XOOM INC, 10-K, 1999-03-30

XOOM INC
10-K, 1999-03-30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 1998 or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from_____________________
to ______.

Commission File Number 000-25139

XOOM.COM, INC.
(exact name of Registrant as specified in its charter)

DELAWARE 88-0361536
(State of incorporation) (I.R.S. Employer Identification No.)

300 MONTGOMERY STREET, SUITE 300
SAN FRANCISCO, CALIFORNIA 94104
(415) 288-2500
(Address and Telephone Number of principal executive offices)

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 Par Value
(Title of Class)

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

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

Based on the closing sale price of the Common Stock on the Nasdaq National
Market System on February 28, 1999, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $461,503,546. Shares of
Common Stock held by each officer and director and by each person known by the
Company to own 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

The number of shares outstanding of Registrant's Common Stock, $0.0001 par
value, was 13,830,588 at February 28, 1999.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information is incorporated by reference to the Proxy Statement for the
Registrant's 1999 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this Form 10-K.
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<TABLE>
<CAPTION>
XOOM.COM, INC

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

TABLE OF CONTENTS

Part I Page
----
<S> <C>
Item 1. Business......................................... 1

Item 2. Properties....................................... 12

Item 3. Legal Proceedings................................ 13

Item 4. Submission of Matters to a Vote of
Security Holders................................. 13

Part II

Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters...................... 13

Item 6. Selected Financial Data.......................... 14

Item 7. Management's Discussion and Analysis of Financial
Condition And Results of Operations.............. 15

Item 8. Financial Statements and Supplementary Data...... 40

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 40

Part III

Item 10. Directors and Executive Officers of the
Registrant........................................ 40

Item 11. Executive Compensation............................ 40

Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 41

Item 13. Certain Relationships and Related Transactions.... 41

Part IV

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................... 41

Signatures..................................................... 44

Financial Statements........................................... F-1
</TABLE>
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This report on Form 10-K, including the discussions in Part I Item 1
"Business" and Part II Item 7 "Management Discussion and Analysis of Financial
Condition and Results of Operation," contains forward-looking statements that
involve risks and uncertainties. Such forward-looking statements include, among
others, those statements including the words, "expects", "anticipates",
"intends", "believes" and similar language. Xoom.com's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of a variety of factors, including those set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Operating Results."

PART I

ITEM 1. BUSINESS

Overview

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
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.

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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, 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.

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.

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.

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:

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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 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,

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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
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

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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
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

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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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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
------------------ ---------- ---------
<S> <C> <C>
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.

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Strategic Alliances

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

* Hanover Direct. We have formed a strategic alliance with Hanover Direct,
a leading catalog direct e-commerce company, to create a new Internet e-
commerce shopping channel. Under the alliance, we and Hanover Direct plan
to 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 from this channel with Hanover
Direct.

* 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 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.

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

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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.

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.

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 December 31,
1998, we had six 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 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:

9
<PAGE>

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

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.

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.

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.

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

10
<PAGE>

efficient deployment of member data and targeting of e-mail campaigns.

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. 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.

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.

Competition

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.

11
<PAGE>

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.

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

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.

EMPLOYEES

As of December 31, 1998, we had 71 full-time employees, including 34 in sales
and marketing, 19 in operating and development and 18 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.

ITEM 2. PROPERTIES

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.

12
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

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.

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

On October 8, 1998, a majority of our stockholders executed a written consent
to approve (A) the adoption of our 1998 Employee Stock Purchase Plan, (B) the
filing of a Restated Certificate of Incorporation that (1) increased our
authorized capital stock; (2) changed our corporate name to "XOOM.com, Inc." and
(3) made certain other changes in connection with our planned initial public
offering.

On November 16, 1998, a majority of our stockholders executed a written
consent to approve (A) a 2-for-3 reverse stock split and (B) increases in the
shares of Common Stock reserved for issuance under our Employee Stock
Purchase Plan and Stock Incentive Plan to 300,000 and 2,000,000 shares,
respectively, on a post-split basis.

PART II

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

(a) Our Common Stock has been quoted on the Nasdaq National Market under the
symbol XMCM since our initial public offering on December 9, 1998. Prior to such
time, there was no public market for our Common Stock.

As of December 31, 1998, there were approximately 90 holders of record of our
Common Stock. We have never paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and, therefore
do not expect to pay any dividends in the foreseeable future. The following
table sets forth, for the periods indicated, the high and low sale prices per
share of the Common Stock as reported on the Nasdaq National Market.

13
<PAGE>

<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
</TABLE>

(b) Use of Proceeds

We completed our initial public offering in December 1998. The following
information relates to the use of proceeds of the offering:

(1) Effective Date of Registration Statement and Commission File
------------------------------------------------------------
Number. Our Registration Statement on Form S-1, File No. 333-62395 (the
- ------
"Registration Statement"), relating to the offering, became effective on
December 8, 1998.

(2) Offering Date. The closing date of the offering was December 14,
-------------
1998.

(3) Managing Underwriters. Bear, Stearns & Co. Inc.
---------------------

(4) Securities Registered and Proposed Aggregate Offering Price. We
-----------------------------------------------------------
registered a total of 4,600,000 shares of Common Stock. The proposed maximum
aggregate offering price was $64,400,000.

(5) Securities Sold. We sold a total of 4,600,000 shares of Common
---------------
Stock in the offering, at a price of $14 per share.

(6) Aggregate Gross Proceeds, Expenses and Aggregate Net Proceeds.
-------------------------------------------------------------
The sale of the 4,600,000 shares of Common Stock generated aggregate gross
proceeds of $64,400,000. The aggregate net proceeds to us were approximately
$57,342,000, after deducting underwriting discounts and commissions of
$4,508,000 and our expenses of the offering of approximately $2,550,000.

(7) Use of Proceeds. Through December 31, 1998 we used a portion of
---------------
the net proceeds to repay a note payable issued in connection with the
acquisition of Pagecount, Inc. in the principal amount of $1,200,000, to repay
a note payable issued in connection with a loan agreement in the principal
amount of $1.25 million, and to pay the remaining balance of approximately
$135,000 due under a license agreement with ArcaMax, Inc. In addition, in
connection with the acquisition of Global Bridges Technologies, Inc. and the
purchase of certain assets of Revolutionary Software, Inc., we paid a cash
consideration of $130,000 and $260,000, respectively, upon completion of the
offering. The remaining $54,367,000 of the net proceeds shall be used for
general corporate purposes, including working capital, capital expenditures,
potential acquisitions and promotional campaigns. The amounts actually
expended by us for such 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 "Factors Affecting Operating
Results." Accordingly, our management retains broad discretion in the
allocation of the net proceeds of the offering. A portion of the net proceeds
may also be used to acquire or invest in complementary businesses,
technologies or product offerings. In the ordinary course of business, we
evaluate potential acquisitions of such businesses, technologies and product
offerings. However, we have no current material agreements or commitments with
respect to any such acquisitions.

ITEM 6. SELECTED FINANCIAL DATA

You should read the following selected consolidated financial data in
conjunction with the Consolidated Financial Statements and the Notes thereto and
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations" included elsewhere in this report. 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 are included elsewhere in this report.

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

<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997 1996
-------- ------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments $56,575 $ 6 $ 1
Working capital (deficit) ....................... 52,560 (1,400) 156
Total assets .................................... 66,874 782 705
Long-term obligations, less current portion ..... 528 -- --
Total stockholders' equity (deficit) ............ 60,332 (873) 560
</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.

14
<PAGE>

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

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.

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 "Factors Affecting
Operating Results--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

15
<PAGE>

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;

* 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 "Factors Affecting Operating Results--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
"Factors Affecting Operating Results--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.

16
<PAGE>

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 "Factors Affecting
Operating Results--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."

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,
-------------------
1998 1997
------- -------
<S> <C> <C>
Net revenue:
E-commerce .................................. 67.1% 38.9%
Advertising ................................. 25.8 7.1
License fees and other ...................... 7.1 54.0
----- -----
Total net revenue ......................... 100.0 100.0
Cost of net revenue/(1)/:
Cost of e-commerce .......................... 42.6 20.3
Cost of license fees and other .............. 0.5 17.6
----- -----
Cost of net revenue ............................ 43.1 37.9
----- -----
Gross profit ................................... 56.9 62.1
Operating expenses:
Operating and development ................... 46.2 136.8
Sales and marketing ......................... 34.1 34.7
General and administrative .................. 40.5 85.7
Purchased in-process research and development 9.5 --
Amortization of deferred compensation ....... 17.0 29.5
Amortization of intangible assets ........... 22.1 --
Non-recurring charges ....................... -- 147.8
----- -----
Total operating expenses .................. 169.4 434.5
----- -----
Loss from operations ........................... (112.5) (372.4)
Other income, net .............................. 0.6 --
Interest expense related to warrant ............ (17.9) --
----- -----
Net loss ....................................... (129.8)% (372.4)%
===== =====
</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

17
<PAGE>

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.

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.

18
<PAGE>

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, 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 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

19
<PAGE>

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.

(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

20
<PAGE>

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.

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.

21
<PAGE>

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 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 "Factors
Affecting Operating Results--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 "Factors Affecting Operating Results--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

22
<PAGE>

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 "Factors Affecting
Operating Results--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 2018 if we do not
use them. Due to the "change of ownership" provisions of the Internal

23
<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 report. 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>

24
<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
"Factors Affecting Operating Results--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.

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 "Factors Affecting Operating Results--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."

25
<PAGE>

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 short-term investments
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 $62.8 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 the completion of our initial public offering. Proceeds from the offering
were approximately $57.3 million, net of offering costs. Offsetting the cash
generated by financing activities in 1998 was $3.2 million used to repay notes
payable.

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.

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

26
<PAGE>

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

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.

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 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 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.

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.

27
<PAGE>

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.

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 "Factors Affecting Operating Results--Year 2000
issues could negatively affect our business."

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 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.

FACTORS AFFECTING OPERATING RESULTS

This report on Form 10-K contains forward looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward looking statements as a result of certain factors,
including those set forth below.

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;

28
<PAGE>

* 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.

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.

29
<PAGE>

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.

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

30
<PAGE>

* 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;

* 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.

31
<PAGE>

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 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

32
<PAGE>

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.

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

33
<PAGE>

* 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.

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.

34
<PAGE>

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
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

* 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.

35
<PAGE>

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 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 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.

36
<PAGE>

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

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.

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;

* 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.

37
<PAGE>

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

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 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.

38
<PAGE>

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.

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;

* 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

39
<PAGE>

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Independent Auditors' Report, Consolidated Financial Statements and Notes
to Consolidated Financial Statements appear in Part IV of this Form 10-K.

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

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the directors and executive officers of Xoom.com is
incorporated by reference to the sections entitled "Proposal No. 1: Election of
Directors--Nominees" and "Management--Executive Officers" contained in
Xoom.com's definitive Proxy Statement with respect to Xoom.com's 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year covered by this Form
10-K (the "Proxy Statement"). Information concerning compliance with Section
16(a) of the, Exchange Act of 1934 is incorporated by reference to the section
entitled "Compliance with Section 16(a) of the Exchange Act" contained in
Xoom.com's Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning the executive compensation is incorporated by reference
to the sections entitled "Proposal No.1: Election of Directors--Director
Compensation," "Management--Summary Compensation Table," "Management--Option
Grants in Last Fiscal Year," "Management--Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values," and "Management--Employment
Agreements" contained in Xoom.com's Proxy Statement.

40
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning the security ownership of certain beneficial owners and
management is incorporated by reference to the section entitled "Information
Concerning Solicitation and Voting Security Ownership of Certain Beneficial
Owners and Management" contained in Xoom.com's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions is
incorporated by reference to the section entitled "Certain Transactions"
contained in Xoom.com's Proxy Statement.

PART IV

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

(a) The following Consolidated Financial Statements of Xoom.com, Inc. and
the Report of Independent Auditors, as listed under (a) (1) below, are
filed as a part of this report:

(1) FINANCIAL STATEMENTS:
Page
----
Report of Ernst & Young LLP, Independent Auditors ....... F-1

Consolidated Balance Sheets ............................. F-2

Consolidated Statements of Operations ................... F-3

Consolidated Statements of Stockholders' Equity (Deficit) F-4

Consolidated Statements of Cash Flows ................... F-5

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

(2) FINANCIAL STATEMENT SCHEDULES:

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

<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Document Page
- -------- ------------ ------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant**

3.2 Amended and Restated Bylaws of the Registrant**

4.1 Reference is made to Exhibits 3.1 and 3.2**
</TABLE>

<PAGE>

<C> <S>
4.2 Warrant to purchase common stock made by the Registrant in favor of Sand Hill
Capital, LLC, dated as of November 3, 1998**

4.3 Specimen Stock Certificate of the Registrant**

10.1 Form of Indemnification Agreement between the Registrant and each of its
executive officers and directors**

10.2 Agreement of Sublease between the Registrant and Cornerstone Internet Solutions
Company d/b/a USWeb Cornerstone dated August, 1998**

10.3 Assignment of Lease by Xaos Tools, Inc. and Acceptance of Assignment and
Assumption of Lease by the Registrant, dated July 31, 1998**

10.4 Registrant's 1998 Stock Incentive Plan, including forms of agreements
thereunder**

10.5 Registrant's 1998 Employee Stock Purchase Plan, including forms of agreements
thereunder**

10.6 Employment Agreement between the Registrant and Russell Hyzen dated July
20,1998**

10.7 Employment Agreement between the Registrant and Vijay Vaidyanathan, dated March
10, 1998 and Addendum No. 1 thereto, dated August 12, 1998**

10.8 Employment Agreement between the Registrant and Laurent Massa, dated July
1,1998**

10.9 Employment Agreement between the Registrant and John Harbottle dated August
4,1998**

10.10 Agreement and Plan of Merger, among the Registrant, XOOM Chat, Inc., Paralogic
Corporation and shareholders of Paralogic Corporation, dated March 10, 1998**

10.11 Agreement and Plan of Merger, among the Registrant, Xoom GBT Merger Corp.,
Global Bridges Technologies, Inc. and Robert Kohler, dated June 11, 1998**

10.12 Asset Purchase Agreement, between the Registrant and Revolutionary Software,
Inc., dated June 11, 1998**

10.13 Purchase and License Agreement between the Registrant and ArcaMax, Inc., dated
June 18, 1998**

10.14 Asset Purchase Agreement between the Registrant and Pagecount, Inc., dated as
of July 24, 1998**

10.15 First Amendment, dated July 27, 1998, to Asset Purchase Agreement, between the
Registrant and Revolutionary Software, Inc., dated June 11, 1998**
</TABLE>

42
<PAGE>

<C> <S>
10.16 First Amendment, dated July 28, 1998, to Agreement and Plan of Merger, among
Registrant, Xoom GBT Merger Corp., Global Bridges Technologies, Inc. and Robert
Kohler, dated June 11, 1998**

10.17 Letter Agreement between the Registrant and Robert Ellis, dated August 4, 1997**

10.18 Consulting Agreement between the Registrant and James Heffernan, dated May 15,
1998**

10.19 Letter Agreement between the Registrant and Jeffrey Ballowe, dated July 28,
1998, as amended by letter agreement dated December 2, 1998**

10.20 Letter Agreement between the Registrant and Philip Schlein, dated July 28,
1998, as amended by letter agreement dated December 2, 1998**

10.21 Letter Agreement between the Registrant and Robert C. Harris, Jr., dated July
28, 1998, as amended by letter agreement dated December 2, 1998**

10.22 Equipment Financing Agreement between the Registrant and Pentech Financial
Services, Inc, dated October 1, 1998**

10.23 Loan Agreement between the Registrant and Sand Hill Capital, LLC, dated as of
November 3, 1998**

10.24 Agreement of Lease between the Registrant and Eleven Penn Plaza, dated as of
March 16, 1999*

21.1 Subsidiaries of the Registrant**

23.2 Consent of Ernst & Young LLP, Independent Auditors

24.1 Powers of Attorney. Reference is made to Page 44

27.1 Financial Data Schedule*
</TABLE>
- --------------------
* Incorporated by reference from Xoom.com, Inc.'s Registration Statement on
Form S-1 (No. 333-74441).
** Incorporated by reference from Xoom.com, Inc.'s Registration Statement on
Form S-1 (No. 333-62395).

(b) REPORTS ON FORM 8-K

Not Applicable.

43
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California on the 30th day of March, 1999.

XOOM.com, Inc.

By: /s/ LAURENT MASSA
----------------------------------
Laurent Massa
Chief Executive Officer and President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Chris Kitze, Laurent Massa and John
Harbottle, and each of them individually, as his attorney-in-fact, each with
full power of substitution, for him in any and all capacities, to sign any and
all amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorney-in
fact, or his substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dated indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ------ ---
<S> <C> <C>
/S/ LAURENT MASSA
- ----------------------- Principal Executive Officer and March 30, 1999
Laurent Massa Director

/S/ JOHN HARBOTTLE
- ----------------------- Principal Financial and March 30, 1999
John Harbottle Accounting Officer

/S/ CHRIS KITZE
- ----------------------- Chairman March 30, 1999
Chris Kitze

/S/ BOB ELLIS
- ----------------------- Director March 30, 1999
Bob Ellis

/S/ JAMES J. HEFFERNAN
- ------------------------ Director March 30, 1999
James J. Heffernan

/S/ JEFFREY BALLOWE
- ------------------------ Director March 30, 1999
Jeffrey Ballowe

/S/ PHILIP SCHLEIN
- ------------------------ Director March 30, 1999
Philip Schlein

/S/ ROBERT C. HARRIS, JR.
- ------------------------- Director March 30, 1999
Robert C. Harris, Jr.
</TABLE>

44
<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-1
<PAGE>

XOOM.com, Inc.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 54,575,200 $ 5,587
Short-term investments.................................. 2,000,000 --
Accounts receivable, net of allowance for doubtful
accounts of $194,919 in 1998 and $48,702 in 1997....... 1,368,062 173,223
Stock subscription receivable........................... -- 75,000
Inventories............................................. 321,541 --
Other current assets.................................... 308,452 906
------------ -----------
Total current assets.................................. 58,573,255 254,716
Fixed assets, net........................................ 2,070,742 413,685
Goodwill, net............................................ 3,749,945 --
Purchased technology, net................................ 1,766,456 --
Prepaid royalties and licenses........................... 216,131 53,556
Other assets............................................. 496,974 59,713
------------ -----------
Total assets........................................ $ 66,873,503 $ 781,670
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 1,229,103 $ 461,931
Accrued compensation and related expenses............... 496,213 38,391
Other accrued liabilities............................... 1,531,067 4,700
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............................. 6,013,417 1,655,022
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 1998 and 1997.. -- --
Common stock, $0.0001 par value:
Authorized shares--40,000,000
Issued and outstanding shares--13,699,555 and
5,541,367 in 1998 and 1997, respectively............ 75,605,835 3,001,424
Deferred compensation.................................... (904,031) (302,924)
Accumulated deficit...................................... (14,369,394) (3,571,852)
------------ -----------
Total stockholders' equity (deficit).................. 60,332,410 (873,352)
------------ -----------
Total liabilities and stockholders' equity
(deficit).......................................... $ 66,873,503 $ 781,670
============ ===========
</TABLE>

See accompanying notes.

F-2
<PAGE>

XOOM.com, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

See accompanying notes.

F-3
<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-4
<PAGE>

XOOM.com, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
Year Ended December 31, April 16, 1996
--------------------------- (inception) through
1998 1997 December 31, 1996
------------- ----------- -------------------
<S> <C> <C> <C>
Cash used in operating
activities:
Net loss....................... $(10,797,542) $(3,131,877) $(439,975)
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................. 796,238 254,077 2,496
Amortization of intangible
assets....................... 1,842,869 -- --
Amortization of deferred
compensation................. 1,415,857 247,924 --
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.................. 237,830 17,376 --
Issuance of common stock to
directors and consultants.... 205,160 -- --
Changes in operating assets
and liabilities:
Accounts receivable.......... (1,167,261) (173,223) --
Inventories.................. (321,541) -- --
Other current assets......... (303,093) (906) --
Prepaid royalties and
licenses.................... (425,993) (185,815) (324,000)
Other assets................. (444,662) (41,169) (18,544)
Accounts payable............. 762,054 325,809 136,122
Accrued compensation and
related expenses............ 417,556 29,485 8,906
Other accrued liabilities.... 1,402,683 4,700 --
Deferred revenue............. 443,154 -- --
Contingency accrual.......... -- 1,000,000 --
------------ ----------- ---------
Net cash used in operating
activities..................... (3,552,527) (1,410,619) (634,995)
Cash used in investing
activities:
Purchases of fixed assets...... (1,954,221) (392,846) (64,153)
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.................... (4,685,365) (392,846) (64,153)

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

See accompanying notes.

F-5
<PAGE>

XOOM.com, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
Period from
Year Ended December 31, April 16, 1996
---------------------- (inception) through
1998 1997 December 31, 1996
---------- ------- -------------------
<S> <C> <C> <C>
Supplemental disclosures:
Non-cash transactions:
Issuance of common stock in exchange
for stock subscriptions
receivable......................... $ 260,480 $175,000 $ --
========== ======== ==========
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..................... $ 150,000 $ 35,000 $1,000,000
========== ======== ==========
Deferred compensation resulting from
grant of stock options............. $2,016,964 $550,848 $ --
========== ======== ==========
Fixed assets acquired under capital
lease obligations.................. $ 164,678 $ -- $ --
========== ======== ==========
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-6
<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 $269,196 and $48,702 for
allowance for doubtful accounts in 1998 and 1997, respectively.

For the year ended December 31, 1998, no single customer accounted for
greater than 10% of total net revenue. 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.

F-7
<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 $263,418, $213,259 and $0, for the years ended
December 31, 1998 and 1997, and for the period from April 16, 1996 (inception)
to December 31, 1996, 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-8
<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 25% and 30% of net revenues for the years ended December
31, 1998 and 1997, respectively. The Company's export sales are as follows:

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

Advertising expense

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

F-9
<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-10
<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-11
<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-12
<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-13
<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,
-------------------------
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
Pro forma net revenue......................... $ 8,606,674 $ 1,371,101
Pro forma loss from operations................ (10,005,377) (5,835,010)
Pro forma net loss............................ (11,495,009) (5,882,729)
Pro forma net loss per share--basic and
diluted...................................... (1.41) (1.02)
Number of shares used in pro forma per share
calculation--basic and diluted............... 8,142,364 5,740,156
</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 $460,000 and $0 were excluded from the pro
forma net loss and pro forma net loss per share figures for the years ended
December 31, 1998 and 1997, respectively.

F-14
<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,
---------------------
1998 1997
------------ -------
<S> <C> <C>
Demand and money market instrument accounts....... $ 8,730,977 $ 5,587
Corporate bonds and notes......................... 36,444,223 --
Market auction preferred stock.................... 11,400,000 --
------------ -------
56,575,200 5,587
Less amounts included in cash and cash
equivalents...................................... (54,575,200) (5,587)
------------ -------
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-15
<PAGE>

XOOM.com, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Fixed Assets

Fixed assets consist of the following:

<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
-------- ----------
<S> <C> <C>
Computers and equipment, including assets under
capital leases of $52,758 and $0 for 1998 and 1997,
respectively......................................... $2,527,770 $456,999
Furniture and fixtures under capital leases........... 111,920 --
---------- --------
Fixed assets.......................................... 2,639,690 456,999
Less accumulated depreciation and amortization,
including amounts related to assets under capital
leases of $18,298 and $0 for 1998 and 1997,
respectively......................................... (568,948) (43,314)
---------- -------
$2,070,742 $413,685
========== ========
</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-16
<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,
------------------------
1998 1997
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...... $ 1,944,000 $ 537,000
Purchased in-process technology....... 311,000 --
Capitalized start up costs............ 85,000 112,000
Prepaid royalties and licenses........ 496,000 257,000
Accrued liabilities................... 887,000 398,000
Other................................. 50,000 17,000
----------- -----------
Total deferred tax assets............... 3,773,000 1,321,000
Valuation allowance..................... (3,773,000) (1,321,000)
----------- -----------
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 years ended December 31, 1998 and 1997 and during the period from
April 16, 1996 (inception) through December 31, 1996, the valuation allowance
for the deferred tax assets increased by $2,452,000, $1,146,000 and $175,000,
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 2018 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-17
<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 years ended
December 31, 1998 and 1997, and for the period from April 16, 1996 (inception)
through December 31, 1996 totaled $385,904, $43,125 and $5,400, 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-18
<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.
Based on information available to date management does not believe that the
outcome of this matter will have a material effect on the Company's financial
position, results of operations and cash flows over and above the $1,000,000
accrued in the 1998 financial statements. 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. However, the Company does not believe that the ultimate
outcome of this matter will have a material adverse effect on its results of
operations, financial position or cash flows.

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-19
<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
exercised the warrant in a net exercise transaction and received 116,231
shares of the Company's common stock.

Stock option plan

On November 16, 1998, the Company's Board of Directors and stockholders
approved 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-20
<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-21
<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 $246,231, $20,277 and $0, for the years ended December 31, 1998 and 1997, and
for the period from April 16, 1996 (inception) through December 31, 1996,
respectively. These amounts are being amortized by charges to operations over
the respective consulting periods. The amounts charged to operations were
$237,830, $17,376 and $0, for the years ended December 31, 1998 and 1997, and
for the period from April 16, 1996 (inception) through December 31, 1996,
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-22
<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
Year ended December 31, April 16, 1996
------------------------ (inception) through
1998 1997 December 31, 1996
------------ ------------ -------------------
<S> <C> <C> <C>
Risk-free interest rate.. 4.52% 6.5% 6.5%
Expected life of the
option.................. 5 years 5 years 5 years
Expected volatility...... 0.7 0 0
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 years ended December 31, 1998 and 1997, and during the period from April 16,
1996 (inception) through December 31, 1996, were $8.01, $0.36 and $0.02,
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
Year ended December 31, April 16, 1996
------------------------- (inception) through
1998 1997 Deember 31, 1996
----------- ----------- -------------------
<S> <C> <C> <C>
Net loss, as reported....... $(10,797,542) $(3,131,877) $(439,975)
Net loss, pro forma......... (11,367,024) (3,231,131) (441,946)
Net loss per share--basic
and diluted, as reported... (1.37) (0.64) (0.89)
Net loss per share--basic
and diluted, pro forma...... (1.44) (0.66) (0.91)
</TABLE>

F-23
<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.

F-24

<PAGE>

EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-71651 and No. 333-71653) pertaining to the 1998 Stock
Incentive Plan and 1998 Employee Stock Purchase Plan and the registration of
1,235,224 shares of common stock for options granted pursuant to written
compensation agreements of Xoom.com, Inc. of our report dated January 25, 1999,
with respect to the consolidated financial statements of Xoom.com, Inc. included
in the Annual Report (Form 10-K) for the year ended December 31, 1998.

Palo Alto, California
March 25, 1999