XOOM INC, S-1, 1999-03-16

XOOM INC
S-1, 1999-03-16
ADVERTISING

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<PAGE>

As filed with the Securities and Exchange Commission on March 16, 1999

Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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XOOM.COM, INC.
(Exact name of registrant as specified in its charter)

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<TABLE>
<S> <C> <C>
Delaware 7310 88-0361536
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code No.) Identification No.)
</TABLE>

300 Montgomery Street, Suite 300
San Francisco, California 94104
(415) 288-2500
(Address and telephone number of principal executive offices and principal
place of business)

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John Harbottle
Chief Financial Officer
XOOM.com, Inc.
300 Montgomery Street, Suite 300
San Francisco, California 94104
(415) 288-2500
(Name, address, and telephone number of agent for service)

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Copies to:
<TABLE>
<S> <C>
Bruce Alan Mann, esq. Nora L. Gibson, esq.
Kristian E. Wiggert, esq. Rodrigo M. Guidero, esq.
Joel S. Fisch, esq. Taylor L. Stevens, esq.
Morrison & Foerster llp Brobeck, Phleger & Harrison llp
425 Market Street Spear Street Tower, One Market Street
San Francisco, California 94105-2482 San Francisco, California 94105
</TABLE>

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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.

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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered(1) Per Share(2) Offering Price(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par 4,600,000
value.................. shares $62.25 $286,350,000 $79,606
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</TABLE>
(1)Includes 600,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2)Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(c) under the Securities Act based on the high and
low sale prices of the common stock on the Nasdaq National Market on March
9, 1999.

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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada and the other to
be used in a concurrent offering outside the United States and Canada. The
prospectuses are identical except for the front and back cover pages, the
inside front cover page, and the section entitled "Certain United States
Federal Tax Consequences to Non-United States Holders" (which appears only in
the international prospectus) and certain cross-references relating thereto.
The form of U.S. prospectus is included in this Registration Statement and is
followed by the alternate pages to be used in the international prospectus.
Each of the alternate pages for the international prospectus included in this
Registration Statement is labeled "Alternate Page for International
Prospectus." Final forms of each prospectus will be filed with the Securities
and Exchange Commission under Rule 424(b).
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. The +
+information in this preliminary prospectus is not an offer to sell nor does +
+it seek an offer to buy these securities in any jurisdiction where the offer +
+or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 16, 1999

PRELIMINARY PROSPECTUS

4,000,000 Shares

XOOM.com, Inc.

Common Stock

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This is a public offering of 4,000,000 shares of common stock of XOOM.com, Inc.
We are selling 2,000,000 shares of common stock and the selling stockholders
identified in this prospectus are selling 2,000,000 shares. We will not receive
any of the proceeds from the shares of common stock sold by the selling
stockholders. Of these 4,000,000 shares of common stock, 3,400,000 shares are
being offered for sale in the United States and Canada by the U.S. underwriters
and 600,000 shares are being concurrently offered for sale outside the United
States and Canada by the international underwriters.

The U.S. underwriters have an option to purchase a maximum of 600,000
additional shares of common stock from us to cover over-allotments of shares.

Our common stock is traded on the Nasdaq National Market under the symbol
"XMCM." On March 12, 1999, the last reported sale price for our common stock
was $67.00 per share.

See "Risk Factors" beginning on page 7 to read about certain risks that you
should consider before buying shares of our common stock.

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Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

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<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price.............................................. $ $
Underwriting discount.............................................. $ $
Proceeds, before expenses, to us................................... $ $
Proceeds, before expenses, to the selling stockholders............. $ $
</TABLE>

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The U.S. underwriters are severally underwriting the shares being offered in
this prospectus. The U.S. underwriters expect to deliver the shares against
payment in New York, New York on March , 1999.

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Bear, Stearns & Co. Inc.
Hambrecht & Quist
BancBoston Robertson Stephens
Wit Capital Corporation
as e-Manager(TM)

The date of this Prospectus is , 1999
<PAGE>

[ARTWORK APPEARS ON THIS PAGE]

2
<PAGE>

PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all of the information that you should
consider before investing. You should read the entire prospectus carefully,
including the section entitled "Risk Factors" and our financial statements and
the related notes to those statements included in this prospectus. Except as
otherwise required by the context, references in this prospectus to "we," "us,"
"our" or "Xoom.com" refer to the Company and its subsidiaries. The term "you"
refers to prospective investors in the common stock. Unless otherwise
specified, all information in this prospectus assumes no exercise of the
underwriters' over-allotment option.

Xoom.com, Inc.

Xoom.com is one of the fastest growing direct e-commerce companies on the
Internet. We attract members to our community site with a variety of free
services, including homepages, e-mail, chat rooms, electronic newsletters, clip
art and software libraries, page counters and online greeting cards. Our
members can also join topical communities where they can exchange ideas and
information. Members may also enter specialized forums such as Investor Place,
Women's Circle or Health & Fitness, where they can gain access to professional
content and special product and service offers available only on our Web site.
Upon registration, members agree to receive periodic offers of products and
services via e-mail. These competitively priced and continuously updated offers
include computer software, computer accessories and peripherals, consumer
electronics, clip art on CD-ROM and collectible items. In addition, we offer
services such as a travel club, long distance telephone services and a DVD
club. Our new offerings will include services such as home and auto insurance,
wireless telecommunications services and membership clubs, and products such as
magazine subscriptions, appliances, games, photography supplies and gardening
tools, among others. We believe that our rapidly growing base of self-qualified
members provides us with highly attractive e-commerce opportunities. In
addition, we believe that our high levels of traffic and the number of unique
users that visit our site or affiliated sites on which we offer services on a
monthly basis, often referred to as reach, present an attractive platform for
advertising.

According to Media Metrix, Xoom.com was the eleventh most visited site on
the Internet in January 1999, and our reach increased to 17% in January 1999
from less than 2% in January 1998. In January 1999, the Xoom.com site and our
network of chat rooms and page counters had a total reach of 28%, according to
Media Metrix. We had approximately 6.6 million members as of March 15, 1999,
adding an average of approximately 23,000 new members per day for the last 30
days. We believe that our ability to achieve a high level of reach and
membership with minimal investment gives us a significant advantage as our e-
commerce and advertising businesses expand. In the quarter ended December 31,
1998, we derived 64% of our net revenue from e-commerce and approximately 18%
of net revenue from non-U.S. sales. Quarterly net revenue increased from
approximately $420,000 in the fourth quarter of 1997 to $3.5 million in the
fourth quarter of 1998, representing compound quarterly sales growth of
approximately 70%.

By offering our members a variety of attractive free services, participation
in virtual communities and competitively priced products, we believe we have
created an innovative online sales channel with low customer acquisition costs.
The key elements of our approach are:

. using the cost-effective direct e-commerce capabilities of the Web to
sell products to our members;

. rapidly initiating direct e-commerce campaigns using proprietary
campaign management software, allowing us to maximize response rates and
minimize inventory costs;

. offering a diverse product range and multiple e-commerce channels to
create an effective context for increased e-commerce transaction volume;

. providing free services to attract a growing membership base;

. collecting relevant information to develop a detailed member database;
and

. continuing to grow online reach and membership to create an attractive
advertising platform.

3
<PAGE>

Our objective is to be a leading direct e-commerce company on the Internet.
In order to accomplish this objective, we intend to continue to focus on
growing our membership base both in the U.S. and internationally, increasing
the rate at which we convert new members to buyers and building strong brand
recognition of the Xoom.com name. We also intend to significantly increase the
number and type of products and service offerings available to our members. We
believe that promoting repeat usage and member loyalty through free services
will help establish us as a preferred destination among Web users. We intend to
acquire other strategically complementary businesses and seek strategic
alliances that will increase our reach and membership.

"XOOM," "XOOM.com" and the "X-in-circle" logo are some of Xoom.com's
trademarks. This prospectus contains other product names, trade names and
trademarks of other organizations that are their property. We were incorporated
in Delaware on April 16, 1996 under the name Atomsoft, Inc., changed our name
to XOOM, Inc. in February of 1998 and to XOOM.com, Inc. in October of 1998. Our
principal executive offices are at 300 Montgomery Street, Suite 300, San
Francisco, California 94104, and our telephone number at this address is (415)
288-2500.

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This prospectus includes statistical data about the Internet industry that
comes from information published by sources including Media Metrix, Inc., a
media research firm specializing in market and technology measurement on the
Internet. We also refer to Jupiter Communications, LLC, a media research firm
focusing on the Internet industry, and International Data Corporation, also
known as IDC, and Forrester Research, providers of market information and
strategic information for the information technology industry. Although we
believe that data from these companies is generally reliable, this type of data
is inherently imprecise. We caution you not to place undue reliance on this
data.

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4
<PAGE>

THE OFFERING

<TABLE>
<C> <S>
Common stock offered by us in the U.S. offering........... 1,700,000 shares
Common stock offered by us in the international offering.. 300,000 shares
Common stock offered by the selling stockholders in the
U.S. offering ........................................... 1,700,000 shares
Common stock offered by the selling stockholders
in the international offering............................ 300,000 shares
Common stock to be outstanding after the Offering(1)...... 16,082,672 shares
Use of proceeds........................................... For general corporate
purposes, including
developing new
e-commerce channels,
expanding operations
internationally,
enhancing the value of
the Xoom.com brand,
potential acquisitions
and minority investments
and working capital.
Nasdaq National Market symbol............................. XMCM
</TABLE>
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(1) The following information is based on shares outstanding as of December 31,
1998. It excludes (A) 2,415,258 shares of common stock subject to
outstanding options with a weighted average exercise price of $6.96 per
share as of December 31, 1998; (B) 736,849 shares of common stock reserved
for issuance under our stock option and stock purchase plans; (C) 3,468
shares of common stock issued to directors since December 31, 1998; and
(D) 116,231 shares of common stock issued in conjunction with the exercise
of warrants since December 31, 1998. It assumes the exercise of outstanding
options to purchase 383,117 shares of common stock by the selling
stockholders with a weighted average exercise price of $1.44. See
"Capitalization," "Management--Benefit Plans" and Note 10 of Notes to
Consolidated Financial Statements.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
Period from
April 16 Year Ended
(Inception) to December 31,
December 31, -----------------
1996 1997 1998
-------------- ------- --------
(in thousands, except per share
data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenue:
E-commerce................................ $ -- $ 327 $ 5,582
Advertising............................... -- 60 2,144
License fees and other.................... -- 454 592
------ ------- --------
Total net revenue........................... -- 841 8,318
Gross profit................................ -- 522 4,734
Loss from operations........................ (440) (3,132) (9,356)
Net loss.................................... $ (440) $(3,132) $(10,798)
====== ======= ========
Net loss per share--basic and diluted(1).... $(0.89) $ (0.64) $ (1.37)
Number of shares used in per share
calculation--basic and diluted(1).......... 497 4,874 7,879
</TABLE>

<TABLE>
<CAPTION>
December 31, 1998
----------------------
Actual As Adjusted(2)
------- --------------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments....... $56,575 $183,826
Working capital......................................... 52,560 179,811
Total assets............................................ 66,874 194,125
Long-term obligations, less current portion............. 528 528
Total stockholders' equity.............................. 60,332 187,583
</TABLE>
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(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used to compute basic and
diluted net loss per share.

(2) As Adjusted reflects (A) the exercise of outstanding options to purchase
383,117 shares of common stock with a weighted average exercise price of
$1.44 by the selling stockholders and (B) receipt of the net proceeds from
the sale of the 2,000,000 shares of common stock we are offering, after
deducting the underwriting discount and estimated offering expenses, at an
assumed public offering price of $67.00 per share. See "How We Intend to
Use the Proceeds from the Offering" and "Capitalization."

6
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties of which we
are unaware or that we currently think are immaterial may also impair our
business operations.

If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. This
could cause the trading price of our common stock to decline, and you could
lose all or part of your investment.

We cannot assure you that we will be profitable because we have operated our
business only for a short period of time

Xoom.com was founded in April 1996 and has a limited operating history. An
investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, particularly those involved in e-commerce and the Internet. These
risks include:

. the level of use of the Internet and online services and consumer
acceptance of the Internet and other online services, particularly
direct e-mail marketing, for the purchase of consumer products such as
those we offer;

. the lack of broad acceptance of the community model on the Internet;

. our inability to generate significant e-commerce revenue or premium
service revenue from our members;

. our inability to maintain and increase levels of traffic on the Xoom.com
Web site;

. our failure to continue to develop and extend the Xoom.com brand;

. our inability to attract or retain members;

. our inability to meet minimum guaranteed impressions under advertising
agreements;

. our failure to anticipate and adapt to a developing market;

. our inability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;

. the failure of our server and networking systems to efficiently handle
our Web traffic; and

. our inability to effectively manage rapidly expanding operations.

We cannot be certain that our business strategy will be successful or that we
will successfully address these risks.

As of December 31, 1998, we had an accumulated deficit of $14.4 million.
Although we have experienced growth in our net revenue, members, customers and
reach in recent periods, these growth rates are not sustainable and will
decrease in the future. To date, we have not been profitable on either a
quarterly or an annual basis, and we expect to incur net losses for the
foreseeable future. We expect our operating expenses to increase significantly,
especially in the areas of sales and marketing and brand promotion, and, as a
result, we will need to increase our revenue to become profitable. If our
revenue does not grow as expected or increases in our expenses are not in line
with forecasts, there could be a material adverse effect on our business,
results of operations and financial condition.

7
<PAGE>

The unpredictability of our quarter-to-quarter results could cause our stock
price to be volatile or decline

Our operating results have fluctuated in the past and will likely continue
to do so in the future. Some of the factors that could cause our operating
results to fluctuate are:

. the level of demand for the services and products offered in our direct
e-mail marketing and our ability to meet the demand in a timely manner;

. consumers' receptiveness to e-commerce and to direct e-mail marketing in
particular;

. developments relating to advertising on the Web;

. timely deployment and expansion of our network and network
architectures;

. new services offered by our competitors that affect the level of traffic
on our Web site and the continuing expansion of our membership base;

. our ability to predict demand for products and services we offer and to
optimize inventory levels accordingly;

. marketing costs that we will need to incur in order to maintain and
enhance the Xoom.com brand name;

. the loss of key business relationships;

. the mix of domestic and international sales;

. the costs of acquiring technology or businesses and our ability to
integrate them into our operations; and

. economic conditions generally, as well as those specific to the Internet
and related industries.

To respond to these and other factors, we may need to make business
decisions that could have a material adverse effect on our quarterly operating
results.

Our business fluctuates on a seasonal basis. Traffic on our site has
historically been lower during the summer and year-end vacation and holiday
periods when people tend to spend less time on the Internet. Advertising
revenue also varies with the seasons. Typically, advertisers spend less during
the first and third calendar quarters. Web-based commerce and advertising are
relatively new, which means that new trends may develop that could affect the
results of our operations.

As a relatively new company, it is difficult for us to plan or anticipate
our operating expenses based on our limited historical financial data. If our
actual revenue is lower than predicted, we may be unable to adjust our
operating expenses accordingly.

A substantial portion of our net revenue is from short-term advertising
contracts, usually one to two months in length. That means our quarterly net
revenue is a function of the contracts we enter into within the quarter and our
ability to adjust spending in light of any net revenue shortfalls. To date, our
advertising revenue comes from a small group of customers whose composition
periodically changes. For example, during the year ended December 31, 1998, our
five largest advertisers accounted for approximately 35% of our total
advertising revenue. As a result, the cancellation of even a small number of
these advertising contracts could affect our operating results. Advertising
revenue is also linked to the level of traffic on our Web site, so if traffic
is less than the level expected by our advertising customers, our revenue from
this source could be affected. We have guaranteed our advertisers a minimum
number of impressions on our Web site. Reduced traffic on our Web site would
cause us to fall short in meeting this minimum requirement and as a result we
may give credits to our advertisers and reduce advertising rates, which would
lead to a reduction in our revenue from advertising.

The Internet has not been available for a sufficient period of time to gauge
its effectiveness as an advertising medium when compared with traditional
media. Notwithstanding, there is intense competition among sellers of
advertising space on the Web. This makes it difficult to project pricing models
or to anticipate whether we will be successful in selling advertising space and
relying on advertising as a substantial source of revenue.

8
<PAGE>

Due to the foregoing factors, we believe that period-to-period comparisons
of our operating results are not necessarily meaningful, you should not view
them as indicators of our future performance. If our operating results in any
period fall below the expectations of securities analysts and investors, the
market price of our shares would likely decline.

Because our business model is unproven and depends on maintaining and expanding
our membership base, we do not know whether our business model will ultimately
be viable and profitable

Our business model relies on using our community platform and membership
base to generate revenues from different sources. To be profitable, we will
need to provide goods and services that are attractive to our members,
advertisers and vendors. We have relied on member-generated content and the
"grassroots" voluntary promotional efforts of our members to develop and
maintain our profile as a community site. A decline in voluntary promotional
activities by our members or member-generated content could make our Web site
less attractive. We cannot be sure that Internet users will continue to be
interested in communities on the Web, or that direct e-mail marketing will
prove to be a profitable or effective method of selling goods and services.

Our future success also depends on the continued growth in the use of the
Internet and the Web. Use of the Internet for retail transactions is a recent
development, and the continued demand and growth of a market for services and
products via the Internet is uncertain. For the year ended December 31, 1998,
e-commerce was the source of approximately 67% of our total net revenue. The
Internet may ultimately prove not to be a viable commercial marketplace for a
number of reasons, including:

. unwillingness of consumers to shift their purchasing from traditional
retailers to online purchases;

. lack of acceptable security for data and concern for privacy of personal
information;

. limitations on access and ease of use;

. congestion leading to delayed or extended response times;

. inadequate development of Web infrastructure to keep pace with increased
levels of use;

. increased or excessive government regulation; and

. problems regarding intellectual property ownership.

Because of these factors, we do not know whether our business model will
ultimately be viable and profitable.

Our international operations are subject to risks that could have a material
adverse effect on our results of operations

We market and sell our products in the United States and internationally.
Approximately 25% of our net revenue during 1998 came from sales outside the
United States. We plan to establish additional operations or form business
partnerships in other parts of the world. The expansion of our existing
international operations and entry into additional international markets will
require substantial management attention and financial resources. We cannot be
certain that our investment in establishing operations in other countries will
produce the desired levels of revenue. In addition, international operations
are subject to other inherent risks and problems, including:

. the impact of recessions in economies outside the United States;

. greater difficulty in accounts receivable collections;

. unexpected changes in regulatory requirements;

. difficulties and costs of staffing and managing foreign operations;

. reduced protection for intellectual property rights in some countries;

9
<PAGE>

. political and economic instability;

. the introduction of the euro;

. fluctuations in currency exchange rates; and

. difficulty in maintaining effective communications due to distance and
language and cultural barriers.

Some or all of the above factors could have a material adverse effect on the
results of our operations.

Any failure of our network infrastructure could have a material adverse effect
on our results of operations

Our success depends upon the capacity, reliability and security of our
networking hardware and software infrastructure. We have developed an open
standard hardware and software system that is designed for reliability. System
architecture is based on a distributed model that is highly scalable, flexible
and modular, emphasizing extensive automation and a high degree of redundancy
that is designed to minimize single points of failure. The system integrates
site management, network monitoring, quality assurance, transaction processing
and fulfillment services. Currently, the system has 2.5 terabytes of
unformatted disk space, supports over 25 million hits per day, has a peak
bandwidth of over 90 megabits per second and transfers 350 megabytes of data
each day.

We must continue to expand and adapt our system infrastructure to keep pace
with the increase in the number of our members who use the free services we
provide. Demands on our infrastructure that exceed our current forecasts could
result in technical difficulties with our Web site. Any system failure that
interferes with the access to our Web site and the use of the free services we
provide could diminish the level of traffic on our Web site. Continuing or
repeated system failures could impair our reputation and brand name and reduce
our commerce and advertising revenue. At present, we do not know if we will be
able to scale our systems to handle a larger amount of traffic at higher
transmission speeds. Expanding our network infrastructure will require
substantial financial, operational and management resources in 1999 and future
periods, all of which could affect the results of our operations.

We developed our systems for maintaining our Web site, processing
transactions and managing orders internally. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume
of transactions and orders, we could suffer slower response time, problems with
customer service and delays in reporting accurate financial information. Any of
these factors could significantly and adversely impact the results of our
operations.

We use network servers that are housed separately by application at Exodus
Communications, Inc. in Santa Clara, California and Frontier Global Center in
Sunnyvale, California. Our site is connected to the Internet via multiple DS-3
and OC-3 links on a 24 hour-a-day, seven days per week basis by Exodus and
Frontier Global Center. Exodus and Frontier Global Center also provide and
manage power and environmentals for our networking and server equipment. We
manage and monitor our servers and network remotely from our headquarters in
San Francisco, California. We strive to rapidly develop and deploy high-quality
tools and features into our system without interruption or degradation in
service.

Although the agreements we have with our hosting companies give us remedies
for service interruptions, we cannot guarantee that:

. we will have uninterrupted access to the Internet;

. our members will be able to reach our Web site; or

. communications via our Web site will be secure.

Any disruption in the Internet access provided by Exodus or Frontier Global
Center, or any interruption in the service that Exodus or Frontier Global
Center receives from other providers, or any failure of Exodus or

10
<PAGE>

Frontier Global Center to handle higher volumes of Internet users to the
Xoom.com site could have a material adverse effect on our business, results of
operations and financial condition.

Despite precautions taken by us and by the companies that host our Web site,
our system is susceptible to natural and man-made disasters such as
earthquakes, fires, floods, power loss and sabotage. Our system is also
vulnerable to disruptions from computer viruses and attempts by hackers to
penetrate our network security. Hackers have succeeded in penetrating our
network security in the past, and we expect such attempts to continue from time
to time.

We are covered for loss of income from some of the events listed above by a
$1.0 million insurance policy, but this insurance may not be adequate to cover
all instances of system failure. We have insurance coverage of $1.25 million
against loss of income due to earthquakes, but this amount may be insufficient,
especially given the frequency of earthquakes in Northern California.

Any of the events listed above could cause us interference, delays, or
service interruptions and adversely affect our business and results of
operations.

Breaches of our network security could also disrupt the operation of our Web
site and jeopardize the security of confidential information stored in our
servers

Our system is also vulnerable to disruptions from computer viruses and
attempts by hackers to penetrate our network security. Hackers have succeeded
in penetrating our network security in the past, and we expect such attempts to
continue from time to time. We may need to devote substantial capital and
resources to protect against the threat of unauthorized penetration of our
network security. Breaches of our network security could also disrupt the
operation of our Web site and jeopardize the security of confidential
information stored in our servers. The occurrence of any of the events listed
above could cause us to lose members and also expose us to liability and result
in litigation, all of which could have an adverse effect on our operations.

We depend on our vendors and suppliers

We rely on other companies for critical aspects of our business. Banta
Corporation is primarily responsible for fulfilling orders for products and
services sold via our Web site and in response to direct e-mail marketing.
Substantially all of our revenue from e-commerce comes from these sales. We do
not have a written agreement with Banta. If our relationship with Banta were to
terminate without sufficient advance notice, our operations would be negatively
affected, even if we were able to establish a relationship with a comparable
vendor to fulfill orders. An unanticipated termination of our relationship with
Banta would be particularly damaging during the fourth calendar quarter, in
which a high percentage of our annual sales are made. We would also be affected
by problems experienced by Banta, such as insufficient capacity and damage from
human error, sabotage, fire, flood, power loss and other similar man-made or
natural disasters. The success of our specific e-mail direct e-commerce
campaigns depends on the timely supply of inventory by the manufacturers and
suppliers of the products we offer for sale to our members. In particular, we
rely on Logic General, Inc. for all of our CD-ROM products, DVDs and DVD-ROMs
that contain software, clip art and classic movies. The failure of Logic
General or other suppliers on whom we depend would adversely affect the results
of our operations.

Imposition of new taxes or fees by the Federal government of the United States
or by foreign governments on Internet transactions or on the use of the
Internet as a means of communication could also adversely affect us

We do not currently collect sales or similar taxes for goods that we ship
into states other than California and New York. Imposition of sales or other
similar taxes on our sales of merchandise by states or countries where we ship
goods could have a material adverse effect on our results of operations.
Imposition of new taxes or fees by the Federal government of the United States
or by foreign governments on Internet transactions or on the use of the
Internet as a means of communication could also adversely affect us.

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Difficulties we may encounter dealing with our growth and expansion could
adversely affect the results of our operations

Our rapid rate of growth places a significant strain on our resources due
to:

. the need to manage relationships with various strategic partners,
technology licensors, members, advertisers, and other third parties;

. difficulties in hiring and retaining skilled personnel necessary to
support our business;

. the need to train and manage our growing employee base; and

. pressures for the continued development of our financial and information
management systems.

Difficulties we may encounter dealing successfully with the above risks
relating to our rapid growth could adversely affect the results of our
operations.

The loss of key personnel, or the inability to attract and retain additional,
qualified personnel, could have a material adverse effect on our results of
operations

Our success depends to a significant degree upon the continued contributions
of our executive management team, most of whom have worked together only for a
short time. We do not carry key man life insurance on the lives of any of our
employees, including senior management. Our success will also depend upon the
continued service of our senior management team as well as technical, marketing
and sales personnel. Competition for qualified employees is intense. Our
employees may voluntarily terminate their employment with us at any time. Our
success also depends upon our ability to attract and retain additional highly
qualified management, technical, sales and marketing and customer support
personnel. Locating personnel with the combination of skills and attributes
required to carry out our strategy is often a lengthy process. The loss of key
personnel, or the inability to attract and retain additional, qualified
personnel, could have a material adverse effect on our results of operations.

As the number of Internet sites grow, brand recognition will play an
increasingly important role. Establishing and promoting the Xoom.com brand in
the face of pressures from our competitors will be critical to developing our
member base and strategic and commercial relationships. We will be required to
continue to devote substantial financial and other resources to maintaining the
distinctiveness of our brand to our members, advertisers and commerce partners
through:

. Web advertising and marketing;

. traditional media advertising campaigns in print, radio, billboards and
television; and

. providing a high quality community experience.

The results of our operations could be adversely affected if our investment
of financial and other resources in promoting our brand does not generate a
corresponding increase in net revenue, or if the expense of promoting our brand
name becomes excessive. Changes in the quality and type of services we offer
and the character of our company as perceived by our members could make our Web
site less attractive to our members, advertisers, and strategic partners, all
of which would have a material adverse effect on the results of our operations.

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If we are unable to integrate new technologies and standards effectively, the
results of our operations could be adversely affected

Our ability to remain competitive in our area of business will depend, in
part, on our ability to:

. enhance and improve the responsiveness, functionality and features of
our Web site;

. continue to develop our technical expertise;

. develop and introduce new services and technology to meet changing
customer needs and preferences;

. influence and respond to emerging industry standards and other
technological changes in a timely and cost effective manner; and

. license leading technologies useful in our business.

We cannot assure you that we will be successful in responding to the above
technological and industry challenges in a timely and cost-effective way. If we
are unable to integrate new technologies and standards effectively, there could
be an adverse effect on our results of our operations.

Privacy concerns, government regulation and legal uncertainties could have an
adverse effect on our business and results of operations

Laws and regulations that apply directly to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws that govern intellectual property, privacy, libel and taxation
apply to the Internet. The development of laws governing these areas may
decrease the growth in the use of the Internet, which could adversely impact
our business. In addition, the growth and development of the e-commerce market
may prompt calls for more stringent consumer protection laws, both in the
United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business.

The Federal Communications Commission ("FCC") is currently reviewing its
regulatory positions on data transmissions over telecommunications networks and
could seek to impose some form of telecommunications carrier regulation on
telecommunications functions of information services. State public utility
commissions generally have declined to regulate information services, although
the public service commissions of some states continue to review potential
regulation of such services. Future regulation or regulatory changes could have
an adverse effect on our business and results of operations.

Our failure to attract advertising revenue in quantities and at rates that are
satisfactory to us could have a material adverse effect on our business,
results of operations and financial condition

We have derived a material portion of our net revenue to date from the sale
of advertisements, including banner advertising revenue. For the year ended
December 31, 1998, advertising revenue represented 26% of our total net
revenue. During the same period, our five largest advertising customers
accounted for approximately 35% of advertising revenue (approximately 9% of
total net revenue). We intend to continue to rely on advertising as a
significant source of revenue.

It is uncertain whether Web advertising will continue to grow at a rate that
will support expansion in our net revenue. The Internet as a marketing and
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional media. Many of our
suppliers and advertisers have only limited experience with the Web as a sales
and advertising medium. Advertisers have not yet devoted a significant portion
of their advertising budgets to Web-based advertising and may not find such

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advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. For 1997, advertising on the Web
represented less than 0.5% of overall advertising revenue in the United States
according to industry sources.

It is also possible that in the future certain Internet access providers
will act to block or limit the use of e-mail direct e-commerce solicitations,
whether at their own behest or at the request of users. Members may also choose
not to receive our e-mail offerings or may fail to respond to such offerings.
Moreover, "filter" software programs that limit or remove advertising from a
Web user's desktop are available. If these programs become popular, there could
be a material adverse effect upon the viability of advertising on the Web and
on our business, results of operations and financial condition.

Any increase in competition could adversely affect our ability to maintain or
improve our position in the market relative to that of our competitors, which
could have a material adverse effect on our business and results of operations

The market for community-based direct selling channels on the Internet is
new and rapidly evolving. Competition for members, consumers, visitors and
advertisers is intense and is expected to increase over time. Barriers to entry
are relatively low. Other companies that are primarily focused on creating Web-
based communities on the Internet and with whom we compete are Tripod and
WhoWhere, subsidiaries of Lycos, GeoCities, recently acquired by Yahoo!, and
theglobe.com. We also face competition and compete for visitors and traffic
with Web directories, search engines, shareware archives, content sites, online
service providers, and traditional media companies such as ABC, America Online,
CBS, CNET, Excite, Infoseek, Lycos, NBC, Netscape, Microsoft, Time Warner and
Yahoo!.

We also expect intense competition in the e-commerce market from an ever
increasing number of companies selling goods and services over the Internet,
particularly goods and services that relate to the use of computers. These
competitors include:

. traditional computer retailers including CompUSA and Micro Electronics's
MicroCenter;

. various mail-order retailers including CDW Computer Centers, Micro
Warehouse, Insight Enterprises, Inc., PC Connection, Inc. and Creative
Computers;

. Internet-focused retailers including Amazon.com, Egghead's Egghead.com,
software.net, and New England Circuit Sales' NECX Direct;

. manufacturers that sell directly over the Internet including Dell
Computer, Gateway 2000, Apple Computer and many software companies;

. a number of online service providers including America Online and the
Microsoft Network that offer computer products directly or in
partnership with other retailers;

. some non-computer retailers such as Wal-Mart Stores that sell a limited
selection of computer products in their stores; and

. computer products distributors that may develop direct sales channels to
the consumer market.

Increased competition from these and other sources could require us to
respond to competitive pressures by establishing pricing, marketing and other
programs or seeking out additional strategic alliances or acquisitions that may
be less favorable to us than we could otherwise establish or obtain, and thus
could have a material adverse effect on our business, prospects, financial
condition and results of operations.

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offer professional editorial content, are more effective sites for advertising.
Moreover, we may be unable to maintain the high level of traffic on our Web
site or our member base, which would make our site less attractive than those
of our competitors. Any of these factors could adversely affect our ability to
maintain or improve our position in the market relative to that of our
competitors.

Our inability to protect our intellectual property rights could have a material
adverse effect on our business and financial condition

We view our technology as proprietary and try to protect it under existing
United States and international laws relating to protection of intellectual
property. We have also developed internal procedures to control access and
dissemination of our proprietary information. Despite our precautions, third
parties may succeed in misappropriating our intellectual property or
independently developing similar intellectual property. Protecting our
intellectual property against infringement could result in substantial legal
and other costs and could divert our limited management resources and
attention. This could adversely impact our business and the results of our
operations.

Some of the technology incorporated in our Web site is based on technology
licensed from third parties. As we continue to introduce new services, we may
need to license additional technology. If we are unable to timely license
needed technology on commercially reasonable terms, we could experience delays
and reductions in the quality of our services, all of which could adversely
affect our business and results of operations. Our reputation and the value of
our proprietary information could also be adversely affected by actions of
third parties to whom we license our proprietary information and intellectual
property. If someone asserts a claim relating to proprietary technology or
information against us, we may seek licenses to such intellectual property. We
cannot assure you, however, that we could obtain licenses on commercially
reasonable terms, if at all. The failure to obtain the necessary licenses or
other rights could have a material adverse effect on our business and results
of operations.

Although we do not believe we infringe the proprietary rights of any third
parties, we cannot assure you that third parties will not assert claims against
us in the future. From time to time, we have been subject to claims of alleged
infringement of intellectual property rights of others on the basis of our
actions and the content generated by our members. These categories of claims,
whether or not meritorious, could result in litigation and become a drain on
our management and financial resources. If successful, claims of this nature
could subject us to liability, injunctive relief restricting our use of
intellectual property important to our operations, and could ultimately cause
us to lose rights to some of our intellectual property. Any of these events
could have a material adverse effect on our business and results of operations.

We could be subject to liability for online content that may not be covered by
our insurance

The nature and breadth of information disseminated on our Web site and
through the sites of our members could expose us to liability in various areas,
including claims relating to:

. product information and reviews we offer;

. the content and publication of various materials based on defamation,
libel, negligence, personal injury and other legal theories;

. copyright or trademark infringement and wrongful action due to the
actions of third parties;

. use of third party content made available through our Web site or
through content and material posted by members on their home pages or in
chat rooms and bulletin boards; and

. damages arising from the use or misuse of the free e-mail services we
offer.

Claims of these kinds against us would result in our incurring substantial
costs and would also be a drain on our financial and other resources. If there
were a sufficient number or severity of claims of this nature, we would need to
implement measures to reduce our exposure and potential liability. In addition
to being a drain

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on our resources, this may also require taking measure that could make our
services less attractive to our members and visitors. This in turn could reduce
traffic on our Web site, negatively impact our member base, and reduce our
revenue from e-commerce and advertising. We carry general liability insurance
in the aggregate amount of $2.0 million and umbrella coverage in an aggregate
amount of $5.0 million. This coverage may be insufficient to cover expenses and
losses arising in connection with any claims against us. To the extent our
insurance coverage does not cover liability or expenses we incur, our business
and results of operations would be adversely affected.

We could face liability from legal proceedings that could adversely affect our
business and results of operations

We are litigating a dispute with Imageline, Inc., which claims to own the
copyright in certain clip art images licensed to us by Sprint Software Pty Ltd,
an unrelated third party. Some of the disputed images were included in versions
of our Web Clip Empire CD-ROM product licensed by us to third parties,
including other software clip publishers. The images licensed from Sprint
Software generated less than 1.0% of our total net revenue in 1998, and since
September 30, 1998, we have not received any net revenue for images licensed
from Sprint Software.

To resolve this matter, we filed a lawsuit against Imageline in August 1998
in the United States District Court for the Eastern District of Virginia. We
asked for a declaration with respect to Imageline's allegations of copyright
infringement regarding the clip art images. In September 1998, Imageline filed
a counterclaim, which they amended in January 1999, seeking up to $60 million
in damages. In March 1999, the parties completed the discovery process and
filed separate motions for partial summary judgment. The lawsuit is scheduled
for trial on April 13, 1999.

We believe that the claims asserted in Imageline's counterclaim are without
merit and continue to defend against them vigorously. As part of the lawsuit,
we are seeking to enforce our right to indemnification under our license
agreement with Sprint Software for any damages that may be imposed on us,
although we do not know whether Sprint Software will be able to fulfill its
indemnity obligations. Depending on the outcome of the litigation, we may also
need to indemnify third parties for damages in connection with the use of the
Imageline images. An unfavorable outcome in this litigation could adversely
affect our business and results of operations.

Zoom Telephonics, Inc. filed a lawsuit against us in September 1998 in the
United States District Court for the District of Massachusetts alleging
trademark infringement and related statutory violations. We were not served
with Zoom Telephonics' complaint until January 1999. Zoom Telephonics has
demanded that we stop using the XOOM trademark and has asked for an unspecified
amount of money damages. We responded to the complaint in February 1999. We
believe that the claims asserted by Zoom Telephonics are without merit and
intend to defend against them vigorously. We cannot assure you, however, that
the results of this litigation will be favorable to us. An adverse result of
the litigation could have a material adverse effect on our business and results
of operations, particularly if the litigation forces us to make substantial
changes to our name and trademark usage. Any name change could result in
confusion to consumers and investors, which could adversely affect the results
of our operations and the market price of our common stock.

If we are unable to successfully integrate future acquisitions into our
operation, there could be an adverse effect on our business and results of
operations

Acquiring complementary businesses, products and technologies is an integral
part of our business strategy. Some of the risks attendant to this acquisition
strategy are:

. difficulties and expenses of integrating the operations and personnel of
acquired companies into our operations while preserving the goodwill of
the acquired entity;

. the additional financial resources that may be needed to fund the
operations of acquired companies;

. the potential disruption of our business;

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<PAGE>

. our management's ability to maximize our financial and strategic
position by incorporating acquired technology or businesses;

. the difficulty of maintaining uniform standards, controls, procedures
and policies;

. the potential loss of key employees of acquired companies;

. the impairment of relationships with employees and customers as a result
of changes in management; and

. increasing competition with other entities for desirable acquisition
targets.

Any of the above risks could prevent us from realizing significant benefits
from our acquisitions. In addition, the issuance of our common stock in
acquisitions will dilute our stockholder interests in our company, while the
use of cash will deplete our cash reserves. Finally, if we are unable to
account for our acquisitions under the "pooling of interests" method of
accounting, we may incur significant, one-time write-offs and amortization
charges. These write-offs and charges could decrease our future earnings or
increase our future losses. Due to all of the foregoing, implementing our
acquisition strategy may have a material adverse effect on our business and
results of operations.

If our capital is insufficient to promote our business, and if we cannot obtain
needed financing, we will be unable to promote our brand name, exploit
acquisition opportunities and otherwise maintain our position relative to that
of our competitors

We believe that the proceeds from our initial public offering, together with
the proceeds from this offering, will be sufficient to support our operations
for the next 12 months. Notwithstanding, we may need to raise additional funds
to maintain and develop our position in the marketplace. It may be difficult or
impossible for us to obtain financing on favorable terms. Raising funds by
issuing equity securities or convertible debt securities will dilute the
percentage ownership of our current stockholders. Also, new securities we may
issue may have rights senior to the rights of our common stock. If we cannot
obtain needed financing, we will be unable to promote our brand name, exploit
acquisition opportunities and otherwise maintain our position relative to that
of our competitors.

If important strategic relationships are discontinued for any reason, there
would be a material adverse effect on our business and financial condition

Although our strategic relationships are a key factor in our overall
business strategy, our strategic partners may not view their relationships with
us as significant to their own business. There is a risk that parties with whom
we have strategic alliance agreements may not perform their obligations as
agreed. Our arrangements with strategic partners generally do not establish
minimum performance requirements but instead rely on the voluntary efforts of
our partners. In addition, most of our agreements with strategic partners may
be terminated by either party with little notice. If important strategic
relationships are discontinued for any reason, our business and results of
operations may be adversely affected.

Year 2000 issues could negatively affect our business

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.

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equipment and servers. We do not anticipate material problems with network
equipment, as our current configuration was installed within the last three
years. Similarly, we purchased most of our servers in 1997 and 1998. With this
relatively current equipment, we do not anticipate material Year 2000
compliance problems, and we will replace any servers that we cannot update
either in the normal replacement cycle or on an accelerated basis. We have also
internally standardized our personal computers on Windows NT 4.0, using
reasonably current service packs, which we are advised by our vendor are Year
2000 compliant. We use multiple software systems for internal business
purposes, including accounting, e-mail, development, human resources, customer
service and support and sales tracking systems. All of these applications have
been purchased within the last three years.

We have made inquiries of vendors of systems we believe to be mission
critical to our business regarding their Year 2000 readiness. Although we have
received various assurances, we have not received affirmative documentation of
Year 2000 compliance from any of these vendors and we have not performed any
operational tests on our internal systems. We generally do not have contractual
rights with third party providers should their equipment or software fail due
to Year 2000 issues. If this third party equipment or software does not operate
properly with regard to Year 2000, we may incur unexpected expenses to remedy
any problems. These expenses could potentially include purchasing replacement
hardware and software. We have not determined the state of compliance of
certain third-party suppliers of services such as warehousing and fulfillment
services, phone companies, long distance carriers, financial institutions and
electric companies, the failure of any one of which could severely disrupt our
ability to carry on our business.

We anticipate that our review of Year 2000 issues and any remediation
efforts will continue throughout calendar 1999. The costs incurred to date to
remediate our Year 2000 issues have not been material. If any Year 2000 issues
are uncovered with respect to these systems or our other internal systems, we
believe that we will be able to resolve these problems without material
difficulty, as replacement systems are available on commercially reasonable
terms. We presently estimate that the total remaining cost of addressing Year
2000 issues will not exceed $150,000. We derived these estimates using a number
of assumptions, including the assumption that we have already identified our
most significant Year 2000 issues. However, these assumptions may not be
accurate, and actual results could differ materially from those anticipated. In
view of our Year 2000 review and remediation efforts to date, the recent
development of our products and services, the recent installation of our
networking equipment and servers, and the limited activities that remain to be
completed, we do not consider contingency planning to be necessary at this
time.

Our applications operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems. We
are unable to predict to what extent our business may be affected if our
systems or the systems that operate in conjunction with it experience a
material Year 2000 failure. Known or unknown errors or defects that affect the
operation of our software and systems could result in delay or loss of revenue,
interruption of services, cancellation of contracts and memberships, diversion
of development resources, damage to our reputation, increased service and
warranty costs, and litigation costs, any of which could adversely affect our
business, financial condition and results of operations. The most likely worst
case scenario is that the Internet fails and we are unable to offer any
services on our community site or make any of our direct e-commerce offerings.

Our stock price has been and may continue to be volatile

The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to
a variety of factors, including:

. actual or anticipated variations in quarterly operating results;

. announcements of technological innovations;

. new products or services offered by us or our competitors;

. changes in financial estimates by securities analysts;

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. conditions or trends in the e-commerce market;

. our announcement 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 that may be beyond our control.

In addition, the Nasdaq National Market, where most publicly held Internet
companies are traded, has recently experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or disproportionate
to the operating performance of these companies. The trading prices of many
Internet companies' stocks are at or near historical highs and these trading
prices and multiples are substantially above historical levels. These trading
prices and multiples may not be sustainable. These broad market and industry
factors may materially adversely affect the market price of our common stock,
regardless of our actual operating performance. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation often has been instituted against that company. Litigation
like this, if instituted, could result in substantial costs and a diversion of
management's attention and resources.

Anti-takeover provisions in our charter documents could negatively impact our
stockholders

Our Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock without need for stockholder approval. The board may also
determine the economic and voting rights, of this preferred stock. The holders
of our common stock could be adversely affected by the issuance of preferred
stock. Issuance of preferred stock could impede or prevent transactions that
would cause a change in control of our company. This might discourage bids for
our common stock at a premium over the market price of our common stock and
adversely affect the trading price of our common stock. We have no current
plans to issue shares of preferred stock. In addition, other provisions in our
charter documents could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders.

The sale of shares eligible for future sale in the open market could depress
our stock price

If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity related securities in the future at a time and price that we deem
appropriate.

Upon completion of the offering, we will have outstanding 16,082,672 shares
of common stock, based on shares outstanding as of December 31, 1998 and
assuming the exercise of options to purchase 383,117 shares of common stock by
the selling stockholders. Of these shares, the 4,000,000 shares sold in this
offering will be freely tradable without restriction under the Securities Act,
unless they are held by "affiliates" as defined under the Securities Act. In
addition, the 4,600,000 shares sold in our initial public offering in December
1998 and 5,000 shares released from the lock-up agreements executed by our
stockholders in connection with the initial public offering are freely
tradeable.

We sold the remaining 7,477,672 outstanding shares in reliance on exemptions
from the registration requirements of the Securities Act and therefore these
are "restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144, 144(k)
or 701 promulgated under the Securities Act. In connection with our initial
public offering, our Directors, officers, stockholders and holders of options
to purchase common stock agreed that they will not sell, directly or
indirectly, any common stock without the prior written consent of Bear, Stearns
& Co. Inc. for a period of 180 days from the date of the initial public
offering. This period will expire on June 8, 1999. Bear, Stearns & Co. Inc.
may, however, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to lock-up agreements. Subject to the
provisions of Rules 144, 144(k) and 701, 7,477,672 shares will be eligible for
sale on June 8, 1999 upon the expiration of the lock-up agreements.

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In February 1999, we filed Form S-8 registration statements under the
Securities Act to register all shares of common stock issuable pursuant to
outstanding options and all shares of common stock reserved for issuance under
our Stock Incentive Plan and Stock Purchase Plan. These registration statements
became effective immediately upon filing, and shares covered by those
registration statements are therefore eligible for sale in the public markets,
subject to options becoming exercisable, the lock-up agreements described above
and Rule 144 limitations applicable to affiliates. As of December 31, 1998,
assuming the exercise of options to purchase 383,117 shares of common stock by
the selling stockholders, there were outstanding options to purchase up to
2,415,258 shares of common stock that will be eligible for sale in the public
market following the offering from time to time subject to becoming exercisable
and the expiration of the lock-up agreements, and an additional 736,849 shares
of common stock were reserved for issuance under the Stock Incentive Plan and
the Stock Purchase Plan.

Our management can spend most of the proceeds from this offering in ways with
which stockholders might not agree

Our management can spend most of the proceeds from this offering in ways
with which the stockholders might not agree. We cannot predict that the
proceeds will be invested to yield a favorable return. See "How We Intend to
Use the Proceeds from the Offering."

A number of our stockholders are selling shares in this offering and will
realize substantial gains on sales of those shares

A number of our stockholders are selling shares in this offering. The
average price per share paid by these stockholders is $1.19. Based on an
assumed public offering price of $67.00 per share, the average realized gain
per share to these stockholders will be approximately $65.81.

As a new investor, you will experience immediate and substantial dilution

Investors purchasing shares of common stock in the offering will incur
immediate and substantial dilution in net tangible book value per share of the
common stock from the offering price of $55.68 per share. To the extent
outstanding options or warrants to purchase common stock are exercised, there
will be further dilution. See "Dilution."

The forward looking statements we make in this prospectus might prove
inaccurate, resulting in a material difference between our actual results,
levels of activity, performance or achievements and those the forward looking
statements express or forecast

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.

In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue"
or the negative of such terms and other comparable terminology.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor anyone else
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the
date of this prospectus.

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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

The net proceeds to us from the sale of the 2,000,000 shares of common stock
we are offering are estimated to be $126,700,000 (approximately $164,890,000 if
the underwriters' over-allotment option is exercised in full) at an assumed
public offering price of $67.00 per share, after deducting the estimated
underwriting discount and offering expenses. We will not receive any proceeds
from the sale of the shares that the selling stockholders are selling.

We expect to use the net proceeds for general corporate purposes, including
developing new e-commerce channels, expanding operations internationally,
enhancing the value of the Xoom.com brand, making potential acquisitions or
minority investments and for working capital. The amounts we actually spend for
these purposes may vary significantly and will depend on a number of factors,
including our future revenue and cash generated by operations and the other
factors described under "Risk Factors." In the ordinary course of business, we
evaluate potential acquisitions of businesses, technologies and product
offerings or minority investments in businesses. However, we have no current
agreements or commitments with respect to any such acquisitions or investments.
Pending use of the net proceeds, we intend to invest them in short-term,
interest-bearing, investment grade securities. Therefore, we will have broad
discretion in the way we use the net proceeds. See "Risk Factors--If we are
unable to successfully integrate future acquisitions into our operation, there
could be an adverse effect on our business and results of operations" and "--
Our management can spend most of the proceeds from this offering in ways with
which stockholders might not agree."

DIVIDEND POLICY

We have not declared or paid any cash dividends on our common stock and do
not anticipate paying any cash dividends in the foreseeable future. We intend
to retain our earnings, if any, for use in our growth and ongoing operations.

PRICE RANGE OF COMMON STOCK

Our common stock has been traded on the Nasdaq National Market under the
symbol "XMCM" since our initial public offering on December 9, 1998. The
following table sets forth, for the periods indicated, the high and low sales
prices for our common stock as reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year Ended December 31, 1998:
Fourth Quarter (from December 9, 1998)..................... $45 1/8 $21 1/8
Fiscal Year Ended December 31, 1999:
First Quarter (through March 12, 1999)..................... $77 $28 1/4
</TABLE>

On March 12, 1999, the last reported sale price for our common stock on the
Nasdaq National Market was $67.00 per share. As of March 11, 1999, we estimated
that there were approximately 238 holders of record and over 16,402 beneficial
owners of the common stock.

21
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1998
(A) on an actual basis and (B) on an as adjusted basis to reflect the sale of
the 2,000,000 shares of common stock we are offering at an assumed public
offering price of $67.00 per share, after deducting the underwriting discount
and estimated offering expenses and the application of the net proceeds
therefrom.

<TABLE>
<CAPTION>
December 31, 1998
---------------------
Actual As Adjusted
-------- -----------
(in thousands,
except share data)
<S> <C> <C>
Current portion of notes payable......................... $ 1,276 $ 1,276
Current portion of capital lease obligation.............. 37 37
-------- --------
$ 1,313 $ 1,313
======== ========
Long-term obligations, less current portion.............. $ 528 $ 528
Stockholders' equity:
Preferred Stock, $0.0001 par value; 5,000,000 shares
authorized, actual and as adjusted; no shares issued
and outstanding, actual and as adjusted............... -- --
Common Stock, $0.0001 par value; 40,000,000 shares
authorized, actual and as adjusted; 13,699,555 shares
issued and outstanding, actual; 16,082,672 shares
issued and outstanding, as adjusted(1)................ 75,605 202,856
Deferred compensation.................................. (904) (904)
Accumulated deficit.................................... (14,369) (14,369)
-------- --------
Total stockholders' equity........................... 60,332 187,583
-------- --------
Total capitalization..................................... $ 60,860 $188,111
======== ========
</TABLE>
- ----------
(1) The following information is based on shares outstanding as of December 31,
1998. It excludes (A) 2,798,375 shares of common stock subject to
outstanding options with a weighted average exercise price of $6.20 per
share as of December 31, 1998; (B) 736,849 shares of common stock reserved
for issuance under our stock option and stock purchase plans; (C) 3,468
shares of common stock issued to directors since December 31, 1998; and (D)
116,231 shares issued in conjunction with the exercise of options and
warrants since December 31, 1998. As adjusted assumes the exercise of
outstanding options to purchase 383,117 shares of common stock by the
selling stockholders with a weighted average exercise price of $1.44. See
"Management--Benefit Plans" and Note 10 of Notes to Consolidated Financial
Statements.

22
<PAGE>

DILUTION

Our actual net tangible book value as of December 31, 1998 was approximately
$54.8 million, or $4.00 per share. Actual net tangible book value per share
represents the amount of total actual tangible assets less total actual
liabilities, divided by the shares of common stock outstanding as of December
31, 1998. After giving effect to (A) the exercise of outstanding options by
selling stockholders to purchase 383,117 shares of common stock with a weighted
average exercise price of $1.44 per share and (B) the sale of the
2,000,000 shares of common stock we are offering (after deducting the
underwriting discount and estimated offering expenses and assuming a public
offering price of $67.00 per share), our adjusted net tangible book value as of
December 31, 1998 would have been $182.1 million, or $11.32 per share. This
represents an immediate increase in as adjusted net tangible book value of
$7.32 per share to existing stockholders and an immediate dilution of $55.68
per share to new investors. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share....................... $67.00
Actual net tangible book value per share as of December 31,
1998......................................................... $4.00
Increase per share attributable to new investors.............. 7.32
-----
As adjusted net tangible book value per share after the
offering..................................................... 11.32
------
Dilution per share to new investors........................... $55.68
======
</TABLE>

The following table sets forth, as of December 31, 1998, the difference
between existing stockholders and the new investors (before deducting the
underwriting discount and estimated offering expenses) with respect to the
number of shares purchased from us, the total consideration paid and the
average price per share paid:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 13,699,555 87.3% $ 76,256,136 36.3% $ 6.05
New investors........... 2,000,000 12.7% $134,000,000 63.7% 67.00
---------- ------ ------------ ------
Total................... 15,699,555 100.00% $210,256,136 100.00%
========== ====== ============ ======
</TABLE>

The foregoing discussion and tables exclude (A) the exercise of 2,415,258
stock options with a weighted average exercise price of $6.96 outstanding as of
December 31, 1998; (B) 736,849 shares of common stock reserved for issuance
under our stock option and stock purchase plans; (C) 3,468 shares of common
stock issued to directors since December 31, 1998; and (D) 116,231 shares of
common stock issued in conjunction with the exercise of warrants since December
31, 1998. They assume (A) the exercise of outstanding options by selling
stockholders to purchase 383,117 shares of common stock with a weighted average
exercise price of $1.44 per share and (B) and the sale of 2,000,000 shares of
common stock we are offering. Assuming the exercise of the remaining 2,415,258
outstanding options, the as adjusted net tangible book value per share after
the offering would be $10.75, and the dilution per share to new investors would
be $56.25. See "Risk Factors--As a new investor, you will experience immediate
and substantial dilution," "Capitalization," "Management--Benefit Plans" and
Note 10 of Notes to Consolidated Financial Statements.

23
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data in
conjunction with the Consolidated Financial Statements and the Notes thereto
beginning on page F-1 of this prospectus and "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations" beginning on page 25
of this prospectus. The selected historical consolidated statements of
operations data presented below for the period from April 16, 1996 (inception)
through December 31, 1996 and for the years ended December 31, 1997 and 1998
and the selected historical consolidated balance sheet data at December 31,
1996, 1997 and 1998 are derived from our consolidated financial statements,
which have been audited by Ernst & Young LLP, independent auditors, and are
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Period from Year Ended
April 16, 1996 December 31,
(inception) through -----------------
December 31, 1996 1997 1998
------------------- ------- --------
(in thousands, except per share
data)
<S> <C> <C> <C>
Consolidated Statement of Operations
Data:
Net revenue:
E-commerce............................ $ -- $ 327 $ 5,582
Advertising........................... -- 60 2,144
License fees and other................ -- 454 592
------ ------- --------
Total net revenue.................... -- 841 8,318
Cost of net revenue:
Cost of e-commerce.................... -- 171 3,542
Cost of license fees and other........ -- 148 42
------ ------- --------
Total cost of net revenue............ -- 319 3,584
------ ------- --------
Gross profit............................ -- 522 4,734
Operating expenses:
Operating and development............. 266 1,150 3,841
Sales and marketing................... 24 292 2,834
General and administrative............ 150 721 3,366
Purchased in-process research and
development.......................... -- -- 790
Amortization of deferred
compensation......................... -- 248 1,416
Amortization of intangible assets..... -- -- 1,843
Non-recurring charges................. -- 1,243 --
------ ------- --------
Total operating expenses............. 440 3,654 14,090
------ ------- --------
Loss from operations................. (440) (3,132) (9,356)
Interest income, net.................... -- -- 52
Interest expense related to warrant..... -- -- (1,494)
------ ------- --------
Net loss................................ $ (440) $(3,132) $(10,798)
====== ======= ========
Basic and diluted net loss per
share(1)............................... $(0.89) $ (0.64) $ (1.37)
====== ======= ========
Number of shares used in per share
calculation--basic and diluted(1)...... 497 4,874 7,879
</TABLE>

<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.......... $ 6 $56,575
Working capital (deficit).................................. (1,400) 52,560
Total assets............................................... 782 66,874
Long-term obligations, less current portion................ -- 528
Total stockholders' equity (deficit)....................... (873) 60,332
</TABLE>
- ----------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used to compute net loss per
share.

24
<PAGE>

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

The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus. The results
shown in this prospectus do not necessarily indicate the results to be expected
in any future periods. This discussion contains forward-looking statements
based on current expectations that involve risks and uncertainties. Actual
results and the timing of certain events may differ significantly from those
projected in such forward looking statements due to a number of factors,
including those set forth in the section entitled "Risk Factors" and elsewhere
in this prospectus.

Overview

We were incorporated in April 1996 and commenced offering products for sale
on our Web site in March 1997. From inception through December 1996, we had no
sales and our operating activities related primarily to developing necessary
computer infrastructure, recruiting personnel, raising capital and initial
planning and development of the Xoom.com site. For the period beginning with
the operation of the Xoom.com site through December 31, 1997, we continued
these activities and focused on building sales momentum, establishing
relationships with manufacturers, marketing the Xoom.com brand and establishing
customer service and fulfillment operations.

We generate net revenue from e-commerce, primarily through the use of direct
e-mail marketing, licensing and the sale of advertising on our Web site. Total
net revenue was $8.3 million and $841,000 for the years ended December 31, 1998
and 1997, respectively. The increase in total net revenue was primarily due to
the growth of our member base, which resulted in increases in e-commerce
revenue, increased Web-based advertising revenue and, to a lesser extent, an
increase in license and other fees. Cost of net revenue increased substantially
in absolute dollars, reflecting our increased sales volume. As we have grown,
our operating expenses in absolute dollars have increased. We expect that the
dollar amount of our operating expenses will continue to increase as a result
of acquisitions, sales and marketing efforts, increased funding of site
development, branding of the Xoom.com name and expansion of technology,
operating infrastructure and general and administrative staff needed to support
our growth.

From inception through December 31, 1998, we generated total net revenue of
approximately $9.2 million. Over the last year, quarterly net revenue increased
from approximately $420,000 to $3.5 million. Since January 1998, the number of
members has grown from 100,000 to 6.6 million as of March 15, 1999.

25
<PAGE>

As of December 31, 1998, we had an accumulated deficit of $14.4 million.
Although we have experienced growth in net revenue, members, customers and
reach in recent periods, these growth rates are not sustainable. These growth
rates will decrease and are not indicative of future growth rates that we may
experience.

We have not achieved profitability on a quarterly or annual basis to date,
and anticipate that we will incur net losses for the foreseeable future. The
extent of these losses will depend, in part, on the amount and rates of growth
in our net revenue from e-commerce and advertising. We expect our operating
expenses to increase significantly, especially in the areas of sales and
marketing and brand promotion. As a result, we will need to increase our
quarterly net revenue to achieve profitability. We believe that period-to-
period comparisons of our operating results are not meaningful and that you
should not rely upon the results for any period as an indication of future
performance. Our business, results of operations and financial condition will
be materially and adversely affected if:

. net revenue does not grow at anticipated rates;

. increases in operating expenses are not offset by commensurate increases
in net revenue; or

. we are unable to adjust operating expense levels in light of net
revenue.

Our operating losses might increase in the future, and we cannot guarantee
that we will ever achieve or sustain profitability. See "Risk Factors--We
cannot assure you that we will be profitable because we have operated our
business only for a short period of time."

To date, we have entered into business and technology acquisitions, license
arrangements and strategic alliances in order to build our communities, provide
community-specific content, generate additional traffic, increase the number of
members and establish additional sources of net revenue. In March 1998, we
acquired Paralogic, a chat service, for a purchase price of approximately $3.0
million (consisting of 682,410 shares of our common stock with a fair value of
$2.31 per share, $1.4 million of debt, and $61,000 of acquisition costs). We
also acquired Sitemail, an HTML-based e-mail product, through our purchases of
Global Bridges and certain assets of Revolutionary Software in June 1998.
Global Bridges, which we purchased for approximately $1.2 million (consisting
of 215,018 shares of common stock with a weighted average fair value of $4.64
per share, $142,500 in cash, a note payable for $62,500 and approximately
$23,000 of acquisition costs), owned the exclusive selling rights to Sitemail.
Revolutionary Software, from which we purchased certain assets for
approximately $1.7 million (consisting of 191,232 shares of common stock with a
weighted average fair value of $6.28 per share, $272,500 in cash and a note
payable for $262,500, along with certain earnout provisions), developed
Sitemail and had licensed it to Global Bridges. Also in June 1998, we purchased
from ArcaMax an exclusive, perpetual license to use Greetings Online, an online
greeting card service, for approximately $644,000 (consisting of 133,334 shares
of common stock with a fair value of $3.33 per share, $20,000 in cash and a
note payable for $180,000). Additionally, in July 1998, we acquired Pagecount,
a Web page counter and guestbook service, for approximately $1.5 million
(consisting of $200,000 in cash, a note payable for $1.2 million and
approximately $60,000 of acquisition costs).

During 1998, we expensed $790,000 for purchased in-process research and
development and approximately $1.8 million for the amortization of goodwill and
purchased technology. Because most Internet business acquisitions involve the
purchase of significant amounts of intangible assets, acquisitions of such
businesses also result in goodwill and purchased technology and significant
charges for purchased in-process research and development.

We intend to continue making acquisitions to increase online reach and
membership and to seek additional strategic alliances with content and
distribution partners, including alliances that create co-branded sites through
which we market our services. Acquisitions carry numerous risks and
uncertainties, including:

. difficulties in integrating operations, personnel, technologies,
products and the information systems of the acquired companies;

26
<PAGE>

. diversion of management's attention from other business concerns;

. risks of entering geographic and business markets in which we have
little or no prior experience; and

. potential loss of key employees of acquired entities.

We cannot guarantee that we will be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future. A failure to successfully integrate acquired entities or assets could
have a material adverse effect on our business, results of operations and
financial condition. In addition, we cannot guarantee that we will be
successful in identifying and closing transactions with potential acquisition
candidates. See "Risk Factors--If we are unable to successfully integrate
future acquisitions into our operation, then our business and results of
operations could be adversely affected."

International sales comprised approximately 25% and 30% of total net revenue
for the years ended December 31, 1998 and 1997, respectively. This consisted of
$2.1 million and $252,000 in net revenue, respectively, during such periods.
See "Risk Factors--Our international operations are subject to risks that could
have a material adverse effect on our results of operations."

We have recorded deferred stock compensation charges of $2.0 million,
$551,000, and $0 during the years ended December 31, 1998 and 1997 and the
period from April 16, 1996 (inception) through December 31, 1996, respectively.
These charges account for the difference between the exercise price and the
deemed fair value of certain stock options we granted to our employees. The
deferred compensation charges include options granted to various employees that
vested upon certain events, such as the successful completion of an initial
public offering or individual performance goals. In June 1998, we modified
these options so that they fully vest upon the earlier of such an event or two
years from the date of grant. Therefore, we recorded related deferred
compensation charges of approximately $783,000 and amortization charges (based
on cumulative vesting to that date) of approximately $618,000 in June 1998. We
recorded amortization of deferred stock compensation of $1.4 million and
$248,000 in the years ended December 31, 1998 and 1997, respectively. We expect
to record amortization expense related to these deferred stock compensation
charges of approximately $580,000, $225,000, $80,000 and $20,000 in the years
ended December 31, 1999, 2000, 2001 and 2002, respectively. We cannot
guarantee, however, that we will not accrue additional charges for other
reasons or that our current estimates of these charges will prove accurate,
either of which events could have a material adverse effect on our business,
results of operations and financial condition.

We will need to increase our inventory levels in the future to support a
wider base of e-commerce products and to take advantage of volume purchase
discounts. We contract with a third party warehousing and order fulfillment
company to stock inventory and ship products directly to customers. We take
title to this inventory, have responsibility for this inventory, and record
inventory on our balance sheet until the final shipment to customers or other
disposition of the inventory. There are inherent risks and costs in stocking
inventory and coordinating with a third party warehousing and order fulfillment
company. These risks include, but are not limited to, product obsolescence,
excess inventory, inventory shortages resulting in unfulfilled orders, which
could materially adversely affect operating results in the future. See "Risk
Factors--Any failure of our network infrastructure could have a material
adverse effect on our results of operations" and "--We depend on our vendors
and suppliers."

27
<PAGE>

Results of Operations

From inception through the first quarter of 1997, our operations were
limited and consisted primarily of start-up activities. Accordingly, we believe
that year-to-year comparisons of 1996 against 1997, and 1997 against 1998, are
not meaningful.

The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue. From
inception through December 31, 1996, we had no net revenue as operations were
limited and consisted primarily of start-up activities.

<TABLE>
<CAPTION>
Year ended
December 31,
---------------
1997 1998
------ ------
<S> <C> <C>
Net revenue:
E-commerce............................................... 38.9% 67.1%
Advertising.............................................. 7.1 25.8
License fees and other................................... 54.0 7.1
------ ------
Total net revenue....................................... 100.0 100.0
Cost of net revenue(/1/):
Cost of e-commerce....................................... 20.3 42.6
Cost of license fees and other........................... 17.6 0.5
------ ------
Cost of net revenue........................................ 37.9 43.1
------ ------
Gross profit............................................... 62.1 56.9
Operating expenses:
Operating and development................................ 136.8 46.2
Sales and marketing...................................... 34.7 34.1
General and administrative............................... 85.7 40.5
Purchased in-process research and development............ -- 9.5
Amortization of deferred compensation.................... 29.5 17.0
Amortization of intangible assets........................ -- 22.1
Non-recurring charges.................................... 147.8 --
------ ------
Total operating expenses................................ 434.5 169.4
------ ------
Loss from operations....................................... (372.4) (112.5)
Other income, net.......................................... -- 0.6
Interest expense related to warrant........................ -- (17.9)
------ ------
Net loss................................................... (372.4)% (129.8)%
====== ======
</TABLE>
- ----------
(1) There are no material costs of advertising revenue.

Net revenue

We began generating net revenue in the first quarter of 1997. Our total net
revenue increased to $8.3 million in the year ended December 31, 1998 from
$841,000 in the year ended December 31, 1997. Net revenue is composed of e-
commerce product sales (which includes outbound shipping and handling fees),
advertising revenue and licensing and other fees revenue. The increase in net
revenue was primarily due to the following four factors: (A) the expansion of
our membership base; (B) an increase in the frequency of e-mail offerings and
broader product offerings (which resulted in an increase in product sales
through e-commerce); (C) an increase in Web-based advertising (our higher Web
site traffic increased our attractiveness to advertisers); and to a lesser
extent (D) an increase in license fees. No customer accounted for more than 10%
of total net revenue for the year ended December 31, 1998, and one licensing
customer accounted for 12% of total net revenue for the year ended December 31,
1997.

28
<PAGE>

E-commerce revenue

E-commerce revenue increased to $5.6 million in the year ended December 31,
1998 from $327,000 in the year ended December 31, 1997. The increase in net
revenue was primarily due to the expansion of our membership base, which
resulted in an increase in product sales, as well as expansion of the breadth
of products offered. The percentage of our total net revenue attributable to e-
commerce revenue increased to 67.1% in the year ended December 31, 1998 from
38.9% in the year ended December 31, 1997. We expect e-commerce revenue to
continue to account for a large percentage of net revenue as we expand our
product offerings and increase our direct e-commerce response rates through
better member demographic information and targeting of product offers.

We believe that offering our customers attractive prices is an essential
component of our business strategy. We may in the future increase the discounts
we offer our customers and may otherwise alter our pricing structures and
policies. We anticipate that any increase in discounts or price reductions will
reduce gross margins below those we experienced for the years ended December
31, 1998 and 1997.

Advertising revenue

Advertising revenue increased to $2.1 million in the year ended December 31,
1998 from $60,000 in the year ended December 31, 1997. The increase in
advertising revenue is primarily a result of the increase in our membership,
site traffic and expansion of our advertising sales force. The percentage of
our total net revenue attributable to advertising revenue increased to 25.8% in
the year ended December 31, 1998 from 7.1% in the year ended December 31, 1997.

License fees and other revenue

License fees and other revenue increased to $592,000 in the year ended
December 31, 1998 from $454,000 in the year ended December 31, 1997. The
increase in license fees and other revenue is primarily a result of additional
clip art and other utilities we were able to license to third parties. The
percentage of our total net revenue attributable to license fees decreased to
7.1% in the year ended December 31, 1998 from 54% in the year ended December
31, 1997. As we expand our e-commerce and advertising revenue, license fees and
other revenue will continue to represent a smaller percentage of net revenue.

Cost of net revenue

Gross margins decreased to 56.9% in the year ended December 31, 1998 from
62.1% in the year ended December 31, 1997, as a result of the increase in e-
commerce revenue as a percentage of total net revenue. As a percentage of total
net revenue, the cost of e-commerce increased to 42.6% of net revenue in the
year ended December 31, 1998 from 20.3% of net revenue in the year ended
December 31, 1997. There were no material costs of net revenue associated with
advertising.

Cost of e-commerce revenue

Cost of e-commerce consists primarily of the costs of merchandise sold to
customers, credit card commissions, product fulfillment, and outbound shipping
and handling costs. Cost of e-commerce was $3.5 million and $171,000 for the
years ended December 31, 1998 and 1997, respectively. As a percentage of e-
commerce revenue, the cost of e-commerce was 63.4% and 52.3% for the years
ended December 31, 1998 and 1997, respectively. The increase was primarily
attributable to the fact that in 1998 we broadened our product offerings. Our
new product offerings included items with higher costs than in the prior year.

Cost of license fees and other revenue

Cost of license fees and other consists primarily of royalties on net
revenue of license fees. Cost of license fees were $42,000 and $148,000 for the
years ended December 31, 1998 and 1997, respectively. As a percentage of
license fees and other, cost of license fees and other were 7.2% and 32.7% for
the years ended December 31, 1998 and 1997, respectively. Cost of license fees
and other for the year ended December 31,

29
<PAGE>

1997 included $81,000 in amortization of prepaid royalties related to a product
that we discontinued in the fourth quarter of 1997.

The mix of products we sell will impact our gross margins and the overall
mix of e-commerce revenue, advertising revenue and license and other fees. We
typically recognize higher gross margins on advertising revenue and license and
other fees, which are expected to comprise a lower percentage of total net
revenue in the future. Therefore, we expect shifts in the mix of sales will
adversely impact our overall gross margin and could materially adversely impact
our business, results of operations and financial condition.

Operating and development expenses

Operating and development expenses consist primarily of payroll and related
expenses for development and network operations personnel and consultants,
costs related to systems infrastructure including Web site hosting, and costs
of acquired content to enhance our Web site. Operating and development expenses
increased to $3.8 million in the year ended December 31, 1998 from $1.2 million
in the year ended December 31, 1997, and $266,000 in the period from April 16,
1996 through December 31, 1996. From inception to the year ended December 31,
1997, we incurred approximately $300,000 in costs relating to the development
of a home office software product, apart from our Web site, which was
subsequently abandoned due to low sales volume. From June 30, 1997 the absolute
dollar increases from quarter to quarter in operating and development expenses
were primarily attributable to increases in the number of personnel and
associated costs related to enhancing the functionality and content of our Web
site. Operating and development costs decreased as a percentage of total net
revenue to 46.2% in the year ended December 31, 1998 from 136.8% in the year
ended December 31, 1997.

We believe operating and development expenses will increase significantly in
the future, especially in relation to Web site hosting costs, as our membership
grows, thus requiring additional bandwidth to support the many free services
offered to members. We believe that we will need to make significant
investments in our Web site to remain competitive. Therefore, we expect that
our operating and development expenses will continue to increase in absolute
dollars for the foreseeable future.

Sales and marketing expenses

Sales and marketing expenses consist primarily of payroll and related
expenses for personnel engaged in sales, marketing, publishing and customer
support, as well as advertising and promotional expenditures. Sales and
marketing expenses increased to $2.8 million in the year ended December 31,
1998 from $292,000 in the year ended December 31, 1997, and $24,000 in the
period from April 16, 1996 to December 31, 1996. The absolute dollar increases
from period to period in sales and marketing expenses were primarily
attributable to increased personnel and related expenses required to implement
our sales and marketing strategy as well as increased public relations and
other promotional expenses. Sales and marketing costs decreased as a percentage
of total net revenue to 34.1% in the year ended December 31, 1998 from 34.7% in
the year ended December 31, 1997. We expect to continue hiring additional
personnel and to pursue a branding and marketing campaign. Therefore, we expect
marketing and sales expenses to increase significantly in absolute dollars.

General and administrative expenses

General and administrative expenses consist primarily of payroll and related
costs for general corporate functions, including finance, accounting, business
development, human resources, investor relations, facilities and
administration, as well as legal fees, and fees for professional services and
directors. General and administrative expenses increased to $3.4 million in the
year ended December 31, 1998 from $721,000 in the year ended December 31, 1997,
and $150,000 from April 16, 1996 to December 31, 1996. The absolute dollar
increases from period to period in general and administrative expenses were
primarily due to increases in the

30
<PAGE>

number of general and administrative personnel, professional services,
directors fees and facility expenses to support the growth of our operations.
General and administrative expenses decreased as a percentage of total net
revenue to 40.5% in the year ended December 31, 1998 from 85.7% in the year
ended December 31, 1997. General and administrative expenses as a percentage of
net revenue have decreased because of the growth in net revenue. We expect
general and administrative expenses to increase in absolute dollars in future
periods as we expand our staff, incur additional costs related to our
operations, and are subject to the requirements of being a publicly traded
company.

Purchased in-process research and development

For the year ended December 31, 1998, we recognized the cost of purchased
in-process research and development of $330,000 in connection with the
acquisition of Paralogic, $330,000 in connection with the purchase of certain
assets of Revolutionary Software and $130,000 in connection with the
acquisition of Pagecount. We did not recognize such charges for the year ended
December 31, 1997 or for the period from April 16, 1996 through December 31,
1996. See Note 2 of Notes to Consolidated Financial Statements.

In connection with the Paralogic acquisition, we acquired Paralogic's chat
technology, called ParaChat. ParaChat is designed to provide Web sites with an
option to offer chat technology without requiring Web site hosts to buy the
software, maintain or upgrade the software, or learn any additional skills
beyond what is necessary to construct a Web site. The chat software is
maintained on ParaChat's server and the Web site host is provided bits of
source code or "tags" that are incorporated into the Web site. The tags
interface via the Internet with the ParaChat server, and thus provide the Web
site with chat capabilities. In exchange for the free service, the Web site
host allows banner advertising on its site.

As of the time of acquisition, ParaChat was not completely functional as a
commercially viable product. The nature, amount and timing of the remaining
estimated efforts necessary to develop the acquired, incomplete ParaChat
technology into a commercially viable product included:

(A) Remote database authentication: The chat server used a very simple flat-
file database to maintain authentication information. In order to allow users
to control their own password and user information, it was necessary to design
a protocol using the Java programming language. This language enabled the chat
server to remotely query an external Oracle database through the Internet to
retrieve and modify information relating to the user and the chat room (e.g.,
the topic of discussion).

(B) Creation of new chat client: The chat software is comprised of two
parts: the client and the server. Although the server claimed compatibility
with Internet Standard RFC1459 (a standard message format for Internet relay
chat, allowing usage on multiple platforms), this feature was not useable on a
commercial basis. The server functioned only with the limited ParaChat client,
which did not allow for configuration or reconfiguration by the end-user to
match the look and feel of an existing Web site. In order to allow deployment
on an existing site, it was necessary to create an entirely new client that
consisted of various building blocks that could be composed by the end-user
using Hypertext Markup Language, also known as HTML, a computer language that
people use widely to create Web sites. These building blocks would then use a
Java-based communication protocol known as Inter-Applet-Communication (IAC) to
communicate with each other and coordinate communication with the chat server.
Since IAC is not well defined, and differs between browser implementations, a
substantial amount of additional software development was required,
particularly because no comparable client exists in the market today.

(C) Control interface: The acquired ParaChat network did not allow users to
control or administer their chat room in any way (e.g., eject abusive users,
close the chat room or even specify a discussion topic). The enhancements
necessary to make these features available, and to allow them to be maintained
and administered via the central authentication database (also still under
development at the time of acquisition), were complex and required significant
additional development.

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<PAGE>

(D) Advances in browser technology: In addition to the above modifications
and other maintenance modifications and bug fixes, the rapid advances in Web
browser technology implied continuous implementation of new features to exploit
new browser technologies.

As of the date of the technology's valuation, we estimated that 55% of the
research and development effort had been completed at the date of acquisition
and expected the remaining research and development efforts relating to the
completion of the ParaChat technology would require approximately six months of
effort from the date of valuation through its release date of September 1,
1998. We estimated that three full-time engineers would be required to complete
the in-process projects. These projects included the use of one full-time
engineer for six months to work on the external database connectivity efforts,
one full-time engineer for six months to work on the client layout efforts, and
one full-time engineer for six months to work on the management and control
interface efforts. Accordingly, it was determined that total estimated research
and development costs-to-complete for the ParaChat in-process project were
$112,500. We completed the project by the scheduled date and the actual costs
of completion were not materially different than estimated.

As of the date of valuation, we expected the benefit of the acquired project
to begin immediately after the estimated completion date. We expected that the
in-process project would be developed to technological feasibility concurrent
with the September 1998 release date. We have demonstrated the ability to
implement the on-going research and development on time and on budget.

The technology that we acquired from Revolutionary Software was a Web-based
e-mail technology known as SiteMail. This in-process Web-based e-mail
technology was designed to allow users to receive and send e-mail through the
Internet using a Web browser. Since the technology was Web-based, it would
allow for the integration of e-mail functionality into Web sites and would be
accessible by any Web-connected device anywhere in the world. Furthermore, by
integrating e-mail into a specific site, it would force the subscriber to visit
that site to access e-mail, thereby increasing traffic. In addition, when users
apply for e-mail accounts at Web sites offering SiteMail, they are given the
domain name of that Web site or company. The personalization of the domain name
in an e-mail address has become an innovative way of promoting a company's name
or Web site.

As of the date of acquisition, SiteMail was in the alpha testing stage of
development and required the resolution of certain scalability technological
hurdles in order to complete the technology. In addition to the scalability
issues, the following functionality requirements also needed to be addressed by
on-going research and development efforts: (A) improving the user interface;
(B) connecting the e-mail server with external databases; (C) completing spam
detection and filtering functions; and (D) completing security enhancements for
Unix Internet applications.

As of the date of acquisition, we estimated that approximately 50% of the
research and development effort had been completed and expected the remaining
research and development efforts relating to the completion of the SiteMail
technology to continue from the date of acquisition through the release date of
November 1998. The remaining development effort was estimated to require
approximately 4.5 months of engineering effort. We estimated that 3.5 full-time
developers would be required to complete this project. The total cost of
remaining development was estimated to be approximately $98,000. We completed
the project by the scheduled date and the actual costs of completion were not
materially different than estimated.

In connection with the Pagecount acquisition, we acquired a Web page counter
product, titled Pagecount. This product is a banner page counter that tracks
the number of visitors that view a member's site. It further breaks down
impression statistics, or page views by day, date, and time. Other statistics
include a list of locations from where the requests originated and the host
names of up to 100 visitors. The software is maintained on the Pagecount server
and tags are integrated into the Web site which interface with the Pagecount
server. In exchange for the use of the Pagecount service, a banner
advertisement may be placed on each counter image.

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<PAGE>

Specifically, the nature, amount and timing of the remaining estimated
efforts necessary to develop the acquired incomplete Pagecount technology into
a commercially viable product included:

(A) Stage of development: As of the date of the transaction, Pagecount was
in the market research and coding stage of development and required the
completion of certain engineering technological hurdles in order to complete
the technology. Specifically, Pagecount was not yet able to handle large usage
volumes and was only able to maintain statistical information for small members
experiencing low levels of traffic. In addition, Pagecount did not have an
advertising delivery capability and, historically, advertisements had to be
superimposed onto the Web site by a human operator. This is a very inefficient
method of placing advertisements onto Web sites and as volume increases it
would be impossible to maintain the advertising inventory. At the date of
valuation, Pagecount was in development on an advertising delivery system that
would maximize the advertising inventory being generated. Furthermore,
additional development was required to integrate the Pagecount technology into
our infrastructure in order for it to be compatible with our network.

(B) Additional research and development required: Ultimately the most
significant research and development efforts related to the remaining
engineering of the Pagecount server to permit (A) advertisers in the network
access to industry-standard reports, (B) advertisements to be placed into the
network using industry standard delivery software and (C) users to attain
enhanced reporting and possibly, credit for having displayed a large number of
banners (perhaps as a banner exchange offering).

We estimated that approximately 55% of the research and development effort
had been completed at the date of acquisition and expected the remaining
research and development efforts relating to the completion of the Pagecount
technology to continue from the date of acquisition through the release date of
mid-December 1998. The remaining development effort at the date of acquisition
was estimated to require approximately five months of engineering effort. We
estimated that 2.5 full-time developers would be required to complete this
project. The total estimated remaining development effort equates to a total
cost to complete of approximately $78,000. We completed the project by the
scheduled date and the actual costs of completion were not materially different
than estimated.

Amortization of deferred compensation

Deferred compensation expense reflects the amortization of stock
compensation charges resulting from stock options and restricted stock purchase
agreements. Stock compensation charges increased to $1.4 million for the year
ended December 31, 1998 from $248,000 for the year ended December 31, 1997.
This increase was primarily attributable to the modification of certain
options, which required us to accelerate the amortization of the related
deferred compensation, which occurred during the quarter ended June 30, 1998,
as well as an increase in the number of options we granted to employees and
consultants.

Amortization of intangible assets

Amortization of intangible assets totaled $1.8 million for the year ended
December 31, 1998. This amount represents amortization of intangible assets and
goodwill resulting from our acquisitions of Paralogic, Global Bridges and
Pagecount and the purchase of certain assets of Revolutionary Software,
amortized over periods ranging from 24 to 42 months.

We have determined the appropriateness of 2 to 3.5 year estimated useful
lives related to the intangible assets based on general and specific analysis.
In general, the Internet is characterized by rapid technological change,
changes in users and customer requirements and preferences, frequent new
product and service introductions and the emergence of new industry standards
and practices.

The market for community-based direct selling channels on the Internet is
new and rapidly evolving and competition for members, consumers, visitors and
advertisers is intense. In addition, we attract members to our Web site with a
variety of free services, including home pages, e-mail, chat rooms, electronic
newsletters, clip

33
<PAGE>

art and software libraries, online greeting cards and page counters. In order
to continue attracting members using these various methods, the free services
must be constantly updated and improved.

With respect to the purchased technology associated with all business and
technology acquisitions, we considered the effects of obsolescence, demand,
competition, and other economic factors. Due to the rapid technological change
involved in the Internet, we estimated that new technologies would replace the
intangible assets relating to the purchased technology within a 2 to 3.5 year
period.

With respect to the goodwill associated with all of the acquisitions, we
considered the effects of obsolescence, demand, competition, other economic
factors and expected actions of competitors and others. Based on these
considerations, we determined the positive effect of the acquisitions, and
therefore the life of the goodwill, to be from 24 to 42 months. See "Risk
Factors--If we are unable to integrate new technologies and standards
effectively, the results of our operations could be adversely affected," "--Any
increase in competition could adversely affect our ability to maintain or
improve our position in the market relative to that of our competitors which
could have a material adverse effect on our business and results of operations"
and "--If we are unable to successfully integrate future acquisitions into our
operation, then our business and results of operations could be adversely
affected."

With respect to the intangible assets associated with Global Bridges,
Pagecount, Revolutionary Software, and ArcaMax, we considered the competition
for users of electronic mail, Web page counters, and online greeting card
services. We also considered the fact that they provide free e-mail and online
greeting card services to all members. We expect to generate revenue from
advertising and direct e-commerce to such users. In addition, the competition
for these users is intense and we expect that within two years we or our
competitors will develop new technologies that will render the existing
products obsolete. The obsolescence of our existing technologies, without the
introduction of new products, could result in a loss of members. As a result,
we determined the positive effect of the Global Bridges, Pagecount,
Revolutionary Software and ArcaMax transactions, and therefore the life of
intangible assets, to be from 24 to 42 months. See "Risk Factors--If we are
unable to integrate new technologies and standards effectively, the results of
our operations could be adversely affected," "--Any increase in competition
could adversely affect our ability to maintain or improve our position in the
market relative to that of our competitors, which could have a material adverse
effect on our business and results of operations."

Non-recurring charges

Non-recurring charges totaled approximately $1.2 million in the year ended
December 31, 1997. These charges consisted of a $243,000 write-off of costs
associated with a discontinued product, and a $1.0 million provision for a
legal dispute for a copyright infringement claim from Imageline relating to
certain clip art images that we had licensed from an unrelated third party.
This litigation might subject us to significant liability for damages which
could have a material adverse impact on our business, results of operations,
cash flows and financial condition. This might result in invalidation of our
proprietary rights. Even if the suit is without merit, it could be time
consuming and expensive to defend, and this could result in the diversion of
management time and attention, any of which might have a material adverse
impact on our business, results of operations, cash flows and financial
condition. See "Risk Factors--We could face liability from legal proceedings
that could adversely affect our business and results of operations,"
"Business--Legal Proceedings" and Note 9 of Notes to Consolidated Financial
Statements.

Income taxes

There was no provision for federal or state income taxes for any period as
we have incurred operating losses. As of December 31, 1998, we had net
operating loss carryforwards for federal income tax purposes of approximately
$4.9 million. We cannot assure you that we will realize the benefit of the net
operating loss carryforwards. The federal net operating loss carryforwards will
expire at various dates beginning in fiscal year 2011 through 2012 if we do not
use them. Due to the "change of ownership" provisions of the Internal

34
<PAGE>

Revenue Code, the availability of our net operating loss and credit
carryforwards may be subject to an annual limitation against taxable income in
future periods. This consequence would result if a change in ownership of more
than 50% of the value of our stock should occur over a three year period, and
this could substantially limit the eventual tax utilization of these
carryforwards. See Note 7 of Notes to Consolidated Financial Statements.

Quarterly Results of Operations

The following tables present certain consolidated statements of operations
data for our eight most recent quarters ended December 31, 1998 in dollars and
as a percentage of net revenue. In management's opinion, this unaudited
information has been prepared on the same basis as the audited annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for fair presentation of the unaudited information for
the quarters presented. You should read this information in conjunction with
the consolidated financial statements, including the notes thereto, included
elsewhere in this prospectus. The results of operations for any quarter are not
necessarily indicative of results that we might achieve for any subsequent
periods.

<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue:
E-commerce............. $ 9 $ 12 $ 38 $ 268 $ 677 $ 1,157 $ 1,532 $ 2,216
Advertising............ -- 7 14 39 83 272 598 1,191
License fees and
other................. 20 151 170 113 89 287 170 46
----- ----- ------- ----- ------- ------- ------- -------
Total net revenue..... 29 170 222 420 849 1,716 2,300 3,453
----- ----- ------- ----- ------- ------- ------- -------
Cost of net revenue(1):
Cost of e-commerce..... 4 49 19 99 278 621 1,067 1,576
Cost of license fees
and other............. 82 23 31 12 8 19 7 8
----- ----- ------- ----- ------- ------- ------- -------
Total cost of net
revenue.............. 86 72 50 111 286 640 1,074 1,584
----- ----- ------- ----- ------- ------- ------- -------
Gross profit............ (57) 98 172 309 563 1,076 1,226 1,869
Operating expenses:
Operating and
development........... 397 350 132 271 576 773 1,209 1,283
Sales and marketing.... 37 83 51 121 262 455 853 1,264
General and
administrative........ 152 130 195 244 316 783 1,059 1,208
Purchased in-process
research and
development........... -- -- -- -- 330 330 130 --
Amortization of
deferred
compensation.......... 5 6 100 137 79 728 304 305
Amortization of
intangible assets..... -- -- -- -- -- 346 741 756
Non-recurring charges.. -- 243 1,000 -- -- -- -- --
----- ----- ------- ----- ------- ------- ------- -------
Total operating
expenses............. 591 812 1,478 773 1,563 3,415 4,296 4,816
----- ----- ------- ----- ------- ------- ------- -------
Loss from operations... (648) (714) (1,306) (464) (1,000) (2,339) (3,070) (2,947)
Other income, net...... -- -- -- -- -- -- 17 35
Interest expense
related to warrant.... -- -- -- -- -- -- -- (1,494)
----- ----- ------- ----- ------- ------- ------- -------
Net loss................ $(648) $(714) $(1,306) $(464) $(1,000) $(2,339) $(3,053) $(4,406)
===== ===== ======= ===== ======= ======= ======= =======
</TABLE>

35
<PAGE>

<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue:
E-commerce............. 31.0% 7.1% 17.1% 63.8% 79.7% 67.4% 66.6% 64.2%
Advertising............ -- 4.1 6.3 9.3 9.8 15.9 26.0 34.5
License fees and
other................. 69.0 88.8 76.6 26.9 10.5 16.7 7.4 1.3
-------- ------ ------ ------ ------ ------ ------ ------
Total net revenue..... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of net revenue(1):
Cost of e-commerce..... 13.8 28.9 8.6 23.5 32.8 36.2 46.4 45.6
Cost of license fees
and other............. 282.8 13.5 13.9 2.9 0.9 1.1 0.3 0.2
-------- ------ ------ ------ ------ ------ ------ ------
Total cost of net
revenue.............. 296.6 42.4 22.5 26.4 33.7 37.3 46.7 45.9
-------- ------ ------ ------ ------ ------ ------ ------
Gross profit............ (196.6) 57.6 77.5 73.6 66.3 62.7 53.3 54.1
Operating expenses:
Operating and
development........... 1,369.0 205.9 59.5 64.6 67.8 45.0 52.6 37.2
Sales and marketing.... 127.6 48.8 23.0 28.8 30.9 26.5 37.1 36.6
General and
administrative........ 524.1 76.5 87.8 58.1 37.2 45.7 46.0 35.0
Purchased in-process
research and
development........... -- -- -- -- 38.9 19.2 5.7 --
Amortization of
deferred
compensation.......... 17.2 3.5 45.0 32.6 9.3 42.4 13.2 8.8
Amortization of
intangible assets..... -- -- -- -- -- 20.2 32.2 21.9
Non-recurring charges.. -- 142.9 450.5 -- -- -- -- --
-------- ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............. 2,037.9 477.6 665.8 184.1 184.1 199.0 186.8 139.5
-------- ------ ------ ------ ------ ------ ------ ------
Loss from operations... (2,234.5) (420.0) (588.3) (110.5) (117.8) (136.3) (133.5) (85.3)
Other income, net...... -- -- -- -- -- -- 0.7 1.0
Interest expense
related to warrant.... -- -- -- -- -- -- -- (43.3)
-------- ------ ------ ------ ------ ------ ------ ------
Net loss................ (2,234.5)% (420.0)% (588.3)% (110.5)% (117.8)% (136.3)% (132.8)% (127.6)%
======== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ----------
(1) There are no material costs of advertising revenue.

Our operating expenses have increased significantly in absolute dollar
amounts in each quarter during 1998, 1997 and 1996 as we have transitioned from
the development stage to the commercialization of our services and products and
expansion of our business. We expect operating expenses will continue to
increase in the future as we continue to seek to expand our business. To the
extent that these expenses are not accompanied by an increase in net revenue,
our business, results of operations and financial condition could be materially
adversely affected.

We expect operating results to fluctuate significantly in the future as a
result of a variety of factors, many of which are outside of our control. See
"Risk Factors--We cannot assure you that we will be profitable because we have
operated our business only for a short period of time" and "--The
unpredictability of our quarter-to-quarter results could cause our stock price
to be volatile or decline."

As a strategic response to changes in the competitive environment, we might
from time to time make certain pricing, service or marketing decisions or
pursue business combinations that could have a material adverse effect on our
business, results of operations and financial condition. In order to accelerate
the promotion of the Xoom.com brand, we intend to significantly increase our
marketing budget, which could materially and adversely affect our business,
results of operations and financial condition. We expect to experience
seasonality in our business, with user traffic on the Xoom.com site potentially
being lower during the summer and year-end vacation and holiday periods when
overall usage of the Web is lower. Additionally, seasonality may significantly
affect our advertising revenue during the first and third calendar quarters, as
advertisers historically spend less during these periods. Because Web-based
commerce and advertising is an emerging market, additional seasonal and other
patterns may develop in the future as the market matures. Any seasonality is
likely to cause quarterly fluctuations in our operating results, and these
patterns could have a material adverse effect on our business, results of
operations and financial condition.

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<PAGE>

Due to the foregoing factors, our quarterly net revenue and operating
results are difficult to forecast. Consequently, we believe that period to
period comparisons of our operating results will not necessarily be meaningful
and you should not rely on them as an indication of future performance. It is
likely that in some future quarter or quarters our operating results will fall
below the expectations of securities analysts and investors. In such event, the
trading price of our common stock would likely be materially and adversely
affected. See "Risk Factors--We cannot assure you that we will be profitable
because we have operated our business only for a short period of time" and "--
The unpredictability of our quarter-to-quarter results could cause our stock
price to be volatile or decline."

Liquidity and Capital Resources

Prior to our initial public offering, we financed our operations primarily
through the private placement of common stock. On December 9, 1998, we
completed our initial public offering of common stock, in which we issued
4,600,000 shares of common stock at a price of $14.00 per share. Proceeds from
the offering were approximately $57.3 million, net of offering costs.

At December 31, 1998, we had cash and cash equivalents and short-term
investments of approximately $56.6 million. We regularly invest excess funds in
short-term money market funds, government securities and commercial paper.

Net cash used in operating activities for the years ended December 31, 1998
and 1997 and for the period from April 16, 1996 through December 31, 1996 was
$3.6 million, $1.4 million, and $635,000, respectively. Cash used in operating
activities for the year ended 1997 was primarily the result of net losses,
partially offset by an increase in the contingency accrual. Cash used in
operating activities for the year ended December 31, 1998 was primarily the
result of net losses and an increase in accounts receivable related to the
growth of advertising revenues, partially offset by amortization of intangible
assets related to our acquisitions, amortization of deferred compensation
incurred in connection with the granting of options to employees to purchase
common stock, an increase in current liabilities as a result of the growth of
our business, and a non-cash charge related to the issuance of warrants in
connection with a loan agreement.

Net cash used in investing activities for the years ended December 31, 1998
and 1997 and for the period from April 16, 1996 through December 31, 1996 was
$4.7 million, $393,000, and $64,000, respectively. Cash used in investing
activities in each period was primarily related to purchases of fixed assets,
except for the year ended December 31, 1998, in which cash used in investing
activities also included $2 million for the purchase of marketable securities
and $731,000 of net cash for business and asset acquisitions. From time to
time, we expect to evaluate the acquisition of products, businesses and
technologies that complement our business. These acquisitions may involve a
cash investment.

Net cash provided by financing activities for the years ended December 31,
1998 and 1997 and for the period from April 16, 1996 through December 31, 1996
was $62.6 million, $1.8 million, and $700,000, respectively. Cash provided by
financing activities was primarily attributable to net proceeds from the
issuance of common stock and the issuance of notes payable to stockholders. In
addition, for the year ended December 31, 1998, cash provided by financing
activities include $511,715 received in connection with a secured financing
agreement with a leasing company and $1,250,000 received in connection with a
loan agreement. See Note 6 of Notes to Consolidated Financial Statements. For
the year ended December 31, 1998, cash provided by financing activities also
included cash received from the issuance of 4,600,000 shares of common stock
upon our initial public offering. Proceeds from the offering were approximately
$57.3 million, net of offering costs.

As of December 31, 1998, our principal commitments consisted of obligations
outstanding under operating and capital leases. Although we have no material
commitments for capital expenditures, we anticipate a substantial increase in
our capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel. Also, in the future, we may
require a larger merchandise inventory in order to provide better availability
to customers and achieve purchasing efficiencies.

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<PAGE>

As of December 31, 1998, we had a total of $1.7 million in notes payable
relating to our acquisitions, $1.3 million of which was due in 1999. This
includes a non-interest bearing note payable in the amount of $1.1 million
payable to the stockholders of Paralogic in minimum monthly installments of
$30,000 through September 1999, including additional payments up to $860,000
based on performance measurements. Total notes payable also includes a note
payable of $47,500, which bears interest at a rate of 5% and is due in equal
monthly payments of $2,500 through August 2000 to the stockholders of Global
Bridges. See Note 2 of Notes to Consolidated Financial Statements.

In the year ended December 31, 1998, we issued warrants to purchase a total
of 314,747 shares of common stock at a price of $3.33 per share. These warrants
were exercised prior to our initial public offering on December 9, 1998. See
Note 10 of Notes to Consolidated Financial Statements.

On October 1, 1998, we entered into a secured financing agreement with a
leasing company. The agreement provides for borrowings of up to a cumulative
amount of $1.0 million through July 31, 1999. As of December 31, 1998, our
outstanding principal balance under this agreement was approximately $155,000.

On November 3, 1998, we entered into a secured loan agreement, which
provided for borrowings of up to $2,750,000. In November 1998, we borrowed
$1,250,000 under this agreement. Under the terms of the loan agreement, we
issued the lender a warrant to purchase up to 183,333 shares of common stock at
an exercise price equal to $14 share. We recorded a non-cash charge classified
as a non-operating expense of approximately $1.5 million during the fourth
quarter of 1998 based on the fair value of this warrant. As of December 31,
1998, all interest and principal amounts had been fully paid, and the loan
agreement had been canceled. On January 11, 1999, the lender exercised the
warrants in a net exercise transaction and purchased 116,231 shares of our
common stock at a price of $14 per share. The effective interest rate on this
secured loan agreement for the year ended December 31, 1998 was approximately
1,450%.

We believe that we have the financial resources needed to meet our presently
anticipated business requirements, including capital expenditure and strategic
operating programs, for at least the next 12 months. Thereafter, if cash
generated by operations is insufficient to satisfy our liquidity requirements,
we may need to sell additional equity or debt securities or obtain additional
credit facilities. The sale of additional equity or convertible debt securities
may result in additional dilution to our stockholders. We may not be able to
raise any such capital on terms acceptable to us or at all.

Disclosures About Market Risk

Our exposure to market risk is principally confined to our short-term
available-for-sale securities, which have short maturities and, therefore,
minimal and immaterial market risk.

Year 2000 Compliance

We have conducted an internal review of software systems which we use for
site management, network monitoring, quality assurance, transaction processing
and fulfillment services. Because we developed these software systems
internally, beginning at inception in 1996 when the Year 2000 problem already
had some visibility, we were largely able to anticipate four digit
requirements. In conjunction with ongoing reviews of our own products and
services, we are also reviewing our computer infrastructure, including network
equipment and servers. We do not anticipate material problems with network
equipment, as our current configuration was installed within the last three
years. Similarly, we purchased most of our servers were purchased in 1997 and
1998. With this relatively current equipment, we do not anticipate material
Year 2000

38
<PAGE>

compliance problems, and we will replace any servers that cannot be updated
either in the normal replacement cycle or on an accelerated basis. We have also
internally standardized our personal computers on Windows NT 4.0, using
reasonably current service packs, which we are advised by our vendor are Year
2000 compliant. We use multiple software systems for internal business
purposes, including accounting, e-mail, development, human resources, customer
service and support and sales tracking systems. All of these applications have
been purchased within the last three years.

Concurrently with the two-phase analysis of its internal systems, Xoom.com
has begun to survey third-party entities with which Xoom.com transacts
business, including critical vendors and financial institutions, for Year 2000
compliance. Xoom.com expects to complete this survey in the second quarter of
1999. At this time Xoom.com cannot estimate the effect, if any, that non-
compliant systems at these entities could have on the business, results of
operations or financial condition of Xoom.com, and there can be no assurance
that the impact, if any, would not be material. See "Risk Factors--Year 2000
issues could negatively affect our business."

Recent Accounting Pronouncements

39
<PAGE>

had no material components of comprehensive income. The adoption of this
standard has had no impact on the Company's consolidated financial position,
stockholders' equity, results of operations or cash flows. Accordingly, the
Company's comprehensive loss for the year ended December 31, 1998 is equal to
its reported loss.

Additionally, the Financial Accounting Standards Board issued Statement No.
131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information," which establishes standards for the way public business
enterprises report information in annual statements and interim financial
reports regarding operating segments, products and services, geographic areas
and major customers. This statement is effective for financial statements for
periods beginning after December 15, 1997. The adoption of this statement did
not have a significant impact on the way we report information in our annual
statements and interim financial reports.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which establishes guidelines
for the accounting for the costs of all computer software developed or obtained
for internal use. We are required to adopt SOP 98-1 effective January 1, 1999.
The adoption of SOP 98-1 is not expected to have a material impact on our
consolidated financial statements.

40
<PAGE>

BUSINESS

Overview

According to Media Metrix, Xoom.com was the eleventh most visited site on
the Internet in January 1999, and our reach increased to 17% in January 1999
from less than 2% in January 1998. In January 1999, the Xoom.com site and our
network of chat rooms and page counters had a total reach of 28%, according to
Media Metrix. We had approximately 6.6 million members as of March 15, 1999,
adding an average of approximately 23,000 new members per day for the last 30
days. We believe that our ability to achieve a high level of reach and
membership with minimal investment gives us a significant advantage as our e-
commerce and advertising businesses expand. In the quarter ended December 31,
1998, we delivered 64% of our net revenue from e-commerce and approximately 18%
of net revenue from non-U.S. sales. Quarterly net revenue increased from
approximately $420,000 in the fourth quarter of 1997 to $3.5 million in the
fourth quarter of 1998, representing compound quarterly sales growth of
approximately 70%.

Industry Background

Growth of the Internet

The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business
electronically. IDC estimates that the number of Web users will grow from
approximately 97 million worldwide in 1998 to approximately 320 million
worldwide by the end of 2002. This growth is expected to be driven by the large
and growing number of PCs installed in homes and offices, the decreasing cost
of PCs, easier, faster and cheaper access to the Internet, improvements in
network infrastructure, the proliferation of Internet content and the
increasing familiarity with and acceptance of the Internet by businesses and
consumers. The Internet possesses a number of unique characteristics that
differentiate it from traditional media: a lack of geographic or temporal
limitations; real-time access to dynamic and interactive content; and
instantaneous communication with a single individual or with groups of
individuals. As a result of these characteristics, Web usage is expected to
continue to grow rapidly. The proliferation of users, combined with the Web's
reach and lower cost of marketing, has created a powerful channel for
conducting commerce, marketing and advertising.

The growth of online communities and other free Internet services

Traditional use of the Web has consisted largely of one-way communications
in which users "surf" and view different Web sites containing professionally-
created content on topics of general interest such as news,

41
<PAGE>

sports and weather. However, there is a growing demand for online community
sites where users can publish content and engage in community activities
including home page building, chat and discussion forums. In addition, many
users are interested in gaining access to other free services for
entertainment, such as interactive games or streaming video, or for their
utility to the end user, such as e-mail or greeting cards. Online communities
provide a medium for such access and interaction. Communities generate
significant volumes of traffic, as visitors tend to return to those sites where
they have established an online presence or have become familiar with the
services. According to statistics published by Media Metrix, online community
sites have recently been one of the fastest growing sectors of the Web.

E-commerce and advertising

The growing adoption of the Web represents a significant opportunity for
businesses to conduct commerce over the Internet. The Internet allows companies
to develop one-to-one relationships with customers worldwide without making
significant investments in traditional infrastructure such as retail outlets,
distribution networks and sales personnel. The Internet is an increasingly
significant global medium for e-commerce. According to IDC, transactions on the
Internet are expected to increase from approximately $32 billion in 1998 to
approximately $426 billion in 2002, with the number of users that are buyers of
products and services rising from 26% to 40% in the same period.

Increases in consumer purchases on the Internet are expected to be a
significant factor in the growth of e-commerce. Online shopping is a shopping
experience that offers convenience to the shopper. An online consumer's ability
to comparison shop is greatly enhanced by the ability to access multiple
retailers via the Internet. Products commonly sold on the Internet included
items such as software, books, music CDs, videocassettes, and airline tickets.
More recently, businesses have begun selling specialty retail products, service
items and large ticket household consumer goods, as Internet usage and
familiarity has increased.

Growth in the Web has also created an important new advertising channel.
Tools not available in traditional advertising media, such as real-time
measurement of "click-through" on advertising banners, further increase the
attractiveness of Web advertising by giving advertisers instant feedback on
campaigns. Jupiter Communications projects that the dollar value of advertising
on the Web is expected to increase from approximately $1.9 billion in 1998 to
approximately $7.7 billion in 2002. To date, businesses and advertisers have
typically used traditional navigational sites and professionally-created
content sites for the sale and marketing of their products and services online.
In addition, online community sites provide more detailed demographic data and
self-selected groups of consumers with an affinity for particular products.
Advertisers can thus more easily deliver targeted messages in a cost-effective
manner.

The direct e-commerce opportunity on the Internet

The same advantages that facilitate the growth of e-commerce and advertising
make the Internet a compelling medium for direct e-commerce campaigns. Direct
e-commerce over the Internet uses e-mail to reach potential buyers worldwide,
potentially offering them a significantly broader selection of products and
services than is available locally. Internet-based direct e-commerce also
allows marketers to rapidly collect meaningful demographic information from
consumers and to use this information to target their direct e-commerce
campaigns. Further, the costs of direct e-commerce via e-mail are dramatically
lower than those of traditional direct e-commerce techniques. As a result,
Internet-based direct e-commerce campaigns can be profitable at response rates
that are a fraction of the rates for traditional campaigns.

According to Forrester Research, total online retail sales in the U.S. are
expected to increase from $7.8 billion in 1998 to $76.3 billion in 2002,
representing a compound annual growth rate of 76.9%. Forrester Research also
projects that the number of U.S. households that shop online will increase from
8.7 million in 1998 to 30.3 million in 2002.

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<PAGE>

Our Approach

We use the unique characteristics of the Web to cost-effectively market
products and services to our rapidly growing member base. By offering our
members a variety of compelling free services and communities and competitively
priced product offerings, we believe we have created an innovative online sales
channel with low customer acquisition costs. The key elements of our approach
are:

Cost-effective direct e-commerce capability

We apply a sophisticated direct e-commerce approach, modeled after
traditional direct mail campaigns, to generate product sales. Unlike
traditional direct e-commerce campaigns, which typically use paper-based
promotional materials delivered by mail, our campaigns use regular e-mails to
communicate offers to members, significantly reducing the cost of reaching the
consumer. The interactive nature of the Web and the ability to display
attractive graphics to users clicking through on product offerings enable us to
present such offerings in a more complete and dynamic manner than allowed by
paper-based delivery systems.

Rapid formulation of effective direct e-commerce campaigns

Prior to introducing new product offerings to our entire membership base, we
select a subset of members for the purpose of test-marketing a campaign. We
have developed campaign-management software that uses statistical techniques to
analyze a test campaign and to predict the expected response rate to such a
campaign if it is rolled out to a larger group of members. We can also analyze
the effects of variations in price, graphics and copy. Results are usually
available in less than one day. On the basis of these tests, we select product
offers for a larger audience and modify them to maximize response rates, sales,
profitability and member retention. Testing also increases the accuracy of our
forecasts of product demand. As a result, we are typically able to carry small
amounts of inventory, thus lowering overhead and the risk of write-offs.

Diverse product offerings and multiple e-commerce channels

We establish a relationship with our members by providing free services,
which helps create a context for commerce opportunities. Because of these
relationships, we are able to offer a wide variety of product and service
offerings to our members under the Xoom.com brand name. We are also able to
reach our members with offers through multiple direct e-commerce channels. In
addition to offers via e-mail, members may purchase products through various
themed areas on the Xoom.com site such as Investor Place and Health & Fitness
and, beginning in the second quarter of 1999, through other sites controlled by
us such as the Xoom.com shopping channel.

Provision of free services to attract a growing membership base

We offer our members a variety of free services, including home pages, e-
mail, chat rooms, electronic newsletters, clip art and software libraries, page
counters and online greeting cards. We provide our members with unlimited disk
space on our servers to develop personal Web sites or to use as personal Web
storage space. We also allow members to access proprietary software in order to
quickly create a Web page, as well as ready-made multimedia tools that can be
used to develop a fully-customized, content-rich site. Members can join one or
more of over 200 communities free of charge. Members also promote their Web
sites elsewhere on the Internet, using hyperlinks on other individual sites as
well as listings on directories and search engines, resulting in millions of
new visitors to the Xoom.com site. We believe that providing free services is
critical to maintaining membership growth.

Development of detailed member database

To date, we have gathered a significant base of information about our
members through registration information, responses to promotional campaigns
and purchasing information obtained from third parties. As more members join
Xoom.com and participate in our topical communities and use our other free
services, and

43
<PAGE>

as we obtain additional purchasing history data, the level of information about
our members will continue to grow. We intend to use this growing database to
target offers, increase the range of product offerings and encourage future
transactions and involvement with the Xoom.com site.

Attractive advertising platform

Our free services and extensive community offerings create high volumes of
traffic, enabling business advertisers to cost-effectively promote their
products and services on the Xoom.com site. Our community structure and
registration data provide valuable demographic information and affinity-based
member segmentation that increase advertisers' ability to target campaigns.
Further, the diversity of interest groups among members creates potential
markets for a broad range of products and services, resulting in a
correspondingly broad range of advertising customers.

Our Strategy

Our objective is to be a leading direct e-commerce company on the Internet.
Key strategies to achieve this objective include:

Focus on membership growth

A key element to the success of our business model is the ability to attract
visitors to our Web site and to convert them to become members of Xoom.com. We
plan to continue to attract visitors to our Web site by: (A) adding additional
free services and offering relevant information and content; (B) maintaining a
large and diverse range of active communities focused on special interest
categories; (C) using e-mails, banner advertisements in our network of chat
rooms and page counters and other methods of Web-based promotion; and (D)
offering special incentives and promotions. In addition, we intend to continue
to seek acquisitions and strategic alliances to increase membership.

Convert more members to buyers through new initiatives

We believe we are one of the few high traffic sites positioned to
effectively convert reach into e-commerce revenue and to capture the lifetime
value of a customer. We intend to convert more members to buyers through the
development of new channels of e-commerce, thereby enhancing the Xoom.com
database and increasing the number of members qualified to receive relevant
direct product offers. To accomplish this, we will invest in the development of
the Xoom.com site and seek acquisitions, partnerships and alliances that
diversify the number and types of e-commerce channels available through or
distributed by us. We also intend to improve the shopping experience of our
members and provide unique promotional incentives for our members to make
purchases.

Continue to offer new products and services

Our primary product offerings currently include computer software, computer
accessories and peripherals, consumer electronics and clip art on CD-ROM. We
have also introduced a DVD movie club, gift items, health related products, a
travel club, long distance services and personal finance newsletters, among
other products. New offerings will include services such as home and auto
insurance, wireless telecommunications services and membership clubs, and
products such as magazine subscriptions, appliances, games, photography
supplies and gardening tools, among others. We intend to significantly increase
the number of product and service offerings available to our members both
through direct offers from manufacturers and distributors and through strategic
alliances with partners that have access to offers created specifically for our
members.

Build the Xoom.com brand

To support our e-commerce strategies and capitalize on our reach, we intend
to build our brand recognition through a variety of diversified media. We are
focused on cost-effective methods of branding that not only increase awareness
of the Xoom.com name but also help build reach and membership. These branding

44
<PAGE>

strategies will include a radio component to position Xoom.com in major markets
throughout the United States as a unique e-commerce community on the Web. The
radio strategy is based on providing the Xoom.com community services and e-
commerce platform to local radio stations in return for highly discounted
promotional opportunities on the air and on station Web sites. In addition to
radio, we plan to selectively promote Xoom.com in relevant media, potentially
including print and television, using methods to create opportunities for both
branding and commerce.

Expand internationally

We believe that the anticipated international growth of Internet usage has
the potential to generate significant additional revenue for us. According to
IDC, the number of Web users outside of the United States is projected to
increase from approximately 46 million in 1998 to approximately 184 million in
2002. For the year ended December 31, 1998, international sales comprised 25%
of our total net revenue and 31% of e-commerce revenue. See Note 1 of Notes to
Consolidated Financial Statements. We believe that we are particularly well-
positioned to benefit from international sales growth because, unlike
traditional retailers, we are not encumbered with an international distribution
infrastructure that can depress margins. In addition, we believe that we have a
distinct advantage over catalog and store-based retailers located in the United
States because such retailers are typically prohibited from shipping products
internationally due to restrictions in their agreements with product
manufacturers. In February 1999, in partnership with WebNext s.r.l., an Italian
corporation, we launched our Italian site, Xoom.it, the first of our
international partnerships. We are currently targeting the United Kingdom,
France and Spain for additional potential international expansion
opportunities.

Pursue strategic acquisitions and alliances

To date, we have entered into a number of acquisitions, license arrangements
and strategic alliances in order to build our membership base and services,
provide community-specific content, generate additional traffic and establish
additional sources of net revenue. A typical alliance provides the partner with
branding flexibility, incremental traffic, potential increases in membership
and revenue and integration of service offerings at no extra cost to the
partner. We intend to continue making acquisitions to increase reach and
membership and to seek additional strategic alliances with content and
distribution partners, including alliances that create co-branded sites through
which we market our services.

Use database expertise to gain access to members of third party sites

We currently manage e-mail databases on behalf of third party sites in
exchange for the right to conduct direct e-commerce campaigns to the members of
those sites. We currently manage approximately three million e-mail addresses
for third party Web sites through such agreements. We generally share the
revenue generated through direct offers with the partner site. In addition, we
currently manage community service offerings on behalf of several third party
sites. We intend to use our expertise in direct e-commerce and in driving
membership through community services to gain access to members of additional
third party sites, thereby increasing the number of e-mail addresses under
management and the number of individuals receiving offers from us.

Develop leading edge targeting technology and software

We are currently developing a proprietary database stratification, offer
targeting and delivery system. The system will review demographic and personal
interest information provided by our members as well as prior purchasing
history to determine a set of offers most likely to appeal to individual
members. Information collected on the Xoom.com site will be appended with data
available through third party providers to enhance our database. The system
will then automatically deliver targeted offers having the highest likelihood
of success to subsets of the membership base. The system will tailor each
offer, creating a unique one-to-one automated marketing system, available
exclusively to us, which maximizes user interaction, response, and conversion
rates. In addition, the system will track users throughout each stage of the
selling process to assess

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the relevance of the offer to the end user. Database information developed
through this process will also eventually be used to create highly targeted
advertising campaigns based on a user's Web site activity and known purchase
history.

Increase advertising revenue

We intend to increase advertising revenue by focusing on a number of key
strategies, including expanding our advertising customer base, increasing
advertising rates, page views and the average size and length of advertising
contracts, hiring additional direct sales representatives and continuing to
invest in improving our ad serving and targeting technology. We also intend to
offer special sponsorship and events-driven promotional advertising programs to
build brand awareness, generate leads and drive traffic to an advertiser's site
and to sell sponsorships of special interest pages where topically focused
content is aggregated on a permanent area within a community.

Our Products and Services

By offering free services, we create a diverse range of communities and a
critical mass of members with whom to interact. We provide each member with
unlimited disk space on our servers and the use of powerful Web publishing
tools for the rapid creation of a personalized Web site. Additionally, we offer
members free e-mail, chat, page counters, online clip art, electronic
newsletters and online greeting cards, while also providing excellent customer
service and high-quality site performance. Members can participate in one or
more of over 200 communities and link to their personal Web sites, allowing
them to take advantage of our services without the need to access the Xoom.com
site directly.

How visitors become members

To become a member, a visitor must provide a valid e-mail address as well as
permission to be re-contacted with targeted news and product offers by e-mail.
A new member can then use one or more of our free services, such as building a
Web page, joining a community or sending an online greeting card, or can
purchase products at a discount. Our services are designed so that their use
attracts new members. For example, online greeting cards contain a message that
informs the recipient of the card's origins and provides information on how the
recipient can learn more about Xoom.com and become a member. We also encourage
members to link their Web sites and communities to users outside of Xoom.com,
thereby increasing our visibility among potential members.

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<PAGE>

Converting membership into e-commerce revenue

Following membership registration, we send the new member an e-mail with
password and membership confirmation, along with an initial product offer.
Thereafter, we send the member an e-mail approximately once a week, containing
product offerings or informational newsletters. Each e-mail contains directions
for removal from our address list, should the member wish to stop receiving
offers. Product offers are made to members worldwide using direct e-commerce
techniques. Currently, we typically make product offers to our entire
membership base or target segments of our membership based on the Web services
they use. As we include additional purchasing history and third party data in
our member database, we believe we will be able to effectively target consumers
having an affinity for certain products and services. Frequent directed e-mail
offers, combined with ease of ordering, provide a context for on-demand
purchases of products and services. The following chart details our major
product and service offerings for the year ended December 31, 1998 and prices
for each category:

<TABLE>
<CAPTION>
Price
Product Categories Range Offerings
------------------ ----- ---------
<C> <C> <S>
Computer Software..................... $ 15-$ 50 Photo editing software, Web
utilities, operating systems,
video games, reference,
hobby, voice recognition

Computer Accessories and Peripherals.. $ 19-$ 99 Modems, digital video
cameras, hard drives,
keyboards, mice, cables, CD
cleaner

Consumer Electronics.................. $179-$399 Digital cameras, DVD players

DVD Movies............................ $ 16-$ 37 Comedy, drama, horror, action

Collectibles.......................... $ 6-$130 Beanie Babies, Furbys, South
Park collections

Gifts................................. $ 14-$ 99 Jewelry, picture frames,
Xoom.com branded gifts

Clip Art.............................. $ 19-$ 79 CD-ROM clip art collections

Services.............................. $ 10-$199 Long distance telephone
service, financial
newsletters
</TABLE>

Xoom.com Buyer's Club and list partnering

The Xoom.com Buyer's Club affiliate program allows third party sites to
place a Xoom.com registration engine on their site. The registration engine
allows users to opt-in to receive direct e-mail offers from Xoom.com. The
revenue we generate from members registering through this program is shared
with the site hosting the registration engine. Sites participating in the
Xoom.com Buyer's Club include InfoSpace.com, Talk City, Deja News, Mplayer.com
and NetNoir among others. In addition, a number of third party sites allow us
to send pre-approved product offers to their membership base in exchange for
managing the e-mail database of such sites and sharing revenue generated from
product sales. Among the sites participating in this program are Talk City,
Deja News, Ulead Software, BUYDIRECT.com and Sausage Software. We currently
manage approximately three million e-mail addresses on behalf of third party
sites through these two programs.

Strategic Alliances

We have entered into a number of strategic alliances, including the
following:

. Hanover Direct. We have formed a joint venture with Hanover Direct, a
leading catalog direct e-commerce company, to create a new Internet e-
commerce shopping channel. Under the proposed joint venture, we and
Hanover Direct will combine our respective products and those of third
parties for sale via the channel, which will operate 24 hours-a-day,
seven days per week on the Xoom.com site. New merchandise in limited
quantities will be rotated on an hourly basis around the clock, so
that consumers are motivated toward immediate purchases. We will share
revenue with Hanover Direct under the proposed exclusive agreement for
this channel.

. Phillips Publishing. We have developed a co-branded investing community
called Investor Place with Phillips Publishing, the largest publisher of
newsletters in the U.S. The site features investment

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<PAGE>

advisers and their newsletter content, a stock ticker and portfolio
service, subscription opportunities and other merchandise offerings. We
will share revenue with Phillips from advertising and product and
service sales in this co-branded investing community.

. ZDNet. We have created and host a co-branded site, with the look and
feel of the ZDNet Web site, that will market our clip art to ZDNet
visitors. We and ZDNet will share revenue from advertising and product
sales on the co-branded site. Also, ZDNet has created and hosts a co-
branded site, with the look and feel of the Xoom.com Web site, that
promotes ZDNet's Software Library to Xoom.com members. The Library
consists of thousands of shareware and freeware programs that have been
carefully reviewed and are available for free download. Xoom.com is
offering the co-branded Software Library as a new, free member service,
and will share revenue from advertising on the co-branded site.

. Quintel Communications. We have signed an agreement with Quintel
Communications, the nation's leading direct marketer of
telecommunications products to consumers and small businesses, to offer
Qwest Communications' long distance service to our members. We expect to
offer in conjunction with Quintel Communications additional
telecommunications services in the near future, such as IP telephony and
unified messaging. The Qwest long distance rate is being offered to our
members throughout the Xoom.com network of sites, within our member
newsletter and through our direct e-mail offers.

. InfoSpace.com. We have formed a strategic alliance with InfoSpace.com,
Inc., a leading aggregator, integrator and syndicator of Web content
services, under which InfoSpace.com is the exclusive provider of online
white pages, yellow pages and classified ads for our members. The white
pages, yellow pages and classified ads are in a co-branded environment
available through the Xoom.com site. As part of the agreement, InfoSpace
users are offered membership in the Xoom.com Buyers Club and the
opportunity to receive offers from us.

Our strategic alliances are under agreements with a duration of one year or
less. Although we view our strategic relationships as a key factor in our
overall business strategy, it is not certain that our strategic partners will
view their relationships with us as significant to their own business or that
they will not reassess their commitment to us in the future. In addition, it
is possible that one of our strategic partners will break its agreement with
us, and we might not be able to specifically enforce the terms of the
agreement. Our arrangements with strategic partners generally do not establish
minimum performance requirements for our strategic partners but instead rely
on their voluntary efforts. In addition, most of our agreements with strategic
partners may be terminated by either party with little notice. Therefore,
there is no guarantee these relationships will be successful. In the event
that a strategic relationship is discontinued for any reason, our business,
results of operations and financial condition may be materially adversely
affected. In addition, we cannot guarantee that we will be successful in
establishing additional strategic relationships. See "Risk Factors--If
important strategic relationships are discontinued for any reason, our
business and financial condition may be adversely affected."

Sales and Marketing

Our sales and marketing strategy is designed to strengthen awareness of the
Xoom.com brand, increase online traffic, build member loyalty, maximize repeat
purchases, increase the size and frequency of e-commerce transactions and
develop additional revenue opportunities.

Marketing the Xoom.com site

Historically, we have marketed our services primarily by word-of-mouth and
indirect promotions by members with links to the Xoom.com site and through the
use of our services. For example, each e-mail that a member sends using our e-
mail service contains a message from us that promotes our service offerings.
We believe that such relationship marketing will continue to generate a
substantial amount of additional traffic and new members.

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<PAGE>

We expect to use a portion of the net proceeds from the offering to develop
other cost-effective methods of marketing the Xoom.com brand through relevant
media, potentially including print, radio and television, in the future. All
promotions will be designed to increase traffic and brand awareness of the
Xoom.com name. We also intend to introduce a number of other brand awareness
and membership retention programs on our own site to make use of our large and
growing member base and visitor traffic. See "Risk Factors--If important
strategic relationships are discontinued for any reason, our business and
financial condition may be adversely affected."

Product marketing

We apply a sophisticated direct e-commerce program, modeled after
traditional direct mail campaigns, to generate product sales. Regular e-mails
communicate targeted offers to members at an extremely low cost. As we gather
additional information about our members, we intend to further target our
offers and increase our range of product offerings. We have developed marketing
campaign-management software that uses statistical techniques to analyze a test
campaign and to predict the expected response rate to such campaign if it is
rolled out to a larger group of members. Results are usually available in less
than one day. This allows us to quickly and efficiently test-market potential
product offerings. On the basis of these tests, we select product offers for a
larger audience and tests price to maximize response, sales or profitability.
Tests also allow us to structure campaigns that maximize member retention.

Advertising

We have a direct sales organization, located in New York and San Francisco,
that is dedicated to developing and maintaining close relationships with top
advertisers and leading advertising agencies nationwide. As of February 28,
1999, we had 15 employees in our direct sales organization. From time to time
we also enter into arrangements with a number of third-party advertising sales
representatives, although, as of February 28, 1999, we had no such
arrangements. Our sales organization is focused solely on selling advertising
on all Xoom.com properties. Our sales organization consults regularly with
advertisers and agencies on design and placement of their Web-based
advertising, provides advertisers with advertising measurement analysis and
focuses on providing a high level of customer service and satisfaction.

Advertisers and advertising agencies typically enter into short-term
agreements, on average one to two months, under which they receive a guaranteed
number of impressions for a fixed fee. We have experienced, and expect to
continue to experience, a variable renewal rate for our advertising contracts.
Advertising on the Xoom.com site currently consists primarily of banner-style
advertisements that are prominently displayed at the top of pages on a rotating
basis throughout the Xoom.com site. From each banner advertisement, viewers can
hyperlink directly to the advertiser's own Web site, thus providing the
advertiser an opportunity to directly interact with an interested customer. Our
standard rate card cost per thousand impressions for banner advertisements
currently ranges from $8 to $12, depending upon location of the advertisement
and the extent to which it is targeted for a particular audience. We may
provide discounts from standard rates for higher volume, longer-term
advertising contracts.

Advertising sponsorships

We have signed a number of long-term sponsorships of a minimum of six months
in length as a result of the growth in reach of the Xoom.com site and the
desire of advertisers to reach our membership and user base. Such sponsorships
generally provide for specific placement on the Xoom.com site and the delivery
of a minimum number of impressions over the course of the contract. We have
signed such agreements with BUYDIRECT.com, eBay, Goto.com, Inc., InfoSpace and
NECX, among others.

Advertising customers

During the twelve months ended December 31, 1998, we had approximately 133
advertisers on our Web site. For the year ended December 31, 1998, our five
largest advertising customers, namely Goto.com, The

49
<PAGE>

Mining Co., Maaznet Directory Services, NECX and Yoyodyne Entertainment,
accounted for approximately 35% of advertising revenue (approximately 9% of
total net revenue). The following is a list of our top 15 advertising customers
by net revenue for the year ended December 31, 1998:

<TABLE>
<S> <C> <C>
Apartments.com The Mining Co. USA Net
BUYDIRECT.com Musicblvd Network Visual Properties
eBay NECX VR Services
Goto.com Sportsline USA Yoyodyne Entertainment
Maaznet Directory Services Spree.com Ziff-Davis
</TABLE>

Customer Service and Support

We believe that the strength of our customer service and technical support
operations is critical to our success in maintaining our membership base,
increasing membership and encouraging repeat usage and purchases. We have
established a team of customer service and technical support professionals who
process inquiries and monitor the status of orders, shipments and payments,
operating from 7 a.m. to 6 p.m. Pacific time Monday through Friday. Members can
access customer service by e-mail and customers can access a toll-free
telephone number. We intend to enhance and automate the e-mail response
portions of our customer service and technical support operations in the near
future.

Warehousing and Fulfillment

We have no fulfillment operation or warehouse facility of our own, and
currently rely primarily on Banta for warehousing and fulfillment services. As
a result of our product testing, we do not generally carry large amounts of
inventory of any given product. Most shipments are made from Banta's warehouse
in Orem, Utah. In the event that our product sales increase substantially,
particularly abroad, Banta has facilities within and outside of the United
States that can handle additional shipment and warehousing needs. See "Risk
Factors--We depend on our vendors and suppliers."

We use automated interfaces for accepting, sorting and processing orders to
enable us to achieve the most rapid and economical purchase and delivery terms.
We process approximately 95% of orders online, with the remainder by telephone,
fax or mail. Once we receive an order, we send a confirmation by e-mail to the
customer. At the end of each day, we send orders to Banta or to other suppliers
for processing. When we send orders to Banta, Banta provides confirmation to us
along with shipping information for all ground-shipped U.S. orders.
International orders through Banta are sent by international air mail. We
forward shipping information by e-mail to customers.

Technology and Infrastructure

We have developed an open standard hardware and software system that is
designed for reliability. System architecture is based on a distributed model
that is highly scalable, flexible and modular, emphasizing extensive automation
and a high degree of redundancy that is designed to minimize single points of
failure. The system integrates site management, network monitoring, quality
assurance, transaction processing and fulfillment services. Currently, the
system has 2.5 terabytes of unformatted disk space, supports over 25 million
hits per day, has a peak bandwidth of over 90 megabits per second and transfers
350 megabytes of data each day.

We use network servers that are housed separately by application at Exodus
Communications, Inc. in Santa Clara, California and Frontier Global Center in
Sunnyvale, California, third-party and public domain server software that we
have optimized internally and internally developed tools and utilities.
Requests for files are distributed to the appropriate servers using load
distribution and balancing hardware. We also employ in-house monitoring
software that includes automated diagnostic programs and intelligent agents,
which test and measure system response, create reports for evaluation by
technical staff and generate pager calls in the event of system failures.
Additional software monitors abuse of the site by members and potential
hackers. Reporting and tracking systems generate daily membership, order and
campaign reports. Membership and mailing engines allow for efficient deployment
of member data and targeting of e-mail campaigns.

50
<PAGE>

We store member-generated content on a redundant array of independent disks.
We store member profile information on multiple disk arrays using Oracle
database software and back it up to long-term tape storage devices on a daily
basis. We will continue to upgrade and expand our server and networking
infrastructure in an effort to improve our fast and reliable access to our Web
site and communities. Any system failure that causes an interruption in service
or a decrease in responsiveness of our Web site could result in less traffic on
our Web site and, if sustained or repeated, could impair our reputation and the
attractiveness of our brand.

Our site is connected to the Internet via multiple DS-3 and OC-3 links on a
24 hour-a-day, seven days per week basis by Exodus and Frontier Global Center.
Exodus and Frontier Global Center also provide and manage power and
environmentals for Xoom.com's networking and server equipment. We manage and
monitor servers and network remotely from our headquarters in San Francisco,
California. We strive to rapidly develop and deploy high-quality tools and
features into our system without interruption or degradation in service. Any
disruption in the Internet access provided by Exodus or Frontier Global Center,
or any interruption in the service that Exodus or Frontier Global Center
receives from other providers, or any failure of Exodus or Frontier Global
Center to handle higher volumes of Internet users to the Xoom.com site could
have a material adverse effect on our business, results of operations and
financial condition. See "Risk Factors--Any failure of our network
infrastructure could have a material adverse effect on our results of
operations."

Competition

. traditional computer retailers including CompUSA and Micro Electronics's
MicroCenter;

. various mail-order retailers including CDW Computer Centers, Micro
Warehouse, Insight Enterprises, Inc., PC Connection, Inc. and Creative
Computers;

. Internet-focused retailers including Amazon.com, Egghead's Egghead.com,
software.net, and New England Circuit Sales' NECX Direct;

. manufacturers that sell directly over the Internet including Dell
Computer, Gateway 2000, Apple Computer and many software companies;

. a number of online service providers including America Online and the
Microsoft Network that offer computer products directly or in
partnership with other retailers;

. some non-computer retailers such as Wal-Mart Stores that sell a limited
selection of computer products in their stores; and

. computer products distributors that may develop direct sales channels to
the consumer market.

51
<PAGE>

Many of our competitors have longer operating histories in the Web market,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources. In addition, substantially all of
our current advertising customers and strategic partners also have established
collaborative relationships with some of our competitors or other high-traffic
Web sites. Our advertising customers might also conclude that other Internet
businesses, such as search engines, commercial online services and sites that
offer professional editorial content, are more effective sites for advertising.
Moreover, we may be unable to maintain the high level of traffic on our Web
site or our member base, which would make our site less attractive than those
of our competitors. Any of these factors could adversely affect our ability to
maintain or improve our position in the market relative to that of our
competitors.

Intellectual Property and Proprietary Rights

Legal Proceedings

To resolve this matter, we filed a lawsuit against Imageline in August 1998
in the United States District Court for the Eastern District of Virginia. We
asked for a declaration with respect to Imageline's allegations of copyright
infringement regarding the clip art images. In September 1998 Imageline filed a
counterclaim, which they amended in January 1999, seeking up to $60 million in
damages. In March 1999, the parties completed the discovery process and filed
separate motions for partial summary judgment. The lawsuit is scheduled for
trial on April 13, 1999.

52
<PAGE>

Employees

As of February 28, 1999, we had 95 full-time employees, including 58 in
sales and marketing, 15 in operating and development and 22 in finance and
administration. Our future success will depend, in part, on our ability to
continue to attract, retain and motivate highly qualified technical and
management personnel, for whom competition is intense. From time to time, we
also employ independent contractors to support our research and development,
marketing, sales and support and administrative organizations. Our employees
are not covered by any collective bargaining agreement, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.

Facilities

Our headquarters are currently located in a leased facility in San
Francisco, California, consisting of approximately 18,700 square feet of office
space, which is under a lease that expires September 30, 2007. We also lease
approximately 6,531 square feet of office space in New York, New York for our
East Coast sales offices under a lease that expires July 15, 2004.

53
<PAGE>

MANAGEMENT

Executive Officers, Directors and Key Employees

Our executive officers, directors and key employees and their respective
ages as of March 1, 1999, are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Chris Kitze......................... 39 Chairman of the Board, Secretary and
Director
Laurent Massa....................... 39 Chief Executive Officer, President and
Director
John Harbottle...................... 44 Vice President, Finance and Chief
Financial Officer
Vijay Vaidyanathan.................. 33 Chief Technology Officer
Rajesh Aji.......................... 36 Vice President, Corporate and Legal
Affairs and General Counsel
Scott Duffy......................... 28 Vice President, Sponsorships and Online
Sales Development
Russell S. Hyzen.................... 33 Vice President, Business Development
Alicia Molnar....................... 33 Vice President, Advertising Sales
Janine Popick....................... 31 Vice President, Direct Marketing
Marc Sznajderman.................... 32 Vice President, Corporate Development
Bob Ellis(2)........................ 62 Publisher and Director
James Heffernan(1)(2)............... 57 Director
Jeffrey Ballowe..................... 43 Director
Philip Schlein(1)................... 64 Director
Robert C. Harris, Jr................ 52 Director
</TABLE>
- ----------
(1) Member of Audit Committee.

(2) Member of Compensation Committee

Chris Kitze co-founded Xoom.com and has served as Chairman of the Board and
Secretary since that time. Since December 1996, Mr. Kitze has been an
independent investor. From April 1996 until December 1996, Mr. Kitze also
served as our President and Chief Executive Officer. In June 1995, Mr. Kitze
co-founded Point Communications Corporation, a Web directory company, which was
acquired by Lycos in October 1995, after which Mr. Kitze served as Lycos' Vice
President of Marketing until June 1996. From June 1994 until June 1995, Mr.
Kitze served as Publisher at Softkey International (now The Learning Company).
In September 1991, Mr. Kitze co-founded Aris Entertainment, a CD-ROM publishing
company and served as its President until June 1994. Mr. Kitze holds a B.S. in
Chemical Engineering from the University of Colorado.

Laurent Massa co-founded Xoom.com and has served as its Chief Executive
Officer and President since December 1996. Mr. Massa has also served on our
Board of Directors since February 1998. From September 1996 to June 1998, Mr.
Massa also served as our Chief Financial Officer. From May 1995 until September
1996, Mr. Massa served as Vice President of New Ventures of Olivetti Telemedia,
a telecommunications company based in Milan. Prior to joining Olivetti, Mr.
Massa joined WordStar International in March 1991 as Director of Marketing,
Europe, and became Vice President, International of Softkey International (now
The Learning Company), following Softkey's merger with WordStar and Spinaker in
February 1993. Mr. Massa holds an MBA from the European Business School.

John Harbottle has served as our Vice President, Finance and Chief Financial
Officer since August 5, 1998. From February 1996 to February 1998, Mr.
Harbottle was the Vice President of Finance and Chief Financial Officer of
Mastering Computers, Inc., an information technology training and CBT software

54
<PAGE>

development and manufacturing company, and then worked as an independent
consultant for Mastering Computers, Inc. from February to July 1998. From
October 1994 to February 1996, Mr. Harbottle was the Vice President of Finance
and Chief Financial Officer of Zenger-Miller, an international
management/leadership training, consulting and education company. From January
1992 to October 1994, Mr. Harbottle was the Vice President of Finance and Chief
Financial Officer of IFS, an international consumer products and direct
marketing company. Mr. Harbottle is a director of WebSoftware Corporation. Mr.
Harbottle holds a B.S. in Business Administration from the University of
California, Berkeley.

Vijay Vaidyanathan has served as our Chief Technology Officer and as a
Director since March 1998 and was a Director from March 1998 to February 1999.
Prior to joining us, Mr. Vaidyanathan co-founded Paralogic Corporation, an
Internet software company, and served as its President and Chief Executive
Officer from January 1995 until we acquired it in March 1998. Prior to founding
Paralogic Corporation Mr. Vaidyanathan served as Engineering Manager at
Frontline Design Automation, an electronic design automation company from July
1994 until December 1994 and as Engineering Manager at Zycad Corporation, an
electronic design automation company from February 1991 until July 1994.
Mr. Vaidyanathan also serves on the board of Paralogic Software Corporation, a
software company, and Santa Clara Valley School, Inc., a non-profit school he
co-founded in 1995. Mr. Vaidyanathan holds an M.S. in Instrumentation
Technology from the Birla Institute of Technology and Science in India and an
M.S. in Computer Science from the State University of New York at Albany.

Rajesh Aji has served as our Vice President of Corporate and Legal Affairs
and General Counsel since January 1999. Prior to joining us, Mr. Aji was an
attorney with the law firms of Wilson Sonsini Goodrich & Rosati and McCutchen
Doyle Brown & Enersen from September 1994 to January 1999, where he served as
primary outside counsel for more than twenty-five private and public companies,
specifically in the areas of venture capital and corporate financing, public
offerings, mergers and acquisitions, and securities and intellectual property
law. Mr. Aji holds a Bachelor of Technology degree from the Indian Institute of
Technology, a Master of Science degree from the University of Iowa and a Juris
Doctor degree from the University of California, Berkeley.

Scott Duffy has served as our Vice President, Sponsorships and Online Sales
Development since August 1998. Prior to joining us, Mr. Duffy served as Western
Region Sales Manager for SportsLine USA, Inc. from August 1997 to August 1998.
From January 1996 to March 1997, Mr. Duffy held a number of positions for
Quote.com, Inc., an Internet financial services company, including Business
Development Manager and most recently Director of Advertising Sales. Prior to
that, Mr. Duffy served as an Account Executive for Seven Worldwide, Inc., a
worldwide imaging company that manages the production of advertising,
promotional and packaging artwork and interactive multimedia, from 1993 to
1995.

Russell S. Hyzen has served as our Vice President, Business Development
since December 1997 and as Xoom.com's director of Business Development from
November 1996 to December 1997. Prior to joining us, Mr. Hyzen served as
Business Development Manager for Quote.com, an Internet Financial Services
Company, from December 1995 to October 1996. From November 1993 to December
1995, he worked as an independent consultant. In August 1991, Mr. Hyzen founded
Pacific Coast Lending, a mortgage brokerage company, and he served as its
President until November 1993. Mr. Hyzen holds a B.S. in Business
Administration from California State University, Northridge.

Alicia Molnar has served as our Vice President, Advertising Sales, since
December 1997. From October 1995 to November 1997, Ms. Molnar held a number of
management positions with Lycos, most recently as Director of Sales, Eastern
Region. From December 1994 until September 1995, Ms. Molnar served as Director
of Network Sales for Point Communications. Prior to joining Point
Communications, Ms. Molnar was a Regional Sales Manager for College Bound
Magazine from September 1993 until October 1994. From February 1992 to August
1993, she was employed as a Senior Account Manager for Linnette & Harrison, an
advertising agency. From January 1990 to December 1992, she worked as an
Account Manager for Chalek & Chalek, an advertising agency. Ms. Molnar holds a
B.A. in Communications from Montclair State University.

55
<PAGE>

Janine Popick has served as our Vice President, Direct Marketing since April
1998. From November 1997 until April 1998, Ms. Popick served as Manager of
Direct Marketing for FileMaker, Inc., a wholly-owned subsidiary of Apple
Computer. From January 1996 to November 1997, Ms. Popick served as Manager of
Direct Marketing of Insignia Solutions, a computer software company. Prior to
joining Insignia Solutions, Ms. Popick served as Manager of Direct Marketing of
Claris Corporation, a computer software company, from September 1994 to January
1996. From December 1993 to August 1994, Ms. Popick served as Manager of Direct
Marketing for Symantec Corporation, a software company. She was an account
executive at JDA Corp., an enterprise software solutions company, from
September 1993 to December 1993. Ms. Popick holds a B.A. in Communications and
English from Hofstra University.

Marc Sznajderman has served as our Vice President, Corporate Development
since December 1998. From August 1993 until November 1998, Mr. Sznajderman
served as a member of the Investment Banking Division of Bear, Stearns & Co.
Inc., most recently as Vice President. Prior to joining Bear Stearns, Mr.
Sznajderman served as Vice President of Business Development for Qantix
Corporation, a manufacturer and marketer of computer accessories, from August
1991 until June 1992. From August 1989 until July 1991 Mr. Sznajderman was a
member of the Investment Banking Division of Goldman, Sachs & Co.
Mr. Sznajderman holds a B.S. in Finance from Syracuse University and a Masters
in Management from the J.L. Kellogg Graduate School of Management at
Northwestern University.

Bob Ellis has served as one of our Directors and as Publisher since August
1997. From July 1995 to July 1997, Mr. Ellis was President of Paris
Productions, an online publishing company. In January 1988, he founded Compact
Publishing Company ("Compact"), a publishing company and served as its Chief
Executive Officer until its acquisition by Softkey International (now The
Learning Company) in July 1994, after which he served as Vice President of
Publishing of Softkey until July 1995. Prior to founding Compact, Mr. Ellis was
a Vice President of Time-Life, Inc. and President of Time-Life Software. Mr.
Ellis holds a B.A. in Philosophy from Yale and an M.A. in History from the
University of Chicago.

James Heffernan has served as one of our Directors since June 1998. Mr.
Heffernan co-founded USWeb Corporation, an Internet professional services
company, in December 1995 and has served as its Executive Vice President, Chief
Financial Officer, Secretary and a director since that time. From May 1993
to July 1994, he worked as an independent consultant and then joined Interlink
Computer Sciences, Inc. in July 1994 as Chief Financial Officer, where he
served until January 1996. From March 1992 to May 1993, Mr. Heffernan served as
Chief Financial Officer and Chief Operating Officer of Serius. Mr. Heffernan
has also served as an officer of several other technology companies, including
Software Publishing Corp., Zital Inc. and Measurex Corp. Mr. Heffernan is a
director of Savoir Technology Group, Inc and USWeb Corporation. Mr. Heffernan
has a B.S. in Business and an MBA from Santa Clara University.

Jeffrey Ballowe has served as one of our Directors since July 1998. Mr.
Ballowe retired at the end of 1997 from Ziff-Davis, where during his 11 years
at the company he was instrumental in transforming Ziff-Davis from a U.S.
magazine publisher to an international, integrated media company. Aside from
serving in magazine publishing roles including Publisher of PC Magazine, Mr.
Ballowe held number of corporate posts in which he was responsible for
establishing Ziff-Davis' European operations, managing Ziff-Davis' largest
magazine group, launching the company's Internet publications, creating ZDNet,
and launching ZDTV. At his retirement he was President, Interactive Media and
Development Group, in charge of Ziff-Davis' Internet publications, ZDNet, ZDTV,
and all development at the company. Among his development activities included
spearheading Ziff-Davis' and Softbank's investments in Yahoo!, USWeb
Corporation (where he served as a founding Director), Gamespot, and Herring
Communications. Prior to his work at Ziff-Davis, Mr. Ballowe worked as a
marketing executive at various technology and marketing services companies.
Currently Mr. Ballowe is Chairman of Deja News and serves on the boards of
drkoop.com, VerticalNet and ZDTV. He received a bachelor's degree from Lawrence
University, a master's degree in French from the University of Wisconsin-
Madison, and an MBA from the University of Chicago.

56
<PAGE>

Philip Schlein has served as one of our Directors since July 1998. Since
April 1985, Mr. Schlein has been a general partner of U.S. VenturePartners, a
venture capital firm specializing in retail and consumer products companies.
From January 1974 to January 1985, Mr. Schlein served as President and Chief
Executive Officer of Macy's California, a division of R. H. Macy & Co., Inc., a
department store chain. Mr. Schlein also serves on the board of directors of
Ross Stores, Inc., ReSound Corporation, Quick Response Services, Burnham
Pacific Properties, Inc. and Bebe Stores. Mr. Schlein holds a B.S. in Economics
from the University of Pennsylvania.

Robert C. Harris, Jr. has served as one of our Directors since August 1998.
Mr. Harris is a Senior Managing Director at Bear, Stearns & Co. Inc. From 1989
to October 1997, he was a co-founder and Managing Director of Unterberg Harris.
From 1984 to 1989, he was a General Partner, Managing Director and Director of
Alex. Brown & Sons Inc. Mr. Harris is also a director of N2K, Inc., MDSI Mobile
Data Solutions, Inc. and SoftNet Systems, Inc. Mr. Harris holds a B.S. and MBA
from the University of California at Berkeley.

All Directors hold office until the next annual meeting of the stockholders
and until their successors have been duly elected and qualified. Executive
officers are elected by and serve at the direction of the Board of Directors.

There are no family relationships among any of our Directors or executive
officers other than between Mr. Kitze and Ms. Molnar, who is Mr. Kitze's
sister-in-law.

Board Committees

The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of James J. Heffernan and Philip
Schlein, recommends the selection of independent public accountants to the
Board of Directors, reviews the scope and results of the audit and other
services provided by our independent accountants, and reviews our accounting
practices and systems of internal accounting controls.

The Compensation Committee, consisting of James J. Heffernan and Bob Ellis,
reviews and approves the salaries, bonuses and other compensation payable to
our executive officers and administers and makes recommendations concerning our
employee benefit plans. See "Certain Transactions."

Director Compensation

Except as set forth below, our Directors receive no cash compensation for
their services as Board members or committee members and we do not reimburse
them for expenses incurred in connection with attending Board and committee
meetings. On May 15, 1998, Mr. Heffernan, an outside Director, entered into a
consulting agreement with us under which he is entitled to receive compensation
in the form of common stock and options to purchase common stock for his
services, which services include serving as a member of the Board of Directors.
See "Certain Transactions."

On August 4, 1997, Bob Ellis, one of our outside Directors, entered into a
letter agreement with us under which Mr. Ellis agreed to provide certain
services to us, including serving as a member of the Board of Directors. This
agreement provided for compensation in the form of options to buy 222,222
shares of common stock at an exercise price of $0.03 per share, which vest
ratably over an 18 month period. The agreement terminated on February 3, 1999.

On July 28, 1998, Jeffrey Ballowe, one of our outside Directors, entered
into a letter agreement with us, which was amended as of December 2, 1998.
Under this agreement, as amended, Mr. Ballowe agreed to serve as a member of
the Board of Directors. The agreement provides for compensation in the form of
options to buy 23,334 shares of common stock at an exercise price of $6.75 per
share, which will vest monthly over a two year period or immediately upon a
sale of Xoom.com. Mr. Ballowe also receives a monthly fee of $10,000 as
compensation for his service as a Director. This fee is payable in shares of
common stock based upon the stock's closing price on the last trading day of
the month. Mr. Ballowe will also receive compensation equal to 5% of all funds
he raises for us, payable in common stock. Mr. Ballowe's agreement has a term
of 18 months.

57
<PAGE>

On July 28, 1998, Philip Schlein, one of our outside Directors, entered into
a letter agreement with us, which was amended as of December 2, 1998. Under
this agreement, as amended, Mr. Schlein agreed to serve as a member of the
Board of Directors. The agreement provides for compensation in the form of
options to buy 23,334 shares of common stock at an exercise price of $6.75 per
share, which will vest monthly over a two year period or immediately upon a
sale of Xoom.com. Mr. Schlein also receives a monthly fee of $10,000 payable in
cash or in common stock, at Mr. Schlein's option, as compensation for his
service as a Director. Mr. Schlein's agreement has a term of 18 months.

On July 28, 1998, Robert Harris, one of our outside Directors, entered into
a letter agreement with us, which was amended as of December 2, 1998. Under
this agreement, as amended, Mr. Harris agreed to serve as a member of the Board
of Directors. The agreement provides for compensation in the form of options to
buy 23,334 shares of common stock at an exercise price of $6.75 per share,
which will vest monthly over a two year period or immediately upon a sale of
Xoom.com. Mr. Harris also receives a monthly fee of $10,000 payable in cash or
in common stock, at Mr. Harris' option, as compensation for his service as a
director. Mr. Harris' agreement has a term of 18 months.

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of our Board of Directors or
Compensation Committee.

Executive Compensation

The following table sets forth certain information concerning compensation
of our Chief Executive Officer and each of our three other most highly
compensated executive officers whose aggregate salary, bonus and other
compensation exceeded $100,000 during the fiscal year ended December 31, 1998
(collectively, the "Named Executive Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ---------------------
Name and Principal Salary Bonus Securities Underlying
Position Year ($) ($) Options (#)
- ------------------ ---- ------- ------ ---------------------
<S> <C> <C> <C> <C>
Laurent Massa............ 1998 216,124 15,593 158,333
President and Chief
Executive Officer 1997 182,600 -- 83,333
1996 42,000 -- 258,334

Russell S. Hyzen......... 1998 120,011 40,000 53,333
Vice President, Business
Development 1997 120,000 3,333 53,333
1996 20,000 -- 83,333

Alicia Molnar............ 1998 150,085 24,573 26,667
Vice President,
Advertising Sales 1997 10,865 -- 120,000
1996 -- -- --

Janine Popick............ 1998 73,547 26,480 136,666
Vice President, Direct
Marketing 1997 -- -- --
1996 -- -- --
</TABLE>

58
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth certain information concerning grants to
purchase shares of common stock to each of the Named Executive Officers during
the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
Percent of Potential Realizable Value at
Number of Total Options Assumed Annual Rates of
Securities Granted to Stock Price Appreciation for
Underlying Employees in Exercise Option Term(3)
Options Fiscal Year Price Per Expiration ------------------------------
Name Granted(1) 1997(2) Share Date 5% ($) 10% ($)
- ---- ---------- ------------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Laurent Massa........... 158,333 8.1% $14.00 12/7/2008 $ 1,394,047 $ 3,532,788

Russell S. Hyzen........ 13,333 0.7% $ 3.33 6/1/2008 27,922 70,760
40,000 2.0% $14.00 12/7/2008 352,181 892,496

Alicia Molnar........... 26,667 1.4% $14.00 12/7/2008 234,790 595,005

Janine Popick........... 33,333 1.7% $ 2.31 3/17/2008 48,424 122,717
43,333 2.2% $ 3.33 6/1/2008 90,749 229,975
60,000 3.1% $14.00 12/7/2008 528,271 1,338,744
</TABLE>
- ----------
(1) Options granted under the Company's 1998 Stock Incentive Plan have a
maximum ten-year term measured from the date of grant. Such options
generally vest over either a four-year period or a two-year period. The
four-year period options become exercisable for 25% of the option shares
commencing upon the optionee's completion of one year of service measured
from the vesting commencement date and the balance in a series of 36
successive monthly installments upon the optionee's completion of each
additional month of service over the 36-month period measured from the
first anniversary of the vesting commencement date. The two-year period
options vest in a series of 24 successive monthly installments and become
exercisable for 100% of the option shares upon achievement of certain
performance targets. Under the 1998 Stock Incentive Plan, the exercise
price per share generally is the closing selling price of our common stock
the day before the vesting commencement date. In the event of a "change of
control," as defined in the 1998 Stock Incentive Plan, 75% of any
outstanding unvested options shall accelerate to become exercisable in
full.
(2) Based on options to purchase an aggregate of 632,982 shares of common stock
granted during fiscal 1998.
(3) In accordance with the rules of the Securities and Exchange Commission,
shown are the hypothetical gains or "option spreads" that would exist for
the respective options. These gains are based on assumed rates of annual
compounded stock price appreciation of 5% and 10% from the date the option
was granted over the full option term, assuming a fair market value equal
to the exercise price per share on the date of grant. The 5% and 10%
assumed rates of appreciation are mandated by the Commission and do not
represent our estimate or projection of future increases in the price of
our common stock.

Aggregate Option Exercises in Fiscal Year 1998 and Fiscal Year-End Option
Values

The following table sets forth certain information as of December 31, 1998
concerning exercisable and unexercisable stock options held by each of the
Named Executive Officers.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Value Year End (#) Fiscal Year End ($)(1)
Shares Acquired Realized ------------------------- -------------------------
Name on Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Laurent Massa........... -- -- 247,398 / 252,602 8,156,712 / 6,116,376

Russell S. Hyzen........ -- -- 104,722 / 85,277 3,452,684 / 2,208,784

Alicia Molnar........... -- -- 68,334 / 78,333 2,252,972 / 2,210,101

Janine Popick........... -- -- 10,000 / 126,666 296,700 / 3,151,980
</TABLE>
- ----------
(1) Based on the fair market value of our common stock at December 31, 1998, of
$33.00 per share, less the exercise price for such shares.

59
<PAGE>

Employment Agreements

Laurent Massa

On July 1, 1998, Laurent Massa, our President and Chief Executive Officer,
entered into an employment agreement with us. This agreement provides for an
annual salary of $216,000. Mr. Massa is also eligible for an annual bonus of up
to 33% of his base salary, paid quarterly based on the following criteria: (A)
exceeding quarterly revenue goals: 50% of the eligible Bonus; (B) achieving
specific management team goals: 25% of the eligible bonus; and (C) achieving
personal objectives that improve the organization: 25% of the eligible bonus.
The Compensation Committee will set the goals and review them quarterly. Should
we terminate Mr. Massa without Cause (as defined in the agreement), we must
provide Mr. Massa 180 days' advance written notice, and we may in our
discretion terminate Mr. Massa's employment at any time prior to the end of
this notice period, provided we pay Mr. Massa an amount equal to his base
compensation plus benefits Mr. Massa would have earned through the balance of
the notice period. If we exercise our right to terminate Mr. Massa without
Cause, Mr. Massa shall be immediately entitled to exercise 100% of any stock
options we have granted to him that had not previously vested. Mr. Massa may
exercise his vested stock options for a four month period from the date we
notify him of our intention to terminate his employment.

Should we terminate Mr. Massa for Cause, we must pay Mr. Massa all
compensation due on the date of termination. In the event of a Change in
Control or Corporate Transaction (as defined in the agreement) as a result of
which Mr. Massa's employment with us is involuntarily terminated, with or
without cause, Mr. Massa will be entitled to payment of an amount equal to one
year's base compensation plus benefits, and all stock options we previously
granted to Mr. Massa will immediately become fully vested and exercisable.

Under the terms of his agreement, Mr. Massa may terminate his employment
with us at any time for any reason by providing us with thirty days' advance
written notice. Should Mr. Massa's employment with us terminate for any reason,
the agreement further provides that Mr. Massa: (A) will not use any of our
proprietary information without our prior written consent; (B) will not use any
confidential information to compete against us or any of our employees; and (C)
will not, for one year following termination, solicit any of our customers or
employees.

Mr. Massa will be eligible for an annual review of his agreement no later
than July 20, 1999.

Pursuant to a letter agreement entered into prior to fiscal 1998, we granted
Mr. Massa options to purchase up to an aggregate of 341,667 shares of common
stock at a per share exercise price of $0.03.

John Harbottle

On August 4, 1998, John Harbottle, our Chief Financial Officer, entered into
an employment agreement with us. The agreement provides for an annual salary of
$144,000. Mr. Harbottle is also eligible for a discretionary quarterly bonus of
up to $10,000. Should we terminate Mr. Harbottle without Cause (as defined in
the agreement), we must provide Mr. Harbottle 180 days' advance written notice,
and we may in our discretion terminate Mr. Harbottle's employment at any time
prior to the end of this notice period, provided we pay Mr. Harbottle an amount
equal to his base compensation plus benefits Mr. Harbottle would have earned
through the balance of the notice period. If we exercise our right to terminate
Mr. Harbottle without Cause, Mr. Harbottle shall be immediately entitled to
exercise 100% of any stock options we have granted to him that had not
previously vested. Mr. Harbottle may exercise his vested stock options for a
four month period from the date we notify him of our intention to terminate his
employment.

Should we terminate Mr. Harbottle for Cause, we must pay Mr. Harbottle all
compensation due on the date of termination. In the event of a Change in
Control or Corporate Transaction (as defined in the agreement) as a result of
which Mr. Harbottle's employment with us is involuntarily terminated, with or
without cause, Mr. Harbottle will be entitled to payment of an amount equal to
6 months' base compensation plus benefits, and all stock options we previously
granted to Mr. Harbottle will immediately become fully vested and exercisable.

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<PAGE>

Under the terms of his agreement, Mr. Harbottle may terminate his employment
with us at any time for any reason by providing us with thirty days' advance
written notice. Should Mr. Harbottle's employment with us terminate for any
reason, the agreement further provides that Mr. Harbottle: (A) will not use any
of our proprietary information without our prior written consent; (B) will not
use any confidential information to compete against us or any of our employees;
and (C) will not, for one year following termination, solicit any of our
customers or employees.

Pursuant to a letter agreement entered into prior to Mr. Harbottle's
employment agreement, we granted to Mr. Harbottle options to purchase up to
86,667 shares of common stock at a per share exercise price of $6.75 and
options to purchase up to 20,000 shares of common stock at a per share exercise
price of $12.00.

Vijay Vaidyanathan

We have entered into an employment agreement, dated March 10, 1998, as
amended on August 12, 1998, with Vijay Vaidyanathan, our Chief Technical
Officer. The agreement provides that Mr. Vaidyanathan receives a yearly salary
of $120,000. Mr. Vaidyanathan is also entitled to participate in our medical,
dental and vision insurance plan and in any other employee benefit plan we
adopt. Should we terminate Mr. Vaidyanathan without Cause (as defined in the
agreement), we must provide Mr. Vaidyanathan 90 days' advance written notice,
and we may in our discretion terminate Mr. Vaidyanathan's employment at any
time prior to the end of this notice period, provided we pay Mr. Vaidyanathan
an amount equal to his base compensation plus benefits Mr. Vaidyanathan would
have earned through the balance of the notice period. In the event we exercise
our right to terminate Mr. Vaidyanathan without Cause, Mr. Vaidyanathan shall
be immediately entitled to exercise 100% of any stock options we have granted
to him that had not previously vested. Mr. Vaidyanathan may exercise his vested
stock options for a four month period from the date we notify him of our
intention to terminate his employment.

Should we terminate Mr. Vaidyanathan for Cause, we must pay Mr. Vaidyanathan
all compensation due on the date of termination. In the event of a Change in
Control or Corporate Transaction (as defined in the agreement) as a result of
which Mr. Vaidyanathan's employment with us is involuntarily terminated, with
or without cause, Mr. Vaidyanathan will be entitled to payment of an amount
equal to 6 months' base compensation plus benefits, and all stock options we
previously granted to Mr. Vaidyanathan will immediately become fully vested and
exercisable.

Under the terms of his agreement, Mr. Vaidyanathan may terminate his
employment with us at any time for any reason by providing us with thirty days'
advance written notice. Should Mr. Vaidyanathan's employment with us terminate
for any reason, the agreement further provides that Mr. Vaidyanathan: (A) will
not use any of our proprietary information without our prior written consent;
(B) will not use any confidential information to compete against us or any of
our employees; and (C) will not, for one year following termination, solicit
any of our customers or employees.

Mr. Vaidyanathan will be eligible for an annual review of his agreement no
later than August 12, 1999. Under the agreement, we granted Mr. Vaidyanathan
options to purchase up to 93,334 shares of common stock at a per share exercise
price of $2.31.

Russell Hyzen

On July 20, 1998, Russell S. Hyzen, our Vice President Business Development,
entered into an employment agreement with us. The agreement provides for an
annual salary of $120,000 and a discretionary bonus of up to $10,000 per
quarter to be paid upon achievement of personal and company targets to be
defined. Should we terminate Mr. Hyzen without Cause (as defined in the
agreement), we are required to provide Mr. Hyzen 90 days' advance written
notice, and we may in our discretion terminate Mr. Hyzen's employment at any
time prior to the end of this notice period, provided we pay Mr. Hyzen an
amount equal to his base compensation plus benefits Mr. Hyzen would have earned
through the balance of the notice period. If we exercise our right to terminate
Mr. Hyzen without Cause, Mr. Hyzen shall be immediately entitled to exercise

61
<PAGE>

100% of any stock options we have granted to him that had not previously
vested. If Mr. Hyzen is terminated without Cause, he may exercise his vested
stock options for a four month period from the date we notify him of our
intention to terminate his employment.

Should we terminate Mr. Hyzen for Cause, we must pay Mr. Hyzen all
compensation due on the date of termination. In the event of a Change in
Control or Corporate Transaction (as defined in the agreement) as a result of
which Mr. Hyzen's employment with us is involuntarily terminated for any
reason, with or without cause, Mr. Hyzen will be entitled to payment of an
amount equal to 6 months' base compensation plus benefits, and any and all
stock options we previously granted to him will immediately become fully vested
and exercisable.

Under the terms of the agreement, Mr. Hyzen may terminate his employment
with us at any time for any reason by providing us with thirty days' advance
written notice. Should Mr. Hyzen's employment with us terminate for any reason,
the agreement further provides that Mr. Hyzen: (A) will not use any of our
proprietary information without our prior written consent; (B) will not use any
confidential information to compete against us or any of our employees; and (C)
will not, for one year following termination, solicit any of our customers or
employees.

Pursuant to a letter agreement entered into prior to fiscal 1998, we granted
Mr. Hyzen options to purchase up to 136,667 shares of common stock at a per
share exercise price of $0.03.

Benefit Plans

1998 Stock Incentive Plan

Our 1998 Stock Incentive Plan was approved by the Board of Directors and by
our stockholders in February 1998. The Stock Incentive Plan provides for the
grant of options intended to qualify as "incentive stock options" under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified
stock options and stock appreciation rights. The Stock Incentive Plan also
provides for the transfer or sale of common stock to selected individuals in
connection with the performance of services for us or our affiliates. A total
of 2,000,000 shares of common stock have been reserved for issuance under the
Stock Incentive Plan. As of December 31, 1998, no shares of common stock had
been issued upon exercise of options granted under the Stock Incentive Plan,
1,563,151 shares remained reserved for future issuance upon the exercise of
outstanding options, and 436,849 shares remained available for future grant.
The Board of Directors or a committee designated by the Board is authorized to
administer the Stock Incentive Plan, including the selection of individuals
eligible for grants of options, issuances of common stock, the terms of such
grants or issuances, possible amendments to the terms of such grants or
issuances and the interpretation of the terms of, and adoption of rules for,
the Stock Incentive Plan. The maximum term of any stock option granted under
the Stock Incentive Plan is ten years, except that with respect to incentive
stock options granted to a person possessing more than 10% of our combined
voting power (a "10% Stockholder"), the term of such stock options shall be for
no more than five years.

The exercise price of nonqualified stock options and incentive stock options
granted under the Stock Incentive Plan must be at least 85% and 100%,
respectively, of the fair market value of the common stock on the grant date
except that the exercise price of incentive stock options granted to a 10%
Stockholder must be at least 110% of such fair market value on the grant date.
The aggregate fair market value on the date of grant of the common stock for
which incentive stock options are exercisable for the first time by an employee
during any calendar year may not exceed $100,000. The purchase price of shares
of common stock granted under the Stock Incentive Plan must be at least 85% of
the fair market value of the common stock on the grant date except that the
purchase price of shares of common stock granted to a 10% Stockholder must be
at least 100% of such fair market value on the grant date. The individual
agreements under the Stock Incentive Plan may provide for repurchase rights for
us under the terms and conditions set forth in the Stock Incentive Plan. The
Stock Incentive Plan will terminate in 2008, unless earlier terminated by the
Board.

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<PAGE>

In the event of a merger in which we are not the surviving entity, the sale
of all or substantially all of our assets or a reverse merger resulting in a
change of control, each grant which is at the time outstanding under the Stock
Incentive Plan shall, unless the plan administrator in its discretion decides
differently, immediately prior to the specified effective date of such
transaction, automatically become fully vested and exercisable with respect to
75% of the unvested shares at the time represented by such grant. To the extent
it has not been previously exercised, the grant will terminate immediately
prior to the consummation of such proposed transaction, unless the grant is
assumed or an equivalent grant is substituted by the successor corporation.

1998 Employee Stock Purchase Plan

Our Stock Purchase Plan was approved by the Board of Directors in August
1998 and by our stockholders in October 1998. The Stock Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code in order to provide our employees with an opportunity to purchase
common stock through payroll deductions. An aggregate of 300,000 shares of
common stock has been reserved for issuance under the Stock Purchase Plan and
made available for purchase thereunder, subject to adjustment in the event of a
stock split, stock dividend or other similar change in the common stock or our
capital structure. All of our employees (and employees of our "subsidiary
corporations" and "parent corporations" (as defined by the Code) designated by
the administrator of the Stock Purchase Plan) whose customary employment is for
more than five months in any calendar year and more than 20 hours per week are
eligible to participate in the Stock Purchase Plan. Employees hired after the
consummation of our initial public offering are eligible to participate in the
Stock Purchase Plan, subject to a six-month waiting period after hiring. Non-
employee directors, consultants, and employees subject to the rules or laws of
a foreign jurisdiction that prohibit or make impractical the participation of
such employees in the Stock Purchase Plan are not eligible to participate in
the Stock Purchase Plan.

The Stock Purchase Plan designates Offer Periods, Purchase Periods and
Exercise Dates. Offer Periods are generally overlapping periods of 24 months.
The initial Offer Period began on the effective date of the Stock Purchase
Plan, which was December 8, 1998, the effective date of our Registration
Statement relating to its initial public offering, and ends on December 31,
2000. Additional Offer Periods will commence each July 1 and January 1.
Purchase Periods are generally six month periods, with the initial Purchase
Period commencing on the effective date of the Stock Purchase Plan and ending
on June 30, 1999. Thereafter, Purchase Periods will commence each July 1 and
January 1. Exercise Dates are the last day of each Purchase Period. In the
event we merge with or into another corporation or sell all or substantially
all of our assets, or certain other transactions in which our stockholders
before the transaction own less than 50% of the total combined voting power of
our outstanding securities following the transaction, the administrator of the
Stock Purchase Plan may elect to shorten the Offer Period then in progress.

On the first day of each Offer Period, a participating employee is granted a
purchase right, which is a form of option to be automatically exercised on the
forthcoming Exercise Dates within the Offer Period during which deductions are
to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
When the purchase right is exercised, the participant's withheld salary is used
to purchase shares of common stock. The price per share at which shares of
common stock are to be purchased under the Stock Purchase Plan during any
Purchase Period is the lesser of (A) 85% of the fair market value of the common
stock on the date of the grant of the option (the commencement of the Offer
Period) or (B) 85% of the fair market value of the common stock on the Exercise
Date (the last day of a Purchase Period). The participant's purchase right is
exercised in this manner on each Exercise Date arising in the Offer Period
unless, on the first day of any Purchase Period, the fair market value of the
common stock is lower than the fair market value of the common stock on the
first day of the Offer Period. If so, the participant's participation in the
original Offer Period is terminated, and the participant is automatically
enrolled in the new Offer Period effective the same date.

Payroll deductions may range from 1% to 10% (in whole percentage increments)
of a participant's regular base pay, exclusive of bonuses, overtime, shift-
premiums, commissions, reimbursements or other expense

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<PAGE>

allowances. Participants may not make direct cash payments to their accounts.
The maximum number of shares of common stock that any employee may purchase
under the Stock Purchase Plan during an Purchase Period is 1,250 shares. The
Code imposes certain additional limitations on the amount of common stock that
may be purchased during any calendar year.

The Compensation Committee administers the Stock Purchase Plan, and has the
authority to terminate or amend the Stock Purchase Plan (subject to specified
restrictions) and otherwise to administer the Stock Purchase Plan and to
resolve all questions relating to the administration of the Stock Purchase
Plan.

Option grants outside the 1998 Stock Incentive Plan

In the period between August 1996 and December 1998, options to purchase
1,235,224 shares of common stock were granted to our directors, officers and
all of our employees, as well as to a number of consultants. The options were
granted outside the Stock Incentive Plan by the Board of Directors under
individual stock option agreements under substantially similar terms as the
options granted under the Stock Incentive Plan.

Limitation of Liability and Indemnification Matters

Our Bylaws provide that we will indemnify our Directors and executive
officers and may indemnify our other officers, employees and other agents to
the fullest extent permitted by the Delaware General Corporation Law, as
amended. We have entered into indemnification agreements with our Directors and
officers and are also empowered under our Bylaws to purchase insurance on
behalf of any person whom we are required or permitted to indemnify. We have
obtained a policy of directors' and officers' liability insurance that insures
such persons against the cost of defense, settlement or payment of a judgment
under certain circumstances.

In addition, our Certificate of Incorporation provides that the liability of
our Directors for monetary damages shall be eliminated to the fullest extent
permissible under the Delaware General Corporation Law, as so amended. This
provision in the Certificate of Incorporation does not eliminate a Director's
duty of care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available. Each
Director will continue to be subject to liability for breach of the Director's
duty of loyalty, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions that
the Director believes to be contrary to our or our stockholders' best
interests, for any transaction from which the Director derived an improper
personal benefit, for improper transactions between the Director and us and for
improper distributions to stockholders and loans to Directors and officers.
This provision also does not affect a Director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our Directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

There is no pending litigation or proceeding involving one of our Directors
or officers as to which indemnification is being sought, nor are we aware of
any pending or threatened litigation that may result in claims for
indemnification by any Director or officer.

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<PAGE>

CERTAIN TRANSACTIONS

Some of our Directors, executive officers and affiliates have entered into
stock purchase transactions with us, as follows:

. Following our incorporation, Chris Kitze, one of our founders, purchased
333,334 shares of common stock for cash at a price of $0.0003 per share,
resulting in aggregate proceeds to us of $100; and, pursuant to a Common
Stock Purchase Agreement dated August 26, 1996, Naveen Jain, an
affiliate of ours, purchased 333,334 shares of common stock for cash at
a price of $0.0003 per share, resulting in aggregate proceeds to us of
$100. In connection with these transactions, we entered into a
Stockholders' Agreement with Mr. Kitze and Mr. Jain. This Stockholders'
Agreement was terminated on February 10, 1998.

. Pursuant to a Common Stock Purchase Agreement dated December 31, 1996,
Mr. Kitze and Mr. Jain purchased an additional 2,333,334 and 1,000,000
shares, respectively, of common stock in exchange for the cancellation
of promissory notes in the amount of $700,000 and $300,000,
respectively. In the same agreement, Mr. Jain contributed 666,667 shares
of common stock to us.

. Pursuant to Common Stock Purchase Agreements dated February 13, 1997 and
November 23, 1997, Flying Disc Investments Limited Partnership, of which
Mr. Kitze is a general partner, purchased an additional 1,333,336 and
94,445 shares of common stock, respectively, from us for cash at $0.45
and $0.90 per share, respectively, resulting in aggregate proceeds to us
of approximately $685,000.

. Flying Disc purchased an additional 108,228 shares of common stock in
February 1998 pursuant to a Common Stock Purchase Agreement for cash at
a price of $2.31 per share.

. Under a Common Stock and Warrant Purchase Agreement dated as of April
25, 1998, Flying Disc purchased 30,030 shares of common stock for cash
at a per share price of $3.33 along with a warrant to purchase an
additional 6,006 shares at $3.33 per share, resulting in aggregate
proceeds to us of approximately $100,000.

. Under a Common Stock and Warrant Purchase Agreement dated as of June 18,
1998, Internet Ventures, LLC purchased 30,030 shares of common stock for
cash at a per share price of $3.33 along with a warrant to purchase an
additional 6,006 shares at $3.33 per share, resulting in aggregate
proceeds to us of approximately $100,000. Mr. Jain is the managing
member of Internet Ventures.

All of the warrants described above were exercised before the completion of
our initial public offering.

In addition to these purchases, under a Stock Purchase Agreement dated
February 13, 1997, Bob Ellis, one of our Directors, purchased 55,556 shares of
common stock for cash at a price of $1.80 per share, resulting in aggregate
proceeds to us of approximately $100,000. On August 4, 1997, due to a
revaluation of the shares Mr. Ellis purchased, he was awarded an additional
55,556 shares of common stock at the new price of $0.90 per share. In
addition, on the same date, Mr. Ellis purchased an additional 222,222 shares
of common stock for cash at $0.90 per share, resulting in aggregate proceeds
to us of approximately $200,000.

We have entered into a Consulting Agreement, dated May 15, 1998, with James
J. Heffernan, an outside Director. The agreement will terminate on November
15, 1999. The agreement provides for Mr. Heffernan to receive a monthly
compensation of $10,000, paid in the form of common stock, and options to buy
16,667 shares of common stock at an exercise price of $3.33 per share. Mr.
Heffernan was granted stock options to buy an additional 16,667 shares of
common stock at an exercise price of $3.33 per share upon completion of our
initial public offering. In addition, Mr. Heffernan was entitled to a finder
fee, payable in shares of common stock, of 5% of any investment he secured on
our behalf between May 15, 1998 and June 30, 1998. Under this arrangement, Mr.
Heffernan received 50,203 shares of common stock. See "Director Compensation."

We have entered into a Content License Agreement dated February 22, 1998,
with Classic Media Holdings, whereby we were granted certain non-exclusive,
perpetual, world-wide licensing rights in connection

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with Classic Media Holdings' library of public domain movies. As consideration
for the license, we issued 43,290 shares of common stock to Classic Media
Holdings' principals. Mr. Kitze is a principal of Classic Media Holdings.

We have entered into employment agreements, indemnification agreements and
other compensation arrangements with our directors and officers. See
"Management--Employment Agreements," "--Director Compensation" and "--
Limitation Of Liability And Indemnification Matters."

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us
and our officers, Directors, principal stockholders and their affiliates will
be approved by a majority of the Board of Directors, including a majority of
the independent and disinterested outside Directors on the Board of Directors,
and be on terms no less favorable to us than could be obtained from
unaffiliated third parties.

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<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to us with respect
to beneficial ownership of common stock as of February 28, 1999 and as adjusted
to reflect the sale of the shares offered hereby, by (A) each person known by
us to own beneficially more than 5% of the outstanding shares of common stock,
(B) each of our directors, (C) each of the Named Executive Officers, (D) all
executive officers and directors of us as a group and, (E) selling stockholders
owning more than 1% of the outstanding shares of common stock (F) other selling
stockholders, each owns less than 1% of the outstanding shares of common stock.

<TABLE>
<CAPTION>
Number of Shares Beneficially Shares Beneficially Owned
Owned Prior to the Offering(1) Number of After the Offering(1)
-----------------------------------Shares Being-------------------------------
Number Percentage Offered(2) Number Percentage
------------------ ---------------------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Chris Kitze(3).......... 4,188,350 30.6% 837,670 3,350,680 20.8%
Naveen Jain(4).......... 702,702 5.1% 133,333 569,369 3.5%
Vijay Vaidyanathan(5)... 607,243 4.4% 200,000 407,243 2.5%
Bob Ellis(6)............ 549,443 3.9% 137,117 412,326 2.5%
Laurent Massa(7)........ 276,563 2.0% 100,000 176,563 1.1%
James Heffernan(8)...... 139,157 1.0% -- 139,157 *
Russell S. Hyzen(9)..... 125,277 * 39,333 85,944 *
Alicia Molnar(10)....... 86,667 * 40,000 46,667 *
John Harbottle(11)...... 37,779 * 24,000 13,779 *
Janine Popick(12)....... 26,937 * 13,470 13,467 *
Jeffrey Ballowe(13)..... 17,363 * 3,084 14,279 *
Philip Schlein(14)...... 12,732 * 10,788 1,944 *
Robert C. Harris,
Jr.(15)................ 12,732 * -- 12,732 *
All executive officers
and directors as a
group (12
persons)(16)........... 6,080,243 41.8% 1,538,795 4,679,781 28.4%
Other Selling
Stockholders........... 461,205
</TABLE>
- ----------
*Less than 1%.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of February 28,
1999 and warrants to purchase shares of common stock that are exercisable
within 60 days of February 28, 1999 are deemed outstanding. Percentage of
beneficial ownership is based upon 13,699,555 shares of common stock
outstanding prior to the offering and 16,082,672 shares of common stock
outstanding after the Offering, as of December 31, 1998 and assuming no
exercise of the Underwriters' over-allotment option. To our knowledge,
except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name. Except as otherwise indicated, the address of
each of the Directors, Named Executive Officers and 5% stockholders in
this table is as follows: c/o XOOM.com, Inc., 300 Montgomery Street, Suite
300, San Francisco, California 94104.

(2) Includes an aggregate of 383,117 shares issued upon the exercise of
outstanding options and sold in the offering.

(3) Includes 4,188,350 shares of common stock held by Flying Disc, of which
Mr. Kitze is a general partner. Mr. Kitze may be deemed to be the
beneficial owner of the shares held by Flying Disc.

(4) Includes 36,036 shares of common stock held by Internet Ventures. Mr. Jain
is the managing member of Internet Ventures and may be deemed to be the
beneficial owner of the shares held by Internet Ventures. Mr. Jain's
address is 16115 N.E. 49th Ct., Redmond, WA 98052.

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<PAGE>

(5) Includes 80,000 shares of common stock held by Mr. Vaidyanathan's Family
Trust. Mr. Vaidyanathan may be deemed to be the beneficial owner of the
shares of common stock held by the Vaidyanathan Family Trust. Also
includes options exercisable for 25,277 shares of common stock exercisable
within 60 days after February 28, 1999.

(6) Includes 323,333 shares of common stock held by the Robert A. Ellis
Revocable Trust. Also includes options exercisable for 226,110 shares of
common stock exercisable within 60 days after February 28, 1999.

(7) Includes options exercisable for 276,563 shares of common stock
exercisable within 60 days after February 28, 1999.

(8) Includes options exercisable for 22,917 shares of common stock exercisable
within 60 days after February 28, 1999. Also includes 12,000 shares of
common stock held by J.J. Heffernan, LLC, of which Mr. Heffernan is the
managing member, and 100,239 shares of common stock held by the Heffernan
Family Trust. Mr. Heffernan may be deemed to be the beneficial owner of
the shares and warrants to purchase shares of common stock held by the
Heffernan LLC and the Heffernan Family Trust. Also includes 4,000 shares
of common stock held by Sandra Heffernan, who is Mr. Heffernan's wife.

(9) Includes options exercisable for 113,611 shares of common stock
exercisable within 60 days after February 28, 1999.

(10) Includes options exercisable for 76,667 shares of common stock exercisable
within 60 days after February 28, 1999.

(11) Includes options exercisable for 32,779 shares of common stock exercisable
within 60 days after February 28, 1999. Also includes 4,000 shares of
common stock held by Claire Harbottle, who is Mr. Harbottle's wife.

(12) Includes options exercisable for 23,334 shares of common stock exercisable
within 60 days after February 28, 1999.

(13) Includes options exercisable for 16,694 shares of common stock exercisable
within 60 days after February 28, 1999.

(14) Includes options exercisable for 8,750 shares of common stock exercisable
within 60 days after February 28, 1999.

(15) Includes options exercisable for 8,750 shares of common stock exercisable
within 60 days after February 28, 1999.

(16) Includes options exercisable for 831,452 shares of common stock
exercisable within 60 days after February 28, 1999.

68
<PAGE>

DESCRIPTION OF CAPITAL STOCK

We are authorized to issue up to 40,000,000 shares of common stock, $0.0001
par value per share, and 5,000,000 shares of preferred stock, $0.0001 par value
per share.

The following summary of certain provisions of the common stock and
preferred stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of our Certificate of
Incorporation, which is included as an exhibit to the Registration Statement of
which this prospectus is a part, and by the provisions of applicable law.

Common Stock

As of December 31, 1998, there were 13,699,555 shares of common stock
outstanding that were held of record by approximately 90 stockholders. There
will be 16,082,672 shares of common stock outstanding (assuming the exercise of
383,117 options to purchase shares of common stock by the selling stockholders,
no exercise of the Underwriters' over-allotment option, no exercise of
outstanding options to purchase 2,415,258 shares of common stock, and excluding
issuances of common stock since December 31, 1998 of 3,468 shares of common
stock to directors or 116,231 shares of common stock as a result of the
exercise of outstanding warrants) after giving effect to the sale of the common
stock we are offering.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. We do not have
cumulative voting rights in the election of Directors, and accordingly, holders
of a majority of the shares voting are able to elect all of the Directors.
Subject to preferences that may be granted to any then outstanding preferred
stock, holders of common stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor as well as any distributions to the stockholders. See "Dividend
Policy." In the event of our liquidation, dissolution or winding up, holders of
common stock are entitled to share ratably in all of our assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive or other
subscription of conversion rights. There are no redemption or sinking fund
provisions applicable to the common stock.

Preferred Stock

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, any or all of
which may be greater than the rights of common stock, without any further vote
or action by stockholders. The issuance of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control. We
have no present plan to issue any shares of preferred stock.

Antitakeover Effects of Provisions of Our Charter and Bylaws

Our Bylaws provide that all stockholder action must be effected at a duly
called meeting of stockholders and not by a consent in writing; the Bylaws also
provide that only our Chief Executive Officer and President may call a special
meeting of stockholders.

These provisions will make it more difficult for our existing stockholders
to replace the Board of Directors as well as for another party to obtain
control by replacing the Board of Directors. Since the Board of Directors has
the power to retain and discharge our officers, these provisions could also
make it more difficult for existing stockholders or another party to effect a
change in management.

69
<PAGE>

These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management. These provisions are
intended to enhance the likelihood of continued stability in the composition of
the Board of Directors and in the policies furnished by the Board of Directors
and to discourage certain types of transactions that may involve an actual or
threatened change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights.
However, the provisions could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may
inhibit fluctuations in the market price of our shares that could result from
actual or rumored takeover attempts. These provisions also may have the effect
of preventing changes in our management. See "Risk Factors--Anti-takeover
provisions in our charter documents could negatively impact our stockholders."

Section 203 of the Delaware General Corporation Law

We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless: (A) 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 holder; (B) upon
consummation of the transaction that that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% 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 shares owned (1) by persons who are directors and also
officers and (2) by 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 (C) 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 the stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.

Section 203 defines a business combination to include: (A) any merger or
consolidation involving the corporation and the interested stockholder; (B) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (C) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (D)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock or any class or series of the corporation
beneficially owned by the interested stockholder; or (E) the receipt by the
interested stockholder of the benefit of any loss, advances, guarantees,
pledges or other financial benefits by or through the corporation. In general,
Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. See "Risk Factors--Anti-takeover
provisions in our charter documents could negatively impact our stockholders."

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is BankBoston, N.A.
Its address is c/o Boston EquiServe Trust Company, 150 Royall Street, Canton,
Massachusetts 02021, and its telephone number is (617) 575-6127.

70
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of common stock after the offering
could adversely affect the market price of the common stock and could impair
our ability to raise capital through the sale of equity securities. Upon
completion of the offering, we will have outstanding 16,082,672 shares of
common stock, based on shares outstanding as of December 31, 1998 and assuming
the exercise of options to purchase 383,117 shares of common stock by the
selling stockholders. Of these shares, the 4,000,000 shares sold in this
offering will be freely tradable without restriction under the Securities Act,
unless they are held by "affiliates" as defined under the Securities Act. In
addition, the 4,600,000 shares sold in our initial public offering in December
1998 and 5,000 shares released from the lock-up agreements executed by our
stockholders in connection with the initial public offering are freely
tradeable.

71
<PAGE>

UNDERWRITING

The underwriters of the offering named below, for whom Bear, Stearns & Co.
Inc., Hambrecht & Quist LLC, BancBoston Robertson Stephens and Wit Capital
Corporation as e-Manager(TM) are acting as U.S. representatives and Bear,
Stearns International Limited, Hambrecht & Quist LLC, BancBoston Robertson
Stephens International Ltd and Deutsche Bank AG London are acting as
international representatives, have severally agreed with us, subject to the
terms and conditions of the Underwriting Agreement (the form of which has been
filed as an exhibit to the Registration Statement on Form S-1 of which this
prospectus is a part), to purchase from us and the selling stockholders the
aggregate number of shares of common stock set forth opposite their respective
names below:

<TABLE>
<CAPTION>
U.S. Underwriter Number of Shares
---------------- ----------------
<S> <C>
Bear, Stearns & Co. Inc. ....................................
Hambrecht & Quist LLC........................................
BancBoston Robertson Stephens................................
Wit Capital Corporation......................................
---------
Total...................................................... 3,400,000
=========
<CAPTION>
International Underwriters Number of Shares
-------------------------- ----------------
<S> <C>
Bear, Stearns International Limited..........................
Hambrecht & Quist LLC........................................
BancBoston Robertson Stephens International Ltd..............
Deutsche Bank AG London......................................
---------
Total...................................................... 600,000
=========
</TABLE>

The U.S. underwriters and the international representatives are
collectively referred to as the underwriters.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. underwriter has represented and agreed that, with certain exceptions set
forth below, (A) it is not purchasing any shares of common stock being sold by
it for the account of anyone other than a United States or Canadian person and
(B) it has not offered or sold, and will not offer or sell, directly or
indirectly, any U.S. shares or distribute this prospectus outside the United
States or Canada or to anyone other than a United States or Canadian person.
Pursuant to the Agreement Between U.S. and International Underwriters, each
international underwriter has represented and agreed that, with certain
exceptions set forth below, (A) it is not purchasing any shares of common
stock being sold by it for the account of any United States or Canadian person
and (B) it has not offered or sold, and will not offer or sell, directly or
indirectly, any international shares or distribute this prospectus within the
United States or Canada or to any United States or Canadian person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Agreement Between the U.S. and
International Underwriters. With respect to the U.S. representatives and the
international representatives, the foregoing representations or agreements (A)
are made by each of them in their capacity as a U.S. underwriter shall apply
only to shares of common stock purchased by each of them in their capacity as
a U.S. underwriter, (B) are made by each of them in their capacity as an
international underwriter shall apply only to shares of common stock purchased
by each of them in their capacity as an international underwriter and
(C) shall not restrict either of their abilities to distribute the prospectus
to any person. As used herein, United States or Canadian person means any
national or resident of the United States or Canada or any corporation,
pension, profit-sharing or other trust or other entity organized under the
laws of the United States or Canada or of any political subdivision thereof
(other than a branch located outside of the United States or Canada of any
United States or Canadian person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian person and
United States means the United States of America, its territories, its
possessions and all areas subject to its jurisdiction.

72
<PAGE>

Pursuant to the Agreement Between the U.S. and International Underwriters,
sales may be made between the U.S. underwriters and international underwriters
of any number of shares of common stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the offering price set forth on the cover page hereof,
in United States Dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of common stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of shares of
common stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. underwriter has further agreed to send to
any dealer who purchases from it any shares of common stock a notice stating in
substance that, by purchasing such shares such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such shares in Canada or to, or for the benefit of, any
resident of Canada in contravention of the securities laws of Canada or any
province or territory thereof and that any offer of shares of common stock in
Canada will be made only pursuant to an exemption from the requirement to file
a prospectus in the province or territory of Canada in which such offer is
made, and that such dealer will deliver to any other dealer to whom it sells
any of such shares of common stock a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
international underwriter has represented and agreed that (A) it has not
offered or sold and will not offer or sell any shares of common stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (B) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 and the regulations
with respect to anything done by it in relation to the shares of common stock
in, from or otherwise involving the United Kingdom; and (C) it has only issued
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the shares of
common stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise lawfully be issued or passed
on.

If the underwriters sell more than the total number set forth in the table
above, the U.S. underwriters have an option to buy up to an additional 600,000
shares from us to cover such sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the Underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.

The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.

<TABLE>
<CAPTION>
Paid by Us
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>

Shares sold by the underwriters to the public will initially be offered at
the public offering price set forth on the cover of this prospectus. Any shares
sold by the underwriters to securities dealers may be sold at a discount of up
to $ per share from the public offering price. Any such securities dealers
may resell any shares purchased from the underwriters to certain other brokers
or dealers at a discount of up to $ per share from the public offering
price. Any such securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to $
per share from the public offering price. If all the shares are not

73
<PAGE>

sold at the offering price, the U. S. and international representatives may
change the offering price and the other selling terms.

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the U.S. and international representatives have
repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions. These activities by the
underwriters may stabilize, maintain or otherwise affect the market price of
the common stock. As a result, the price of the common stock may be higher than
the price that otherwise might exist in the open market. If these activities
are commenced, they may be discontinued by the underwriters at any time. These
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market or otherwise.

In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended, during the business day prior to
the pricing of the offering before the commencement of offers or sales of the
common stock. Passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.

A U.S. prospectus in electronic format is being made available to U.S.
investors only on an Internet Web site maintained by Wit Capital Corporation.
Other than the U.S. prospectus in electronic format, the information on such
Web site and any information contained on any other Web site maintained by Wit
Capital Corporation is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been approved and/or
endorsed by us or any underwriter in such capacity and should not be relied on
by prospective investors.

We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .

We and the selling stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act.

From time to time Bear, Stearns & Co. Inc. provides financial advisory
services to Xoom.com and receives customary fees for such services.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
Xoom.com by Morrison & Foerster LLP, San Francisco, California. Certain legal
matters in connection with the offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California. As
of the date of this prospectus, partners and employees of Morrison & Foerster
LLP own an aggregate of 1,250 shares of our common stock.

74
<PAGE>

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1997 and 1998 and the period from April
16, 1996 (inception) to December 31, 1996 and the years ended December 31, 1997
and 1998, as set forth in their report, included in this prospectus and
registration statement. Our consolidated financial statements are included in
this prospectus and registration statement in reliance on their report, given
on their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with Securities and Exchange Commission in Washington, D.C. a
Registration Statement on Form S-1 under the Securities Act with respect to the
common stock offered in this prospectus. This prospectus, filed as part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and its exhibits and schedules, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information about us and the common stock, we refer you
to the Registration Statement and to its exhibits and schedules. Statements in
this prospectus about the contents of any contract, agreement or other document
are not necessarily complete and, in each instance, we refer you to the copy of
such contract, agreement or document filed as an exhibit to the Registration
Statement, and each such statement being qualified in all respects by reference
to the document to which it refers. Anyone may inspect the Registration
Statement and its exhibits and schedules without charge at the public reference
facilities the Commission maintains at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois, 60661. You may obtain copies of all or any part of
these materials from the Commission upon the payment of certain fees prescribed
by the Commission. You may also inspect these reports and other information
without charge at a Web site maintained by the Commission. The address of this
site is http://www.sec.gov.

We are subject to the informational requirements of the Exchange Act and, in
accordance therewith, file reports, proxy statements and other information with
the Commission. You can inspect and copy these reports, proxy statements and
other information at the public reference facilities maintained by the
Commission and at the Commission's regional offices at the addresses noted
above. You can also obtain copies of this material from the Public Reference
Section of the Commission as described above, or inspect them without charge at
the Commission's Web site. Our common stock is quoted on the Nasdaq National
Market. You may inspect reports, proxy and information statements and other
information concerning us at the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006.

75
<PAGE>

XOOM.com, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-8
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders of XOOM.com, Inc.

We have audited the accompanying consolidated balance sheets of XOOM.com,
Inc. as of December 31, 1997 and 1998, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the period
from April 16, 1996 (inception) through December 31, 1996 and for the years
ended December 31, 1997 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits 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 consolidated financial position
of XOOM.com, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for the period from April 16, 1996
(inception) through December 31, 1996 and for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Palo Alto, California
January 25, 1999

F-2
<PAGE>

XOOM.com, Inc.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 5,587 $ 54,575,200
Short-term investments.................................. -- 2,000,000
Accounts receivable, net of allowance for doubtful
accounts of $48,702 in 1997 and $194,919 in 1998....... 173,223 1,368,062
Stock subscription receivable........................... 75,000 --
Inventories............................................. -- 321,541
Other current assets.................................... 906 308,452
----------- ------------
Total current assets.................................. 254,716 58,573,255
Fixed assets, net........................................ 413,685 2,070,742
Goodwill, net............................................ -- 3,749,945
Purchased technology, net................................ -- 1,766,456
Prepaid royalties and licenses........................... 53,556 216,131
Other assets............................................. 59,713 496,974
----------- ------------
Total assets........................................ $ 781,670 $ 66,873,503
=========== ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 461,931 $ 1,229,103
Accrued compensation and related expenses............... 38,391 496,213
Other accrued liabilities............................... 4,700 1,531,067
Deferred revenue........................................ -- 443,154
Note payable to stockholder............................. 150,000 --
Notes payable........................................... -- 1,276,439
Capital lease obligations............................... -- 37,441
Contingency accrual..................................... 1,000,000 1,000,000
----------- ------------
Total current liabilities............................. 1,655,022 6,013,417
Notes payable, less current portion...................... -- 410,528
Capital lease obligations, less current portion.......... -- 117,148
Commitments and contingencies

Stockholders' equity (deficit):
Preferred stock, $0.0001 par value:
Authorized shares--5,000,000
Issued and outstanding shares--none in 1997 and 1998.. -- --
Common stock, $0.0001 par value:
Authorized shares--40,000,000
Issued and outstanding shares--5,541,367 and
13,699,555 in 1997 and 1998, respectively............ 3,001,424 75,605,835
Deferred compensation.................................... (302,924) (904,031)
Accumulated deficit...................................... (3,571,852) (14,369,394)
----------- ------------
Total stockholders' equity (deficit).................. (873,352) 60,332,410
----------- ------------
Total liabilities and stockholders' equity
(deficit).......................................... $ 781,670 $ 66,873,503
=========== ============
</TABLE>

See accompanying notes.

F-3
<PAGE>

XOOM.com, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Period from Year ended December 31,
April 16, 1996 (inception) -------------------------
Through December 31, 1996 1997 1998
-------------------------- ----------- ------------
<S> <C> <C> <C>
Net revenue:
E-commerce............ $ -- $ 327,080 $ 5,582,397
Advertising........... -- 60,251 2,143,532
License fees and
other................ -- 453,556 591,969
--------- ----------- ------------
Total net revenue... -- 840,887 8,317,898

Cost of net revenue:
Cost of e-commerce.... -- 170,957 3,541,272
Cost of license fees
and other............ -- 148,375 42,463
--------- ----------- ------------
Total cost of net
revenue............ -- 319,332 3,583,735
--------- ----------- ------------
Gross profit............ -- 521,555 4,734,163
Operating expenses:
Operating and
development.......... 265,769 1,150,299 3,840,559
Sales and marketing... 23,719 291,675 2,834,611
General and
administrative....... 150,487 720,534 3,365,964
Purchased in-process
research and
development.......... -- -- 790,000
Amortization of
deferred
compensation......... -- 247,924 1,415,857
Amortization of
intangible assets.... -- -- 1,842,869
Non-recurring
charges.............. -- 1,243,000 --
--------- ----------- ------------
Total operating
expenses........... 439,975 3,653,432 $ 14,089,860
--------- ----------- ------------
Loss from operations.... (439,975) (3,131,877) (9,355,697)
Other income (expense):
Interest income....... -- -- 187,587
Interest expense...... -- -- (135,268)
Interest expense
related to warrant... -- -- (1,494,164)
--------- ----------- ------------
Net loss................ $(439,975) $(3,131,877) $(10,797,542)
========= =========== ============
Net loss per share--
basic and diluted...... $ (0.89) $ (0.64) $ (1.37)
========= =========== ============
Number of shares used in
per share calculation--
basic and diluted...... 496,733 4,874,319 7,879,497
========= =========== ============
</TABLE>

See accompanying notes.

F-4
<PAGE>

XOOM.com, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Total
Common Stock Stockholders'
---------------------- Deferred Accumulated Equity
Shares Amount Compensation Deficit (Deficit)
---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of common
stock to founders at
inception............. 666,668 $ 200 $ -- $ -- $ 200
Issuance of common
stock in exchange for
cancellation of notes
payable to
stockholders.......... 2,666,667 1,000,000 -- -- 1,000,000
Net loss............... -- -- -- (439,975) (439,975)
---------- ----------- ---------- ------------ -----------
Balances at December 31,
1996................... 3,333,335 1,000,200 -- (439,975) 560,225
Issuance of common
stock for cash........ 1,914,452 1,223,000 -- -- 1,223,000
Issuance of common
stock in exchange for
cancellation of notes
payable to
stockholders.......... 38,889 35,000 -- -- 35,000
Issuance of common
stock in exchange for
stock subscription
receivable............ 254,691 175,000 -- -- 175,000
Issuance of stock
options to
consultants........... -- 17,376 -- -- 17,376
Deferred compensation
related to grant of
stock options......... -- 550,848 (550,848) -- --
Amortization of
deferred
compensation.......... -- -- 247,924 -- 247,924
Net loss............... -- -- -- (3,131,877) (3,131,877)
---------- ----------- ---------- ------------ -----------
Balances at December 31,
1997................... 5,541,367 3,001,424 (302,924) (3,571,852) (873,352)
Issuance of common
stock for cash, net of
issuance costs of
$139,316.............. 1,815,432 5,532,046 -- -- 5,532,046
Issuance of common
stock in exchange for
Classic Media Holdings
license rights........ 43,292 100,000 -- -- 100,000
Issuance of common
stock in connection
with acquisitions..... 1,221,992 4,218,235 -- -- 4,218,235
Issuance of common
stock in exchange for
cancellation of notes
payable to
stockholders.......... 64,937 150,000 -- -- 150,000
Issuance of common
stock in exchange for
stock subscription
receivable............ 78,224 260,480 -- -- 260,480
Issuance of common
stock to directors and
consultants in
exchange for
services.............. 19,564 205,160 -- -- 205,160
Issuance of stock
options to
consultants........... -- 237,830 -- -- 237,830
Issuance of common
stock in initial
public offering, net
of offering costs of
$7,058,634............ 4,600,000 57,341,366 -- -- 57,341,366
Issuance of common
stock upon exercise of
warrants, net of
issuance costs of
$27,863............... 314,747 1,048,166 -- -- 1,048,166
Issuance of warrant in
connection with loan
agreement............. -- 1,494,164 -- -- 1,494,164
Deferred compensation
related to grant of
stock options......... -- 2,016,964 (2,016,964) -- --
Amortization of
deferred
compensation.......... -- -- 1,415,857 -- 1,415,857
Net loss............... -- -- -- (10,797,542) (10,797,542)
---------- ----------- ---------- ------------ -----------
Balances at December 31,
1998................... 13,699,555 $75,605,835 $ (904,031) $(14,369,394) $60,332,410
========== =========== ========== ============ ===========
</TABLE>

See accompanying notes.

F-5
<PAGE>

XOOM.com, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
April 16, 1996 Year Ended December 31,
(inception) through -------------------------
December 31, 1996 1997 1998
------------------- ----------- ------------
<S> <C> <C> <C>
Cash used in operating
activities:
Net loss....................... $(439,975) $(3,131,877) $(10,797,542)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Interest expense related to
warrant...................... -- -- 1,494,164
Purchased in-process research
and development.............. -- -- 790,000
Depreciation and
amortization................. 2,496 254,077 796,238
Amortization of intangible
assets....................... -- -- 1,842,869
Amortization of deferred
compensation................. -- 247,924 1,415,857
Write-off of prepaid
royalties.................... -- 243,000 --
Issuance of common stock in
exchange for Classic Media
Holdings license rights...... -- -- 100,000
Issuance of stock options to
consultants.................. -- 17,376 237,830
Issuance of common stock to
directors and consultants.... -- -- 205,160
Changes in operating assets
and liabilities:
Accounts receivable.......... -- (173,223) (1,167,261)
Inventories.................. -- -- (321,541)
Other current assets......... -- (906) (303,093)
Intangible assets............ -- -- (7,401)
Prepaid royalties and
licenses.................... (324,000) (185,815) (425,993)
Other assets................. (18,544) (41,169) (437,261)
Accounts payable............. 136,122 325,809 762,054
Accrued compensation and
related expenses............ 8,906 29,485 417,556
Other accrued liabilities.... -- 4,700 1,402,683
Deferred revenue............. -- -- 443,154
Contingency accrual.......... -- 1,000,000 --
--------- ----------- ------------
Net cash used in operating
activities..................... (634,995) (1,410,619) (3,552,527)
Cash used in investing
activities:
Purchases of fixed assets...... (64,153) (392,846) (1,954,221)
Purchase of short-term
investments................... -- -- (2,000,000)
Business combinations, net of
cash acquired................. -- -- (458,644)
Cash paid in connection with
the purchase of certain assets
from Revolutionary Software,
Inc........................... -- -- (272,500)
--------- ----------- ------------
Net cash used in investing
activities.................... (64,153) (392,846) (4,685,365)

Cash provided by financing
activities:
Proceeds from issuance of
common stock in initial public
offering...................... -- -- 57,341,366
Proceeds from issuance of
common stock.................. 200 1,223,000 5,532,046
Proceeds from exercise of
warrants...................... -- -- 1,048,166
Proceeds from issuance of notes
payable to stockholders....... 700,000 185,000 --
Proceeds from repayment of
stock subscriptions
receivable.................... -- 400,000 335,480
Proceeds from notes payable.... -- -- 1,761,715
Principal payments on capital
lease obligations............. -- -- (10,089)
Repayment of notes payable..... -- -- (3,201,179)
--------- ----------- ------------
Net cash provided by financing
activities.................... 700,200 1,808,000 62,807,505
--------- ----------- ------------
Net increase in cash........... 1,052 4,535 54,569,613
Cash and cash equivalents at
beginning of period........... -- 1,052 5,587
--------- ----------- ------------
Cash and cash equivalents at
end of period................. $ 1,052 $ 5,587 $ 54,575,200
========= =========== ============
</TABLE>

See accompanying notes.

F-6
<PAGE>

XOOM.com, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
Period from Year Ended December
April 16, 1996 31,
(inception) through -------------------
December 31, 1996 1997 1998
------------------- -------- ----------
<S> <C> <C> <C>
Supplemental disclosures:
Non-cash transactions:
Issuance of common stock in exchange
for stock subscriptions
receivable......................... $ -- $175,000 $ 260,480
========== ======== ==========
Issuance of notes payable to
stockholders for stock
subscriptions receivable........... $ 300,000 $ -- $ --
========== ======== ==========
Issuance of common stock in exchange
for cancellation of notes payable
to stockholder..................... $1,000,000 $ 35,000 $ 150,000
========== ======== ==========
Deferred compensation resulting from
grant of stock options............. $ -- $550,848 $2,016,964
========== ======== ==========
Fixed assets acquired under capital
lease obligations.................. $ -- $ -- $ 164,678
========== ======== ==========
Interest expense recorded in
conjunction with warrant issuance.. $ -- $ -- $1,494,164
========== ======== ==========
Common stock issued to satisfy
Paralogic legal obligation......... $ -- $ -- $ 164,802
========== ======== ==========
Issuance of common stock in
conjunction with business and
technology acquisitions:
Paralogic Corporation............... $ -- $ -- $1,576,364
========== ======== ==========
Global Bridges Technologies, Inc.... $ -- $ -- $ 997,694
========== ======== ==========
Revolutionary Software, Inc......... $ -- $ -- $1,200,178
========== ======== ==========
ArcaMax, Inc........................ $ -- $ -- $ 444,000
========== ======== ==========
Issuance of notes payable in
conjunction with business and
technology acquisitions:
Paralogic Corporation............... $ -- $ -- $1,400,000
========== ======== ==========
Global Bridges Technologies, Inc.... $ -- $ -- $ 62,500
========== ======== ==========
Revolutionary Software, Inc......... $ -- $ -- $ 262,500
========== ======== ==========
ArcaMax, Inc........................ $ -- $ -- $ 180,000
========== ======== ==========
Pagecount, Inc...................... $ -- $ -- $1,200,000
========== ======== ==========
Cash paid for interest.............. $ -- $ -- $ 57,386
========== ======== ==========
</TABLE>

See accompanying notes.

F-7
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Summary of Significant Accounting Policies

The Company

XOOM.com, Inc. (the "Company"), was formerly known as XOOM, Inc., Xoom
Software, Inc. and originally incorporated as Atomsoft, Inc. in the State of
Delaware on April 16, 1996.

The Company provides free community services such as Web site hosting, e-
mail, on-line chat networks and free proprietary content such as clip art and
greeting cards. The Company uses these free services and content to build a
membership base to direct market goods and services targeted to the interests
of its members. The Company derives a substantial portion of its revenue from
e-commerce, and to a lesser extent from advertising and licensing.

Basis of presentation

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

Dependence on certain vendors

The Company currently depends on one vendor to provide warehousing and order
fulfillment. Although the Company believes that there are alternative vendors
for warehousing and order fulfillment, there can be no assurance that the
Company will maintain its relationship with this vendor as the agreement is
cancelable at any time. The loss of this relationship could have a material
adverse effect on the Company's financial condition and results of operations.

Use of estimates

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

Cash and cash equivalents

The Company considers investments in highly liquid instruments purchased
with original maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value. The Company
maintains its cash in depository accounts with three high credit quality
financial institutions.

Concentrations of credit risk and credit evaluations

Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade accounts receivable. The Company conducts
business with companies in various industries throughout the world and with
individuals over the Internet. The Company performs ongoing credit evaluations
of its corporate customers and generally does not require collateral. Sales to
individuals are principally paid for via credit cards. Reserves are maintained
for potential credit losses, and such losses to date have been within
management's expectations. The Company provided $48,702 and $296,196 for
allowance for doubtful accounts in 1997 and 1998, respectively.

For the year ended December 31, 1997, one customer accounted for $100,000 or
12% of total net revenue. No balances were receivable from that customer at
December 31, 1997. For the year ended December 31, 1998, no single customer
accounted for greater than 10% of total net revenue.

F-8
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventories

Inventories are carried at the lower of cost (determined on the average cost
basis) or market. Inventories consist of products available for sale.

Fixed assets

Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of three years. Fixed assets under capital leases are
amortized over the shorter of the estimated useful life or the life of the
lease. The Company identifies and records impairment losses on fixed assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.

Goodwill and purchased technology, net

Goodwill and purchased technology consist of purchased technology and
goodwill related to acquisitions accounted for by the purchase method. See Note
2. Amortization of these purchased intangibles is provided on the straight-line
basis over the respective useful lives of the assets, which ranges from 2 to
3.5 years. Purchased in-process research and development without alternative
future use is expensed when acquired.

The Company identifies and records impairment losses on intangible assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.

Prepaid royalties and licenses

Prepaid royalties represent prepayments of royalties due upon the sale or
sublicense of software technologies. Prepaid royalties are amortized as units
are sold or over estimated useful lives of approximately one year, whichever is
shorter. Licenses represent amounts paid to developers for fully paid licenses
to resell certain software. These licenses are amortized over the estimated
useful lives which are approximately one year. Amortization of prepaid
royalties and licenses, which is included in cost of e-commerce and cost of
license fee revenue, totaled $0, $213,259 and $263,418, for the period from
April 16, 1996 (inception) to December 31, 1996, and for the years ended
December 31, 1997 and 1998, respectively.

During the second quarter of 1997, the Company discontinued the sale of
certain products where royalty prepayments had been made and accordingly,
recorded a write-off of prepaid royalties included in non-recurring charges
totaling $243,000.

Other assets

Other assets consist of non-current deposits relating to various ongoing
agreements entered into by the Company.

Deferred revenue

Deferred revenue consists of advertising and e-commerce fees to be earned in
the future under agreements existing at the balance sheet date.

Income taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under FAS 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.

F-9
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock-based compensation

The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123").

Revenue Recognition

E-commerce

The Company recognizes revenue from e-commerce sales when the products are
shipped to customers. The Company provides for potential product returns and
estimated warranty costs in the period of the sale. Such costs have been
minimal to date.

Advertising

Advertising revenues are derived from the sale of banner advertisements and
sponsorships under short-term contracts. Through December 31, 1998, the
duration of the Company's advertising commitments has been principally from one
to two months to a year. Advertising revenues on banner contracts are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain and collection of the
resulting receivable is probable. Company obligations typically include the
guarantee of a minimum number of "impressions" or times that an advertisement
appears in pages viewed by the users of the Company's online properties. To the
extent minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenue until the remaining guaranteed
impression levels are achieved.

License fees

The Company licenses software under non-cancelable license agreements to
end-users and non-cancelable sub-license agreements to resellers. License fee
revenues are recognized when a non-cancelable license agreement has been
signed, the product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable, collection is
considered probable and all significant contractual obligations have been
satisfied.

Export sales

Export sales were 30% and 25% of net revenues for the years ended December
31, 1997 and 1998, respectively. The Company's export sales are as follows:

<TABLE>
<CAPTION>
Year ended December
31,
-------------------
1997 1998
-------- ----------
<S> <C> <C>
North America.......................................... $ 39,193 $ 288,493
Europe................................................. 157,228 1,007,974
Asia/Pacific........................................... 44,293 391,884
Rest of the World...................................... 11,412 365,009
-------- ----------
Total................................................ $252,126 $2,053,360
======== ==========
</TABLE>

Advertising expense

All advertising costs are expensed when incurred. Advertising costs, which
are included in sales and marketing expense, were $0, $50,000 and $51,000, for
the period from April 16, 1996 (inception) through December 31, 1996, and for
the years ended December 31, 1997 and 1998, respectively.

F-10
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Development Costs

Development costs are expensed as incurred and are included in operating and
development expenses.

Computation of net loss per share

The Company computes net loss per share based on Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share," ("SFAS 128"). In
accordance with SFAS 128, basic net income (loss) per share excludes dilutive
common stock equivalents and is calculated as net income (loss) divided by the
weighted average number of common shares outstanding. Diluted net income (loss)
per share is computed using the weighted average number of common shares
outstanding and dilutive common stock equivalents outstanding during the
period. Common equivalent shares from stock options and warrants (using the
treasury stock method) are excluded from the calculation of net loss per share
as their effect is anti-dilutive.

Recent accounting pronouncements

As of January 1, 1998 the Company adopted Financial Accounting Standards
Board Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
had no material components of comprehensive income. The adoption of this
standard has had no impact on the Company's consolidated financial position,
stockholders' equity, results of operations or cash flows. Accordingly, the
Company's comprehensive loss for the year ended December 31, 1998 is equal to
its reported loss.

Additionally, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 131 ("SFAS 131") "Disclosure about
Segments of an Enterprise and Related Information," which establishes standards
for the way public business enterprises report information in annual statements
and interim financial reports regarding operating segments, products and
services, geographic areas, and major customers. This statement is effective
for financial statements for periods beginning after December 15, 1997. The
Company adopted SFAS 131 in 1998. The Company operates in one business segment,
Internet service to customers.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which establishes guidelines
for the accounting for the costs of all computer software developed or obtained
for internal use. The Company is required to adopt SOP 98-1 effective January
1, 1999. The adoption of SOP 98-1 is not expected to have a material impact on
the Company's consolidated financial statements.

2. Business Combinations and Technology Acquisitions

During the year ended December 31, 1998, the Company made the business and
technology acquisitions described in the paragraphs that follow, each of which
has been accounted for as a purchase. The consolidated financial statements
include the operating results of each business from the date of acquisition.

The amounts allocated to purchased research and development were determined
through established valuation techniques in the high-technology Internet
industry and were expensed upon acquisition, because technological feasibility
had not been established and no future alternative uses existed. Research and
development costs to bring the products from the acquired companies to
technological feasibility are not expected to have a material impact on the
Company's future results of operations or cash flows. Amounts allocated to
goodwill and other intangible assets are amortized on a straight-line basis
over periods of two to three and one-half years.

F-11
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Paralogic Corporation

On March 10, 1998, the Company acquired 100% of the outstanding shares of
Paralogic Corporation ("Paralogic"). Paralogic provides free communication
between members via a chat Web site network (i.e., chat rooms). The purchase
consideration was $3,037,607 consisting of 682,410 shares of common stock with
an estimated fair value of $2.31 per share, $1,400,000 of debt, and $61,243 of
acquisition costs. Contingent consideration, which the Company does consider
probable of paying, consists of an additional $860,000, included in debt above,
which will be paid if certain performance criteria are met.

The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows:

<TABLE>
<S> <C>
Cash......................................................... $ 33,055
Accounts receivables and other current assets................ 8,725
Net fixed assets............................................. 50,112
Purchased in-process research and development charged to
operations in the quarter ended March 31, 1998.............. 330,000
Purchased technology......................................... 160,000
Goodwill..................................................... 2,538,929
Liabilities assumed.......................................... (83,214)
----------
Total purchase consideration............................... $3,037,607
==========
</TABLE>

Purchased In-Process Research and Development. Management estimates that
$330,000 of the purchase price represents purchased in-process technology that
had not yet reached technological feasibility and had no alternative future
use. Accordingly, this amount was expensed in the quarter ended March 31, 1998.
The value assigned to purchased in-process technology was determined by
identifying the on-going research projects for which technological feasibility
had not been achieved and assessing the date of completion of the research and
development effort. The state of completion was determined by estimating the
costs and time incurred to date relative to those costs and time to be incurred
to develop the purchased in-process technology into commercially viable
products, estimating the resulting net cash flows only from the percentage of
research and development efforts complete at the date of acquisition, and
discounting the net cash flows back to their present value. The discount rate
included a factor that took into account the uncertainty surrounding the
successful development of the purchased in-process technology projects.

Purchased Technology. To determine the value of purchased technology
($160,000), the expected future cash flows of the existing developed
technologies were discounted taking into account the characteristics and
applications of the product, the size of existing markets, growth rates of
existing and future markets as well as an evaluation of past and anticipated
product-life cycles.

Global Bridges Technologies, Inc.

On June 11, 1998, the Company acquired 100% of the outstanding shares of
Global Bridges Technologies, Inc. ("GBT"). GBT, owns the exclusive selling
rights to Sitemail, an HTML-based e-mail product, thus expanding the Company's
suite of member services. The purchase consideration was $709,077 consisting of
183,427 shares of common stock with an estimated fair value of $3.33 per share,
$12,500 cash, a note payable of $62,500 with fixed payment terms and $23,267 of
acquisition costs.

F-12
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows:

<TABLE>
<S> <C>
Other current assets............................................. $ 4,153
Goodwill......................................................... 766,621
Liabilities assumed.............................................. (61,697)
--------
Total purchase consideration..................................... $709,077
========
</TABLE>

In July 1998, the Company amended the purchase agreement with GBT to provide
for the issuance of an additional 17,304 shares of common stock with an
estimated fair value of $10.80 per share. Upon completion of the Company's
initial public offering, GBT received $200,000 of the Company's common stock at
$14 per share and additional cash consideration of $130,000. This additional
consideration was recorded as goodwill, raising the total consideration to
$1,225,962.

Revolutionary Software, Inc.

On June 11, 1998, the Company purchased certain technology of Revolutionary
Software, Inc. ("RSI"). RSI is the developer of the Sitemail technology and had
licensed Sitemail to GBT. The purchase consideration was $701,411, consisting
of 128,052 shares of common stock with an estimated fair value of $3.33 per
share, $12,500 cash and a note payable of $262,500 with fixed payment terms.
Initially, RSI may earn up to an additional 34,608 shares of common stock if
certain performance targets are met. In each of the twenty-four months
following June 1998, the stockholders of RSI will receive 5% of net revenues
less certain costs from e-commerce and banner advertising from e-mail
subscribers of certain Internet service providers.

The purchase consideration of the acquired assets was allocated based on
fair values as follows:

<TABLE>
<S> <C>
Purchased in-process research and development charged to
operations in the quarter ended June 30, 1998................. $330,000
Purchased technology........................................... 371,411
--------
Total purchase consideration................................... $701,411
========
</TABLE>

In July 1998, the Company amended the agreement with RSI to provide for the
issuance of an additional 34,608 shares of common stock with an estimated fair
value of $10.80 per share. Upon completion of the Company's initial public
offering, RSI received $400,000 of the Company's common stock at $14 per share
and additional cash consideration of $260,000. This additional consideration
was recorded as purchased technology, raising the total consideration to
$1,735,179.

Purchased In-Process Research and Development. Management estimates that
$330,000 of the purchase price represents purchased in-process technology that
had not yet reached technological feasibility and had no alternative future
use. Accordingly, this amount was expensed in the quarter ended June 30, 1998.
The value assigned to purchased in-process technology was determined by
identifying the on-going research projects for which technological feasibility
had not been achieved and assessing the state of completion of the research and
development effort. The state of completion was determined by estimating the
costs incurred to date relative to those costs to be incurred to develop the
purchased in-process technology into commercially viable products, estimating
the resulting net cash flows only from the percentage of research and
development efforts complete at the date of acquisition, and discounting the
net cash flows back to their present value. The discount rate included a factor
that took into account the uncertainty surrounding the successful development
of the purchased in-process technology projects.

F-13
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

To determine the value of purchased technology ($130,000), the expected
future cash flows of the existing developed technologies were discounted taking
into account the characteristics and applications of the product, the size of
existing markets, growth rates of existing and future markets as well as an
evaluation of past and anticipated product-life cycles. The purchase
consideration above the purchased in-process research and development and
purchased technology amounts were also included in purchased technology.

ArcaMax, Inc.

In June 1998, the Company purchased certain intellectual property and
licensed certain technology from ArcaMax, Inc. ("ArcaMax") for $644,000,
consisting of 133,334 shares of common stock with an estimated fair value of
$3.33 per share, $20,000 cash and a note payable of $180,000 with fixed payment
terms. This technology acquisition gave the Company the ability to offer a free
online greeting card service to members. The Company recorded this amount as
purchased technology and is amortizing it over its estimated useful life of two
years.

Pagecount, Inc.

On July 24, 1998, the Company acquired substantially all of the assets of
Pagecount, Inc. ("Pagecount"). The consideration was $1,460,000 and consisted
of $200,000 cash, a note payable of $1,200,000 with fixed payment terms, and
acquisition costs of approximately $60,000.

The purchase consideration was allocated to the acquired assets and assumed
liabilities based on fair values as follows:

<TABLE>
<S> <C>
Cash......................................................... $ 31,598
Accounts receivable and other current assets................. 19,154
Net fixed assets............................................. 20,866
Purchased in-process research and development charged to
operations in the quarter ended September 30, 1998.......... 130,000
Purchased technology......................................... 140,000
Goodwill..................................................... 1,163,970
Liabilities assumed.......................................... (45,588)
----------
Total purchase consideration................................. $1,460,000
==========
</TABLE>

Purchased In-Process Research and Development. Management estimates that
$130,000 of the purchase price represents purchased in-process technology that
had not yet reached technological feasibility and had no alternative future
use. Accordingly, this amount was expensed in the quarter ended September 30,
1998. The value assigned to purchased in-process technology was determined by
identifying the on-going research projects for which technological feasibility
had not been achieved and assessing the date of completion of the research and
development effort. The state of completion was determined by estimating the
costs and time incurred to date relative to those costs and time to be incurred
to develop the purchased in-process technology into commercially viable
products, estimating the resulting net cash flows only from the percentage of
research and development efforts completed at the date of acquisition, and
discounting the net cash flows back to their present value. The discount rate
included a factor that took into account the uncertainty surrounding the
successful development of the purchased in-process technology projects.

Purchased Technology. To determine the value of purchased technology
($140,000), the expected future cash flows of the existing developed
technologies were discounted taking into account the characteristics and
applications of the product, the size of existing markets, growth rates of
existing and future markets as well as an evaluation of past and anticipated
product-life cycles.

F-14
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summary of Purchased In-Process Research and Development and Purchased
Technology. Values assigned to purchased in-process research and development
and purchased technology were generally determined using an income approach. To
determine the value of in-process research and development, the Company
considered, among other factors, the state of completion of each project, the
time and cost needed to complete each project, expected income, and associated
risks which included the inherent difficulties and uncertainties in completing
the project and thereby achieving technological feasibility and risks related
to the viability of and potential changes to future target markets. This
analysis results in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility (as defined and
utilized by the Company in assessing software capitalization) and does not have
alternative future uses. To determine the value of the purchased technology,
the expected future cash flows of each existing technology product were
discounted taking into account risks related to the characteristics and
applications of each product, existing and future markets and assessments of
the life cycle stage of the product. Based on the analysis, the existing
technology that had reached technological feasibility was capitalized.

<TABLE>
<S> <C>
Purchased technology.......................................... $ 2,356,578
Goodwill...................................................... 5,002,692
-----------
Intangible assets............................................. 7,359,270
Accumulated amortization...................................... (1,842,869)
-----------
Intangible assets, net........................................ $ 5,516,401
===========
</TABLE>

The total purchased in-process research and development that had no
alternative future use, and as such was charged to operations in the year ended
December 31, 1998 is summarized below:

<TABLE>
<S> <C>
Paralogic Corporation............................................ $330,000
Revolutionary Software, Inc...................................... 330,000
Pagecount, Inc................................................... 130,000
--------
Total purchased in-process research and development.............. $790,000
========
</TABLE>

The following unaudited pro forma summary represents the consolidated
results of operations as if the acquisitions of Paralogic, GBT and Pagecount
had occurred at the beginning of the periods presented and are not intended to
be indicative of future results.

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1997 1998
----------- ------------
(unaudited)
<S> <C> <C>
Pro forma net revenue......................... $ 1,371,101 $ 8,606,674
Pro forma loss from operations................ (5,835,010) (10,005,377)
Pro forma net loss............................ (5,882,729) (11,495,009)
Pro forma net loss per share--basic and
diluted...................................... (1.02) (1.41)
Number of shares used in pro forma per share
calculation--basic and diluted............... 5,740,156 8,142,364
</TABLE>

The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire period
presented and are not intended to be a projection of future results. In-process
research and development charges of $0 and $460,000 were excluded from the pro
forma net loss and pro forma net loss per share figures for the years ended
December 31, 1997 and 1998, respectively.

F-15
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Related Party Transactions

During the period from April 16, 1996 (inception) through December 31, 1996,
and during the years ended December 31, 1997 and 1998, the Company issued stock
subscriptions receivable to related parties and to investors in exchange for
shares of common stock and, in some cases, notes payable. These subscriptions
receivable were due upon demand and bore no interest. As of December 31, there
were no outstanding amounts due under subscriptions receivable.

During the period from April 16, 1996 (inception) through December 31, 1996,
and during the years ended December 31, 1997 and 1998, the Company issued notes
payable to related parties in exchange for cash advances and stock
subscriptions receivable. All notes payable issued through December 31, 1998
have been converted into shares of common stock.

The Company entered into a Consulting Agreement, dated May 15, 1998, with an
outside director of the Company. The Consulting Agreement will terminate on
November 15, 1999. The Agreement provides for the director to receive monthly
compensation of $10,000, paid in the form of common stock. The director also
received options to buy 16,667 shares of the Company's common stock. The
options vest at the rate of 12.5% per quarter over two years. The director was
granted stock options to buy an additional 16,667 shares of common stock which
fully vested upon completion of the Company's initial public offering.

The Company has entered into a Content License Agreement dated February 22,
1998, with Classic Media Holdings, whereby the Company was granted certain non-
exclusive perpetual, world-wide licensing rights in connection with Classic
Media Holdings' library of public domain movies. As consideration for the
license, the Company issued 43,290 shares of the Company's common stock to the
principals of Classic Media Holdings. The fair value of the stock yielded a
$100,000 charge to operating and development expense in the year ended December
31, 1998. A director of the Company is a principal of Classic Media Holdings.

4. Cash and Cash Equivalents and Short-Term Investments

The Company has classified all short-term investments as available-for-sale.
Available-for-sale securities are carried at amounts that approximate fair
market value based on quoted market prices. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. Interest on securities classified
as available-for-sale is also included in interest income.

The following is a summary of available-for-sale securities:

<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
------- ------------
<S> <C> <C>
Demand and money market instrument accounts....... $ 5,587 $ 8,730,977
Corporate bonds and notes......................... -- 36,444,223
Market auction preferred stock.................... -- 11,400,000
------- ------------
5,587 56,575,200
Less amounts included in cash and cash
equivalents...................................... (5,587) (54,575,200)
------- ------------
Short-term investments............................ -- $ 2,000,000
======= ============
</TABLE>

Unrealized gains and losses at December 31, 1998 and realized gains and
losses for the year then ended were not material. Accordingly, the Company has
not made a provision for such amounts in its consolidated balance sheet. The
cost of securities sold is based on the specific identification method. All
available-for-sale securities at December 31, 1998 have maturity dates in 1999.

F-16
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Fixed Assets

Fixed assets consist of the following:

<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
-------- ----------
<S> <C> <C>
Computers and equipment, including assets under
capital leases of $0 and $52,758 for 1997 and 1998,
respectively......................................... $456,999 $2,527,770
Furniture and fixtures under capital leases........... -- 111,920
-------- ----------
Fixed assets.......................................... 456,999 2,639,690
Less accumulated depreciation and amortization,
including amounts related to assets under capital
leases of $0 and $18,298 for 1997 and 1998,
respectively......................................... (43,314) (568,948)
-------- ----------
$413,685 $2,070,742
======== ==========
</TABLE>

6. Notes Payable

Notes payable consist of the following at December 31, 1998:

<TABLE>
<S> <C>
Note payable and other amounts due to the former stockholders
of Paralogic Corporation. The note is non-interest bearing
and payable in minimum monthly installments of $30,000
through September 1999. Additional payments are required for
the $860,000 of contingent payable as the amounts are earned.
As of December 31, 1998, $2,248 of the contingent
consideration had been earned and paid....................... $ 1,127,752
Note payable issued in connection with a secured financing
agreement (the "Agreement") with a leasing company. The
Agreement provides for borrowings of up to a cumulative
amount of $1,000,000 through July 31, 1999. All borrowings
under the Agreement are collateralized by computer and office
equipment and bear interest at the rate of 14.58% annually.
Payments are made monthly over 42 months from the date of
each borrowing in the amount of 2.87% of the amount borrowed,
plus a final payment equal to 10% of the amount borrowed..... 511,715
Note payable to the former stockholder of Global Bridges
Technologies, Inc. bearing interest of 5% annually. The note
is due in monthly installments of $2,500 through July 2000... 47,500
-----------
1,686,967
Less amounts due within one year from December 31, 1998....... (1,276,439)
-----------
Long-term notes payable....................................... $ 410,528
===========
</TABLE>

Scheduled maturities of notes payable and other amounts due are as follows:

<TABLE>
<S> <C>
Year ending December 31,
1999............................................................ $1,276,439
2000............................................................ 154,694
2001............................................................ 158,585
2002............................................................ 97,249
----------
Total......................................................... $1,686,967
==========
</TABLE>

On November 3, 1998, the Company entered into a loan agreement with a
financing company which provided for borrowings up to $2,750,000. The loan bore
interest of 12% annually. All amounts borrowed under this loan agreement were
secured by certain fixed assets. Pursuant to the terms of the loan agreement,
the

F-17
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Notes Payable (continued)

Company issued the lender a warrant to purchase 183,333 shares of the Company's
common stock at an exercise price equal to the initial public offering price
per share. The Company determined that the fair value of the warrant to be
$1,494,164 at the date of the initial public offering, and in connection with
this issuance recorded the fair value as interest expense. The effective
interest rate on this secured loan agreement for the year ended December 31,
1998 was approximately 1,450%. As of December 31, 1998, all outstanding
principal and interest amounts had been fully paid and the loan agreement had
been canceled.

7. Income Taxes

There has been no provision for U.S. federal or state income taxes for any
period as the Company has incurred operating losses.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets for federal and state income taxes are as
follows:

<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...... $ 1,000 $ 537,000 $ 1,944,000
Purchased in-process technology....... -- -- 311,000
Capitalized start up costs............ 140,000 112,000 85,000
Prepaid royalties and licenses........ 23,000 257,000 496,000
Accrued liabilities................... -- 398,000 887,000
Other................................. 11,000 17,000 50,000
--------- ----------- -----------
Total deferred tax assets............... 175,000 1,321,000 3,773,000
Valuation allowance..................... (175,000) (1,321,000) (3,773,000)
--------- ----------- -----------
Net deferred tax assets................. $ -- $ -- $ --
========= =========== ===========
</TABLE>

Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance as it is
more likely than not that the deferred tax assets will not be realized.

During the period from April 16, 1996 (inception) through December 31, 1996,
and during the years ended December 31, 1997 and 1998, the valuation allowance
for the deferred tax assets increased by $175,000, $1,146,000 and $2,452,000,
respectively.

As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $4,878,000. There can be no
assurance that the Company will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards will expire at
various dates beginning in the fiscal year 2011 through 2012 if not utilized.

Due to the "change of ownership" provisions of the Internal Revenue Code,
the availability of the Company's net operating loss and credit carryforwards
will be subject to an annual limitation against taxable income in future
periods if a change in ownership of more than 50% of the value of the Company's
stock should occur over a three year period, which could substantially limit
the eventual utilization of these carryforwards.

F-18
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Commitments

The Company leases its facilities, furniture and fixtures and certain
computers and equipment under noncancelable leases for varying periods through
2007. The cost of assets acquired under capital leases during the year ended
December 31, 1998 was $164,678. Amortization expense related to these assets of
$18,298 is included in accumulated depreciation and amortization at December
31, 1998.

The following are the minimum lease obligations under these leases at
December 31, 1998:

<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
1999...................................... $ 63,264 $ 379,441
2000...................................... 63,264 385,253
2001...................................... 63,264 382,620
2002...................................... 17,027 387,190
2003...................................... -- 410,762
Thereafter................................ -- 1,637,372
-------- ----------
Minimum lease payments.................... 206,819 $3,582,638
==========
Less amount representing interest......... (52,230)
--------
Present value of minimum lease payments... 154,589
Less current portion...................... (37,441)
--------
Long-term portion......................... $117,148
========
</TABLE>

Rent expense under operating lease arrangements for the period from April
16, 1996 (inception) through December 31, 1996, and for the years ended
December 31, 1997 and 1998, totaled $5,400, $43,125 and $385,904, respectively.

9. Contingency Accrual and Other Matter

In January 1998, the Company became aware that Imageline, Inc. ("Imageline")
claimed to own the copyright in certain images that a third party, Sprint
Software Pty Ltd ("Sprint") had licensed to the Company. Some clip art images
that Imageline alleged infringed Imageline's copyright were included by the
Company in versions of the Company's Web Clip Empire product and licensed by
the Company to third parties, including other software clip publishers. The
Company's contracts with such publishers require the Company to indemnify the
publisher if copyrighted material licensed from the Company infringes a
copyright. Imageline claims that the Company's infringement of Imageline's
copyrights is ongoing. The Company and Imageline had engaged in discussions,
but were unable to reach any agreement regarding a resolution of this matter.

On August 27, 1998, the Company filed a lawsuit in the United States
District Court for the Eastern District of Virginia against Imageline, certain
parties affiliated with Imageline, and Sprint regarding the Company's and its
licensees' alleged infringement on Imageline's copyright in certain clip art
that the Company licensed from Sprint. The lawsuit seeks, among other relief,
disclosure of information from Imageline concerning the alleged copyright
infringement, a declaratory judgment concerning the validity and enforceability
of Imageline's copyrights and copyright registrations, a declaratory judgment
regarding damages, if any, owed by the Company to Imageline, and
indemnification from Sprint for damages, if any, owed by the Company to
Imageline. There is no contractual limitation on Sprint's indemnification.
While the Company is seeking indemnification from Sprint for damages, if any,
there can be no assurance that Sprint will be able to fulfill the indemnity
obligations under its license agreements with the Company. In addition, the
Company may be subject to claims by third parties seeking indemnification from
the Company in connection with the alleged infringement of the Imageline
copyrights.

F-19
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. Contingency Accrual and Other Matter (continued)

On September 17, 1998, Imageline filed a counterclaim, which Imageline
amended in January 1999, seeking up to $60 million in damages. In March 1999,
the parties completed the discovery process and filed separate motions for
summary judgment. The lawsuit is scheduled for trial on April 23, 1999.

Based on the discussions with Imageline, the Company believes the range of
liability related to this matter is from $0 up to $10,000,000; however, the
Company believes it is unlikely that the liability would exceed $1,000,000.
Accordingly, the Company reserved $1,000,000 for this potential liability, the
expense of which is included in non-recurring charges for the year ended
December 31, 1997. The Company believes that the $1,000,000 accrual represents
a reasonable estimate of the loss that could be incurred in the Imageline
dispute. If not successful in defending this claim, the resulting outcome could
have a material adverse impact on the Company's business, results of
operations, cash flows and financial condition.

Zoom Telephonics, Inc. filed a lawsuit against the Company in September 1998
alleging trademark infringement and related statutory violations. The Company
was not served with Zoom Telephonics' complaint until January 1999. Zoom
Telephonics has demanded that the Company stop using the XOOM trademark and has
asked for an unspecified amount of money damages. The Company responded to the
complaint in February 1999. Although the Company believes that Zoom's claims
are without merit, such litigation could have a material adverse effect on the
Company's business, results of operations and financial condition, particularly
if such litigation forces the Company to make substantial changes to its name
and trademark usage.

10. Stockholders' Equity

In October 1998, the Company's Board of Directors authorized an increase in
the number of authorized shares of common stock and preferred stock from
20,000,000 to 40,000,000 and 1,000,000 to 5,000,000, respectively, each with a
par value of $.0001 per share.

On December 9, 1998, the Company completed its Initial Public Offering and
issued 4,600,000 shares (including 600,000 shares issued in connection with the
exercise of the underwriter over-allotment option) of its common stock to the
public at a price of $14.00 per share. The Company received net proceeds of
$57.3 million.

Founders stock

Pursuant to a Common Stock Purchase Agreement dated August 26, 1996 and
following the incorporation of the Company, two of the Company's founders each
purchased 333,334 shares (666,668 shares in total) of the Company's common
stock for an aggregate of $200 in cash. Pursuant to a Common Stock Purchase
Agreement dated December 31, 1996, the founders purchased an additional
2,333,334 and 1,000,000 shares, respectively, of the Company's common stock in
exchange for the cancellation of promissory notes that the Company owed to the
stockholders/founders in the amount of $700,000 and $300,000, respectively. In
the same agreement, one of the founders contributed 666,667 shares of his
common stock back to the Company without compensation pursuant to an agreement
between the founders.

F-20
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock splits

In February 1998, the Company completed a one-for-two reverse stock split of
the outstanding shares of common stock. In addition, in November 1998, the
Company completed a two-for-three reverse stock split of the outstanding shares
of common stock. All share information and per share amounts in the
accompanying consolidated financial statements has been retroactively adjusted
to reflect the effect of these stock splits.

Preferred stock

The Company is authorized to issue 5,000,000 shares of preferred stock, none
of which is issued or outstanding. The Board of Directors has the authority to
issue the preferred stock in one or more series and to fix the designations,
powers, preferences, rights, qualifications, limitations and restrictions with
respect to any series of preferred stock and to specify the number of shares of
any series of preferred stock without any further vote or action by the
stockholders.

Warrants

In connection with the issuance of common stock during the year ended
December 31, 1998, the Company issued warrants to purchase a total of 314,747
shares of common stock at an exercise price of $3.33 per share. These warrants
were exercised prior to the Company's initial public offering on December 9,
1998. In November 1998, in connection with the loan agreement mentioned in Note
6, the Company issued a warrant to the lender to purchase 183,333 shares of the
Company's common stock at an exercise price equal to the initial public
offering price per share ($14.00). On January 11, 1999, the lender net
exercised the warrant in a net exercise transaction and purchased 116,231
shares of the Company's common stock at a price of $14 per share.

Stock option plan

On November 16, 1998, the Company's Board of Directors and stockholders
authorized an increase in the number of shares authorized under its 1998 Stock
Incentive Plan (the "Plan") from 1,166,667 to 2,000,000. The Plan provides for
incentive stock options, as defined by the Internal Revenue Code, to be granted
to employees, at an exercise price not less than 100% of the fair value at the
grant date as determined by the Board of Directors. The Plan also provides for
nonqualified stock options to be issued to non-employee officers, directors and
consultants at an exercise price of not less than 85% of the fair value at the
grant date. Option vesting schedules are determined by the Board of Directors
at the time of issuance. Stock options generally vest over different periods
ranging from immediately to 25% at the end of the first year and monthly
thereafter up to a maximum of four years. Upon a change of control of the
Company, as defined in the Plan, 75% of unvested options become immediately
exercisable. Certain options' vesting can also accelerate based on the
achievement of specified performance criteria.

F-21
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A summary of the option activity follows (amounts include 1,235,224 options
granted outside of the Plan, all of which were outstanding as of December 31,
1998):

<TABLE>
<CAPTION>
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at April 16, 1996.......................... -- $ --
Granted.......................................... 440,000 0.03
Exercised........................................ -- --
Canceled......................................... -- --
--------- -----
Balance at December 31, 1996....................... 440,000 0.03
Granted.......................................... 632,982 0.05
Exercised........................................ -- --
Canceled......................................... (95,000) 0.03
--------- -----
Balance at December 31, 1997....................... 977,982 0.05
Granted.......................................... 1,957,225 9.35
Exercised........................................ -- --
Canceled......................................... (136,832) 4.05
--------- -----
Balance at December 31, 1998....................... 2,798,375 $6.20
========= =====
</TABLE>

As of December 31, 1998, there were 436,849 options available for future
grant under the Plan.

The following table summarizes information about options outstanding and
exercisable at December 31, 1998:

<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------- -----------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Number Average
Number of Life (in Exercise of Exercise
Exercise Price Shares years) Price Shares Price
-------------- --------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.03--$ 0.03........... 1,013,890 8.3 $ 0.03 721,547 $ 0.03
$ 0.90--$ 3.33........... 518,548 9.3 2.88 134,118 2.99
$ 6.30--$10.80........... 315,986 9.6 8.29 62,069 8.58
$12.00--$14.00........... 949,951 9.9 13.91 15,962 12.86
--------- -------
2,798,375 9.2 933,696
========= =======
</TABLE>

F-22
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Deferred compensation

The Company has recorded deferred compensation charges of $2,016,964,
$550,848 and $0, for the years ended December 31, 1998 and 1997, and for the
period April 16, 1996 (inception) through December 31, 1996, respectively, for
the difference between the exercise price and the deemed fair value of certain
stock options granted by the Company. These amounts are being amortized by
charges to operations, using the accelerated method, over the vesting periods
of the individual stock options, which range from three months to four years.

From December 1996 through June 1998 certain options were granted to various
employees which provided vesting only upon certain events, such as the
Company's successful completion of an initial public offering or individual and
Company performance goals. In June 1998 these options were modified to vest
upon the earlier of an event or two years from the date of grant. As a result,
the related compensation charge was determined in June 1998.

Options issued to consultants

The Company granted options to purchase 94,883 shares of common stock to
consultants at exercise prices ranging from $0.03 to $14.00 per share during
the period from January 1, 1997 through December 31, 1998. These options were
granted in exchange for consulting services performed. The Company valued these
options using the estimated fair value of the services performed which amounted
to $0, $20,277 and $246,231, for the period from April 16, 1996 (inception)
through December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively. These amounts are being amortized by charges to operations over
the respective consulting periods. The amounts charged to operations were $0,
$17,376 and $237,830, for the period from April 16, 1996 (inception) through
December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively.

1998 Employee Stock Purchase Plan

The Company's 1998 Employee Stock Purchase Plan was adopted by the Board of
Directors in October 1998. The Company has reserved a total of 300,000 shares
of common stock for issuance under the plan. Eligible employees may designate
up to 100% of their compensation subject to certain limitations as described in
the Plan, to be deducted each pay period for the purchase of common stock at
85% of the lesser of the fair market value of the Company's common stock on the
first day of the applicable purchasing period or the last day of the applicable
accrual period. As of December 31, 1998, no shares were issued or committed to
under this plan.

Shares reserved for future issuance

As of December 31, 1998, shares of common stock reserved for future issuance
were as follows:

<TABLE>
<S> <C>
1998 Stock
Incentive
Plan and
options
issued
outside the
Plan....... 3,235,224
1998
Employee
Stock
Purchase
Plan....... 300,000
Warrants.... 183,333
---------
Total
shares
authorized
for
issuance.. 3,718,557
=========
</TABLE>

Pro forma disclosure of the effect of stock-based compensation

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123

F-23
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

requires the use of option valuation models that were not developed for use in
valuing employee stock options. Pro forma information regarding net income
(loss) and net income (loss) per share is required by FAS 123. This information
is required to be determined as if the Company has accounted for its employee
stock options under the fair value method of FAS 123. Under this method, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions:

<TABLE>
<CAPTION>
For the period
April 16, 1996 Year ended December 31,
(inception) through --------------------------
December 31, 1996 1997 1998
------------------- ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate.. 6.5% 6.5% 4.52%
Expected life of the
option.................. 5 years 5 years 5 years
Expected volatility...... 0 0 0.7
Expected dividend yield.. 0% 0% 0%
</TABLE>

Because FAS 123 is applicable only to options granted since inception, its
adjusted effect will not be fully reflected until the year 2000.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

The weighted-average fair value of options granted to employees during the
period from April 16, 1996 (inception) through December 31, 1996, and during
the years ended December 31, 1997 and 1998, were $.02, $0.36 and $8.01,
respectively.

The effect of applying the FAS 123 fair value method to the Company's stock-
based awards results in net loss and net loss per share as follows:

<TABLE>
<CAPTION>
Period from
April 16, 1996 Year ended December 31,
(inception) through -------------------------
December 31, 1996 1997 1998
------------------- ----------- ------------
<S> <C> <C> <C>
Net loss, as reported....... $(439,975) $(3,131,877) $(10,797,542)
Net loss, pro forma......... (441,946) (3,231,131) (11,367,024)
Net loss per share--basic
and diluted, as reported... (0.89) (0.64) (1.37)
Net loss per share--basic
and diluted, pro forma...... (0.91) (0.66) (1.44)
</TABLE>

F-24
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Retirement Plan

On March 26, 1998, the Company established a 401(k) Profit Sharing Plan (the
"Plan") available to all employees who meet the Plan's eligibility
requirements. Employees may elect to contribute from 1% to 25% of their
eligible earnings to the Plan subject to certain limitations. This defined
contribution plan provides that the Company may, at its discretion, make
contributions to the Plan on a periodic basis. The Company has not made
contributions to the Plan.

12. Quarterly Information (unaudited)

The following table presents unaudited quarterly operating results for each
of the Company's eight quarters in the two-year period ended December 31, 1998
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1998
Net revenue............... $ 849 $ 1,716 $ 2,300 $ 3,453
Gross profit.............. 563 1,076 1,226 1,869
Operating income (loss)... (1,000) (2,339) (3,070) (2,947)
Net income (loss)......... (1,000) (2,339) (3,053) (4,406)
Net income (loss) per
share, basic and
diluted.................. (0.17) (0.33) (0.35) (0.44)
1997
Net revenue............... $ 29 $ 170 $ 222 $ 420
Gross profit.............. (57) 98 172 309
Operating income (loss)... (648) (714) (1,306) (464)
Net income (loss)......... (648) (714) (1,306) (464)
Net income (loss) per
share, basic and
diluted.................. (0.16) (0.15) (0.26) (0.09)
</TABLE>

F-25
<PAGE>

SUPPLEMENTAL EASDAQ INFORMATION

Approval By The Belgian Banking And Finance Commission

The prospectus will be submitted for approval by the Belgian Banking and
Finance Commission ("Commissie voor bet Banken Financiewezen/Commission
Bancaire et Financiere") ("BFC") in accordance with Article 29, (S) 1, par, 1
of royal Decree n(degrees) 185 of July 9, 1935 and Article II of the Royal
Decrees of October 31, 1991 on the publication of prospectuses for public
issues of securities. The approval of the prospectus by the BFC does not imply
any judgement as to the appropriateness or the quality of this offering or the
securities being offered nor of our situation.

On March 8, 1999, we applied for admission of our common stock to trading on
EASDAQ. Admission to EASDAQ is subject to certain adequacy and liquidity
requirements determined by the EASDAQ Market Authority. Companies whose
securities are traded on EASDAQ are required to publish relevant financial and
other information regularly and to keep the public informed of all events
likely to affect the market price of their securities. Price sensitive
information is made available to investors in Europe through the EASDAQ Reuters
Regulatory Company Reporting System and international information vendors.

EASDAQ Settlement and Clearance

The following summarizes certain aspects of the operation of the EUROCLEAR
and DTC clearing systems. EASDAQ is a comparatively new quotation system. We
cannot guarantee that an active trading market for our common stock will
develop on EASDAQ upon completion of the offering. Persons proposing to trade
the common stock on EASDAQ should inform themselves about the costs of such
trading.

EUROCLEAR

Transactions executed on EASDAQ will be settled by delivery against payment
through the international settlement agency EUROCLEAR. EUROCLEAR holds
securities for its direct participants, which include banks, securities brokers
and dealers, other professional intermediaries and foreign depositories, and
facilitates the clearance and settlement of securities transactions between
EUROCLEAR participants through electronic book entry changes in the accounts of
EUROCLEAR participants. Book entry settlement is mandatory for all financial
instruments traded on EASDAQ. Physical certificates cannot be used to settle a
market transaction. Investors must hold a securities account with a financial
institute which directly or indirectly has access to EUROCLEAR's clearing and
settlement system. EUROCLEAR conducts a real-time gross payment system in
connection with its clearance operation, payments being made simultaneously
with the book entry transfers between securities accounts.

DTC

DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provision of Section 17A of the Securities
Exchange Act of 1934. DTC was created to hold securities of its participants
and to facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own DTC.
Access to the DTC book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. DTC agrees with
and represents to its participants that it will administer its book-entry
system in accordance with its roles and by-laws and requirements of the law.

A-1
<PAGE>

Transfers Between EUROCLEAR and DTC Participants

All common stock will be held through DTC. We will deliver to DTC a Global
Receipt registered in the name of Cede Co. as DTC's nominee. Common stock held
directly or indirectly by EUROCLEAR participants will be registered on the
books of DTC in the name of its nominee company acting as custodian for
EUROCLEAR.

Transfers of common stock will be effected in the following manner:

(i) transfers of common stock between EUROCLEAR participants will be
effected in accordance with procedures established for this purpose by
EUROCLEAR;

(ii) transfers of common stock between DTC participants will be effected in
accordance with procedures established for this purpose by DTC; and

(iii) transfers of common stock between EUROCLEAR participants and DTC
participants will be effected by an increase or a reduction of the
quantity of common stock held in EUROCLEAR's account at
.

Persons Responsible for the Prospectus and Declaration

Xoom.com, represented by Chris Kitze, Chairman of the Board, takes
responsibility for the contents of this prospectus.

To the best of our knowledge and belief, the information contained in this
prospectus is factually accurate in all material respects and is not misleading
and there is no omission of any information that would make any statement
herein materially misleading or be likely to affect the import of any
information in the prospectus.

XOOM.com, Inc.
by Chris Kitze
Chairman of the Board

Co managers and Market Makers on EASDAQ

Herzog Heine Geduld International
- ------------------------------- 11 Old Jewry
London EC2R 8DU
United Kingdom

Taxation of Belgian Investors

The following is a summary of a certain Belgian tax consequences of the
acquisition, ownership and disposition of common stock. It is based on the tax
laws applicable in Belgium as in effect at the date of this prospectus, and is
subject to changes in Belgian law, including changes that could have
retroactive effect. The following summary does not take into account or discuss
the tax laws of any country other than Belgium, nor does it take into account
the individual circumstances of each investor.

Prospective investors in common stock are advised to consult their own tax
advisors as to the Belgian and other tax consequences of the acquisition,
ownership and disposition of common stock.

Belgian Indirect Taxes

Stamp Tax on Securities Transactions

In principle, a stamp tax is levied upon the subscription of new shares and
the purchase and sale in Belgium of shares through a professional intermediary.
The rate applicable to subscriptions of new shares is 0.35 percent but there is
a limit of 10,000 Belgian francs ("BEF") per transaction. The rate applicable
for

A-2
<PAGE>

secondary sales and purchases in Belgium of shares through a professional
intermediary is 0.17 percent but there is a limit of BEF 10,000 per
transaction.

An exemption is available to professional intermediaries (e.g., credit
institutions), insurance companies, pension funds and collective investment
vehicles who are acting for their own account. A non-resident shareholder who
is acting for his own account will also be entitled to an exemption from this
stamp tax, provided that he delivers to the issuer or the professional
intermediary, as the case may be, an affidavit confirming his non-resident
status in Belgium.

Tax on Delivery of Bearer Securities

A tax is levied upon the physical delivery of shares pursuant to their
subscription and their acquisition for consideration through a professional
intermediary. This tax is also due upon the delivery of shares pursuant to a
withdrawal of these shares from "open custody".

The tax is due, at the rate of 0.2 percent, on the sums payable by the
subscriber or the acquiror in case of subscription or acquisition on the sales
value of the shares, as estimated by the custodian in case of withdrawal from
"open custody".

However, an exemption is available for deliveries to professional
intermediaries (such as credit institutions) acting for their own account. An
exemption is also available for delivery to a non-resident of shares that are
held in "open custody".

To the extent that the shares remain in book-entry form only and will not be
physically delivered this tax does not apply to shares.

Taxation of Dividends

a) Belgian Withholding Tax

Dividends distributed on shares are, in principle, subject in Belgium to a
withholding tax at the rate of 25 percent, when paid or attributed through a
professional intermediary in Belgium The dividend withholding tax rate on
shares which are publicly issued after January 1, 1994 can be lowered to 15
percent. The benefit of the reduced withholding tax rate may be refused on the
basis of certain anti-abuse rules provided for by Belgian tax legislation.
These anti-abuse rules provide inter alia that the newly issued shares may not
have any preferential dividend rights and that any capital reduction which does
not correspond to genuine financial or economic needs will reduce the benefit
of the lower withholding tax.

No dividend withholding tax is due if the Belgian holder is a company
subject to Belgian corporate income tax provided that the appropriate
formalities have been fulfilled.

In the case where dividends are paid outside Belgium without any
intervention of a paying agent in Belgium, no dividend withholding tax is, in
principle, due. However, where the Belgian holder is a Belgian resident entity
subject to the Legal Entities Tax (e.g. a pension fund), the holder itself must
pay the dividend withholding tax at the rate of 25 percent (or 15 percent if
the reduced rate applies).

b) Income Tax for Belgian Resident Individuals

In the hands of an individual Belgian holder who is holding his shares as a
private investment, rather than as a business asset, the Belgian dividend
withholding tax is a final tax--the dividends need not be reported in the
individual's annual income tax return. If no withholding tax has been levied
(i.e. in case of payment or attribution outside Belgium), the individual must
report the dividends in his tax return as a dividend income. He will be taxed
at the separate rate of 25 percent (or at the separate rate of 15 percent if
the reduced rate applies), to be increased by a municipal surcharge (varying,
in general, from 6 percent to 9 percent of the State Tax).

A-3
<PAGE>

In the hands of an individual Belgian holder whose shares are effectively
connected with his business, the dividends are taxable at the ordinary rates
for business income (i.e., varying from 25 percent to 55 percent to be
increased by the municipal surcharge and a crisis contribution of 3 percent of
the tax due). Any Belgian withholding tax is creditable against the final
income tax due, provided that the holder has the full ownership of the shares
at the time of payment of the dividends and provided that the dividend
distribution does not entail a reduction in value of, or capital loss on, the
shares.

A-4
<PAGE>

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

Prospective investors may rely only on the information contained in this
prospectus. Neither XOOM.com, Inc. nor any underwriter has authorized anyone
to provide prospective investors with different or additional information.
This prospectus is not an offer to sell nor is it seeking an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
The information contained in this prospectus is correct only as of the date of
this prospectus, regardless of the time of the delivery of this prospectus or
any sale of these securities.

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3

Risk Factors............................................................. 7

How We Intend to Use the Proceeds from the Offering...................... 21

Dividend Policy.......................................................... 21

Price Range of Common Stock.............................................. 21

Capitalization........................................................... 22

Dilution................................................................. 23

Selected Consolidated Financial Data..................................... 24

Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25

Business................................................................. 41

Management............................................................... 54

Certain Transactions..................................................... 65

Principal and Selling Stockholders....................................... 67

Description of Capital Stock............................................. 69

Shares Eligible for Future Sale.......................................... 71

Underwriting............................................................. 72

Legal Matters............................................................ 74

Experts.................................................................. 75

Additional Information................................................... 75

Index to Consolidated Financial Statements............................... F-1

Supplemental EASDAQ Information.......................................... A-1
</TABLE>

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

4,000,000 Shares

XOOM.com, Inc.

Common Stock

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

PRELIMINARY PROSPECTUS

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

Bear, Stearns & Co. Inc.

Hambrecht & Quist

BancBoston Robertson Stephens

Wit Capital Corporation
as e-Manager(TM)

, 1999

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PRELIMINARY PROSPECTUS

4,000,000 Shares

XOOM.com, Inc.

Common Stock

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

This is a public offering of 4,000,000 shares of common stock of XOOM.com, Inc.
We are selling 2,000,000 shares of common stock and the selling stockholders
identified in this prospectus are selling 2,000,000 shares. We will not receive
any of the proceeds from the shares of common stock sold by the selling
stockholders. Of these 4,000,000 shares of common stock, 600,000 shares are
being offered hereby for sale outside the United States and Canada by the
international underwriters and 3,400,000 shares are being offered for sale in
the United States and Canada by the U.S. underwriters. The price to the public
and underwriting discounts and commissions per share in both offerings are
identical.

The U.S. underwriters have an option to purchase a maximum of 600,000
additional shares of common stock from us to cover over-allotments of shares.

Our common stock is traded on the Nasdaq National Market under the symbol
"XMCM." On March 12, 1999, the last reported sale price for our common stock
was $67.00 per share.

See "Risk Factors" beginning on page 7 to read about certain risks that you
should consider before buying shares of our common stock.

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

<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price.............................................. $ $
Underwriting discount.............................................. $ $
Proceeds, before expenses, to us................................... $ $
Proceeds, before expenses, to the selling stockholders............. $ $
</TABLE>

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

The international underwriters are severally underwriting the shares being
offered in this prospectus. The international underwriters expect to deliver
the shares against payment on March , 1999.

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

Bear, Stearns International Limited
Hambrecht & Quist
BancBoston Robertson Stephens International Ltd
Deutsche Bank

The date of this Prospectus is , 1999
<PAGE>

[Alternate Page for International Prospectus]

CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO
NON-U.S. HOLDERS OF THE COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of common stock by a
person that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership or a foreign estate or
trust as defined in the U.S. Internal Revenue Code of 1986, as amended. This
discussion does not consider specific facts and circumstances that may be
relevant to a particular non-U.S. holder's tax in light of his particular
situation and does not deal with all aspects of U.S. federal income and estate
taxation that may be relevant to non-U.S. holders (including special rules
applicable to certain United States expatriates), or with U.S. state and local
or non-U.S. tax consequences. In addition, this discussion is not intended for
non-U.S. holders who will not hold the common stock as capital assets or non-
U.S. holders who are otherwise subject to special treatment under the Code
(including insurance companies, tax-exempt entities, financial institutions,
broker-dealers and persons who would hold the common stock as part of a
straddle, hedge or conversion transaction). Furthermore, the following
discussion is based on provisions of the Code, existing and proposed
regulations promulgated thereunder, and administrative and judicial
interpretations thereof as of the date hereof, all of which are subject to
change, possible with retroactive effect. Each prospective non-U.S. holder is
urged to consult a tax advisor with respect to the U.S. federal tax
consequences of holding and disposing of common stock, as well as any tax
consequences that may arise under the laws of any U.S. state, municipality or
other taxing jurisdiction.

An individual may, among other ways, be deemed to be a resident alien (as
opposed to a non-resident alien) with respect to any calendar year by virtue of
being present in the United States on at least 31 days in such calendar year
and for an aggregate of at least 183 days during the current calendar year and
the two preceding calendar years (counting for such purposes all of the days
present in the current year, one-third of the days present in the immediately
preceding year and one-sixth of the days present in the second preceding year).
Resident aliens are subject to U.S. federal tax as if they were U.S. citizens.

Dividends

As described above, we do not expect to pay dividends. In the event we do
pay dividends, dividends paid to a non-U.S. holder of common stock will be
subject to withholding of U.S. federal income tax at a rate of 30% of the gross
amount of the dividend or such lower rate as may be specified by an applicable
income tax treaty, unless the dividends are effectively connected with the
conduct of a trade or business by the non-U.S. holder within the U.S. Dividends
that are effectively connected with such holder's conduct of a trade or
business in the U.S. are subject to U.S. federal income tax on a net income
basis at applicable graduated individual or corporate rates, and are not
generally subject to withholding, if the holder complies with certain
certification and disclosure requirements. Any such effectively connected
dividends received by a foreign corporation may also, under certain
circumstances, be subject to an additional branch profits tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.

Under the current law, dividends paid to an addressee outside the United
States are presumed to be paid to a resident of the country of address (unless
the payer has knowledge to the contrary) for purposes of the withholdings
discussed above and for purposes of determining the applicability of a tax
treaty rate. Under certain recently finalized Treasury Regulations, a non-U.S.
holder of common stock will be required to satisfy certain certification and
other requirements in order to claim the benefit of a reduced withholding tax
rate with respect to dividends under an applicable treaty. In addition, under
the new withholding regulations, in the case of common stock held by a foreign
partnership, the certification requirement would generally be applied to the
partners and the partnership may be required to provide certain information,
including a United States taxpayer identification number. The new withholding
regulations also provide look-through rules for tiered partnerships. The new
withholding regulations are generally effective for payments made after
December 31, 1999, subject to certain transition rules. Non-U.S. holders are
encouraged to consult with their own tax advisors with respect to the
application of the new withholding regulations.

71
<PAGE>

[Alternate Page for International Prospectus]

A non-U.S. holder of common stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
U.S. Internal Revenue Service.

Gain on Disposition of Common Stock

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless (A) the
gain is effectively connected with a trade or business of the non-U.S. holder
in the U.S. or, if a tax treaty applies, is attributable to a permanent
establishment maintained by the non-U.S. holder in the U.S., (B) in the case of
a non-U.S. holder who is an individual and holds the common stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale and certain other conditions are met, or (C) we are or
have been a U.S. real property holding corporation for U.S. federal income tax
purposes at any time during the five-year period ending on the date of the
disposition and the non-U.S. holder owned more than 5% of our common stock at
any time during such period. We believe that we have not been and we are not a
U.S. real property holding corporation for U.S. federal income tax purposes and
do not currently anticipate becoming a U.S. real property holding corporation.
Different tax consequences would apply to certain non-U.S. holders if we were
to become a U.S. real property holding corporation. If an individual non-U.S.
holder falls under clause (A) above, he or she will be taxed on his or her net
gain derived from the sale at regular graduated U.S. federal income tax rates.
If an individual non-U.S. holder falls under clause (B) above, he or she will
be subject to a flat 30% tax on the net gain derived from the sale which gain
may be offset by U.S. capital losses recognized within the same taxable year of
such sale. If a non-U.S. holder that is a foreign corporation falls under
clause (A) above, it will be taxed on its gain at regular graduated U.S.
federal income tax rates and, in addition, may be subject to the branch profits
tax equal to 30% of its effectively connected earnings and profits within the
meaning of the code for the taxable year, as adjusted for certain items, or at
such lower rate as may be specified by an applicable income tax treaty.

Federal Estate Taxes

Common stock owned or treated as owned by a non-U.S. holder at the time of
death, or common stock of which the non-U.S. holder made certain lifetime
transfers, will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.

U.S. Information Reporting Requirements and Backup Withholding Tax

We must report annually to the U.S. Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to such holder (including the name
and address of such holder) and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable income tax treaty.

Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the U.S. information reporting requirements) will
generally not apply to dividends paid to a non-U.S. holder at an address
outside the United States unless such non-U.S. holder is engaged in a trade or
business in the United States or unless the payer has knowledge that the payee
is a U.S. person. However, under the new withholding regulations (which are
generally effective for dividends paid after December 31, 1999), dividend
payments may be subject to backup withholding unless applicable certification
requirements are satisfied. See the discussion above with respect to rules
applicable to foreign partnerships under the new withholding regulations.

72
<PAGE>

[Alternate Page for International Prospectus]
In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of common stock to or through a foreign
office of a broker. If, however, such broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation, a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S. or, effective for payments after
December 31, 1999, a foreign partnership (A) more than 50% of the income or
capital interests of which are owned by U.S. persons or (B) that is engaged in
a U.S. trade or business, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
broker has documentary evidence in its records that the beneficial owner is a
non-U.S. holder and certain other conditions are met or (2) the beneficial
owner otherwise establishes an exemption.

Payment to or through a U.S. office of a broker of the proceeds of a sale of
common stock is generally subject to both backup withholding and information
reporting unless the beneficial owner certifies on a Form W-8 (or a suitable
substitute form) under penalties of perjury that it is a non-U.S. holder, or
otherwise establishes an exemption.

Effective for payments after December 31, 1999 (and subject to certain
transition rules), the new withholding regulations unify certain certification
procedures and forms and the reliance standards relating to information
reporting and backup withholding.

Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the U.S. Internal Revenue
Service.

73
<PAGE>

[Alternate page for international prospectus]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Prospective investors may rely only on the information contained in this pro-
spectus. Neither XOOM.com, Inc. nor any underwriter has authorized anyone to
provide prospective investors with different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these se-
curities in any jurisdiction where the offer or sale is not permitted. The in-
formation contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this prospectus or any
sale of these securities.

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