GARDEN COM INC, 10-Q, 2000-02-14

GARDEN COM INC
10-Q, 2000-02-14
COMPUTER PROGRAMMING SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
------- -------

Commission file number: 0-26265
-------

Garden.com, Inc.
-------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)

Delaware 74-2765381
- -------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

3301 Steck Avenue, Austin, TX 78757
-----------------------------------
(Address of principal executive offices)

Registrant's telephone number, including area code: 512-532-4000

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by sections 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
------ -----

On December 31, 1999, there were outstanding 17,576,218 shares of the
Registrant's $.01 par value common stock.

<PAGE>
GARDEN.COM, INC.

FORM 10-Q

DECEMBER 31, 1999

INDEX

PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>

Page
<S> <C> <C>
Item 1. Balance Sheets as of December 31, 1999 and
June 30, 1999 . . . . . . . . . . . . . . . . . . . .3

Statements of Operations for the Quarters and Six
Months Ended December 31, 1999 and 1998 . . . . . . .4

Statements of Cash Flows for the Six Months Ended
December 31, 1999 and 1998. . . . . . . . . . . . . .5

Notes to Unaudited Financial Statements . . . . . . .6

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

Item 3. Quantitative and Qualitative Disclosures about Market
Risk. . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>

PART II - OTHER INFORMATION
<TABLE>
<CAPTION>

<S> <C> <C>
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 33

Item 2 Changes in Securities and Use of Proceeds. . . . . . 33

Item 3 Defaults Upon Senior Securities. . . . . . . . . . . 34

Item 4 Submission of Matters to a Vote of Security Holders. 34

Item 5 Other Information. . . . . . . . . . . . . . . . . . 34

Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . 34

Signatures . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>

2
<PAGE>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Garden.com, Inc.
Balance Sheets
(In thousands)
<TABLE>
<CAPTION>

December 31, 1999 June 30, 1999
------------------- ---------------
ASSETS: (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 19,309 $ 15,340
Investments . . . . . . . . . . . . . . . . . . . . . . 29,830 3,710
Prepaid advertising . . . . . . . . . . . . . . . . . . 3,132 988
Other prepaid expenses and current assets . . . . . . . 1,617 1,086
Inventory . . . . . . . . . . . . . . . . . . . . . . . 793 522
------------------- ---------------
Total current assets . . . . . . . . . . . . . . . . 54,681 21,646
Property and equipment. . . . . . . . . . . . . . . . . . 6,488 3,487
Accumulated depreciation. . . . . . . . . . . . . . . . . (1,560) (828)
------------------- ---------------
Property and equipment, net . . . . . . . . . . . . . . . 4,928 2,659
Long term investments . . . . . . . . . . . . . . . . . . 4,598 -
Other assets, net . . . . . . . . . . . . . . . . . . . . 1,023 917
------------------- ---------------
Total assets . . . . . . . . . . . . . . . . . . . . $ 65,230 $ 25,222
=================== ===============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . $ 2,498 $ 2,052
Accrued expenses and other liabilities. . . . . . . . . 2,445 956
Unearned revenue. . . . . . . . . . . . . . . . . . . . 228 188
Current portion of long-term debt . . . . . . . . . . . 68 127
------------------- ---------------
Total current liabilities. . . . . . . . . . . . . . 5,239 3,323
Long-term debt, less current portion. . . . . . . . . . . - 20
Commitments and contingencies . . . . . . . . . . . . . . - -
Redeemable convertible preferred stock. . . . . . . . . . - 48,215
Warrants to purchase redeemable
convertible preferred stock . . . . . . . . . . . . . - 24
Stockholders' equity (deficit):
Common stock - $.01 par value; 50,000,000 shares
authorized and 17,576,218 shares issued and
outstanding on December 31, 1999; 12,000,000
shares authorized and 1,156,753 shares issued
and outstanding on June 30, 1999. . . . . . . . . . . . . 176 12
Additional paid-in-capital. . . . . . . . . . . . . . . 104,062 5,768
Deferred stock compensation . . . . . . . . . . . . . . (1,633) (2,305)
Accumulated deficit . . . . . . . . . . . . . . . . . . (42,614) (29,835)
------------------- ---------------
Total stockholders' equity (deficit) . . . . . . . . 59,991 (26,360)
------------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 65,230 $ 25,222
=================== ===============
</TABLE>

See accompanying notes to financial statements.

3
<PAGE>
Garden.com, Inc.
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>

Quarter ended Six months ended
December 31, December 31,
------------ -------------- ------------ -----------
1999 1998 1999 1998
------------ -------------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
<S> <C> <C> <C> <C>
Products . . . . . . . . . . . . . . . $ 3,317 $ 1,125 $ 4,476 $ 1,458
Advertising. . . . . . . . . . . . . . 291 87 544 112
------------ -------------- ------------ -----------
Total revenues. . . . . . . . . . . 3,608 1,212 5,020 1,570

COST OF REVENUES
Products . . . . . . . . . . . . . . . 2,609 897 3,657 1,256
Advertising. . . . . . . . . . . . . . 21 32 66 46
------------ -------------- ------------ -----------
Total cost of revenues. . . . . . . 2,630 929 3,723 1,302

GROSS PROFIT . . . . . . . . . . . . . . 978 283 1,297 268

OPERATING EXPENSES
Marketing and sales. . . . . . . . . . 4,904 1,247 7,603 3,379
Content and product development. . . . 1,648 599 3,056 1,239
General and administrative . . . . . . 2,131 696 3,785 1,312
Amortization of deferred
compensation. . . . . . . . . . . . . 298 82 672 187
------------ -------------- ------------ -----------
Total operating expenses. . . . . . 8,981 2,624 15,116 6,117

OPERATING LOSS . . . . . . . . . . . . . (8,003) (2,341) (13,819) (5,849)

Other income and expense . . . . . . . . 791 192 1,040 440
------------ -------------- ------------ -----------

NET LOSS . . . . . . . . . . . . . . . . $ (7,212) $ (2,149) $ (12,779) $ (5,409)
============ ============== ============ ===========

Basic net loss per share . . . . . . . . $ (0.41) $ (2.11) $ (1.20) $ (5.34)
============ ============== ============ ===========

Pro forma basic net loss per share . . . $ (0.41) $ (0.23) $ (0.82) $ (0.57)
============ ============== ============ ===========

Shares used in computing basic net loss
per share. . . . . . . . . . . . . . . . 17,527 1,016 10,677 1,013
============ ============== ============ ===========

Shares used in computing pro forma
basic net loss per share . . . . . . . . 17,527 9,488 15,547 9,485
============ ============== ============ ===========
</TABLE>

See accompanying notes to financial statements.

4
<PAGE>
Garden.com, Inc.
Statements of Cash Flows
(In thousands)

For the six months ended December 31,
------------------ -----------------
1999 1998
------------------ -----------------
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . $ (12,780) $ (5,409)

Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization . . . . . . . 822 236
Amortization of deferred compensation . . . 672 187

Changes in operating assets and liabilities:
Prepaid advertising . . . . . . . . . . . . (2,144) (568)
Other prepaid expenses and current assets . (384) (323)
Inventory . . . . . . . . . . . . . . . . . (271) (32)
Other non-current assets. . . . . . . . . . (10) (7)
Accounts payable. . . . . . . . . . . . . . 446 804
Accrued expenses and other liabilities. . . 1,662 235
Unearned revenue. . . . . . . . . . . . . . 40 (54)
------------------ -----------------
Net cash used in operating activities . . (11,947) (4,931)

Investing activities:
Purchase of other assets. . . . . . . . . . (185) -
Purchase of property and equipment. . . . . (3,148) (395)
Purchase of investments . . . . . . . . . . (30,718) -
------------------ -----------------
Net cash used in investing activities . . (34,051) (395)

Financing activities:
Repayment of long-term debt . . . . . . . . (80) (94)
Exercise of stock options . . . . . . . . . 12 10
Exercise of warrants. . . . . . . . . . . . 210 -
Proceeds from issuance of common stock,
net of issuance costs of $2,069 . . . . . 49,825 -
------------------ -----------------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . 49,967 (84)

Change in cash and cash
equivalents . . . . . . . . . . . . . . . . 3,969 (5,410)

Cash and cash equivalents, beginning of
period. . . . . . . . . . . . . . . . . . . 15,340 19,042
------------------ -----------------

Cash and cash equivalents, end of period. . . $ 19,309 $ 13,632
================== =================
</TABLE>

See accompanying notes to financial statements.

5
<PAGE>

GARDEN.COM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION

The financial statements as of December 31, 1999 and 1998 have been
prepared by Garden.com, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). These
statements are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments and accruals) necessary
to present fairly the results for the periods presented. The balance sheet at
June 30, 1999 has been derived from the audited financial statements at that
date. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such SEC rules and regulations.
Operating results for the quarter and six months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2000. These financial statements should be read in conjunction
with the audited financial statements and the accompanying notes included in the
Company's Form S-1 Registration Statement declared effective on September 15,
1999 (the "S-1") (SEC File No. 333-79487).

Certain prior-period balances have been reclassified to conform to the
current-period presentation.

USE OF ESTIMATES

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

COMPREHENSIVE LOSS

The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. The Company does not have any
components of comprehensive income or loss for the quarter or six months ended
December 31, 1999.

NOTE 2 - COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

From time to time, the Company is subject to legal proceedings and claims
in the ordinary course of business, including employment related claims and
claims of alleged infringement of trademarks, copyrights and other intellectual
property rights. The Company currently is not aware of any such legal
proceedings or claims that it believes

6
<PAGE>
will have, individually or in the aggregate, a material adverse effect on its
business, prospects, financial condition and operating results.

NOTE 3 - STOCKHOLDERS' EQUITY

On September 21, 1999, the Company completed its initial public offering of
4,650,000 shares of its common stock, which also included 550,000 shares sold by
the Company pursuant to the underwriters' overallotment option. Net proceeds to
the Company aggregated $49.8 million. As of the closing date of the offering,
all of the redeemable convertible preferred stock outstanding was converted into
an aggregate of 11,637,422 shares of common stock.

In August 1999, the Company's Board of Directors declared a stock split of
four shares for every five shares of Common Stock then outstanding. The stock
split was effective September 15, 1999, the date the S-1 was declared effective.
Accordingly, the accompanying financial statements and footnotes have been
restated to reflect the stock split. The par value of the shares of common stock
to be issued in connection with the stock split was credited to common stock and
a like amount charged to additional paid-in capital.

BASIC NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of
common shares outstanding. Shares associated with stock options are not included
because they are antidilutive. The shares of redeemable convertible preferred
stock automatically converted into common stock effective upon the closing of
the Company's initial public offering are included in the calculation of
weighted average number of shares as of that date.

PRO FORMA NET LOSS PER SHARE

Pro forma basic net loss per share is computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
automatic conversion of the Company's redeemable convertible preferred stock
into shares of the Company's common stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on July 1,
1998, or at the date of original issuance, if later.

7
<PAGE>
The following table sets forth the computation of basic net loss per share and
pro forma basic net loss per share for the periods indicated (in thousands,
except per share amount):

Quarter Ended Six Months Ended
December 31, December 31,
-------- -------- --------- --------
1999 1998 1999 1998
-------- -------- --------- --------
Numerator:
<S> <C> <C> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . . . . $(7,212) $(2,149) $(12,779) $(5,409)
Denominator:
Weighted average shares . . . . . . . . . . . . . 17,527 1,016 10,677 1,013
-------- -------- --------- --------

Denominator for basic calculation . . . . . . . . 17,527 1,016 10,677 1,013
Weighted average effect of pro forma securities:
Series A Redeemable Convertible Preferred Stock . - 600 251 600
Series B Redeemable Convertible Preferred Stock . - 1,144 479 1,144
Series C Redeemable Convertible Preferred Stock . - 2,414 1,010 2,414
Series D Redeemable Convertible Preferred Stock . - 4,314 1,805 4,314
Series E Redeemable Convertible Preferred Stock . - - 1,325 -
-------- -------- --------- --------
Denominator for pro forma calculation . . . . . . . 17,527 9,488 15,547 9,485
Net loss per share:
Basic . . . . . . . . . . . . . . . . . . . . . . $ (0.41) $ (2.11) $ (1.20) $ (5.34)
Pro forma . . . . . . . . . . . . . . . . . . . . $ (0.41) $ (0.23) $ (0.82) $ (0.57)
</TABLE>

8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following is a discussion and analysis of the Company's financial
condition, results of operations, liquidity and capital resources. The
discussion and analysis should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto included elsewhere
herein. This Form 10-Q and the following "Management's Discussion and Analysis
of Financial Condition and Results of Operations" include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This Act provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about themselves so long
as they identify these statements as forward-looking and provide meaningful
cautionary statements identifying important factors that could cause actual
results to differ from the projected results. All statements other than
statements of historical fact the Company makes in this Form 10-Q are
forward-looking. In particular, the statements herein regarding industry
prospects and the Company's future results of operations or financial position
are forward-looking statements. Forward-looking statements reflect the Company's
current expectations and are inherently uncertain. The Company's actual results
may differ significantly from the Company's expectations. The section entitled
"Additional Factors That May Affect Future Results" describes some, but not all,
of the factors that could cause these differences.

RESULTS OF OPERATIONS

PRODUCT REVENUES

Quarter Ended Six Months Ended
------------- ----------------
December 31, December 31,
------------- ------------
1999 1998 % Change 1999 1998 % Change
---- ---- -------- ---- ---- --------
(In Thousands) (In Thousands)

<S> <C> <C> <C> <C> <C> <C>
Product revenues $ 3,317 $ 1,125 195% $4,476 $1,458 207%
</TABLE>

Product revenues consist of product sales to customers and charges to
customers for shipping. Revenues for products are recognized when the products
are shipped to the customer. Revenues are recorded net of promotional discounts
and coupons. Product returns are recorded as a reduction of revenues. The
growth in product revenues in the quarter and six months ended December 31, 1999
as compared to the quarter and six months ended December 31, 1998 is primarily
attributable to increases in both the Company's cumulative customer base and
repeat orders taken from the Company's existing customers. The cumulative
customer base increased 31% for the quarter and 51% for the six months ended
December 31, 1999 to 144,000 as of December 31, 1999 as compared to 44,000 as of
December 31, 1998. Purchases from existing customers as a percent of total
orders taken, increased to 48% and 49% for the quarter and six months ended
December 31, 1999 as compared to 38% and 35% for the quarter and six months
ended December 31, 1998.

9
<PAGE>
ADVERTISING REVENUES
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
Advertising revenues. $ 291 $ 87 234% $ 544 $ 112 386%
</TABLE>

Advertising revenues consist primarily of short-term advertising contracts
for either guaranteed impression levels on the Company's Web sites, or
advertising placements in the Company's print publications. Those revenues are
recognized ratably in the period in which the advertisement is displayed. The
Company also recognizes a small portion of its advertising revenues through
barter transactions in which advertising in print publications is exchanged for
either guaranteed impressions on the Company's Web site or by providing Web site
services. Advertising revenues increased primarily due to a 63.4% and 78.9%
increase in page views on the garden.com Web site to 21.9 million and 45.8
million for the quarter and six months ended December 31, 1999 as compared to
13.4 million and 25.6 million for the quarter and six months ended December 31,
1998.

GROSS PROFIT
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
Gross Profit . . .$ 978 $ 283 246% $ 1,297 $ 268 384%
Gross Margin . . . 27% 23% 26% 17%
</TABLE>

Gross profit consists of total revenues minus cost of total revenues. Cost
of total revenues consists primarily of the cost of products sold to customers,
shipping and handling costs for product sales, and advertising sales commissions
paid both to a third party advertising agency and to the Company's internal
advertising sales department. The increase in gross profit in absolute dollars
is due in part to the Company's overall increased total revenues. Gross margin
percentage increased primarily due an increase in higher margin advertising
revenues in both the quarter and six months ended December 31, 1999 as compared
to the same periods in 1998 and the elimination of a one-time promotional
activity, which totaled $79,000 in the six months ended December 31, 1998. The
Company typically experiences some sequential quarterly variances in gross
margins due to seasonal shifts in sales of its product mix. Additionally, the
Company may at times use discounting and other promotional activities to promote
customer purchases that would negatively affect gross margins.

10
<PAGE>
MARKETING AND SALES
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
Marketing and Sales . . . . . $ 4,904 $ 1,247 293% $ 7,603 $ 3,379 125%
Percentage of total revenues. 136% 103% 151% 215%
</TABLE>

Marketing and sales expenses consist primarily of advertising and
promotional expenditures, payroll and related expenses for personnel engaged in
marketing, customer solutions, advertising sales and distribution activities and
distribution expenses. Marketing and sales expenses increased, in absolute
dollars and as a percentage of revenue, primarily due to an increase in the
Company's advertising and promotional expenditures, and increases in payroll
costs associated with the Company's marketing and customer solutions departments
for the quarter ended December 31, 1999 as compared to the quarter ended
December 31, 1998. For the six months ended December 31, 1999 as compared to
the same period in 1998, marketing and sales expenses increased in absolute
dollars but decreased as a percentage of revenue due to the significant increase
in total revenues. The Company intends to continue to pursue an aggressive
branding and marketing campaign and to hire additional marketing and sales
personnel and, therefore, expects marketing and sales expenses to increase
significantly in absolute dollars in future periods. In addition, if the
Company's sales volume increases in future periods, the Company will need to
continue to expand its customer solutions and distribution departments, which
will result in increased marketing and sales expenses.

CONTENT AND PRODUCT DEVELOPMENT
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
Content and product development. $ 1,648 $ 599 175% $ 3,056 $ 1,239 147%
Percentage of total revenues . . 46% 49% 61% 79%
</TABLE>

Content and product development expenses consist of payroll and related
expenses for personnel involved in creating and publishing content, product
merchandising and Web site development. The increase in content and product
development expenses in absolute dollars is primarily due to an increase in
payroll and related costs used for hiring additional personnel as well as
associated costs related to enhancing the products and features, editorial
content and functionality of the Company's Web sites. Such expenses decreased
as a percentage of total revenues due to the significant increase in total
revenues. The Company believes that continued investment in content and product
development is critical to attaining its strategic objectives and, as a result,
the Company expects content and product development expenses to increase in
absolute dollars in future periods.

11
<PAGE>
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
General and administrative. . $ 2,131 $ 696 206% $ 3,785 $1,312 188%
Percentage of total revenues. 59% 57% 75% 84%
</TABLE>

General and administrative expenses consist of payroll and related expenses
for general corporate functions, including supplier operations support, finance,
facilities expenses, professional services expenses, depreciation and
amortization of other assets. The increase in general and administrative
expenses in absolute dollars is primarily due to an increase in payroll and
related costs used for hiring additional personnel as well as associated
expenses necessary to support the growth of the Company's operations, including
facilities, professional services and supplier operations support. For the six
months ended December 31, 1999 as compared to the same period in 1998, general
and administrative expenses increased in absolute dollars and decreased as a
percentage of revenue due to the significant increase in total revenues. The
Company expects general and administrative expenses to increase in absolute
dollars in future periods as the Company expands its staff and incurs additional
costs related to the growth of its business.

AMORTIZATION OF DEFERRED COMPENSATION
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
Amortization of deferred compensation. $ 298 $ 82 263% $ 672 $ 187 259%
</TABLE>

Deferred stock compensation is amortized to expense over the vesting
periods of the applicable stock options. The Company expects to record $465,000
of amortization over the remaining six months ended June 30, 2000. These
amounts represent the difference between the exercise price of stock option
grants and the deemed fair value of the Company's common stock at the time of
such grants. Amortization of deferred compensation expense for each of the next
four fiscal years is expected to be as follows:

Year ended Amount in thousands
- ----------- ---------------------

June 30, 2001 $614
June 30, 2002 348
June 30, 2003 166
June 30, 2004 40

12
<PAGE>
INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
Interest income . $ 805 $ 206 291% $ 1,057 $458 131%
Interest expense. $ 2 $ 6 (67)% $ 5 $ 11 (55)%
</TABLE>

Interest income increased for the quarter and six months ended December 31,
1999 due to three full months of interest income on the proceeds of the
Company's initial public offering. Interest expense continues to decline as the
Company pays down its debt.

INCOME TAXES

The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. Utilization of the Company's
net operating loss carryforwards, which begin to expire in 2011, may be subject
to certain limitations under Section 382 of the Internal Revenue Code of 1986,
as amended. The Company has provided a full valuation allowance on the deferred
tax asset, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its realizability.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, the Company's principal source of liquidity consisted
of $19.3 million of cash and cash equivalents and $29.8 million in short term
investments compared to $15.3 million of cash and cash equivalents and $3.7
million in short term investments at June 30, 1999.

Net cash used in operating activities was $11.9 million and $4.9 million
for the six months ended December 31, 1999 and 1998, respectively. Net
operating cash flows were primarily attributable to quarterly net losses and
increases in prepaid advertising, other prepaid expenses and current assets, and
inventories, offset by increases in accrued expenses, accounts payable and
unearned revenue.

Net cash used in investing activities was $34.1 million and $395,000 for
the six months ended December 31, 1999 and 1998, respectively, and consisted of
purchases of investments, property and equipment and other assets. Cash
available for investment purposes increased substantially in the six months
ended December 31, 1999 as a result of the proceeds from the issuance of common
stock in the Company's initial public offering.

Net cash provided by financing activities of $50.0 million for the six
months ended December 31, 1999 resulted from net proceeds from the issuance of
common stock in the Company's initial public offering. Net cash used in
financing activities of $84,000 for the six months ended December 31, 1998
resulted from payments on the Company's long term debt net of the proceeds from
stock option exercises.

13
<PAGE>
The Company believes that current cash and marketable securities and
investments balances will be sufficient to meet its anticipated cash needs
through the remainder of the fiscal year ended June 30, 2000. However, any
projections of future cash needs and cash flows are subject to substantial
uncertainty. If current cash, marketable securities and cash that may be
generated from operations are insufficient to satisfy the Company's liquidity
requirements, the Company may seek to sell additional equity or debt securities
or to obtain a line of credit. The sale of additional equity or convertible
debt securities could result in additional dilution to the Company's
stockholders. In addition, the Company will, from time to time, consider the
acquisition of or investment in complementary businesses, products, services and
technologies, which might impact the Company's liquidity requirements or cause
the Company to issue additional equity or debt securities. There can be no
assurance that financing will be available in amounts or on terms acceptable to
the Company, if at all.

YEAR 2000

The Year 2000 issue is the potential for system and processing failures of
date related data and is the result of the computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the Year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.

The Company may be affected by the Year 2000 issue related to non-compliant
information technology ("IT") systems or non-IT systems operated by the Company
or by third parties.

However, the Company believes that it is too soon to conclude that there
will not be any problems arising from the Year 2000 problem, particularly with
respect to third parties. The Company will continue to monitor its significant
vendors and other third parties for Year 2000 problems. The Company does not
believe at this time that potential Year 2000 issues will materially affect the
Company's business, although no assurance can be given that this will be the
case.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this report and in the Company's Registration
Statement on Form S-1, the following additional factors may affect the Company's
future results.

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RISKS RELATED TO THE COMPANY'S BUSINESS

THE COMPANY HAS A HISTORY OF SIGNIFICANT LOSSES AND EXPECTS TO INCUR SUBSTANTIAL
NET LOSSES IN THE FUTURE. IF THE COMPANY DOES NOT ACHIEVE PROFITABILITY, ITS
FINANCIAL CONDITION AND ITS STOCK PRICE COULD SUFFER.

The Company incurred net losses of $0.7 million in its inception period
from October 2, 1995 through June 30, 1996, $2.4 million in fiscal 1997, $4.7
million in fiscal 1998, $19.1 million in fiscal 1999 and $12.8 million in the
first six months of fiscal 2000. As of December 31, 1999, the Company has
incurred cumulative net losses of $45.3 million. The Company expects to
experience operating losses and negative cash flow for the foreseeable future.
The Company anticipates its losses will increase significantly from current
levels because future revenues may not increase sufficiently to offset
additional costs and expenses related to brand development, marketing and other
promotional activities, content development and technology and infrastructure
development. The Company does not have sufficient cash to indefinitely sustain
these operating losses. Further, the Company will need to generate significant
revenues to achieve and maintain profitability. Although the Company's revenues
have grown significantly in recent quarters, the Company cannot be certain that
it can sustain these growth rates or that it will achieve sufficient revenues
for profitability. If the Company does achieve profitability, it cannot be
certain that it can sustain or increase profitability on a quarterly or annual
basis in the future. The Company has been unable to fund its operations with
the cash generated from its business. If the Company does not generate cash
sufficient to fund its operations, it may need additional financing to continue
its growth or its growth may be limited. To date, the Company has funded its
operations from the sale of equity securities and has not generated sufficient
cash from operations. Cash from revenues must increase significantly for the
Company to fund anticipated development and marketing costs internally. If the
Company's cash flows are insufficient to fund these costs, it may need to fund
its growth through additional debt or equity financings or reduce costs.
Further, the Company may not be able to obtain financing on satisfactory terms.
The Company's inability to finance its growth, either internally or externally,
may limit its growth potential and its ability to execute its business strategy.

THE COMPANY HAS A LIMITED OPERATING HISTORY AND EXPECTS TO ENCOUNTER RISKS AND
DIFFICULTIES FREQUENTLY FACED BY EARLY STAGE COMPANIES IN RAPIDLY EVOLVING
MARKETS. THIS SUBJECTS THE COMPANY'S STOCKHOLDERS TO ADDITIONAL RISKS THAT THE
COMPANY'S MARKET MAY NOT DEVELOP AS ANTICIPATED OR THAT THE COMPANY MAY NOT
SUCCESSFULLY EXECUTE ITS BUSINESS STRATEGY.

The Company has a limited operating history on which to base an evaluation
of its business and prospects. The Company was formed in December 1995, and it
initiated its online operations and first recognized revenues in March 1996.
Accordingly, the Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by early stage companies in new
and rapidly evolving markets such as online commerce. Because of the Company's
limited operating history, it is difficult to assess whether the Company will
succeed at executing on its business strategy, managing growth, and addressing
the market risks that it faces in a rapidly developing market.

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The online market for gardening and gardening-related products is new and
rapidly developing. As is typical for any new, rapidly developing market,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty and risk. It is also difficult to
predict the online gardening market's future growth rate. The online gardening
market may fail to develop, develop more slowly than expected or become
saturated with competitors, or the Company's products may not achieve or sustain
market acceptance. To address these risks, the Company must maintain and expand
its customer base, implement and successfully execute its business and marketing
strategy, continue to develop and upgrade the technology and systems that the
Company uses to process customers' orders and payments, improve its Web sites,
provide superior customer service, respond to competitive developments and
attract, retain and motivate qualified personnel. There can be no assurance
that the Company will be successful in addressing these risks, and any failure
by the Company to do so could have a negative impact on its business, operating
results and financial condition.

THE COMPANY'S DEPENDENCE ON THE HIGHLY SEASONAL GARDENING INDUSTRY WILL CAUSE
ITS OPERATING RESULTS TO VARY FROM QUARTER TO QUARTER.

Seasonal factors typically influence product availability and the timing of
product shipments, which may affect both product demand and the period of
revenue recognition and, in turn, influence the Company's quarterly revenues and
product margins. For instance, the Company expects its revenues to be
relatively higher in its fourth fiscal quarter, which coincides with the spring
gardening season, and relatively lower in its first fiscal quarter, reflecting
decreasing consumer demand for garden products during the late summer. In
addition, as is typical for gardening retailers, the Company's product mix
generally varies by season. Due to this variation in product mix offered during
the year, the Company's gross margin fluctuates on a quarterly basis reflecting
the sale of higher margin products during the holiday season, such as gifts and
decorating items, and the sale of lower margin products during the spring
season, such as live plants. Furthermore, the Company anticipates that
operating costs will typically increase in the third quarter of its fiscal year
as marketing expenses increase in anticipation of the spring planting season.

Due to the Company's limited operating history, it is difficult to predict
the seasonal pattern of the Company's future revenues and operating costs and
the impact of such seasonality on the Company's future operating results. If
they become more pronounced, seasonal revenue and cost patterns may strain the
Company's personnel and fulfillment activities and could cause a shortfall in
revenues as compared to costs in a given period.

THE COMPANY EXPECTS ITS QUARTERLY OPERATING RESULTS TO FLUCTUATE. IF THE
COMPANY FAILS TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS,
THE MARKET PRICE OF THE COMPANY'S COMMON STOCK COULD DECLINE.

The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside its control. As a result, the Company believes that quarterly
comparisons of its operating results are not necessarily meaningful and that
investors should not rely on the results of one quarter as an indication of the
Company's future performance. The Company believes it is likely that, in the
future, fluctuations in its quarterly operating results will cause its results
to

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<PAGE>
fall below the expectations of securities analysts and investors, which could
cause the price of the Company's common stock to drop. The Company believes
that many of the other risk factors listed in this report may negatively affect
its quarterly operating results and contribute to fluctuations. Further, the
Company's quarterly gross margins also may be impacted by a number of different
factors that are difficult for the Company to anticipate at this stage in its
business. Likely causes of gross margin fluctuations include changes in the mix
of online product revenues as compared to advertising revenues, the mix of
products sold and the mix of revenues derived from purchases originating from
the Company's Web sites and the Web sites of its distribution and advertising
partners.

The Company's limited operating history and the rapidly evolving nature of
its industry make forecasting quarterly operating results difficult.
Accordingly, the Company bases its expenses in large part on its operating plans
and future revenue projections. Most of the Company's expenses are fixed in the
short term, and the Company may not be able to quickly reduce spending if its
revenues are lower than it projects. Therefore, any significant shortfall in
revenues would likely have an immediate, negative impact on the Company's
business, operating results and financial condition.

ESTABLISHING THE GARDEN.COM BRAND QUICKLY AND COST-EFFECTIVELY IS ESSENTIAL FOR
THE COMPANY TO BE SUCCESSFUL. IF THE COMPANY DOES NOT ESTABLISH THE GARDEN.COM
BRAND QUICKLY, IT MAY NOT CAPTURE SUFFICIENT MARKET SHARE OR INCREASE REVENUES
ENOUGH TO ACHIEVE PROFITABILITY.

The Company believes that it must establish, maintain and enhance the
Garden.com brand to attract more customers to its Web sites and to generate
revenues from product sales and advertising. Brand recognition and customer
loyalty will become increasingly important as more companies with
well-established brands in online services or the gardening industry offer
competing services on the Internet. For example, existing gardening retailers
with established brand names may establish an online presence that competes with
the Company's Web sites and existing online providers with better name
recognition than Garden.com may begin selling garden products. Development of
the Garden.com brand will depend largely on the Company's success in providing a
high quality online experience supported by a high level of customer service,
which cannot be assured. The Company expects that it will need to increase
substantially its spending on programs designed to create and maintain strong
brand loyalty among customers and the Company cannot be certain that its efforts
will be successful.

THE COMPANY EXPECTS SIGNIFICANT INCREASES IN IT OPERATING EXPENSES, WHICH COULD
HAVE A NEGATIVE IMPACT ON ITS OPERATING RESULTS.

The Company plans to increase its operating expenses substantially to
develop the Garden.com brand nationally, offer new gardening-related products
and services, enter into additional strategic relationships and further develop
its technology and transaction-processing systems. These expenses will be
incurred before the Company derives any revenues from this increased spending,
and the timing of these expenses may contribute to fluctuations in quarterly
operating results. If the Company's revenues do not increase proportionately
with these expenses, its losses will be greater than expected.

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<PAGE>
GARDENING CONSUMERS MAY NOT ACCEPT THE COMPANY'S ONLINE SOLUTION. THIS MAY
RESULT IN SLOWER REVENUE GROWTH, LOSS OF REVENUES AND INCREASED OPERATING
LOSSES.

To be successful, the Company must attract and retain a significant number
of consumers to the garden.com Web site at a reasonable cost. Any significant
shortfall in the number of transactions occurring over the Company's Web site
will negatively affect its financial results by increasing or prolonging
operating losses. Conversion of customers from traditional shopping methods to
electronic shopping may not occur as rapidly as the Company expects, if at all.
Therefore, the Company may not achieve the critical mass of customer traffic it
believes is necessary to become successful. Specific factors that could prevent
widespread customer acceptance of the Company's solution, and its ability to
grow revenues, include:

- - customer concerns about the security of online transactions;

- - customer concerns about buying live plants and other gardening materials
without first seeing them;

- - pricing that may not meet customer expectations;

- - customer resistance to shipping charges, which generally do not apply to
purchases from traditional retail outlets;

- - difficulties in timely shipment of plants, flowers and other live goods;

- - shipment of damaged goods or wrong products from the Company's suppliers;

- - delivery time before customers receive Internet orders, unlike the
immediate receipt of products at traditional retail outlets; and

- - difficulties in returning or exchanging orders.

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<PAGE>
THE COMPANY DEPENDS ON THE ECONOMIC STRENGTH OF THE GARDENING INDUSTRY AND
FAVORABLE GENERAL ECONOMIC CONDITIONS. ANY SIGNIFICANT DOWNTURN IN THE
GARDENING INDUSTRY OR IN GENERAL ECONOMIC CONDITIONS COULD RESULT IN DECREASED
REVENUES AND COULD SERIOUSLY HARM THE COMPANY'S BUSINESS.

The Company derives substantially all of its revenues directly or
indirectly from the gardening industry, and its future operating results depend
on the economic strength of this industry. Any significant downturn in the
gardening industry could result in decreased revenues and seriously harm the
Company's business, operating results and financial condition. Purchases of
gardening and gardening-related products are typically discretionary for
consumers and may be harmed by negative trends in the general economy. In
addition, the Company's business strategy relies on advertising by and
agreements with other Internet companies. Any significant deterioration in
general economic conditions that harms these companies could result in decreased
advertising revenues and have a negative impact on the Company's business,
operating results and financial condition.

THE COMPANY'S BUSINESS RELIES ON ITS ABILITY TO MAINTAIN RELATIONSHIPS WITH ITS
SUPPLIERS TO OBTAIN SUFFICIENT QUANTITIES OF QUALITY MERCHANDISE ON ACCEPTABLE
COMMERCIAL TERMS. IF THE COMPANY FAILS TO MAINTAIN ITS SUPPLIER RELATIONSHIPS
ON ACCEPTABLE TERMS, ITS SALES AND PROFITABILITY COULD SUFFER.

Because the Company carries minimal inventory and relies largely on rapid
fulfillment from its suppliers, the Company's business would be seriously harmed
if it were unable to develop and maintain relationships with suppliers that
allow it to obtain sufficient quantities of quality merchandise on acceptable
commercial terms. The Company's contracts or arrangements with suppliers do not
guarantee the availability of merchandise, establish guaranteed prices or
provide for the continuation of particular pricing practices. Although the
Company has alternative sources of supply for a small percentage of the products
it offers, the Company has not established alternative sources for all its
products. The Company's current suppliers may not continue to sell products to
it on current terms or at all, and the Company may not be able to establish new
supply relationships to ensure delivery of product in a timely and efficient
manner or on terms acceptable to it. In addition, the Company's supply
contracts typically do not restrict a supplier from selling products to
retailers other than online retailers, which could limit the Company's ability
to supply the quantity of product requested by its customers. If the Company
cannot supply its products to consumers at acceptable prices, the Company may
lose sales and market share as consumers make purchases elsewhere. Further, an
increase in supply costs could increase operating losses beyond current
expectations.

THE COMPANY DEPENDS ON ITS THIRD PARTY SUPPLIERS TO PROVIDE QUALITY PRODUCTS
DIRECTLY TO ITS CUSTOMERS. THE COMPANY COULD LOSE REVENUES AND MARKET SHARE AND
ITS BRAND NAME COULD BE HARMED IF THE COMPANY'S SUPPLIERS FAIL TO SHIP QUALITY
PRODUCTS TO ITS CONSUMERS.

Because the Company's revenues depend on the number of customers who buy
products from the Company, the reliability and quality of the Company's products
are critical to its operating results. The Company is heavily dependent on
suppliers for assuring the quality and health of the products shipped directly
to the Company's customers. The failure of the Company's suppliers to
consistently provide high quality

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<PAGE>
products could result in lost revenues, delays in customer acceptance, damage to
the Company's reputation and harm to the Company's brand name. In addition, the
Company does not currently maintain insurance against any product defect losses
and, accordingly, could be subject to significant defense costs or damages in
the event of a significant product defect claim.

WEATHER AND OTHER ACTS OF NATURE COULD AFFECT THE SUPPLY OF AND DEMAND FOR THE
COMPANY'S PRODUCTS. AS A RESULT, INCLEMENT WEATHER COULD INCREASE THE COMPANY'S
COSTS OR DECREASE ITS REVENUES.

Weather and other acts of nature outside of the Company's control could
negatively impact its business, operating results and financial condition.
Adverse weather, such as frost, droughts, floods and other severe weather
patterns, as well as plant diseases and pests can reduce or eliminate the supply
of live products, which could lead to increased prices for available products.
In addition, adverse weather or other growing conditions could negatively impact
consumer demand for gardening and gardening-related products. For example, a
late spring can lead to delayed or poor spring growing conditions for the
Company's live goods reducing product availability. Decreased availability
could lead to reduced sales or increased costs and operating losses. Further,
inclement weather during the peak gardening season in spring and early summer
may discourage consumer gardening purchases.

BECAUSE THE COMPANY FACES SIGNIFICANT COMPETITION FROM ESTABLISHED TRADITIONAL
GARDENING RETAILERS, MAIL ORDER CATALOGS, ONLINE RETAILERS AND OTHERS, THE
COMPANY MAY EMERGE FROM ITS PERIOD OF GROWTH WITH ONLY A MODEST INCREASE IN
MARKET SHARE OR DECREASED PROFIT MARGINS.

The Company may be unable to compete successfully against current and
future competitors, and competitive pressures could have a negative impact on
the Company's business, operating results and financial condition. Online
commerce, and specifically the online retail gardening market, is new and
rapidly evolving, and the Company expects competition to intensify in the future
as companies attempt to utilize the advantages of the Internet. The Company's
competition includes existing companies that have built or are trying to
establish an online retail presence, as well as new entrants trying to build a
brand online. The Company currently or potentially competes with a variety of
other companies, including:

- - local nurseries and gardening centers;

- - home improvement superstores, such as Lowe's and Home Depot, and mass
merchant retailers, such as Wal-Mart;

- - established gardening mail order catalogs, including Foster & Gallagher
and Smith & Hawken;

- - media groups with existing, well-defined brands in the home and garden
market, such as Martha Stewart Living; and

- - multi-channel online retailers seeking to diversify their product
offerings, such as 1-800-FLOWERS and FTD.

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<PAGE>
The Company expects competition to increase as current competitors increase
the sophistication of their offerings and as new participants enter the market.
Many of the Company's current and potential store-based, catalog and online
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources than the Company does and could enter into strategic or commercial
relationships with larger, more established and well-financed companies. Due to
their size and greater resources, many of the Company's current and potential
competitors may be able to secure services and products from suppliers on more
favorable terms, devote greater resources to marketing and promotional campaigns
and devote substantially more resources to Web site and systems development than
the Company does. Their financial strength could prevent the Company from
increasing market share. In addition, the development of new technologies and
the expansion of existing technologies, such as price comparison programs that
select specific products from a variety of Web sites, may increase competitive
pressures on the Company. Increased competition may result in reduced operating
margins, as well as loss of market share and brand recognition.

THE COMPANY DEPENDS UPON FEDERAL EXPRESS TO DELIVER ITS PRODUCTS ON A TIMELY AND
CONSISTENT BASIS. A DETERIORATION IN THE COMPANY'S RELATIONSHIP WITH FEDERAL
EXPRESS COULD DECREASE THE COMPANY'S ABILITY TO TRACK SHIPMENTS, CAUSE SHIPMENT
DELAYS, AND INCREASE ITS SHIPPING COSTS AND THE NUMBER OF DAMAGED PRODUCTS.

The Company's supply and distribution system is dependent upon its
relationship with Federal Express. Federal Express ships substantially all of
the Company's orders, and the Company does not currently maintain a distribution
relationship with any other carrier. Because the Company does not have a
written agreement with Federal Express, the Company cannot be sure that its
relationship with Federal Express will continue on terms favorable to the
Company, if at all. If the Company's relationship with Federal Express is
terminated or impaired or if Federal Express is unable to deliver product for
the Company, whether through labor shortage, slow down or stoppage,
deteriorating financial or business condition or for any other reason, the
Company would be required to use alternative carriers for the shipment of
products to its customers. The Company may be unable to engage an alternative
carrier on a timely basis or upon terms favorable to the Company. Changing
carriers would likely have a negative effect on the Company's business,
operating results and financial condition. Potential adverse consequences
include:

- - reduced visibility into order status and package tracking;

- - delays in order processing and product delivery;

- - increased cost of delivery, resulting in reduced gross margins; and

- - reduced shipment quality which may result in damaged products and customer
dissatisfaction.

THE COMPANY RELIES SUBSTANTIALLY ON ITS RELATIONSHIPS WITH VARIOUS ONLINE
SERVICES, SEARCH ENGINES AND DIRECTORIES TO DRIVE TRAFFIC TO THE COMPANY'S WEB
SITES. IF THESE

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<PAGE>
RELATIONSHIPS DO NOT CONTINUE, IT WILL BE DIFFICULT FOR THE COMPANY TO INCREASE
MARKET SHARE AND ACHIEVE PROFITABILITY.

The Company has relationships with various online services, search engines
and directories to provide content and advertising banners that hyperlink to the
Company's Web sites. The Company relies on search engines, directories and
other navigational tools to direct traffic to the Company's Web sites. The
Company cannot be sure that such relationships will be available to it in the
future on acceptable commercial terms, if at all. If the Company is unable to
maintain satisfactory relationships with these parties on acceptable commercial
terms, or if the Company's competitors are better able to leverage such
relationships, the Company's business, operating results and financial condition
could be negatively affected. The Company may not achieve sufficient online
traffic or product purchases to realize sufficient sales to compensate for the
Company's significant obligations to these distribution and advertising
partners. Failure to achieve sufficient traffic or generate sufficient revenues
from purchases originating from third-party Web sites would likely reduce the
Company's profit margins and may result in termination of these types of
relationships. Without these relationships, it is unlikely that the Company can
sufficiently increase market share and achieve profitability.

THE COMPANY'S PERFORMANCE, INCLUDING ITS REVENUE GROWTH, DEPENDS ON ITS ABILITY
TO OFFER NEW AND EXPANDED PRODUCTS AND SERVICES.

The Company plans to introduce new and expanded products and services and
to enter into new relationships with third parties in order to generate
additional revenues, attract more consumers, increase market share and respond
to competition. The Company may be unable to offer such products or services in
a cost- effective or timely manner. Furthermore, any new product or service the
Company launches that is not favorably received by consumers could damage its
reputation and brand name, resulting in lower revenues. Expansion of the
Company's products or services in this manner would also require significant
additional expenses and development and may strain the Company's management,
financial and operational resources. The Company's business, operating results
and financial condition could be seriously harmed if it is unable to generate
revenues from expanded services or products sufficient to offset their cost. The
Company's success also depends on its ability to accurately determine the
products and features required by customers and to design and implement
offerings that meet these requirements in a timely and efficient manner. The
Company may be unsuccessful in determining customer requirements, and the
Company's offerings may not adequately satisfy current or future customer
demands. Furthermore, even if the Company correctly forecasts customer demands,
the Company may be unable to design and implement a Web site that meets these
demands.

THE COMPANY HAS EXPERIENCED SIGNIFICANT GROWTH IN ITS BUSINESS IN RECENT PERIODS
AND ANY INABILITY TO MANAGE THIS GROWTH AND ANY FUTURE GROWTH COULD HARM THE
COMPANY'S BUSINESS.

The Company's historical growth has placed, and any further growth is
likely to continue to place, a significant strain on the Company's management
and resources. Any failure to manage growth effectively could seriously harm
the Company's business and operating results. The Company has also recently
moved into new headquarters and significantly expanded its operations. To be
successful, the Company will need to

22
<PAGE>
continue to implement management information systems and improve its operating,
administrative, financing and accounting systems and controls. The Company will
also need to train new employees and maintain close coordination among its
executive, accounting, finance, marketing, sales and operations organizations.
These processes are time consuming and expensive, will increase management
responsibilities and will divert management attention.

THE COMPANY RELIES ON CONTENT AND TECHNOLOGIES LICENSED FROM THIRD PARTIES. THE
LOSS OF OR INCREASE IN COST OF THE COMPANY'S LICENSED CONTENT AND TECHNOLOGY MAY
IMPAIR ITS ABILITY TO ASSIMILATE AND MAINTAIN CONSISTENT, APPEALING CONTENT OR
MAINTAIN AND IMPROVE THE SERVICES THE COMPANY OFFERS TO CONSUMERS.

The Company intends to continue to strategically license a portion of its
content for its Web sites from third parties, including content that is
integrated with internally developed content and used on the Company's Web sites
to provide key services. Although substantially all of the content on
garden.com is developed and created internally, the Company licenses a majority
of the content for its Virtual Garden site from third parties. These third
party content licenses may be unavailable to the Company on commercially
reasonable terms, and the Company may be unable to integrate third party content
successfully. Such content licenses may expose the Company to increased risks,
including:

- - the risks associated with the assimilation of new content;

- - the diversion of resources from the development of the Company's content;

- - the inability to generate revenues from new content sufficient to offset
associated acquisition costs; and

- - the maintenance of uniform, appealing content.

The inability to obtain any of these licenses could result in delays in
site development or services until equivalent content can be identified,
licensed and integrated. Any such delays in site development or services could
negatively impact the Company's business, operating results and financial
condition.

The Company currently licenses some of the technology incorporated into its
Web sites from third parties. For example, third parties have developed
substantially all of the hardware used for the Company's Web sites. However,
the Company has developed a majority of the software that the Company uses to
run its Web sites. Therefore, the Company relies to a material extent on
technology developed and licensed from third parties. This reliance on licensed
technology exposes the Company to increased risks:

- - third parties from which the Company licenses its technology may not be
able to defend successfully their proprietary rights against claims of
infringement, which could cause the Company to lose its rights to use such
technology or increase its licensing costs;

23
<PAGE>

- - third parties from which the Company licenses its technology may not
develop new technology quickly enough to meet the Company's needs for
improvement; and

- - renewals, replacements and upgrades for the Company's licensed technology
may not be available on commercially reasonable terms.

The loss of existing technology licenses could negatively affect the
performance of the Company's existing services until equivalent technology can
be identified, obtained and integrated. Failure to obtain new technology
licenses may result in delays or reductions in the introduction of new features,
functions or services. The Company's business could suffer if these risks
materialize.

PROTECTION OF THE COMPANY'S DOMAIN NAMES IS UNCERTAIN. IF THE COMPANY CANNOT
PROTECT ITS DOMAIN NAMES, IT WILL IMPAIR THE COMPANY'S ABILITY TO BRAND
SUCCESSFULLY THE GARDEN.COM NAME.

The Company currently holds various World Wide Web domain names, including
garden.com. The acquisition and maintenance of domain names generally is
regulated by Internet regulatory bodies. The regulation of domain names in the
United States and in foreign countries is subject to change. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result,
the Company may be unable to acquire or maintain relevant domain names in all
countries in which it conducts business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, the Company may be unable to prevent
third parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of the Company's trademarks and other proprietary
rights. The Company may not successfully carry out its business strategy of
establishing a strong brand for Garden.com if the Company cannot prevent others
from using similar domain names or trademarks. This could impair the Company's
ability to increase market share and revenues.

THE COMPANY'S OPERATING RESULTS DEPEND ON ITS INTERNALLY DEVELOPED WEB SITES,
NETWORK INFRASTRUCTURE AND TRANSACTION-PROCESSING SYSTEMS.

The satisfactory performance, reliability and availability of the Company's
Web sites, transaction-processing systems and network infrastructure are
critical to the Company's operating results, as well as to its ability to
attract and retain customers and maintain adequate customer service levels. Any
system interruptions that result in the unavailability of the Company's Web
sites or reduced performance of the transaction systems would reduce the volume
of sales and the attractiveness of the Company's service offerings, which would
seriously harm its business, operating results and financial condition. The
Company is currently upgrading its system architecture to accommodate increased
traffic and processing needs. The Company expects this process to be time
consuming and expensive and its upgrade may not be successful.

The Company uses internally developed systems for its Web sites and
substantially all aspects of transaction processing, including customer
profiling and order verifications. The Company has experienced periodic systems
interruptions due to server

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<PAGE>
failure, which the Company believes will continue to occur from time to time.
If the volume of traffic on the Company's Web sites or the number of purchases
made by customers substantially increases, the Company will need to further
expand and upgrade its technology, transaction processing systems and network
infrastructure. The Company has experienced and expects to continue to
experience temporary capacity constraints due to sharply increased traffic
during sales or other promotions, which cause unanticipated system disruptions,
slower response times, degradation in levels of customer service, impaired
quality and delays in reporting accurate financial information.

The Company's transaction processing systems and network infrastructure may
not be able to accommodate increases in traffic in the future. The Company may
be unable to project accurately the rate or timing of traffic increases or
successfully upgrade its systems and infrastructure to accommodate future
traffic levels on its Web sites. In addition, the Company may be unable in a
timely manner to effectively upgrade and expand its transaction processing
systems or to successfully integrate any newly developed or purchased modules
with its existing systems. Any inability to do so could negatively impact the
Company's sales volume, business, operating results and financial condition.

THE COMPANY'S COMPUTERS AND COMMUNICATIONS SYSTEMS ARE VULNERABLE TO DAMAGE OR
INTERRUPTION WHICH MAY HINDER THE COMPANY'S ABILITY TO DELIVER TIMELY
INFORMATION OR EXECUTE ONLINE TRANSACTIONS.

The Company's ability to successfully receive and fulfill orders and
provide high quality customer service depends on the efficient and uninterrupted
operation of its computer and communications hardware systems. Substantially
all of the Company's computer and communications systems are located in three
separate locations in Austin, Texas. The Company's systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins and similar events. Despite the Company's
implementation of network security measures, its servers are vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, loss of data or the inability to
accept and confirm customer orders. The occurrence of any of the foregoing
risks could negatively impact the Company's sales volume, business, operating
results and financial condition.

IF THE COMPANY EXPANDS ITS BUSINESS INTERNATIONALLY, ITS BUSINESS WOULD BECOME
INCREASINGLY SUSCEPTIBLE TO NUMEROUS INTERNATIONAL BUSINESS RISKS AND CHALLENGES
THAT COULD AFFECT THE COMPANY'S PROFITABILITY.

The Company believes that the current globalization of the economy requires
businesses to pursue or consider pursuing international expansion. The Company
will probably expand into international markets. Although the Company has not
had international sales revenue to date, the Company may increase its
international sales efforts. International sales are subject to inherent risks
and challenges that could affect the Company's profitability, including:

- - the need to develop new supplier relationships;

- - unexpected changes in international regulatory requirements and tariffs;

25
<PAGE>

- - difficulties in staffing and managing foreign operations;

- - longer payment cycles;

- - greater difficulty in accounts receivable collection;

- - potential adverse tax consequences;

- - price controls or other restrictions on foreign currency; and

- - difficulties in obtaining export and import licenses.

To the extent the Company generates international sales in the future, any
negative effects on its international business could impact detrimentally the
Company's business, operating results and financial condition as a whole. In
particular, gains and losses on the conversion of foreign payments into U.S.
dollars may contribute to fluctuations in the Company's results of operations
and fluctuating exchange rates could cause reduced gross revenues and/or gross
margins from dollar-denominated international sales.

FUTURE ACQUISITIONS COULD INCREASE THE RISK OF THE COMPANY'S BUSINESS.

The Company may broaden the scope and content of its Web sites by acquiring
other online services and businesses or other gardening enterprises. As part of
the Company's business strategy, the Company expects to review acquisition
prospects that would complement its existing business, augment the distribution
of its content and community or enhance its technical capabilities. The Company
anticipates that it will acquire other businesses or assets meeting its
strategic goals that can be purchased on terms acceptable to the Company. The
Company may not locate suitable acquisition opportunities. Any future
acquisitions would expose the Company to increased risks, including:

- - issuances of equity securities that may dilute existing stockholders;

- - increased debt obligations or contingent liabilities;

- - risks associated with the assimilation of new operations, Web sites and
personnel;

- - the diversion of resources from the Company's existing businesses, sites
and technologies;

- - the inability to retain the customers of acquired businesses and generate
sufficient revenues from new sites or businesses to offset associated
acquisition costs;

- - the maintenance of uniform standards, controls, procedures and policies;
and

26
<PAGE>

- - the impairment of relationships with employees and customers as a result
of any integration of new management personnel.

If these risks materialize, future acquisitions could require additional
capital investment or result in additional operating losses, amortization of
goodwill and other intangible assets or other charges against earnings.

THE COMPANY IS SUBJECT TO GOVERNMENT REGULATIONS RELATING TO THE SHIPMENT OF
LIVE GOODS, FERTILIZERS AND OTHER PRODUCTS, WHICH EXPOSES THE COMPANY TO RISKS
THAT IT WILL BE FINED OR EXPOSED TO CIVIL OR CRIMINAL LIABILITY, RECEIVE
NEGATIVE PUBLICITY OR BE PREVENTED FROM SHIPPING PRODUCTS INTO ONE OR MORE
STATES.

The Company is subject to federal, state and local laws and regulations
relating to the shipment of live goods, fertilizers and other products. For
instance, various federal, state and local authorities regulate the shipment of
plants and products across their borders, in an attempt to restrict the
introduction of harmful plants, pests and diseases. Additionally, products
marketed or that may be marketed as fertilizers or pesticides are subject to
federal, state and local laws and regulations. The Company currently relies on
its suppliers to comply with these laws and regulations. However, the Company is
unable to verify that its suppliers have complied or will comply with all such
laws and regulations. The Company could be subject to the following if these
requirements have not been fully met by its suppliers or by it directly:

- - the Company could be fined or exposed to civil or criminal liability or
remediation expenses;

- - the Company could receive negative publicity, devaluing its brand name;
and

- - the Company may be prevented from shipping products into one or more
states.

THE COMPANY MAY BE ADVERSELY IMPACTED BY THE YEAR 2000 BECAUSE ITS SYSTEMS OR
ITS SUPPLIERS' SYSTEMS MAY FAIL.

The Company has operated and evaluated its internal IT and non-IT systems
since January 1, 2000, and has not identified any errors or experienced any
system malfunctions. The Company has not been informed of any Year 2000 problems
experienced by any of its vendors or other third parties on whom the Company
relies. However, the Company continues to monitor its internal systems and
significant third parties and it is possible that Year 2000 issues may arise in
the future. Known or unknown errors or defects that affect the operation of the
Company's software and systems and those of third parties, including content
providers, advertisers and affiliates, could result in delay or loss of revenue,
interruption of services, cancellation of customer contracts, diversion of
development resources, damage to the Company's reputation, increased service and
warranty costs, and litigation costs. A more detailed description of the
Company's Year 2000 compliance is in this report under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000."

27
<PAGE>
RISKS RELATED TO THE INTERNET INDUSTRY

THE COMPANY'S PERFORMANCE DEPENDS ON THE GROWTH AND ACCEPTANCE OF THE INTERNET
AS A MEDIUM FOR COMMERCE. WITHOUT THE GROWTH AND ACCEPTANCE OF ELECTRONIC
COMMERCE, THE COMPANY MAY NOT ACHIEVE THE REVENUE GROWTH REQUIRED FOR IT TO
ACHIEVE PROFITABILITY.

The Company cannot be sure that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and commercial online services as a
medium for commerce, particularly for purchases of gardening and
gardening-related products. Even if consumers adopt the Internet as a medium
for commerce, the Company cannot be sure that the necessary infrastructure will
be in place to process such transactions. The Company's long-term viability
depends substantially upon the widespread acceptance and the development of the
Internet as an effective medium for consumer commerce. Use of the Internet to
effect retail transactions is at an early stage of development. Convincing
consumers to purchase gardening-related products online may be particularly
difficult because consumers are accustomed to a high degree of human interaction
in purchasing gardening-related products.

Demand for recently introduced services and products over the Internet and
commercial online services is subject to a high level of uncertainty and few
proven services and products exist. The development of the Internet and
commercial online services into a viable commercial marketplace is subject to a
number of factors, including:

- - continued growth in the number of users of such services;

- - concerns about transaction security;

- - continued development of the necessary technological infrastructure;

- - development of enabling technologies;

- - uncertain and increasing government regulation; and

- - the development of complementary services and products.

To the extent that the Internet and other online services continue to
experience growth in the number of users and frequency of use by consumers
resulting in increased bandwidth demands, there can be no assurance that the
infrastructure for the Internet and other online services will be able to
support the demands placed upon them. In addition, the Internet or other online
services could lose their viability due to delays in the development or adoption
of new standards and protocols required to handle increased levels of Internet
or other online service activity, or due to increased governmental regulation.
Insufficient availability of telecommunications services to support the Internet
or other online services also could result in slower response times and
negatively impact use of the Internet and other online services generally and
the Company in particular. If the use of the Internet and other online services
fails to grow or grows more slowly than expected, if the infrastructure for the
Internet and other online services do not effectively support growth that may
occur or if the Internet and other online services do not become a viable
commercial marketplace, the Company's sales growth may be insufficient to

28
<PAGE>
achieve profitability, and its operating results and financial condition will
consequently suffer.

RAPID TECHNOLOGICAL CHANGE COULD RENDER THE COMPANY'S WEB SITES AND SYSTEMS
OBSOLETE AND REQUIRE SIGNIFICANT CAPITAL EXPENDITURES.

If the Company is unable, for technical, legal, financial or other reasons,
to adapt in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition could be harmed. The Internet and the online commerce industry are
characterized by rapid technological change, sudden changes in user and customer
requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and
practices that could render the Company's existing online sites and proprietary
technology and systems obsolete. The emerging nature of these products and
services and their rapid evolution will require that the Company continually
improve the performance, features and reliability of its online services,
particularly in response to competitive offerings. The Company's success will
depend, in part, on its ability:

- - to enhance the Company's existing services;

- - to develop and license new services and technology that address the
increasingly sophisticated and varied needs of the Company's prospective
customers; and

- - to respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.

The development of Web sites and other proprietary technology entails
significant technical and business risks and requires substantial expenditures
and lead time. The Company may be unable to use new technologies effectively or
adapt its Web sites, proprietary technology and transaction-processing systems
to customer requirements or emerging industry standards. Updating the Company's
technology internally and licensing new technology from third parties may
require significant additional capital expenditures and could affect the
Company's profitability.

THE COMPANY IS EXPOSED TO RISKS ASSOCIATED WITH ONLINE COMMERCE SECURITY AND
CREDIT CARD FRAUD, WHICH MAY REDUCE COLLECTIONS AND DISCOURAGE ONLINE
TRANSACTIONS.

Consumer concerns about the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To securely transmit confidential information, such as
customer credit card numbers, the Company relies on encryption and
authentication technology that it licenses from third parties. The Company
cannot predict whether events or developments will result in a compromise or
breach of the algorithms the Company uses to protect customer transaction data.
Furthermore, the Company's servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. The Company may need
to expend significant additional capital and other resources to protect against
a security breach or to alleviate problems caused by any breaches. The
Company's business may be

29
<PAGE>
adversely affected if its security measures do not prevent security breaches and
there can be no assurance that it can prevent all security breaches.

To date, the Company has suffered minor losses as a result of orders placed
with fraudulent credit card data even though the associated financial
institution approved payment of the orders in each case. Under current credit
card practices, a merchant is liable for fraudulent credit card transactions
where, as is the case with the transactions the Company processes, that merchant
does not obtain a cardholder's signature. A failure to adequately control
fraudulent credit card transactions could reduce the Company's collections and
harm its business.

THE COMPANY COULD FACE LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED
THROUGH ITS WEB SITES, WHICH COULD RESULT IN HIGH LITIGATION OR INSURANCE COSTS.

As a publisher and distributor of online content, the Company faces
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that the Company publishes or distributes. Claims have been successfully
brought against online services. In addition, the Company does not and cannot
practically screen all of the content generated by its users on the bulletin
board system on its Web sites, and the Company could be exposed to liability
with respect to such content. Although the Company carries general liability
insurance, the Company's insurance may not cover claims of these types or may
not be adequate to indemnify the Company for all liability that may be imposed.
Any imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could negatively impact the
Company's reputation and result in litigation costs or increased insurance
costs.

FUTURE GOVERNMENT REGULATION OF THE INTERNET COULD DECREASE DEMAND FOR THE
COMPANY'S PRODUCTS OR INCREASE THE COMPANY'S COSTS OF CONDUCTING BUSINESS.

New Internet legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to the Internet
and online commerce, or the application of existing laws and regulations to the
Internet and online commerce could harm the Company's business, operating
results and financial condition. The Company is subject to regulations
applicable to businesses generally and laws or regulations directly applicable
to communications over the Internet and access to online commerce. Although
there are currently few laws and regulations directly applicable to the Internet
and online retailing services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet covering issues such as
user privacy, pricing, content, copyrights, distribution, antitrust, taxation
and characteristics and quality of products and services. For example, the
United States Congress recently enacted Internet laws regarding children's
privacy, copyrights, taxation and transmission of sexually explicit material and
the European Union recently enacted its own privacy regulations. Furthermore,
the growth and development of the market for online commerce may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on those companies conducting business online. The adoption of any additional
laws or regulations regarding Internet commerce and communications may decrease
the growth of the Internet or commercial online services, which could, in turn,
decrease the demand for the Company's products and services and increase the
Company's cost of doing business, leading to further losses.

30
<PAGE>

Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
For example, tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in online commerce, and new state
tax regulations may subject the Company to additional state sales and income
taxes. Additionally, German authorities have challenged major U.S. online
services for making certain content accessible in Germany. If the Company was
alleged to have violated federal, state or foreign civil or criminal law, the
Company could be subject to liability, and even if the Company could
successfully defend such claims, they may involve significant legal compliance
and litigation costs.

RISKS RELATED TO THE SECURITIES MARKETS

THE COMPANY'S COMMON STOCK PRICE MAY FLUCTUATE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INDIVIDUAL STOCKHOLDERS.

The market price for the Company's common stock may fluctuate significantly
in response to a number of factors, some of which are beyond the Company's
control, including:

- - variations in quarterly operating results;

- - changes in financial estimates by securities analysts;

- - changes in market valuations of online commerce companies;

- - announcements by the Company or its competitors of significant contracts,

- - acquisitions, strategic partnerships, joint ventures or capital
commitments;

- - loss of a major supplier;

- - additions or departures of key personnel;

- - sales of common stock in the future; and

- - fluctuations in stock market price and trading volume, which are
particularly common among highly volatile securities of Internet and
online commerce companies.

As a result, investors in the Company's common stock may not be able to
resell their shares at or above their purchase price. In the past, securities
class action litigation has often been brought against a company following
periods of volatility in the market price of its securities. The Company may in
the future be the target of similar litigation. Securities litigation could
result in substantial costs and divert management's attention and resources,
which could negatively impact the Company's business, operating results and
financial condition.

31
<PAGE>
THE COMPANY MAY BE UNABLE TO MEET ITS FUTURE CAPITAL REQUIREMENTS AND EXECUTE ON
ITS BUSINESS STRATEGY.

The Company expects current cash balances, cash equivalents and investments
to meet its working capital and capital expenditure needs for the remainder of
the fiscal year ended June 30, 2000. Because the Company is not currently
generating sufficient cash to fund its operations, the Company may be forced to
rely on external financing to meet future capital requirements. After June 30,
2000, the Company may need to raise additional funds, and no assurance can be
given that the Company will be able to obtain additional financing on favorable
terms, if at all. The Company's capital requirements depend upon several
factors, including the rate of market acceptance, its ability to expand its
customer base and increase revenues, its level of expenditures for marketing and
sales, the cost of Web site upgrades and other factors. If the Company's
capital requirements vary materially from those currently planned, the Company
may require additional financing sooner than anticipated. Further, if the
Company issues equity securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock. If the Company cannot
raise funds, if needed, on acceptable terms, the Company may not be able to
continue its operations, develop or enhance its Web site, grow market share,
take advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could negatively impact the Company's
business, operating results and financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company did not hold any significant market risk sensitive instruments
during the period covered by this report.

32
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company is subject to legal proceedings and claims
in the ordinary course of its business, including employment related claims and
claims of alleged infringement of trademarks, copyrights and other intellectual
property rights. The Company currently is not aware of any such legal
proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, prospects, financial
condition and operating results.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

(a) Not applicable.

(b) Not applicable.

(d) On September 21, 1999, the Company sold 4,650,000 shares of common
stock and certain selling stockholders sold 65,000 shares of common stock in an
underwritten public offering (the "Offering"), which constituted all of the
securities registered pursuant to the Company's Registration Statement on Form
S-1 (Registration No. 333-79487). The Securities and Exchange Commission
declared the Registration Statement effective on September 15, 1999. The
managing underwriters of the Offering were Hambrecht & Quist LLC, BancBoston
Robertson Stephens Inc. and Thomas Weisel Partners LLC.

The selling stockholders sold 65,000 shares of common stock in the offering
for an aggregate offering price of $780,000 and received aggregate net proceeds
of $725,400.

The following table summarizes the offering expenses incurred by the
Company through December 31, 1999 and the net proceeds received by the Company
as of December 31, 1999 pursuant to the Offering:
<TABLE>
<CAPTION>

<S> <C>
Aggregate offering price of shares sold by the Company $55,800,000
Underwriting discounts and commissions . . . . . . . . 3,906,000
Finder's fees. . . . . . . . . . . . . . . . . . . . . -
Expenses paid to or for underwriters . . . . . . . . . -
Other expenses . . . . . . . . . . . . . . . . . . . . 2,069,000
-----------
Total expenses . . . . . . . . . . . . . . . . . . . . 5,975,000
-----------
Net offering proceeds to the Company . . . . . . . . . 49,825,000
</TABLE>

The net proceeds have been used to fund operations as well as other
general business purposes. As of December 31, 1999, the remaining net proceeds
of the Offering were invested in short-term and long-term investments pending
the Company's use of the net proceeds.

33
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

No matter was submitted to a vote of the security holders of the Company
during the second quarter of fiscal 2000.

ITEM 5. OTHER INFORMATION.

Not applicable.

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

(a) Exhibits:

3.1 Restated Certificate of Incorporation of the Company. (Filed as
exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 (File No. 0-26265) and incorporated herein by reference).

3.2 Amended and Restated By-Laws of the Company. (Filed as exhibit 3.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999 (File No. 0-26265) and incorporated herein by reference).

10.1* Content License and Codevelopment Agreement, dated as of November
2, 1999, between the Company and iVillage Inc.

10.2* Online Merchant Agreement, dated as of October 15, 1999, between
the Company and iVillage Inc.

27 Financial Data Schedule
_____________________

*Certain portions of these exhibits have been omitted based upon a request
for confidential treatment. The omitted portions of these exhibits have been
separately filed with the Securities and Exchange Commission.

(b) Reports on Form 8-K: None in the second quarter of fiscal 2000.

34
<PAGE>
SIGNATURES

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

Dated this 14th day of February, 2000.

GARDEN.COM, INC.

By /s/ Clifford A. Sharples
-----------------------------
Clifford A. Sharples, President and
Chief Executive Officer

By /s/ Jana D. Wilson
-----------------------
Jana D. Wilson, Chief Financial
Officer

CONTENT LICENSE AND CODEVELOPMENT AGREEMENT

This Agreement ("Agreement") is entered into on November 2, 1999 (the
"Effective Date") by and between Garden.com, Inc., a Delaware corporation
("Garden.com") with offices at 3301 Steck Avenue, Austin, Texas 78757 and
iVillage Inc., a Delaware corporation ("iVillage"), with offices at 212 Fifth
Avenue, New York, New York 10010.

1. Introduction. Garden.com and iVillage desire to enter into this
------------
relationship to develop a comprehensive gardening area within the existing U.S.
English language version website located on iVillage's servers at the
www.iVillage.com URL (the "iVillage Network"). The parties agree to cooperate to
develop and promote the garden area, to promptly address issues impeding the
smooth operation of this venture and to work in good faith to ensure the success
of this venture.

2. Creation of Gardening Site. Promptly following execution of this
-----------------------------
Agreement, iVillage and Garden.com shall cooperate to develop a garden area on
the iVillage Network (the "Garden Area"). The Garden Area will be a subchannel
of the Home & Garden Channel (or similar name) to be developed by iVillage for
the iVillage Network. Upon commencement of this Agreement, the parties agree to
use commercially reasonable efforts to create and develop the Garden Area (and
iVillage agrees to use commercially reasonable efforts to create and develop the
Home & Garden Channel) with a launch date currently scheduled for [*] (the
"Launch Date"). The failure of the Launch Date to occur on or before [*] shall
be a material breach by iVillage and shall be grounds for immediate termination
by Garden.com. The Garden Area shall be developed by iVillage with Garden.com
as the exclusive sponsor and provider of gardening content, tools and commerce
during the term of this Agreement as outlined in Section 5. Notwithstanding the
foregoing, if at anytime more than 90 days after the Launch Date of the Garden
Area, iVillage reasonably requests in writing additional content and/or tools
for the Garden Area and Garden.com declines to fulfill such request within 30
days, then iVillage may, either individually or through a third party, obtain
the requested content or tools. [*] In connection with the development of the
Garden Area, the parties agree as follows:

(a) The parties will cooperate in developing the style, substance
and feel of the Garden Area. All content and tools provided by Garden.com shall
be consistent in style and format with other areas within the iVillage Network
and otherwise have the "look and feel" of the iVillage Network. Such content
shall reside within the iVillage Network unless mutually agreed upon by both
parties. Notwithstanding the foregoing, iVillage shall have final reasonable
approval over the "look and feel" and content within the Garden Area.

(b) The Garden Area and all content provided by Garden.com shall
be co-branded as "in partnership with Garden.com" or similar language. On the
main Garden Area page a Garden.com logo shall be displayed prominently and in no
event shall it be smaller than 222 x 36 pixels.

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

<PAGE>
(c) Garden.com will either provide the Garden.com content
comprising the Garden Area (the "Garden.com Content") in a manner and format
mutually acceptable to the parties or allow iVillage to modify existing
Garden.com Content with approval from Garden.com and/or frame or link to the
Garden.com Content.

(d) The parties will mutually agree upon the search and other
tools incorporated into the Garden.com Content and to this end Garden.com will
either provide the tools and database directly to iVillage such that the tools
can be hosted directly by iVillage or allow iVillage to link to a co-branded
results page or similar page on the Garden.com Web site. The parties will
mutually agree upon the procedure for notifying one another with respect to the
Garden.com Content.

3. Garden Area Community. Within the Garden Area, the parties will
-----------------------
foster the development of a gardening community. Garden.com will include links
to chat and message board areas as well as promotion of upcoming Garden Area
community events on the Garden.com site. Garden.com will provide Garden Area
users the ability to chat with an expert gardener at least four times per month
and will make a gardening expert available to provide answers online to
questions from the message board at least four per month (provided that such
experts will not be required to respond to more than 20 questions in any given
question and answer session).

4. Marketing. Throughout the term of this Agreement, subject to
---------
inventory availability and iVillage's reasonable editorial discretion, iVillage
will provide links, advertisements and other promotional placements and
opportunities to promote Garden.com and its sponsorship of the Garden Area
throughout the iVillage Network (collectively the "Promotional Placements and
Opportunities") in a manner to be agreed upon by the parties. The parties will
cooperate in good faith to develop and implement such Promotional Placements and
Opportunities and to maximize the effectiveness of all such Promotional
Placements and Opportunities. The Promotional Placements and Opportunities as
described herein shall be available on the iVillage Network no later than the
Launch Date and shall include, without limitation, the following promotions:

(a) During the term of this Agreement, iVillage agrees to deliver
a minimum of [*] co-branded, online-impressions per calendar year to promote the
Garden Area which shall be placed throughout the iVillage Network (excluding the
Home and Garden channel) and shall be in the form of permanent placements,
advertising banners, or other mutually agreed upon form.

(b) iVillage shall include a "Buy it at Garden.com" icon or
similar clickable link in the Garden Area that will promote to iVillage users
the ability to consummate a transaction on the Garden.com Web site.

(c) iVillage shall ensure that the iVillage Home Page (currently
located at www.ivillage.com) shall contain a permanent link promoting the Home &
Garden Channel which in turn, will have a permanent link promoting the Garden
Area. In the event that iVillage redesigns the iVillage Home Page or other
navigation-related functionality, iVillage represents

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

2
<PAGE>
that the Home & Garden Channel will be as prominently displayed as the other
channels within the iVillage Network.

(d) The Garden Area and the content and tools within the Garden
Area will be co-branded highlighting iVillage's and Garden.com's sponsorship.
iVillage retains the right to make reasonable modifications to the Garden.com
Content to ensure that it meets iVillage's editorial guidelines, consistently
applied; provided, however, that Garden.com shall have final reasonable approval
over all such changes and provided further that any and all commerce links
contained in the Garden.com Content (linking to product or related areas of the
Garden.com website) shall remain in place.

(e) Each of iVillage and Garden.com shall provide the other with
[*] mutually agreed upon promotional inserts advertising their respective
properties (the "Inserts"). The Inserts shall be placed, in the case of
Garden.com in products shipped by Garden.com to Garden.com customers and, in the
case of iVillage, in products shipped by iVillage to customers of iMaternity and
iBaby.

(f) During the term of this Agreement, Garden.com shall provide
iVillage with full page advertising in each issue of the Garden Escape Magazine.

(g) Each of iVillage and Garden.com shall provide the other with
mutually agreed upon advertising or promotional copy which shall be placed, in
the case of Garden.com, in Garden.com e-mail newsletters and, in the case of
iVillage, in iVillage Home and Garden e-mail newsletters. Quantity and
frequency of e-mail newsletters by each party shall be mutually agreed upon.
All e-mail advertising must meet the guidelines of the respective parties with
the intent of promoting both parties offerings to an equal number of e-mail
newsletter subscribers.

(h) In the Garden Area, iVillage will provide a permanent
opportunity for iVillage users to register for a Garden.com monthly e-mail
gardening newsletter.

(i) Each of Garden.com and iVillage shall provide a dedicated
contact to manage the relationship contemplated by this Agreement and facilitate
the consummation of its terms.

(j) The parties will cooperate in good faith to pursue mutually
beneficial sponsorship, co-marketing and promotional opportunities, including
advertising and sponsorship placements for iVillage on the Garden.com site.

5. Exclusivity. [*]
-----------

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

3
<PAGE>

6. Payments.
--------

(a) Sponsorship Payments.
---------------------

(i) Subject to the terms of this Agreement, Garden.com agrees
to pay to iVillage a total amount of [*], payable as follows:

[a] [*] upon execution of this Agreement;

[b] [*] on the actual Launch Date of the Garden Area
provided such Launch Date occurs prior to March 15, 2000 and [*] on each of
April 1, 2000, July 1, 2000 and October 1, 2000;

[c] [*] on each of January 1, 2001, April 1, 2001, July
1, 2001 and October 1, 2001; and

[d] [*] on each of January 1, 2002 and April 1, 2002.

(ii) iVillage agrees to send Garden.com an invoice for the
above-mentioned payments at least thirty days prior to the payment date. To the
extent any of the above-mentioned fees owing to iVillage are outstanding and due
to iVillage, this Section 6 shall survive expiration or termination of this
Agreement until such fee has been paid to iVillage.

(iii) All payments made via wire transfer should be directed
as follows: Chase Manhattan Bank, 1411 Broadway, New York, New York 10018;
Account name: iVillage Inc.; ABA#: 021000021; Account #: 020-923406;
Reference: Garden.com. All payments made via check, should be sent to: iVillage
Inc., 212 Fifth Avenue, New York, New York 10010; Attention: Accounts
Receivable.

(b) iVillage Revenue Share. Garden.com shall pay to iVillage on a
----------------------
quarterly basis payable within thirty (30) days after the end of each quarter, a
fee equal to [*] of the gross revenues received by Garden.com in the immediately
preceding quarter from transactions completed through the iVillage Garden Area
(less shipping, handling, wrapping fees, taxes and similar charges). Such
revenue share shall be paid to iVillage in the form of advertising impressions
to be run throughout the Garden.com Web Site at a CPM of [*].

(c) Garden.com Revenue Share. iVillage shall pay to Garden.com on
------------------------
a quarterly basis payable within thirty (30) days after the end of each quarter,
a fee equal to [*] of net advertising and sponsorship revenues (defined as net
of any applicable agency commissions) received by iVillage in the immediately
preceding quarter which were generated from advertising and sponsorship sales
attributable to the Garden Area. Such revenue share shall be

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

4
<PAGE>
paid to Garden.com in the form of advertising impressions to be run throughout
the iVillage Network at a CPM of [*].

7. Term and Termination.
----------------------

(a) The term of this Agreement shall commence on the Effective
Date and shall extend through June 30, 2002, unless terminated earlier as set
forth herein; provided however, that either party may at its option terminate
this Agreement on the first anniversary of the Launch Date by providing 30 days'
prior written notice to the other party of such termination.

(b) In the event of a material breach by either party of any term
of this Agreement, the non-breaching party may terminate this Agreement by
written notice to the breaching party if the breaching party fails to cure, or
fails to initiate a good faith cure, of such material breach within 30 days of
receipt of written notice thereof. In addition, either party may terminate this
Agreement effective upon written notice stating its intention to terminate in
the event the other party (i) ceases to function as a going concern or to
conduct operations in the normal course of business, or (ii) has a petition
filed by or against it under any state or federal bankruptcy or insolvency law
which petition has not been dismissed or set aside within 90 days of its filing,

(c) Except for termination of this Agreement by iVillage for
material breach of the Agreement by Garden.com, upon any early termination of
this Agreement, in addition to any other remedies available to the parties as a
result of such termination (if any), iVillage agrees (i) that no further
payments shall be due from Garden.com under Section 6(a) above unless due and
payable prior to the date of any such early termination, (ii) to refund to
Garden.com a pro-rata portion of the last quarterly fee paid under Section 6(a)
above in an amount equal to the product of the amount of the last quarterly fee
paid multiplied by a fraction, the numerator of which is the number of days
until the end of the next quarter and the denominator of which is 90; and (iii)
Garden.com has the right to terminate with five (5) business days notice, the
Online Merchant Agreement with iVillage dated October 15, 1999 and receive a
refund as if such agreement were terminated pursuant to Section 2.A.(v) of such
agreement.

8. Ownership. All intellectual or proprietary property and
---------
information, supplied or developed by either party shall be and remain the sole
and exclusive property of the party who supplied or developed same. Upon
termination of this Agreement and upon written request, the party in receipt of
the requesting party's intellectual or proprietary property and/or information
pursuant to this Agreement shall return such information to the requesting
party.

9. Grant of Rights, Restrictions.
--------------------------------

(a) Rights. Subject to the limitations and restrictions set forth
------
herein, Garden.com grants to iVillage, during the term of this Agreement, a
limited, non-transferable nonsublicensable, nonexclusive, right and license:

(i) to frame, link to, incorporate, reproduce, adapt, copy,
transmit, use, distribute, publicly perform, and/or display the Garden.com
Content and Garden.com tools but

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

5
<PAGE>
only in connection with the advertising, promotion, creation, maintenance and
development of the Garden Area and Garden.com's sponsorship of the Garden Area;
and

(ii) to use Garden.com's trademarks, service marks, logos,
copyrights, and other intellectual property (the "Garden.com Marks") solely
pursuant to this Agreement and in association with and reference to the Garden
Area, Garden.com Content and Garden.com tools (the Garden.com Marks, the
Garden.com Content and Garden.com tools collectively the "Garden.com Material").

Notwithstanding anything else stated above, "End Users" (as defined
below) have the right to use the Garden.com Material as specified in the then
current version of the Garden.com Web site user terms with respect to use of
content on the site. Garden.com agrees that any later version of terms will not
be materially less restrictive than the current version. "End Users" means
those persons who access and use the Garden Area.

(b) General Restrictions.
---------------------

(i) Except as permitted pursuant to this Agreement, iVillage
may only make archival files of Garden.com Material for internal purposes and
specifically not for commercial exploitation; for the avoidance of doubt, unless
required by law, iVillage shall not use any Garden.com Material or make any
archival files kept of the Garden.com Material available to the public after the
termination of this Agreement.

(ii) iVillage specifically agrees that it will not engage in
promotion of Garden.com Material through unsolicited bulk email (SPAM). The
grant of the licenses to Garden.com does not include the right to include the
Garden.com Material in any email message, unless set forth in this Agreement or
otherwise mutually agreed to by the parties.

(iii) With respect to any third party materials included in
the Garden.com Materials, iVillage's rights shall be subject to Garden.com's
agreements with the relevant third party, and iVillage agrees to comply with any
such terms that have been disclosed to iVillage.

(c) Restrictions on use of Garden.com Marks. Garden.com Marks
-------------------------------------------
shall be used by iVillage solely in association with and reference to the
Garden.com Content and the Garden.com tools, and subject to Garden.com's
reasonable trademark quality control guidelines, as they exist from time to
time. All use of the Garden.com Marks shall inure the benefit of iVillage.

(d) Restrictions on Adaptation. Garden.com Content and Garden.com
--------------------------
tools may be adapted (without any material change of substance) without
Garden.com's consent only to the extent necessary in iVillage's reasonable
editorial discretion or to reformat same for display on the iVillage Network in
a manner consistent with its style, format, look and feel, so long as iVillage
complies with Garden.com's reasonable trademark quality control guidelines.
Garden.com Content and Garden.com tools may also be adapted substantively,
subject to Garden.com's prior reasonable approval. Garden.com agrees that it
will provide its reasonable

6
<PAGE>
approval or reasonable disapproval to iVillage within two (2) business days, if
no approval or disapproval has been made within such two (2) business day time
frame, then the adaptation will be deemed approved. To the extent that iVillage
adapts any Garden.com Material, iVillage agrees that Garden.com shall own all
right, title and interest in the adapted Garden.com Material ("Derivative
Product"). iVillage agrees that it will assist Garden.com, at Garden.com's
expense, to further evidence, record and perfect such assignments. iVillage
shall deliver any relevant source code relating to such Derivative Product to
Garden.com promptly after such Derivative Product is created. Upon the
expiration or termination of this Agreement, iVillage agrees to return to
Garden.com all copies of the relevant source code for any such Derivative
Product, and shall cease all use of any such Derivative Product.

(e) Restrictions on use of iVillage Content. Notwithstanding
--------------------------------------------
anything else herein, if at any time iVillage displays, links to, or uses the
Garden.com Material on the iVillage Network in a manner that is inappropriate as
reasonably and in good faith determined by Garden.com, then Garden.com shall
provide iVillage with notice of such inappropriate use or display and iVillage
shall have a mutually agreed upon period in which to comply with Garden.com's
reasonable request for change in the use or display of such material.

(f) Ownership; Proprietary Notices. Except as set forth herein,
--------------------------------
no right, title, license, or interest in any Garden.com Material is intended to
be given to or acquired by iVillage by the execution of or the performance of
this Agreement. iVillage shall not use the Garden.com Material for any purpose
or activity except as expressly authorized herein. iVillage acknowledges that
as between the Parties, Garden.com is the sole and exclusive owner of all
trademarks, service marks, copyrights and other intellectual property of any
kind in the Garden.com Material. iVillage agrees that (a) it shall do nothing
inconsistent with such ownership either during the term of the Agreement or
afterwards; and (b) it shall take no action that shall interfere with or
diminish Garden.com's right in the Garden.com Material.

10. Publicity. If so desired, the parties agree to cooperate to
---------
publish a mutually agreed upon press release. The press release and any quotes
from each party's sources must be approved by the public relations department of
the other party (unless otherwise required to be disclosed to a government or
administrative agency), which also must be made aware of any pre-briefings with
outside parties in advance of any pre-briefing. Notwithstanding the foregoing,
this section shall not restrict either party from complying with any
governmental or administrative order or requirement.

11. Customer Service, Processing and Fulfillment. Garden.com shall be
---------------------------------------------
solely responsible for the Garden.com Web Site including customer service for
users linking to the Garden.com Web Site through the iVillage Network, product
support, quality and availability of Garden.com products, fulfillment of orders
and returns. Garden.com shall ensure that all users of the Garden.com Web Site
placing an order for Garden.com products are timely advised of the status of
such purchase(s) including the timely confirmation of all orders. Garden.com
shall be solely responsible for (a) fulfilling all orders for its Garden.com
products and (b) calculating, collecting and paying all appropriate taxes
associated with payment processing. The Garden.com products offered via the
iVillage Network will be supported by the same warranty and return policy for
the Garden.com products as offered through other Garden.com channels.

7
<PAGE>

12. Reporting. Garden.com shall track sales of the Garden.com products
---------
from the iVillage Network and shall provide iVillage with monthly reports
showing the number of visits and visitors, the total numbers of orders and the
total dollar amount of such orders, no later than fifteen (15) days following
the end of each month of the term of this Agreement. iVillage shall track
traffic on the Garden Area and shall provide Garden.com with monthly reports
showing the total number of impressions on the Garden Area and the amount of
advertising revenue generated in such period, no later than fifteen (15) days
following the end of each month of the term of this Agreement.

13. Submissions, Modifications, Corrections. During the term of this
-----------------------------------------
Agreement, the parties agree that submissions of content, artwork, copy, data,
etc. (the "Submissions") will take place in a timely manner and that approval by
one party to the other, or mutual approval, for the Submissions will not be
unreasonably withheld (deadlines to be mutually agreed upon by the parties). If
Submissions are not received by the deadline date, the other party will have the
option to publish any material it deems appropriate as a substitute until the
substitute material in question, can be reasonably replaced by the Submission.
If a party does not approval or disapprove of a Submission by the deadline date,
approval will be deemed granted by the receiving party. In the event no
response is provided within such time period, then the party seeking the
approval may assume approval has been granted. All approval requests must be
made in writing, with an e-mail copy sent, in the case of iVillage, to
_______.ivillage.com and, in the case of Garden.com, to [email protected].

14. Representations, Warranties, Covenants and Indemnification.
--------------------------------------------------------------

(a) iVillage represents, warrants and covenants that: (i) it is
authorized to do business under the rules of the state in which it is
incorporated; (ii) it is authorized to enter into this Agreement and to perform
its obligations; (iii) it has all required permits, licenses, and other
governmental authorizations and approvals necessary to perform its obligations
hereunder; (iv) it shall comply with all local, state, federal, and
international laws and regulations in performing its obligations hereunder; and
(v) the services to be performed and the materials provided by it (a) do not
infringe or violate any third party patent, copyright, trade secret, trademark,
or other proprietary right, (b) do not violate any applicable law, statute,
ordinance or regulation; (c) are not knowingly defamatory or libelous; (d) are
not lewd, pornographic or obscene; (e) do not knowingly violate any laws
regarding unfair competition, anti-discrimination or false advertising; (f) do
not promote violence or contain hate speech; or (g) do not knowingly contain
viruses, Trojan horses, worms, time bombs, cancelbots or other similar harmful
or deleterious programming routines, or (h) are and will remain capable of
correctly performing all functions, calculations, comparisons, sequencing,
displays and other processing of calendar dates and date related data, before,
during and after the year 2000, without error or degradation of performance;

(b) Garden.com represents, warrants and covenants that: (i) it is
authorized to do business under the rules of the state in which it is
incorporated; (ii) it is authorized to enter into this Agreement and to perform
its obligations; (iii) it has all required permits, licenses, and other
governmental authorizations and approvals necessary to perform its obligations
hereunder; (iv) it shall comply with all local, state, federal, and
international laws and regulations in

8
<PAGE>
performing its obligations hereunder; and (v) the services to be performed and
the materials provided by it (a) do not infringe or violate any third party
patent, copyright, trade secret, trademark, or other proprietary right; (b) do
not violate any applicable law, statute, ordinance or regulation; (c) are not
knowingly defamatory or libelous; (d) are not lewd, pomographic or obscene; (e)
do not knowingly violate any laws regarding unfair competition,
anti-discrimination or false advertising; (f) do not promote violence or contain
hate speech; (g) do not knowingly contain viruses, Trojan horses, worms, time
bombs, cancelbots or other similar harmful or deleterious programming routines
or (h) are and will remain capable of correctly performing all functions,
calculations, comparisons, sequencing, displays and other processing of calendar
dates and date related data, before, during and after the year 2000, without
error or degradation of performance;

(c) As the sole and exclusive remedy for any breach of the
representation, warranty and covenant described in section 14(a) above, iVillage
agrees to defend and hold harmless Garden.com and its parent, subsidiaries,
affiliates, successors and assigns against any awarded damages and/or
settlements costs, losses, and awarded legal fees, incurred in connection with a
third party claim against Garden.com arising out of a breach of section 14(a)
above by iVillage, provided, however, that in any such case: (i) Garden.com
provides iVillage with prompt notice of any such claim; (ii) Garden.com permits
iVillage to assume sole control over the defense and settlement of such action;
and (iii) upon iVillage's written request, and at iVillage's expense, Garden.com
will provide to iVillage reasonable information and assistance necessary for
iVillage to defend and settle such claim. Garden.com may participate in such
defense or settlement at its sole expense.

(d) As the sole and exclusive remedy for any breach of the
representation, warranty and covenant described in section 14(b) above,
Garden.com agrees to defend and hold harmless iVillage and its parent,
subsidiaries, affiliates, successors and assigns against any awarded damages
and/or settlements costs, losses, and awarded legal fees, incurred in connection
with a third party claim against iVillage arising out of a breach of section
14(b) by Garden.com, provided, however, that in any such case: (i) iVillage
provides Garden.com with prompt notice of any such claim; (ii) iVillage permits
Garden.com to assume sole control over the defense and settlement of such
action; and (iii) upon Garden.com 's written request, and at Garden.com 's
expense, iVillage will provide to Garden.com reasonable information and
assistance necessary for Garden.com to defend and settle such claim. iVillage
may participate in such defense or settlement at its sole expense. In addition,
Garden.com shall indemnify and hold harmless iVillage and its parent,
subsidiaries, affiliates, successors and assigns from any and all losses,
liabilities, damages, actions, claims, expenses and costs (including reasonable
attorneys fees) relating to or arising out of the use or purchase of any
Garden.com product or service.

15. Confidentiality. Other than as required or appropriate for
---------------
securities laws disclosure, iVillage and Garden.com agree to keep in confidence,
not use or disclose any Confidential Information, except as authorized by the
disclosing party. Confidential Information means any material nonpublic
information, communication or data, in any form, of the other party. All
Confidential Information of a party shall remain the sole property of the such
party and its confidentiality shall be maintained and protected by the other
party with at least the same degree of care as the receiving party uses for the
protection of its own confidential and

9
<PAGE>
proprietary information. Neither party shall disclose the other party's
Confidential Information to any third party. These restrictions shall not apply
to any Confidential Information: (v) after it has become generally available to
the public without breach of this Agreement by the receiving party; (w) is
rightfully in the receiving party's possession before disclosure to it by the
disclosing party; (x) is independently developed by the receiving party; (y) is
rightfully received by the receiving party from a third party without a duty of
confidentiality; or (z) is required to be disclosed under operation of law or
administrative process. Upon expiration or termination of this Agreement for
any reason, Garden.com will promptly destroy or at such other party's request
return to the other party, and will not take or use, all items of any nature
which belong to such other party and all records (in any form, format or medium)
containing or relating to Confidential Information including all content.

16. Limitation of Liability. EXCEPT FOR A BREACH OF SECTION 15 ABOVE
-------------------------
("CONFIDENTIALITY"), NEITHER PARTY SHALL HAVE ANY LIABILITY FOR ANY INDIRECT,
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION, LOSS
OF PROFIT OR BUSINESS OPPORTUNITIES, WHETHER OR NOT THE PARTY WAS ADVISED OF THE
POSSIBILITY OF SUCH.

17. Warranty Disclaimer. EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER
-------------------
PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE SERVICES
CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.

18. Miscellaneous Provisions. Nothing in this Agreement shall imply
-------------------------
any partnership, joint venture or agency relationship between the parties and
neither party shall have the power to obligate or bind the other except for what
is stated in this Agreement. Except as otherwise expressly provided in this
Agreement, neither party shall be liable for any breach of this Agreement for
any delay or failure of performance resulting from any cause beyond such party's
reasonable control, such as: weather, strikes or labor disputes, war, terrorist
acts, riots or civil disturbances, government regulations, acts of civil or
military authorities, or acts of God provided the party affected takes all
reasonably necessary steps to resume full performance. This Agreement
constitutes the binding agreement between the parties, represents the entire
agreement between the parties and supersedes all prior agreements relating to
what is stated in this Agreement and any changes to this Agreement must be in
writing and signed by both parties. This Agreement shall be governed by the
laws of the State of New York without regard to the conflicts of laws principles
thereof. Neither party shall sell, transfer or assign this Agreement or the
rights or obligation hereunder, without the prior written consent of the other
party, except to an entity that obtains all or substantially all of the business
or assets of such party. The provisions of this Sections 6(a)(ii), 8, 14, 15,
16, 17 and 18 shall survive the expiration or termination of this Agreement.
Any notices required or permitted to be given under this Agreement shall be in
writing and shall be delivered to the address set forth below or to such address
as provided for by such party.

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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

Garden.com, Inc. iVillage Inc.

By: /s/ Jim O'Connell By: /s/ Steven A. Elkes
------------------- ----------------------
Name: Jim O'Connell Name: Steven A. Elkes
Title: Director Online Marketing Title: Senior Vice President

<PAGE>
EXHIBIT A

[*]

* The confidential information on this exhibit has been omitted and filed
separately with the Securities and Exchange Commission.

ONLINE MERCHANT AGREEMENT

This ONLINE MERCHANT AGREEMENT ("Agreement") is made as of October 15,
1999, (the "Effective Date"), by and between iVillage Inc., a Delaware
corporation having its principal offices at 170 Fifth Avenue, New York, New York
10010 ("iVillage"), and Garden.com, Inc., a Delaware ("Garden.com") having its
principal offices at 3301 Steck Avenue, Austin, Texas 78757. Garden.com and
iVillage are sometimes referred to as the "Parties" and individually as a
"Party." Certain capitalized terms used in this Agreement are defined in
Section 1 or otherwise in this Agreement.

WHEREAS, iVillage operates a network of U.S. English language Web sites
that currently includes channels covering the leading topics of interest to
women, such as family, health, work and money, as well as interactive tools,
community elements and online commerce (the "iVillage Network"), and iVillage
desires to include on the iVillage Network further gardening content and
commerce services;

WHEREAS, Garden.com, via its Web site located at www.Garden.com (the
"Garden.com Web Site") is an online retailer of gardening and gardening related
products and desires to promote its products by maintaining a presence on the
iVillage Network during the term of this Agreement; and

NOW, THEREFORE, in consideration of the promises and the mutual covenants,
and premises hereinafter provided, iVillage and Garden.com agree as follows:

1. Definitions.

A. "Confidential Information" shall be defined as (a) any material
non-public information, communication or data, in any form and (b)
Garden.com-branded promotional elements, including, but not limited to banner
advertisements and buttons, prior to publication.

B. "Garden.com Products" shall be defined as Gardening Products sold by
Garden.com.

<PAGE>

C. "Gardening Products" shall be defined as the gardening and gardening
lifestyle products , including, without limitation, plants, bulbs, seeds,
shrubs, cut flowers, Christmas trees, wreaths, outdoor furniture, lawn and patio
accessories, gardening tools, garden inspired gifts and similar or related
products offered by Garden.com during the term of this Agreement.

D. "Impression" shall be defined as a text or graphical link enabling the
user to link to a mutually agreed upon destination URL.

E. "iVillage Home Page" shall be defined as the Web page found at the URL
www.ivillage.com.

F. "Gardening Retailer" shall be defined as an entity, a primary portion
of whose business is the retail sale of Gardening Products.

G. "Page View" shall be defined as a single viewing of a Web site page,
whether or not the viewer acts on an advertisement located on that page.

H. "Shopping Channel Don't Miss Sponsors Special Box" shall be defined as
a 120x90 pixel button placed within the iVillage Shopping Channel in a location
comparable to that offered to other iVillage Shopping Channel sponsors.

2. Obligations of the Parties.
-----------------------------

A. iVillage's Obligations. During the term of this Agreement, iVillage
agrees to provide Garden.com with the following:

(i) Exclusivity. Garden.com shall be the exclusive Gardening Retailer
and the exclusive promoter of Gardening Products on the iVillage Home Page.

2
<PAGE>
(ii) Banner Advertisement Development. During each twelve (12) month
period during the term of this Agreement, iVillage shall design and deliver
eight (8) to ten (10) Garden.com-branded HTML banner advertisements, which shall
be placed within the iVillage Network as set forth herein. Garden.com shall
have the opportunity to provide creative elements for inclusion within the
banner advertisements, as well as the opportunity to approve the banner
advertisements before launch of such to the public.

(iii) Placement within iVillage Shopping Channel. Garden.com shall be
featured within the iVillage Shopping Channel as follows: (a) a
Garden.com-branded 88x31 pixel logo shall be placed on the front page (which
shall be rotated with third party logos); (b) a permanent Garden.com branded
text link and a 88x31 pixel Garden.com-branded logo (which shall be rotated with
third party logos) shall be placed within the Home & Garden sub-category of the
Shopping Channel; (c) in iVillage's discretion, inclusion within "Nicole's
Finds", "Nicole's Choices" and the "Gifts" areas (which shall be rotated with
third parties); (d) inclusion within the Shopping Channel Don't Miss Sponsor
Special Box, which shall be rotated with third parties; (e) inclusion within the
"Gift Page" area (which shall be rotated with third parties); and (f), inclusion
within seasonal promotions, such as Valentine's Day, Mothers' Day and the
"Holiday Gift Guides" area, in the form of text links and/or Garden.com branded
logos which would rotate with third party logos.

(iv) Promotion within other iVillage Channels. Garden.com shall be
featured as a permanent text link within the "iVillage Stores" area of the
iVillage Home Page during the term of this Agreement with the exception of July
1 - September 30, 2000 and July 1- September 30, 2001. In addition, Garden.com
shall have the opportunity, with 60 days written notice, to require iVillage to
remove the permanent text link within the "iVillage Stores" area of the iVillage
Home Page for a period of no longer than one (1) calendar quarter in each
calendar year during the term of this Agreement. Both parties shall mutually
agree on how the impressions that would have been delivered on the iVillage Home
Page shall be reallocated throughout the iVillage network.

(v) Impressions. iVillage shall deliver to Garden.com, a minimum of
[*] Impressions which shall appear in the form of permanent placements within
the iVillage Network as described in Section 2.(iii) and Section 2.(iv), as well
as banner advertisements, buttons, "Don't Miss Sponsor Special" text mentions,
newsletter integration and Shopping Channel Don't Miss

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

3
<PAGE>
Sponsors Special Boxes, which shall all link directly to the Garden.com Web
Site, unless otherwise mutually agreed upon by the parties. [*] impressions
shall be delivered between the Effective Date and [*] and [*] Impressions shall
be delivered between [*]. iVillage shall not allocate more than [*] of the
total Impressions to be delivered by iVillage and placed on the iVillage Home
Page, and any delivery of Impressions which appear on the iVillage Home Page
in excess of [*], shall be delivered to Garden.com without additional charge.
In the event that iVillage delivers less than [*] Impressions by [*], then
Garden.com shall be entitled to withhold payment of each subsequent monthly
payment until iVillage has delivered such [*] Impressions. In the event that
iVillage delivers less than [*] Impressions by [*], then Garden.com shall have
the right to terminate this Agreement upon 30 days prior written notice.

(vi) Sweepstakes. iVillage shall develop and execute three (3)
Garden.com-branded customized turn-key sweepstakes. In addition to the
Impressions to be delivered to Garden.com pursuant to Section 2.A.(vii),
iVillage shall deliver to Garden.com, [*] co-branded Impressions which shall
be placed throughout the iVillage Network, and which shall serve to promote
the aforementioned sweepstakes. Each sweepstakes shall be promoted with [*]
Impressions. All prizes to be distributed pursuant to the sweepstakes shall be
mutually determined by the parties and shall be provided by Garden.com.
During the term of this Agreement, Garden.com shall also have the opportunity
to participate in other relevant sponsorships developed by iVillage.

(vii) Polls. iVillage shall conduct and administer approximately
thirty (30) online polls to be placed within the iVillage Network, with
questions to be mutually agreed upon by the parties.

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

4
<PAGE>
B. Garden.com's Obligations. During the term of this Agreement,
Garden.com agrees to provide iVillage with the following:

(i) Upon linking from the iVillage Network to the Garden.com Web
Site, the Garden.com Web Site shall incorporate iVillage navigation (the
"Frame") which shall include, at a minimum, a "Back to iVillage" button, an
iVillage "Join Free" button and an area where the user shall have an opportunity
to sign up for an iVillage newsletter. The Frame shall be displayed
continuously, as the user navigates throughout the Garden.com Web Site. The
frame shall be mutually agreed to and developed by the parties, and thereafter,
neither party will edit, modify nor obfuscate the Frame in any manner unless
mutually agreed upon by both parties.

(ii) Garden.com shall provide, no less frequently than twice monthly,
special offers of Garden.com Products ("Special Offers") which shall be
available to iVillage Network users, and which shall appear each time an
iVillage Network user links to the Garden.com Web Site from the iVillage
Network. Garden.com agrees to use best efforts to ensure that the Special
Offers are exclusive to iVillage members. The Special Offers shall be
distinctive offerings and shall appear in a form mutually determined by the
parties and shall appear as a "pop up" window (of a size not less than 250x250
pixels) unless mutually agreed upon by both parties. Garden.com shall use its
reasonable best efforts to provide iVillage, at least thirty (30) days in
advance of promotion of any such Special Offer on the Garden.com Web Site, a
description of the Special Offer to be promoted to iVillage Network members.
iVillage must receive all artwork and editorial text associated with the Special
Offer to be promoted at least five (5) business days in advance of the promotion
of such Special Offer. If the iVillage user who links to the Special Offer is
not an iVillage member, then the "pop-up" window shall contain a link mutually
agreed upon by the parties (e.g. a "Join Now" link) that will enable the user to
register to become an iVillage member by linking to the appropriate area of the
iVillage Network or a similar area to be mutually agreed upon by the parties.
If the user becomes a member, the member shall be returned to the Garden.com Web
Site where the member will then be able to purchase the Special Offer. If the
individual is already an iVillage member, the "pop-up" window shall contain a
"Buy Now" or similar link enabling the member to purchase the Garden.com Product
on the Garden.com Web Site. Both parties agree to work together to ensure
dynamic generation of the "pop-up" window through the use of 'cookies' or
similar technology, but in no instance will the iVillage user be required to
register as a member of

5
<PAGE>
the iVillage Network in order to continue to shop at the Garden.com Web Site.
In all cases, the iVillage user must be an iVillage member to be able to
purchase the Special Offer.

(iii) Garden.com shall continue to display and implement on the
Garden.com Web Site its privacy policy as such is in effect from time to time.

(iv) [*]

C. Mutual Obligations of the Parties.

(i) During the term of this Agreement and subject to each party's
terms of service, retail strategy and privacy policy as they exist from time to
time, the parties agree to work together on a reasonable best efforts basis to
develop a program to enable users of the iVillage Network to execute
transactions on the Garden.com Web Site on a "One Click Basis", whereby a "One
Click Basis" shall mean the ability for a user of the iVillage Network to click
on a "Click to Buy" or similar link promoting a Garden.com Product on the
iVillage Network (entitled "Click to Buy" or similar language), which would
directly guide the user to a page where all relevant information required to
purchase the product has been pre-populated and the user may click on a
pre-determined link to consummate the desired transaction.

(ii) iVillage will negotiate exclusively with Garden.com through
[*], regarding the co-development and sponsorship of a "Garden" area within a
proposed iVillage "Home & Garden Channel", which iVillage anticipates shall be
to be launched to the public on or before [*].

3. Legal Compliance. Both parties shall operate their respective Web sites
-----------------
and services in compliance with all applicable laws and regulations and each
will be solely responsible for

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

6
<PAGE>
obtaining all required governmental authorizations necessary for the full
performance of its services as provided for under this Agreement.

4. Maintenance. Each Party shall monitor and periodically test the general
-----------
availability and operation of its Web site and shall seek to ensure its
availability at least ninety-eight percent (98%) of the time during each
calendar month, without taking into account a reasonable amount of scheduled
downtime for periodic system maintenance and back-up.

5. Customer Service, Fulfillment. Garden.com shall be solely responsible
-------------------------------
for the Garden.com Web Site including customer service for users linking to the
Garden.com Web Site through the iVillage Network, product support, quality and
availability of Garden.com Products, fulfillment of orders and returns.
Garden.com shall ensure that all users of the Garden.com Web Site placing an
order for Garden.com Products are timely advised of the status of such
purchase(s) including the timely confirmation of all orders. Garden.com shall
be solely responsible for (a) fulfilling all orders for its Garden.com Products
and (b) calculating, collecting and paying all appropriate taxes associated with
payment processing. The Garden.com Products offered via the iVillage Network
will be supported by the same warranty and return policy for the Garden.com
Products as offered through other Garden.com channels.

6. Reporting. Garden.com shall track sales of the Garden.com Products from
---------
the iVillage Network through a uniform resource locator and shall provide
iVillage with monthly reports in a form reasonably satisfactory to iVillage, no
later than fifteen (15) days following the end of each month of the term of this
Agreement. Such reports shall include, at a minimum, Page View traffic
generated from the iVillage Network, including from the iVillage Home Page to
the Garden.com Web Site, as well as the number of unique users, number of daily
orders, total revenue and average revenue per order.

7. Compensation.
------------

A. Initial Fee. Garden.com agrees to pay iVillage, upon signing of this
Agreement, an upfront, development, production and set up fee in the amount of
[*].

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

7
<PAGE>

B. Monthly Fee. In addition, during the term of this Agreement,
Garden.com shall pay iVillage an additional [*], which shall be due on or before
the first day of each month during the term of this Agreement. The first monthly
payment shall be due on or before November 1, 1999.

C. For purposes of this Agreement, the term "Cumulative Amount" shall mean
those amounts actually paid by Garden.com to iVillage inclusive of payments
described in Sections 7.A. and 7.B., as applicable. If this Agreement is
terminated pursuant to Section 8.A. or Section 2.A.(v), the total payment due
iVillage from Garden.com, shall be adjusted to indicate the number of
Impressions actually delivered to Garden.com during the term of this Agreement
(the "Adjusted Total Payment") and shall be calculated as follows: [*].

D. Commencing on the first day after the date that each of the
aforementioned payments are due, Garden.com shall be liable for a monthly rate
of interest of not more than 1-1/2%, which interest shall be in addition to such
fees due and owing to iVillage. All payments made via wire transfer should be
directed as follows: Chase Manhattan Bank, 1411 Broadway, New York, New York
10018; Account name: iVillage Inc.; ABA#: 021000021; Account #: 020-923406;
Reference: Garden.com. All payments made via check, should be sent to: iVillage
Inc., 170 Fifth Avenue, New York, New York 10010; Attention: Accounts
Receivable.

E. To the extent any of the abovementioned fees owing to iVillage are
outstanding, this Section 7.D. shall survive termination of this Agreement until
such fee has been paid to iVillage.

8. Term and Termination.
----------------------

A. The term of this Agreement shall commence on the Effective Date and
shall continue until June 30, 2002, unless terminated earlier as set forth
herein. For a period of not more than

_______________

* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.

8
<PAGE>
thirty (30) days which shall commence on or about one hundred twenty (120) days
prior to the expiration of the term of this Agreement, the parties shall
negotiate in good faith, a possible renewal of this Agreement and the terms and
conditions surrounding such. In the event that both parties do not reach
agreement regarding the co-development and sponsorship of a "Garden" area of a
proposed "Home and Garden" channel as described in Section 2C(ii) (the "Home and
Garden Agreement"), either party may terminate this Agreement by providing the
other party, with written notice of such termination by December 15, 1999. Such
termination to be effective January 1, 2000.

B. In the event of a material breach by either Party of any term of this
Agreement, the non-breaching Party may terminate this Agreement by written
notice to the breaching Party if the breaching Party fails to cure such material
breach within thirty (30) days of receipt of written notice thereof. In
addition, either Party may terminate this Agreement effective upon written
notice stating its intention to terminate in the event the other Party (i)
ceases to function as a going concern or to conduct operations in the normal
course of business, or (ii) has a petition filed by or against it under any
state or federal bankruptcy or insolvency law which petition has not been
dismissed or set aside within ninety (90) days of its filing.

9. Ownership. All intellectual or proprietary property and information,
---------
supplied or developed by either Party shall be and remain the sole and exclusive
property of the Party who supplied or developed same. Upon termination of this
Agreement and upon written request, the Party in receipt of the requesting
Party's intellectual or proprietary property and/or information pursuant to this
Agreement shall return such information to the requesting Party.

10. Publicity. iVillage and Garden.com agree to work together to draft a
---------
press release describing the relationship set forth herein,. The parties will
mutually agree upon the timing of such release and shall mutually determine
whether to wait until consummation of the Home & Garden Agreement before making
the release. The press release and any quotes from each Party's sources must be
promptly approved by the public relations department of the other Party (unless
otherwise required to be disclosed to a government or administrative agency)
within not more than three (3) business days upon receipt from the other Party
of such press release and/or quotes. Each Party must also be made aware of any
pre-briefings with outside parties at least five (5) days in

9
<PAGE>
advance of any pre-briefing. Notwithstanding the foregoing, this Section shall
not restrict either Party from complying with any governmental or administrative
order or requirement (including any SEC filing requirements), so long as the
party consults with the other party and attempts to address any good faith,
confidentiality and other concerns/objections raised by each party.

11. Licenses.
--------

A. Garden.com grants to iVillage, during the term of this Agreement, a
royalty-free, non-exclusive, worldwide license to display, (i) Garden.com's
tradenames, trademarks, service marks and logos (collectively, the "Garden.com
Marks") in connection with this Agreement; and (ii) certain content and other
material mutually determined by the parties (collectively, the "Garden.com
Material"), for placement within the iVillage Network, as set forth herein.
Except as set forth herein, no right, title, license, or interest in any
Garden.com Marks or Garden.com Material owned by Garden.com or any of its
affiliates is intended to be given to or acquired by iVillage by the execution
of or the performance of this Agreement. iVillage shall not use the Garden.com
Marks or the Garden.com Material for any purpose or activity except as expressly
authorized or contemplated herein. iVillage acknowledges that Garden.com is the
sole and exclusive owner of all trademarks, service marks, copyrights and other
intellectual property of any kind in the Garden.com Marks and the Garden.com
Material. iVillage agrees that (i) it shall do nothing inconsistent with such
ownership either during the term of the Agreement or afterwards; (ii) it shall
use the Garden.com Marks or the Garden.com Material in a manner that does not
deviate from Garden.com's rights in the Garden.com Marks; and (iii) it shall
take no action that shall interfere with or diminish Garden.com's right in the
Garden.com Marks.

B. iVillage grants to Garden.com, during the term of this Agreement, a
royalty-free, non-exclusive, worldwide license to display iVillage's tradenames,
trademarks, service marks and logos (collectively, the "iVillage Marks") as is
reasonably necessary to establish and promote the links to the iVillage Network,
provided, however, that any use of the iVillage Marks will be subject to
iVillage's prior written approval. Except as set forth herein, no right, title,
license, or interest in any iVillage Marks owned by iVillage or any of its
affiliates is intended to be given to or acquired by Garden.com by the execution
of or the performance of this Agreement. Garden.com shall not use the iVillage
Marks for any purpose or activity except as expressly authorized or contemplated

10
<PAGE>
herein. Garden.com acknowledges that iVillage is the sole and exclusive owner of
all trademarks, service marks, copyrights and other intellectual property of any
kind in the iVillage Marks. Garden.com agrees that (i) it shall do nothing
inconsistent with such ownership either during the term of the Agreement or
afterwards; (ii) it shall use the iVillage Marks in a manner that does not
deviate from iVillage's rights in the iVillage Marks; and (iii) it shall take no
action that shall interfere with or diminish iVillage's right in the iVillage
Marks.

12. Submissions. iVillage must receive all Garden.com submissions at least
-----------
five (5) business days prior to the scheduled date of publication for each
relevant graphic (GIF) file, or file of such other format as iVillage may
designate from time to time, supplied by Garden.com to be published by iVillage
on the iVillage Network and which may contain a link to Garden.com Web site or
to a Web site specified by Garden.com or any and all information and items
necessary for iVillage's publication of any material supplied by Garden.com,
including changes and updates thereto (collectively, "Garden.com Submissions"
and each, a "Garden.com Submission"). In the event iVillage does not receive a
Garden.com Submission prior to the applicable deadline, iVillage may publish in
substitution any prior Garden.com Submission until such time as iVillage can
reasonably begin publication of the promotion. If no such prior Garden.com
Submission is available, iVillage may publish in substitution, any material it
deems appropriate, in its sole discretion, until such time as iVillage can
reasonably begin publication of the promotion. All changes to and/or
cancellations of Garden.com Submissions must be made in writing or via e-mail
sent to [email protected], and received by iVillage prior to the applicable
deadline. iVillage may, in its sole reasonable discretion, refuse at any time
any Garden.com Submission and/or publish any advertisement provided by
Garden.com which it determines to be offensive, profane, inflammatory or
otherwise not in conformance with the standards imposed by iVillage on its
merchant partners.

13. Representations, Warranties and Indemnification.
--------------------------------------------------

A. iVillage represents and warrants that: (i) it is authorized to do
business under the rules of the state in which it is incorporated; (ii) it is
authorized to enter into this Agreement and to perform its obligations; (iii) it
has all required permits, licenses, and other governmental authorizations and
approvals; (iv) it shall comply with all local, state, federal, and
international

11
<PAGE>
laws and regulations in performing its obligations hereunder; and (v) the
services to be performed and the materials provided by it (a) do not infringe or
violate any patent, copyright, trade secret, trademark, or other proprietary
right, (b) do not violate any applicable law, statute, ordinance or regulation;
(c) are not knowingly defamatory or libelous; (d) are not lewd, pornographic or
obscene; (e) do not knowingly violate any laws regarding unfair competition,
antidiscrimination or false advertising; (f) do not promote violence or contain
hate speech; or (g) do not knowingly contain viruses, trojan horses, worms, time
bombs, cancelbots or other similar harmful or deleterious programming routines
and (h) are and will remain capable of correctly performing all functions,
calculations, comparisons, sequencing, displays and other processing of calendar
dates and date related data, before, during and after the year 2000, without
error or degradation of performance.

B. Garden.com represents and warrants that: (i) it is authorized to do
business under the rules of the state in which it is incorporated; (ii) it is
authorized to enter into this Agreement and to perform its obligations; (iii) it
has all required permits, licenses, and other governmental authorizations and
approvals; (iv) it shall comply with all local, state, federal, and
international laws and regulations in performing its obligations hereunder; and
(v) the services to be performed by it, the Garden.com Material, and the
materials provided by it (a) do not infringe or violate any patent, copyright,
trade secret, trademark, or other proprietary right; (b) do not violate any
applicable law, statute, ordinance or regulation; (c) are not knowingly
defamatory or libelous; (d) are not lewd, pornographic or obscene; (e) do not
knowingly violate any laws regarding unfair competition, antidiscrimination or
false advertising; (f) do not promote violence or contain hate speech; or (g) do
not knowingly contain viruses, trojan horses, worms, time bombs, cancelbots or
other similar harmful or deleterious programming routines; and (g) are and
will remain capable of correctly performing all functions, calculations,
comparisons, sequencing, displays and other processing of calendar dates and
date related data, before, during and after the year 2000, without error or
degradation of performance.

C. iVillage shall remain solely responsible for the operation of the
iVillage Network, and Garden.com shall remain solely responsible for the
operation of the Garden.com Web Site. Each Party (i) acknowledges that the
iVillage Network and the Garden.com Web Site may be subject to temporary
shutdowns due to causes beyond the operating Party's reasonable control, and
(ii) subject to the specific terms of this Agreement, retains sole right and
control over the programming, content and conduct of transactions over its
respective site or service. EACH PARTY SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY

12
<PAGE>
REGARDING (Y) THE AMOUNT OF SALES THAT GARDEN.COM MAY GENERATE DURING THE TERM
AND (Z) ANY ECONOMIC OR OTHER BENEFIT THAT THE OTHER PARTY MIGHT OBTAIN THROUGH
ITS PARTICIPATION IN THIS AGREEMENT.

D. iVillage agrees to indemnify, defend and hold harmless Garden.com and
its parent, subsidiaries, affiliates, successors and assigns from any and all
losses, liabilities, damages, actions, claims, expenses and costs (including
reasonable attorneys' fees) relating to a breach of this Agreement by iVillage
or (ii) iVillage's operations of the iVillage Network.

E. Garden.com agrees to indemnify, defend and hold harmless iVillage and
its parent, subsidiaries, affiliates, successors and assigns from any and all
losses, liabilities, damages, actions, claims, expenses and costs (including
reasonable attorneys' fees) relating to (i) a breach of this Agreement by
Garden.com, or (ii) the use or purchase of any Garden.com Product.

F. In connection with any claim or action described in this Section 13,
the Party seeking indemnification (i) will give the indemnifying Party prompt
written notice of the claim, (ii) will cooperate with the indemnifying Party (at
the indemnifying Party's expense) in connection with the defense and settlement
of the claim, and (iii) will permit the indemnifying Party to control the
defense and settlement of the claim, provided that the indemnifying Party may
not settle the claim without the indemnified Party's prior written consent
(which will not be unreasonably withheld). Further, the indemnified Party (at
its cost) may participate in the defense and settlement of the claim.

14. Confidentiality. Other than as required or appropriate for securities
---------------
laws disclosure (in which case the partner shall consult with one another over
the breadth and scope of the required disclosure), iVillage and Garden.com agree
to keep in confidence, all Confidential Information. All Confidential
Information shall remain the sole property of the disclosing Party and its
confidentiality shall be maintained and protected by the receiving Party with at
least the same degree of care as the receiving Party uses for the protection of
its own confidential and proprietary information. The receiving Party shall not
disclose such Confidential Information to any third party. These restrictions
shall not apply to any Confidential Information: (v) after it has become

13
<PAGE>
generally available to the public without breach of this Agreement by the
receiving Party; (w) is rightfully in the receiving Party's possession before
disclosure to it by the disclosing Party; (x) is independently developed by the
receiving Party; (y) is rightfully received by the receiving Party from a third
party without a duty of confidentiality; or (z) is required to be disclosed
under operation of law or administrative process. Upon expiration or
termination of this Agreement for any reason, Garden.com will promptly and at
the direction of iVillage, either destroy or return to iVillage, and will not
take or use, all items of any nature which belong to iVillage and all records
(in any form, format or medium) containing or relating to Confidential
Information.

15. Limitation of Liability. NEITHER PARTY SHALL HAVE ANY LIABILITY FOR ANY
-----------------------
INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT
LIMITATION, LOSS OF PROFIT OR BUSINESS OPPORTUNITIES, WHETHER OR NOT THE PARTY
WAS ADVISED OF THE POSSIBILITY OF SUCH. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE SERVICES
CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.

16. Miscellaneous Provisions.
-------------------------

A. Nothing in this Agreement shall imply any partnership, joint venture or
agency relationship between the parties and neither party shall have the power
to obligate or bind the other except for what is stated in this Agreement.

B. The following sections shall survive termination or expiration of this
Agreement: 1, 6, 7.E., 9, 13, 14, 15 and 16.

C. Except as otherwise expressly provided in this Agreement, neither party
shall be liable for any breach of this Agreement for any delay or failure of
performance resulting from any cause beyond such party's reasonable control,
such as: weather, strikes or labor disputes, war, terrorist

14
<PAGE>
acts, riots or civil disturbances, government regulations, acts of civil or
military authorities, or acts of God provided the party affected takes all
reasonably necessary steps to resume full performance.

D. This Agreement constitutes the binding agreement between the parties,
represents the entire agreement between the parties and supersedes all prior
agreements relating to what is stated in this Agreement and any changes to this
Agreement must be in writing and signed by both parties.

E. The rights granted under this Agreement to Garden.com shall be
applicable to iVillage existing Web sites and shall not apply to any future
acquisition by iVillage of Web sites or content, joint ventures or similar
business combinations, so long as such acquisition does not materially and
adversely affect iVillage's fulfillment of its obligations hereunder.

F. This Agreement shall be governed by the laws of the State of New York
without regard to the conflicts of laws principles thereof.

G. Neither party shall sell, transfer or assign this Agreement or the
rights or obligations hereunder, without the prior written consent of the other
party, such consent not to be unreasonably withheld or delayed.

H. All notices and requests in connection with this Agreement shall be
deemed given as of the day they are received either by messenger, delivery
service, or in the United States mails, postage prepaid, certified or
registered, return receipt requested, or sent by overnight courier with charges
prepaid and a confirming fax and address as follows:

If to iVillage:
-----------------
iVillage Inc.
212 Fifth Avenue
New York, NY 10010
Tel: (212) 206-3100
Fax: (212) 604-9133
Attention: General Counsel

15
<PAGE>

If to Garden.com:
------------------
Garden.com, Inc.
3301 Steck Avenue
Austin, TX 78757
Tel: (512) 532-4000
Fax: (512) 532-4100
Attention: Finance

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

GARDEN.COM, INC. IVILLAGE INC.

Jim O'Connell Steven A. Elkes
- ------------------------ -------------------------------
(Name) (Name)

Director Online Marketing Senior Vice President
- ------------------------ -------------------------------
(Title) (Title)

10/15/99 10/15/99
- ------------------------ -------------------------------
(Date) (Date)

/s/ Jim O'Connell /s/ Steven A. Elkes
- ------------------------ -------------------------------
(Signature) (Signature)

<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 19,309
<SECURITIES> 29,380
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 793
<CURRENT-ASSETS> 54,681
<PP&E> 6,488
<DEPRECIATION> (1,560)
<TOTAL-ASSETS> 65,230
<CURRENT-LIABILITIES> 5,239
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 59,815
<TOTAL-LIABILITY-AND-EQUITY> 65,230
<SALES> 3,317
<TOTAL-REVENUES> 3,608
<CGS> (2,609)
<TOTAL-COSTS> (2,630)
<OTHER-EXPENSES> (8,981)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 791
<INCOME-PRETAX> (7,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,212)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)

</TABLE>