the
offering  determines  that the inclusion of such  Registrable  Securities  would
interfere  with  the  successful  marketing  of  the  offering.   The  Company's
obligation to register the  Registrable  Securities  ceases when such securities
have been effectively registered under the Securities Act and have been disposed
of pursuant to an effective  registration  statement  covering such  Registrable
Securities,  when such securities are distributed to the public pursuant to Rule
144 of the  Securities  Act, or when such  securities may be sold or transferred
pursuant  to Rule  144(k) (or any  similar  provision  then in force)  under the
Securities Act. The Company is required to bear all registration expenses (other
than underwriting  discounts and commissions and fees, and certain fees) and has
agreed to  indemnify  the  Registration  Rights  Holders  against,  and  provide
contribution  with respect to, certain  liabilities  under the Securities Act in
connection with the registrations.

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW

     The  Company is subject to Section  203 of the  Delaware  GCL.  In general,
subject to certain exceptions, Section 203 prohibits a Delaware corporation from
engaging in a "business  combination"  with an  "interested  stockholder"  for a
period  of three  years  following  the date  that  such  stockholder  became an
interested stockholder,  unless (i) prior to such date the board of directors of
the corporation approved either the business combination or the transaction that
resulted in the stockholder  becoming an interested  stockholder,  (ii) upon the
consummation  of the transaction  that resulted in the  stockholder  becoming an
interested stockholder,  the interested stockholder owned at least 85 percent of
the voting  stock of the  corporation  outstanding  at the time the  transaction
commenced   (excluding  for  purposes  of  determining   the  number  of  shares
outstanding  those owned by (x) persons who are  directors and also officers and
(y) employee stock plans in which employee participants do not have the right to
determine  confidentially  whether  shares  held  subject  to the  plan  will be
tendered in a tender or exchange  offer) or (iii) on or  subsequent to such date
the business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by the
affirmative  vote of at least 66 2/3  percent of the  outstanding  voting  stock
which  is not  owned  by the  interested  stockholder.  Section  203  defines  a
"business combination" to include certain mergers,  consolidations,  asset sales
and stock  issuances  and certain  other  transactions  resulting in a financial
benefit to an  "interested  stockholder."  In  addition,  Section 203 defines an
"interested  stockholder" to include any entity or person beneficially owning 15
percent  or more of the  outstanding  voting  stock of the  corporation  and any
entity or person affiliated with such an entity or person.

THE NASDAQ SMALLCAP MARKET LISTING

     The Common  Stock has been  approved for  quotation on The Nasdaq  SmallCap
Market under the symbol "CYSP."

TRANSFER AGENT AND REGISTRAR

     The transfer  agent and  registrar  for the Common Stock is American  Stock
Transfer & Trust Company.


                                       43

<PAGE>



                         SHARES ELIGIBLE FOR FUTURE SALE

     Immediately  following  this  Offering,  there will be 6,800,000  shares of
Common Stock issued and outstanding  (assuming the Underwriters'  over-allotment
option is not exercised).  Of such shares,  the 2,800,000 shares of Common Stock
to be sold in this Offering will be immediately  eligible for sale in the public
market, except for any of such shares owned at any time by an "affiliate" of the
Company within the meaning of Rule 144 under the  Securities  Act. The remaining
4,000,000 issued and outstanding  shares are "restricted  securities" within the
meaning of Rule 144 and may not be publicly  resold,  except in compliance  with
the registration  requirements of the Securities Act or pursuant to an exemption
from registration, including that provided by Rule 144.

     In  general,  under  Rule  144,  a person  (or  persons  whose  shares  are
aggregated) who has beneficially owned "restricted  securities" for at least one
year,  including  a person who may be deemed an  affiliate  of the  Company,  is
entitled  to sell  within  any  three-month  period a number of shares of Common
Stock that does not exceed the greater of 1% of the  then-outstanding  shares of
Common  Stock of the Company,  or the average  weekly  trading  volume of Common
Stock on The Nasdaq SmallCap Market during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission.  Sales under Rule
144 are subject to certain  restrictions  relating to manner of sale, notice and
the availability of current public  information about the Company.  A person who
is not an  "affiliate" of the Company at any time during the 90 days preceding a
sale and who has  beneficially  owned  shares  for at least two  years  would be
entitled to sell such shares  immediately  following  this  offering  under Rule
144(k) without regard to the volume  limitations,  manner of sale  provisions or
notice or other requirements of Rule 144. In addition, any employee, director or
officer of, or consultant to, the Company who purchased his shares pursuant to a
written  compensatory  plan or  contract  may be  entitled to rely on the resale
provisions  of Rule 701,  which  permits  non-affiliates  to sell their Rule 701
shares without  having to comply with the public  information,  holding  period,
volume  limitation or notice  provisions of Rule 144, and permits  affiliates to
sell their  Rule 701 shares  without  having to comply  with Rule 144's  holding
period  restrictions,  in each case  commencing  90 days  after the date of this
Prospectus.

     The Company and all of its  stockholders  and current  option  holders have
agreed to a "lock-up"  arrangement under which such stockholders will not offer,
sell or contract to sell,  or otherwise  dispose of, or announce an offering of,
any shares of Common  Stock,  or rights to acquire  the same,  without the prior
written consent of the Underwriters, subject to certain exceptions, for a period
of a maximum of one year after the date of this Prospectus.  After the "lock-up"
period  278,777 shares of Common Stock held by  non-affiliates  will be saleable
pursuant to Rule 144(k) and  3,721,223  shares of Common  Stock will be saleable
pursuant to Rule 144. The Company also granted options  covering  432,634 shares
of Common Stock prior to this Offering. The shares of Common Stock issuable upon
exercise of such options will be saleable under Rule 701.

     Certain  stockholders  of the  Company  are  entitled  to both  demand  and
piggyback  registration  rights with respect to 663,930  shares of Common Stock.
After the expiration of the one year period, such holders may choose to exercise
their demand registration rights, which could result in a large number of shares
being  sold  in  the  public  market.  See  "Description  of  Capital  Stock  --
Registration Rights."

     Upon completion of the Offering, the Company will issue to the Underwriters
the Underwriters'  Warrants.  The Underwriters' Warrants require that the Common
Stock for which such Underwriters' Warrants are exercisable be registered within
one year from the date of this Prospectus. See "Underwriting."

     Prior to the date of this  Prospectus,  there has been no public market for
the Common Stock. The Common Stock has been approved for quotation on The Nasdaq
SmallCap  Market under the symbol  "CYSP." No  prediction  can be made as to the
effect,  if any, that future sales of shares,  or the availability of shares for
future sale,  will have on the market price of the Common Stock  prevailing from
time to time.  Sales of substantial  amounts of Common Stock,  or the perception
that such sales could occur,  could adversely affect the prevailing market price
of the Common  Stock.  See "Risk  Factors -- Shares  Eligible  for Future  Sale;
Registration Rights."


                                       44

<PAGE>



                                  UNDERWRITING

     Subject to the terms and conditions set forth in an underwriting  agreement
(the  "Underwriting  Agreement"),   the  Company  has  agreed  to  sell  to  the
Underwriters,  and the Underwriters have agreed to purchase the 2,800,000 shares
of Common Stock offered hereby. In the Underwriting Agreement,  the Underwriters
have agreed,  subject to the terms and conditions set forth therein, to purchase
all  2,800,000  shares of Common  Stock  offered  hereby if any such  shares are
purchased.

     The  Underwriters  propose  initially  to offer the shares of Common  Stock
offered hereby to the public at the public offering price per share set forth on
the cover page of this  Prospectus  and to certain  dealers at such price less a
concession not in excess of $.25 per share. The Underwriters may allow, and such
dealers  may  reallow,  a  discount  not in excess of $.10 per share on sales to
certain other dealers.  After the Offering,  the offering price,  discount price
and reallowance may be changed by the Underwriters.

     The Company has granted the  Underwriters  an option which may be exercised
within  30 days  after  the  date  of  this  Prospectus,  to  purchase  up to an
additional 420,,000 shares of Common Stock to cover over-allotments,  if any, at
the initial public offering price, less the underwriting discount.

     The Company has agreed to indemnify the Underwriters  against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

     Upon   completion  of  this   Offering,   the  Company  will  sell  to  the
Underwriters,  for their own accounts,  the  Underwriters'  Warrants covering an
aggregate of up to 230,000  shares of Common Stock  exercisable at a price equal
to 110% of the  initial  public  offering  price  set forth on the cover of this
Prospectus.  The  Underwriters  will  pay a price  of  $0.01  per  warrant.  The
Underwriters' Warrants may be exercised as to all or any lesser number of shares
of Common Stock commencing on the first anniversary of the date of this Offering
until the fifth  anniversary  of the date of this  Offering and require that the
Company  register  the Common  Stock for which such  Underwriters'  Warrants are
exercisable within one year from the date of this Prospectus.  The Underwriters'
Warrants are not  transferable by the warrant holders other than to officers and
partners of the Underwriters.  The exercise price of the Underwriters'  Warrants
and the number of shares of Common Stock for which such  Underwriters'  Warrants
are exercisable are subject to adjustment to protect the warrant holders against
dilution in certain events.

     The Company, and all of its directors,  officers, existing stockholders and
option holders have agreed to a "lock-up"  arrangement  under which they may not
offer,  sell,  contract  to sell,  pledge  or  otherwise  dispose  of, or file a
registration  statement  with the  Commission  in respect  of, or  establish  or
increase a put  position  within the meaning of Section 16 of the  Exchange  Act
with  respect to any shares of capital  stock of the  Company or any  securities
convertible  into or exercisable  or  exchangeable  for such capital  stock,  or
publicly announce an intention to effect any such transaction  without the prior
written consent of the  Underwriters  for a period of one year after the date of
this Prospectus, subject to certain exceptions.

     In  connection  with  the  Offering,   the   Underwriters   may  engage  in
transactions  that stabilize,  maintain or otherwise  affect the market price of
the Common  Stock.  Such  transactions  may include  stabilization  transactions
effected in  accordance  with Rule 104 of  Regulation M under the Exchange  Act,
pursuant to which the  Underwriters  may bid for, or purchase,  Common Stock for
the purpose of stabilizing the market price. The Underwriters  also may create a
short position by selling more Common Stock in connection with the Offering than
it is  committed  to purchase  from the  Company,  and in such case may purchase
Common Stock in the open market  following  completion of this Offering to cover
all or a portion of such short  position.  In  addition,  the  Underwriters  may
impose "penalty bids" whereby it may reclaim from a dealer participating in this
Offering,  the  selling  concession  with  respect to the  Common  Stock that it
distributed in this Offering, but subsequently purchased for the accounts of the
Underwriters  in the open  market.  Any of the  transactions  described  in this
paragraph  may result in the  maintenance  of the price of the Common Stock at a
level above that which might otherwise  prevail in the open market.  None of the
transactions  described  in  this  paragraph  is  required,  and,  if  they  are
undertaken, they may be discontinued at any time.


                                       45

<PAGE>



     The  Underwriters  have  informed  the  Company  that they do not intend to
confirm sales to any account over which they exercise discretionary authority.

     Prior to this  Offering,  there has been no market for the Common  Stock of
the Company. Accordingly, the initial public offering price for the Common Stock
has been  determined by  negotiation  between the Company and the  Underwriters.
Among the factors  considered in determining  the initial public  offering price
were the  Company's  record  of  operations,  the  Company's  current  financial
condition,  its future prospects, the state of the markets for its services, the
experience of management,  the economics of the industry in general, the general
condition of the equity securities market and the demand for similar  securities
of companies considered comparable to the Company.

     Robert  Matluck,  Chief Operating  Officer and a Managing  Director of C.E.
Unterberg,  Towbin,  is expected to be named a director of the Company following
the Offering.

                                  LEGAL MATTERS

     The  validity of the issuance of the Common  Stock  offered  hereby will be
passed upon for the Company by Rubin Baum Levin  Constant & Friedman,  New York,
New York.  Certain  legal  matters will be passed upon for the  Underwriters  by
Cravath, Swaine & Moore, New York, New York.

                                     EXPERTS

     The  consolidated  financial  statements  of the Company as of December 31,
1996 and  1997,  and for the  years  ended  December  31,  1995,  1996 and 1997,
included in this  Prospectus  and elsewhere in the  Registration  Statement have
been  audited  by  Arthur  Andersen  LLP,  independent  public  accountants,  as
indicated  in their  report with respect  thereto,  and are  included  herein in
reliance upon the authority of said firm as experts in giving said reports.

                             ADDITIONAL INFORMATION

     The Company has filed with the Commission a registration  statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
shares of  Common  Stock  offered  hereby.  For the  purposes  hereof,  the term
"Registration  Statement" means the original Registration  Statement and any and
all amendments thereto.  This Prospectus does not contain all of the information
set forth in the Registration  Statement and the exhibits and schedules thereto.
For further  information  with  respect to the  Company  and such Common  Stock,
reference is hereby made to such Registration Statement,  which can be inspected
and copied at the public  reference  facilities  maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,  D.C. 20549, and
at the Regional Offices of the Commission at Seven World Trade Center, New York,
New York  10048 and  Citicorp  Center,  500 West  Madison  Street,  Suite  1400,
Chicago,  Illinois 60661.  Copies of such material also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. In addition, the Company is required to file electronic versions of these
documents  with  the  Commission   through  the  Commission's   Electronic  Data
Gathering,  Analysis and Retrieval  (EDGAR) system.  The Commission  maintains a
website at  http://www.sec.gov  that  contains  reports,  proxy and  information
statements and other information  regarding registrants that file electronically
with the Commission.

     Statements  contained in this Prospectus as to the contents of any contract
or other document to which reference is made are summaries of the material terms
of such  contracts or documents,  and in each instance  reference is made to the
copy of such contract or other document filed as an exhibit to the  Registration
Statement,  each  such  statement  being  qualified  in  all  respects  by  such
reference.

     The  Company  intends to  furnish  its  stockholders  with  annual  reports
containing  financial  statements  audited by independent  accountants  and with
quarterly reports containing  updated summary financial  information for each of
the first three quarters of each fiscal year.


                                       46

<PAGE>



                  CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Public Accountants ................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 ............... F-3
Consolidated Statements of Operations for the Years Ended December 31,
 1995, 1996 and 1997 ....................................................... F-4
Consolidated  Statements  of  Stockholders'  Equity  (Deficit) for the
 Years Ended December 31, 1995, 1996 and 1997 .............................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
 1995, 1996 and 1997 ....................................................... F-6

Notes to Consolidated Financial Statements ................................. F-7




                                       F-1

<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO CYBERSHOP INTERNATIONAL, INC.:

     We have audited the accompanying  consolidated  balance sheets of CyberShop
International,  Inc. (a Delaware  Corporation) and subsidiary as of December 31,
1996 and 1997, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1997. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of CyberShop
International,  Inc. and  subsidiary  as of December 31, 1996 and 1997,  and the
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1997 in  conformity  with  generally  accepted
accounting principles.

                                          Arthur Andersen LLP

Roseland, New Jersey
January 27, 1998


                                       F-2

<PAGE>



                  CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS                                                                            DECEMBER 31,
- ----------------------------------------------------------------------   -------------------------------
                                                                               1996             1997
                                                                         ---------------   -------------
<S>                                                                      <C>               <C>
Current assets:
 Cash and cash equivalents (Note 2) ..................................    $    509,727      $  787,171
 Accounts receivable, net of allowance for doubtful accounts of
   $10,000 as of December 31, 1996 and 1997 ..........................          39,260          66,163
 Inventories (Note 2) ................................................              --          30,700
                                                                          ------------      ----------
   Total current assets ..............................................         548,987         884,034
Property and equipment, net (Notes 1 and 3) ..........................         116,314         131,768
Other assets .........................................................           4,686         211,108
                                                                          ------------      ----------
   Total assets ......................................................    $    669,987      $1,226,910
                                                                          ============      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------
Current liabilities:
 Accounts payable ....................................................    $    148,096      $  739,267
 Accrued liabilities .................................................         102,399         324,220
 Deferred revenues ...................................................         147,000         135,000
 Current portion of capital lease obligations (Note 4) ...............           8,147          13,000
                                                                          ------------      ----------
   Total current liabilities .........................................         405,642       1,211,487
Long-term liabilities:
 Deferred rent .......................................................             899           4,899
 Capital lease obligations (Note 4) ..................................          12,049          15,196
                                                                          ------------      ----------
   Total long-term liabilities .......................................          12,948          20,095
                                                                          ------------      ----------
Commitments and contingencies (Note 4)
Stockholders' equity (deficit) (Note 1):
Members capital interest .............................................       1,589,443              --
Preferred stock, $.001 par value, 5,000,000 authorized; 0 shares is-
 sued and outstanding ................................................              --              --
Common stock, $.001, par value, 25,000,000 authorized; 4,000,000
 shares issued and outstanding .......................................              --           4,000
Additional paid-in capital ...........................................              --          (8,672)
Accumulated deficit ..................................................      (1,338,046)             --
                                                                          ------------      ----------
   Total stockholders' equity (deficit) ..............................         251,397          (4,672)
                                                                          ------------      ----------
   Total liabilities and stockholders' equity (deficit) ..............    $    669,987      $1,226,910
                                                                          ============      ==========

</TABLE>

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

                                       F-3

<PAGE>



                  CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                      YEAR ENDED DECEMBER 31,
                                          -----------------------------------------------
                                               1995            1996             1997
                                          -------------   -------------   ---------------
<S>                                       <C>             <C>             <C>
Revenues (Note 2):
 Product sales ........................    $   18,670      $  272,560      $  1,284,489
 Set up fees ..........................       112,365         232,325           187,058
 Other revenues .......................         8,800           8,500            23,070
                                           ----------      ----------      ------------
   Total revenues .....................       139,835         513,385         1,494,617
Cost of revenues ......................        13,769         155,274           933,187
                                           ----------      ----------      ------------
   Gross profit .......................       126,066         358,111           561,430
Operating expenses ....................       772,744       1,011,257         2,389,773
                                           ----------      ----------      ------------
 Loss from operations .................      (646,678)       (653,146)       (1,828,343)
Other, net ............................         6,022           3,214            22,274
                                           ----------      ----------      ------------
 Net loss .............................    $ (640,656)     $ (649,932)     $ (1,806,069)
                                           ==========      ==========      ============
Net loss per common share:
 Basic ................................    $    (0.22)     $    (0.21)     $      (0.48)
                                           ==========      ==========      ============
 Diluted ..............................    $    (0.22)     $    (0.21)     $      (0.48)
                                           ==========      ==========      ============
Pro forma net loss
 data (unaudited) (Notes 2 and 5):
 Net loss .............................    $ (640,656)     $ (649,932)     $ (1,806,069)
 Pro forma income tax benefit .........      (256,262)       (259,973)         (722,428)
                                           ----------      ----------      ------------
 Pro forma net loss ...................    $ (384,394)     $ (389,959)     $ (1,083,641)
                                           ==========      ==========      ============
Pro forma net loss
 per common share (unaudited) (Note 2):
 Basic ................................    $    (0.13)     $    (0.13)     $      (0.29)
                                           ==========      ==========      ============
 Diluted ..............................    $    (0.13)     $    (0.13)     $      (0.29)
                                           ==========      ==========      ============

Weighted average
 common shares outstanding (Note 2):
 Basic ................................     2,872,935       3,096,517         3,780,662
 Diluted ..............................     2,872,935       3,096,517         3,780,662

</TABLE>

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

                                       F-4

<PAGE>



                  CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                               MEMBERS      ADDITIONAL
                                                                   COMMON      CAPITAL       PAID-IN     ACCUMULATED
                                                                    STOCK      INTEREST      CAPITAL       DEFICIT
                                                                  -------- --------------- ----------- ---------------
<S>                                                               <C>      <C>             <C>         <C>
Balance as of December 31, 1994 .................................  $   --   $    200,000    $     --    $    (47,458)
 Issuance of members capital interest ...........................      --        389,443          --              --
 Net loss .......................................................      --             --          --        (640,656)
                                                                   ------   ------------    --------    ------------
Balance as of December 31, 1995 .................................      --        589,443          --        (688,114)
 Issuance of members capital interest ...........................      --      1,000,000          --              --
 Net loss .......................................................      --             --          --        (649,932)
                                                                   ------   ------------    --------    ------------
Balance as of December 31, 1996 .................................      --      1,589,443          --      (1,338,046)
 Issuance of members capital interest ...........................      --      1,550,000          --              --
 Net loss .......................................................      --             --          --      (1,806,069)
 Contribution of members capital interest in exchange for the
   issuance of 4,000,000 shares of common stock (Note 1). .......   4,000     (3,139,443)     (8,672)      3,144,115
                                                                   ------   ------------    --------    ------------
Balance as of December 31, 1997 .................................  $4,000   $         --    $ (8,672)   $         --
                                                                   ======   ============    ========    ============
</TABLE>

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

                                       F-5

<PAGE>



                  CYBERSHOP INTERNATIONAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                          --------------------------------------------------
                                                                               1995             1996              1997
                                                                          --------------   --------------   ----------------
<S>                                                                       <C>              <C>              <C>
Cash flows from operating activities:
 Net loss .............................................................     $ (640,656)      $ (649,932)      $ (1,806,069)
 Adjustments to reconcile net loss to net cash used in operating
  activities:
  Depreciation ........................................................         42,503           55,617             89,000
  Increase (decrease) in cash from changes in:
   Accounts receivable, net ...........................................       (138,209)          98,949            (26,903)
   Inventories ........................................................             --               --            (30,700)
   Other assets .......................................................             --           (4,686)          (206,422)
   Accounts payable ...................................................        122,157           22,532            591,171
   Accrued liabilities ................................................            486          101,913            221,821
   Deferred revenues ..................................................        305,000         (158,000)           (12,000)
   Due to officer .....................................................        (38,815)              --                 --
   Deferred rent ......................................................             --              899              4,000
                                                                            ----------       ----------       ------------
     Net cash used in operating activities ............................       (347,534)        (532,708)        (1,176,102)
                                                                            ----------       ----------       ------------
Cash flows from investing activities:
 Purchases of property and equipment ..................................        (88,699)         (67,812)           (89,454)
                                                                            ----------       ----------       ------------
Cash flows from financing activities:
 Proceeds from the issuance of members capital interest ...............        389,443        1,000,000          1,550,000
 Proceeds from officer loan ...........................................             --          150,000                 --
 Repayment of officer loan ............................................             --         (150,000)                --
 Payments of capital lease obligations ................................             --             (440)            (7,000)
                                                                            ----------       ----------       ------------
     Net cash provided by financing activities ........................        389,443          999,560          1,543,000
                                                                            ----------       ----------       ------------
     Net increase (decrease) in cash ..................................        (46,790)         399,040            277,444
Cash and cash equivalents, beginning of period ........................        157,477          110,687            509,727
                                                                            ----------       ----------       ------------
Cash and cash equivalents, end of period ..............................     $  110,687       $  509,727       $    787,171
                                                                            ==========       ==========       ============
Supplemental cash flow information:
 Cash paid for interest ...............................................     $       --       $    1,220       $      4,000
                                                                            ==========       ==========       ============
 Assets acquired under capital lease obligations ......................     $       --       $   20,636       $     15,000
                                                                            ==========       ==========       ============
</TABLE>

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

                                       F-6

<PAGE>



                          CYBERSHOP INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) DESCRIPTION OF THE BUSINESS:

     CyberShop L.L.C. was organized under the laws of the State of New Jersey as
an  L.L.C.  in  December  1994 and is a wholly  owned  subsidiary  of  CyberShop
International, Inc. ("the Company") (see Note 7).

     The Company is an online  retailer  that offers  brand name  products  from
manufacturers  to customers  from the  Company's  web site on the World Wide Web
(the "Web") and from its store that resides on America Online ("AOL").

     Prior to  completion  of the Public  Offering  (See Note 7), the members of
CyberShop L.L.C.  contributed all of their members capital interests in exchange
for  4,000,000  shares of common stock of the Company.  Both entities were under
common control, which resulted in the transaction being accounted for comparable
to a pooling of  interests.  This  contribution  resulted  in a transfer  of the
balances of members'  capital  interest and accumulated  deficit to common stock
and additional paid in capital at the time of the contribution.

     The Company is  proposing  an initial  public  offering of up to  2,800,000
shares of Common  Stock.  Prospective  investors  should  consider,  among other
things,  the Company's history of losses,  its limited operating history and its
uncertainty of future  results.  For  additional  information on these and other
factors, see "Risk Factors."

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Use of Estimates in the Preparation of Financial Statements

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

     Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its wholly  owned  subsidiary.  All  significant  intercompany  accounts and
transactions have been eliminated.

     Revenue Recognition

     The Company has entered into  contracts  with certain  vendors  whereby the
Company  will be paid a "set  up" fee for each  vendor  product  offered  by the
Company.  The Company  recognizes  the set up fee  revenue  over the term of the
vendor  agreement,  which  usually  ranges  from one to two years.  The  Company
recognizes  revenue on product sales when the goods are shipped to the customer.
Risk of loss passes to the Company upon shipment of products by the vendor,  and
the Company  bears the credit risk with  respect to product  sales.  The Company
records the  estimated  gross profit which will be lost due to current  period's
shipments  being  returned in future periods as a reduction of revenues and cost
of sales in the period of shipment.

     Frequent Buyer Program

     During the fourth quarter of 1997, the Company implemented a frequent buyer
program.  This  program  allows  customers to earn  savings  certificates  to be
applied towards future purchases. These certificates are awarded based on points
earned from purchases.  The reserve for credits towards future  purchases is not
material as of December 31, 1997.

     Warranty Reserves

     Warranties on products offered by the Company are the responsibility of the
manufacturers.  Accordingly,  no  warranty  reserve  has  been  recorded  in the
accompanying consolidated financial statements.


                                       F-7

<PAGE>



                          CYBERSHOP INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)

     Cash and Cash Equivalents

     The Company  considers all short-term  marketable  equity securities with a
maturity of three months or less to be cash equivalents.

     Inventories

     Inventories  are  stated at the lower of cost  (determined  on a  first-in,
 first-out basis) or market.

     Property and Equipment

     Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the assets' estimated useful lives.

     Deferred Offering Costs

     Included in other assets in the accompanying consolidated balance sheets as
of  December  31,  1997 is  approximately  $196,000  related to  deferred  costs
associated  with the Company's  initial  public  offering (see Note 7). Upon the
completion of the initial pubic  offering,  these costs plus any other  offering
costs, will be reclassified to additional paid-in capital.

     Deferred Revenues

     Deferred  revenues  as of  December  31,  1997  relates  to  payments  from
customers for products not yet shipped and unamortized set up fee revenues.

     Income Taxes

     The stockholders of CyberShop L.L.C. had elected to be treated as a limited
liability company for both Federal and state income tax purposes for all periods
presented.  The net loss for those  periods  will be included in the  individual
income tax returns of the stockholders (see Note 5).

     The Company uses the asset and liability  method to calculate  deferred tax
assets and liabilities. Deferred taxes are recognized on the differences between
the  financial  reporting  and income tax basis of assets  and  liability  using
enacted tax rates.

     Long-Lived Assets

     During 1996,  the Company  adopted the provisions of Statement of Financial
Accounting  Standards  No. 121 ("SFAS 121")  "Accounting  for the  Impairment of
Long-Lived Assets". SFAS 121 requires, among other things, that an entity review
its long-lived  assets and certain related  intangibles for impairment  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be fully  recoverable.  As a result of its review,  the Company does not
believe that any impairment currently exists related to its long-lived assets.

     Stock Based Compensation

     The  Financial  Accounting  Standards  Board  has  issued  a new  standard,
"Accounting for Stock-Based  Compensation"  ("SFAS 123"). SFAS 123 requires that
an entity  account  for  employee  stock  compensation  under a fair  value base
method.  However,  SFAS 123  also  allows  an  entity  to  continue  to  measure
compensation  cost for employee  stock-based  compensation  using the  intrinsic
value based method of accounting  prescribed by APB Opinion No. 25,  "Accounting
for Stock Issued to Employees"  ("Opinion 25"). Entities electing to remain with
the accounting under Opinion 25 are required to make


                                       F-8

<PAGE>



                          CYBERSHOP INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)

pro forma  disclosures of net income and earnings per share as if the fair value
based method of  accounting  under SFAS 123 had been  applied.  The Company will
continue to account for employee  stock-based  compensation under Opinion 25 and
will make the pro forma disclosures required under SFAS 123.

     Pro Forma Net Loss Per Common Share

     SFAS 128,  "Earnings  per Share" which is effective  for the period  ending
December 31, 1997,  establishes  new  standards  for  computing  and  presenting
earnings per share (EPS).  The new standard  requires the  presentation of basic
EPS and diluted EPS.  Basic EPS is  calculated by dividing  income  available to
common  shareholders  by the weighted  average  number of shares of common stock
outstanding  during the period.  Diluted EPS is  calculated  by dividing  income
available to common shareholders by the weighted average number of common shares
outstanding adjusted to reflect potentially  dilutive securities.  Pro forma net
loss reflects the tax effect of the Company's operating losses as if it operated
as a C Corporation from its inception (see Note 5).

     In accordance  with SFAS 128, the following  table  reconciles net loss and
share amounts used to calculate  historical and pro forma basic and diluted loss
per share:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                ----------------------------------------------
                                                     1995           1996            1997
                                                -------------- -------------- ----------------
<S>                                             <C>            <C>            <C>
     Numerator:
       Net loss ...............................   $ (640,656)    $ (649,932)    $ (1,806,069)
                                                  ==========     ==========     ============
       Pro forma net loss .....................   $ (384,394)    $ (389,959)    $ (1,083,641)
                                                  ==========     ==========     ============
     Denominator:
       Weighted average number of common shares
        outstanding - Basic and Diluted .......    2,872,935      3,096,517        3,780,662
                                                  ==========     ==========     ============
     Net loss per common share:
       Basis ..................................   $    (0.22)    $    (0.21)    $      (0.48)
                                                  ==========     ==========     ============
       Diluted ................................   $    (0.22)    $    (0.21)    $      (0.48)
                                                  ==========     ==========     ============
     Pro forma net loss per share:
       Basic ..................................   $    (0.13)    $    (0.13)    $      (0.29)
       Diluted ................................   $    (0.13)    $    (0.13)    $      (0.29)
</TABLE>

     Outstanding  stock  options of 107,443 and 273,634 as of December  31, 1996
and 1997,  respectively,  have been excluded from the above calculations as they
are  antidulitive  for  all  periods  presented.  There  were no  stock  options
outstanding during 1995.

(3) PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                  -----------------------------
                                                       1996            1997
                                                  -------------   -------------
<S>                                               <C>             <C>
       Office equipment and software ..........    $  191,637      $  279,693
       Furniture and fixtures .................        24,990          41,388
                                                   ----------      ----------
                                                      216,627         321,081
       Less: Accumulated depreciation .........      (100,313)       (189,313)
                                                   ----------      ----------
                                                   $  116,314      $  131,768
                                                   ==========      ==========
</TABLE>


                                       F-9

<PAGE>



                          CYBERSHOP INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )

(4) COMMITMENTS AND CONTINGENCIES:

     Capital Leases

     Included  in property  and  equipment  is certain  office  equipment  under
capital leases which expire through November 2001. Future minimum lease payments
as of December 31, 1997 are as follows-


       1998 ...................................................    $ 14,344
       1999 ...................................................      14,154
       2000 ...................................................       3,130
       2001 ...................................................       2,478
                                                                   --------
       Total minimum lease payments ...........................      34,106
       Less- Amount representing interest .....................      (5,910)
                                                                   --------
       Present value of future minimum lease payments .........      28,196
       Less- Current portion ..................................      13,000
                                                                   --------
       Long-term portion of capital lease obligations .........    $ 15,196
                                                                   ========

     Operating Leases

     In September  1996,  the Company began leasing its main office space in New
York under a 10 year operating  lease that expires in August 2006. The following
are the minimum lease payments for the office and other  operating  leases as of
December 31, 1997.


        1998 ..................................................    $ 40,248
        1999 ..................................................      41,561
        2000 ..................................................      41,692
        2001 ..................................................      36,932
        2002 ..................................................      38,409
        Thereafter ............................................    $154,254
     

     Rent expense for the years ended December 31, 1995,  1996 and 1997 amounted
to $0, $14,434 and $36,629, respectively.

     Marketing Agreements

     The Company entered into marketing  agreements  with America  Online,  Inc.
("AOL")  pursuant to which AOL will market the products  offered by the Company.
Under the terms of such agreements,  the Company will pay a fee of approximately
$500,000  during  1998.  The  agreements  are  for  15  and  16  month  periods.
Accordingly,   the  Company  has  recognized   expenses  associated  with  these
agreements on a straight-line basis over the life of the agreements.

(5) INCOME TAXES:

     As  described  in Note  2,  CyberShop  L.L.C.  previously  elected  limited
liability  company status under the provisions of the Internal Revenue Code (see
Note 1).

     The following  unaudited pro forma  information has been  determined  based
upon the  provisions  of SFAS No.  109,  "Accounting  for  Income  Taxes".  This
information reflects the income tax benefit that the Company would have incurred
had it operated as a C  Corporation  for Federal and state income taxes from its
inception,  without  contemplating  any  applicable  tax  laws  related  to  the
utilization  of net operating  losses.  Temporary  differences  have been deemed
immaterial.


                                      F-10

<PAGE>



                          CYBERSHOP INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(5) INCOME TAXES: - (CONTINUED)

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                       1995             1996             1997
                                                  --------------   --------------   --------------
<S>                                               <C>              <C>              <C>
Federal tax benefit at statutory rate .........     $ (217,823)      $ (220,977)      $ (614,064)
State income benefit net of Federal benefit .          (38,439)         (38,996)        (108,364)
                                                    ----------       ----------       ----------
                                                    $ (256,262)      $ (259,973)      $ (722,428)
                                                    ==========       ==========       ==========
</TABLE>

(6) STOCK OPTIONS:

     A summary of  nonqualified  stock options  outstanding at December 31, 1996
and 1997 is presented in the table below-


                                                                  WEIGHTED
                                                                  AVERAGE
                                                                  EXERCISE
                                                      SHARES       PRICE
                                                    ----------   ---------
       Outstanding at January 1, 1996 ...........         --       $  --
       Granted ..................................    107,443        1.67
                                                     -------       -----
       Outstanding at December 31, 1996 .........    107,443        1.67
       Granted ..................................    166,191        3.00
                                                     -------       -----
       Outstanding at December 31, 1997 .........    273,634      $ 2.48
                                                     =======      ======


     As of December 31, 1997,  there were 249,674  options  exerciseable  with a
weighted  average  exercise  price of $2.48.  The above  options  which were not
exercisable  at December 31, 1997 vest ratably over a two year period and expire
five years from the date of grant.

     Effective  January 1, 1996, the Company  adopted the provisions of SFAS 123
"Accounting for Stock-Based  Compensation."  As permitted by the statement,  the
Company has elected to continue to account for  stock-based  compensation  using
the  intrinsic  value  method.   Accordingly,  no  compensation  cost  has  been
recognized  for stock  options  granted at or above market  value.  Had the fair
value method of accounting  been applied to the Company's  stock option  grants,
which requires  recognition of compensation cost ratably over the vesting period
of the underlying equity instruments,  the net loss would have been increased by
approximately $8,000 and $19,000 for the years ended December 31, 1996 and 1997,
respectively.  There  would  have  been no  effect on the pro forma net loss per
common share for each of these periods. This pro forma impact takes into account
options  granted since January 1, 1996 and is likely to increase in future years
as additional options are granted and amortized ratably over the vesting period.
The average fair value of options  granted  during the years ended  December 31,
1996 and 1997 was $0.21 and $0.36,  respectively.  The fair value was  estimated
using the  Black-Scholes  option  pricing  model based on the  weighted  average
market  price  of $1.67 in 1996  and  $3.00 in 1997 and the  following  weighted
average assumptions:  risk free interest rate of 6.5%, no volatility, no assumed
dividends and an expected life of two years.  There were no options  granted for
any periods prior to the year ended December 31, 1996.

(7) SUBSEQUENT EVENTS (UNAUDITED):

     Stock Option Plans

     The Company  adopted the 1998 Stock  Option Plan (the "1998  Option  Plan",
subject to stockholders approval). Under the 1998 Option Plan, stock options may
be granted to directors,  executives, other key employees and consultants of the
Company  and its  subsidiary.  The  maximum  number of  shares  of common  stock
reserved for issuance under the 1998 Option Plan is 1,000,000 shares.


                                      F-11

<PAGE>



                          CYBERSHOP INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(7) SUBSEQUENT EVENTS (UNAUDITED): - (CONTINUED)

     The Company adopted the 1998 Directors'  Stock Option Plan (the "Directors'
Plan", subject to stockholders approval).  Pursuant to the Directors' Plan, each
member of the Board of  Directors  who is not an  employee of the Company who is
elected  or  continues  as a member of the Board of  Directors  is  entitled  to
receive options to purchase 3,000 shares of common stock annually at an exercise
price equal to fair market value on the date of the grant. The maximum number of
shares of common stock reserved for issuance under the Directors' Plan is 70,000
shares.

     Employment Agreements

     In January and February 1998, the Company  entered into one year employment
agreements  with its Vice President,  Chief Financial  Officer and Treasurer and
its Vice President and Chief Information Officer,  respectively.  The agreements
provide  for a base salary of  $140,000  and  $125,000  upon  completion  of the
Offering  referred to below  ($120,000  and $96,000  prior to  completion of the
Offering).

     Secured Loan

     The Trustees of General  Electric Pension Trust loaned the Company $500,000
at an  interest  rate of 15% per annum.  The loan  matures on the earlier of the
completion of a public offering,  the raising of additonal equity or debt by the
Company or March 31, 1999.  The  proceeds of the loan are being  utilized by the
Company for working capital  purposes.  Jeffrey S. Tauber pledged 172,500 of his
shares  of  Common  Stock as  security  for the  loan.  See  "Use of  Proceeds,"
"Principal Stockholders" and "Certain Transactions."

     Public Offering

     The Company is undertaking a public offering of 2,800,000  shares of common
stock.  The  authorized  stock of the Company is 25,000,000  shares of $.001 par
value common stock and 5,000,000 shares of $.001 par value preferred stock.





                                      F-12

<PAGE>

======================================  ======================================
     NO PERSON HAS BEEN  AUTHORIZED TO                                        
GIVE  ANY  INFORMATION  OR TO MAKE ANY                                        
REPRESENTATIONS   IN  CONNECTION  WITH                                        
THIS   OFFERING   OTHER   THAN   THOSE                                        
CONTAINED IN THIS  PROSPECTUS  AND, IF                                        
GIVEN OR MADE, SUCH OTHER  INFORMATION                                        
AND REPRESENTATIONS MUST NOT BE RELIED             2,800,000 SHARES           
UPON AS HAVING BEEN  AUTHORIZED BY THE                                        
COMPANY OR THE  UNDERWRITERS.  NEITHER                                        
THE  DELIVERY OF THIS  PROSPECTUS  NOR                                        
ANY SALE MADE HEREUNDER  SHALL,  UNDER                                        
ANY    CIRCUMSTANCES,    CREATE    ANY                                        
IMPLICATION  THAT  THERE  HAS  BEEN NO                                        
CHANGE IN THE  AFFAIRS OF THE  COMPANY                                        
SINCE  THE  DATE  HEREOF  OR THAT  THE                                        
INFORMATION    CONTAINED   HEREIN   IS   [CYBERSHOP INTERNATIONAL, INC. LOGO] 
CORRECT AS OF ANY TIME  SUBSEQUENT  TO                                        
ITS  DATE.  THIS  PROSPECTUS  DOES NOT                                        
CONSTITUTE  AN  OFFER  TO  SELL  OR  A                                        
SOLICITATION  OF AN  OFFER  TO BUY ANY                                        
SECURITIES  OTHER THAN THE  REGISTERED                                        
SECURITIES  TO WHICH IT RELATES.  THIS                                        
PROSPECTUS   DOES  NOT  CONSTITUTE  AN                                        
OFFER TO SELL OR A SOLICITATION  OF AN       CYBERSHOP INTERNATIONAL, INC.    
OFFER  TO BUY SUCH  SECURITIES  IN ANY                                        
CIRCUMSTANCES  IN WHICH  SUCH OFFER OR                                        
SOLICITATION IS UNLAWFUL.                            COMMON STOCK             
                                                                              
  -----------------------------------                                         
           TABLE OF CONTENTS                                                  
                                                                              
                                  PAGE                                        
                                  ----                                        
Prospectus Summary ...............   3                                        
Risk Factors .....................   6                                        
Use of Proceeds ..................  15                                        
Dividend Policy ..................  15    ----------------------------------- 
Dilution .........................  16                                        
Capitalization ...................  17                PROSPECTUS              
Selected Financial Data ..........  18                                        
Management's   Discussion    and          ----------------------------------- 
   Analysis of Financial Condition                                            
   and Results of Operations......  19                                        
Business .........................  22                                        
Management .......................  34                                        
Certain Transactions .............  39                                        
Principal Stockholders ...........  41                                        
Description of Capital Stock .....  42                                        
Shares Eligible for Future Sale ..  44                                        
Underwriting .....................  45                                        
Legal Matters ....................  46          C.E. UNTERBERG, TOWBIN        
Experts ..........................  46                                        
Additional Information ...........  46                                        
Index to Consolidated Financial                                               
   Statements..................... F-1           FAHNESTOCK & CO. INC.        
                                                                              
 -----------------------------------                                          
                                                                              
     UNTIL APRIL 17, 1998, ALL DEALERS                                        
EFFECTING    TRANSACTIONS    IN    THE                                        
REGISTERED SECURITIES,  WHETHER OR NOT                                        
PARTICIPATING  IN  THIS  DISTRIBUTION,              March 23, 1998            
MAY   BE   REQUIRED   TO   DELIVER   A                                        
PROSPECTUS. THIS IS IN ADDITION TO THE                                        
OBLIGATION  OF  DEALERS  TO  DELIVER A                                        
PROSPECTUS WHEN ACTING AS UNDERWRITERS                                        
AND  WITH   RESPECT  TO  THEIR  UNSOLD                                        
ALLOTMENTS OR SUBSCRIPTIONS.            
======================================  ======================================



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