GREATFOOD COM INC, S-1/A, 1999-07-23

GREATFOOD COM INC
S-1/A, 1999-07-23
CATALOG & MAIL-ORDER HOUSES

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As filed with the Securities and Exchange Commission on July 23, 1999

Registration No. 333-78885
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 3
TO
FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

GREATFOOD.COM, INC.

(Exact name of Registrant as specified in its charter)

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WASHINGTON 5961 91-1694451
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification
No.)
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2731 EASTLAKE AVENUE EAST
SEATTLE, WA 98102
(206) 322-7539

(Address and telephone number of principal executive offices)

BENJAMIN NOURSE
CHIEF EXECUTIVE OFFICER
GREATFOOD.COM, INC.
2731 EASTLAKE AVENUE EAST
SEATTLE, WA 98102
(206) 322-7539

(Name, address and telephone number of agent for service)
--------------------------

COPIES TO:

THOMAS S. HODGE, ESQ. BRUCE ALAN MANN, ESQ.
NOELLE E. COOPER, ESQ. JAMES H. LAWS, ESQ.
SOFIA S. MICHELAKIS, ESQ. Morrison & Foerster LLP
Heller Ehrman White and McAuliffe 425 Market Street
6100 Columbia Center San Francisco, CA 94105-2482
701 Fifth Avenue (415) 268-7000
Seattle, WA 98104-7098
(206) 447-0900

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------

If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act, please
check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /

If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>

INITIAL PUBLIC OFFERING
PROSPECTUS
SUBJECT TO COMPLETION, JULY
23, 1999

2,500,000 SHARES OF COMMON STOCK
$ PER SHARE

[LOGO]

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GreatFood.com, Inc.
2731 Eastlake Avenue East
Seattle, Washington 98102

THE OFFERING
PER SHARE TOTAL
----------- ---------
Public price............... $ $
Underwriting discounts
and commissions.......... $ $
Proceeds to
GreatFood.com.............. $ $
GreatFood.com is an electronic commerce company
focused on the sale of gourmet and specialty food
over the Internet to the retail, corporate gift and
wholesale markets.

This is our initial public offering and no public
market currently exists for our shares. We expect
that the public offering price in the offering will
be between $10.50 and $13.50 per share. This price
may not reflect the market price of our shares
after this offering.
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PROPOSED TRADING SYMBOL:
THE NASDAQ NATIONAL MARKET - GTFD

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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF
YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

We have entered into a firm commitment underwriting agreement with the
underwriters for the sale of shares in this offering. We have granted the
underwriters a 30 day option to purchase up to an additional 375,000 shares of
our common stock to cover over-allotments. The underwriters expect to deliver
shares of common stock to purchasers on , 1999.

THE METHOD OF DISTRIBUTION BEING USED BY THE UNDERWRITERS IN THIS OFFERING
DIFFERS SOMEWHAT FROM THAT TRADITIONALLY EMPLOYED IN FIRM COMMITMENT
UNDERWRITTEN PUBLIC OFFERINGS. IN PARTICULAR, THE PUBLIC OFFERING PRICE AND
ALLOCATION OF SHARES WILL BE DETERMINED PRIMARILY BY AN AUCTION PROCESS
CONDUCTED BY THE UNDERWRITERS AND OTHER SECURITIES DEALERS PARTICIPATING IN THIS
OFFERING. A MORE DETAILED DESCRIPTION OF THIS PROCESS IS INCLUDED IN "PLAN OF
DISTRIBUTION."

, 1999
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[INSIDE FRONT COVER ART DESCRIPTION]

[GREATFOOD.COM LOGO]

[Images depict pages of the GreatFood.com Web site, including the GreatFood.com
home page at www.greatfood.com and a page from GreatFood.com retail shop. The
images incorporate logos of Verisign and Truste.]

From our home page, visitors can access several different areas of our site,
each designed to enhance the browsing and shopping experience for its intended
audience. The retail shop offers a variety of products for sale to retail
customers. The corporate gifts area offers selected products and etiquette tips
specifically geared for corporate gifting. Our wholesale area offers products by
the case at wholesale prices to registered specialty shops, gift basket
companies, caterers and restaurants. About greatfood.com provides information
about our company history, policies, becoming a supplier, testimonials and
awards we have won.

Site navigation tabs on every page allow visitors to move easily between the
different areas of the site.

Our electronic shopping cart and online credit card processing make the ordering
process simple, convenient and secure.

We emphasize special selections which change regularly, including our Express
Shoppe, Special Offers, and Seasonal Suggestions.

We make it easy to shop for our wide variety of specialty food products by
offering customers the ability to browse products by food category, meal
occasion, price range or brand. Or they can search for something specific by
typing in a keyword.

It's easy to access food related information, including product reviews written
by our in-house food expert, recipes, and an online message forum with comments
and suggestions from other visitors.

We emphasize customer service throughout the site. Frequently asked questions,
shipping costs and policies, contract phone numbers and security information are
all readily accessible.

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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

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TABLE OF CONTENTS

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PAGE
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Prospectus Summary......................................................................................... 1

The Offering............................................................................................... 2

Summary Financial Data..................................................................................... 3

Risk Factors............................................................................................... 4

Special Note Regarding Forward Looking Statements.......................................................... 16

Use of Proceeds............................................................................................ 17

Dividend Policy............................................................................................ 17

Capitalization............................................................................................. 18

Dilution................................................................................................... 19

Selected Financial Data.................................................................................... 20

Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21

Business................................................................................................... 30

Management................................................................................................. 46

Relationships with GreatFood.com and Related Transactions.................................................. 53

Principal Shareholders..................................................................................... 55

Description of Capital Stock............................................................................... 57

Shares Eligible For Future Sale............................................................................ 60

Plan of Distribution....................................................................................... 61

Legal Matters.............................................................................................. 65

Experts.................................................................................................... 65

Where to Find Additional Information About GreatFood.com................................................... 65

Index to Financial Statements.............................................................................. F-1
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"GreatFood.com" and the GreatFood.com logo are trademarks of GreatFood.com,
Inc. All other trademarks or tradenames referred to in this prospectus are the
property of their respective owners.

Information contained on our Web site does not constitute a part of this
prospectus.

i
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PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION DESCRIBED MORE FULLY ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.

GREATFOOD.COM

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Our Business:.............. GreatFood.com is an electronic commerce company focused on the
sale of gourmet and specialty food over the Internet to the
retail, corporate gift and wholesale markets.

Our Opportunity:........... There is no dominant retailer within the gourmet and specialty
food market--a market which we believe exceeded $30 billion at
the retail level in 1998. Furthermore, this market is
characterized by a fragmented supplier and distribution
network. This limits the product choices and shopping
convenience available to both retail and wholesale customers.
As a result of these factors, we believe electronic commerce
provides opportunities to improve the specialty food shopping
experience and selection in both the retail and wholesale
markets.

Our Strategy:.............. We plan to utilize the following strategies to be the leading
online provider of specialty food:

- expand brand recognition;

- utilize our suppliers as our "virtual warehouses";

- expand the breadth and depth of our product offerings;

- take advantage of the relationship between retail and
wholesale distribution channels;

- acquire leading market share to leverage economies of scale;
and

- expand internationally.

Our Distribution:.......... We have established strategic supplier relationships with
specialty food manufacturers, distributors and importers who
ship products directly to customers on our behalf. As a result,
each of our suppliers serves as a GreatFood.com "virtual
warehouse." This direct supplier to customer fulfillment model
enables us to:

- minimize inventory related risks and holding costs;

- limit overhead costs;

- offer a broad range of perishable and non-perishable
products; and

- provide prompt delivery.

While we believe this model provides significant advantages, it
also presents challenges associated with ensuring timely
shipment and packaging which is consistent with our brand
identity.
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1
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Our Marketing:............. We target potential online customers, both retail and
wholesale, in a proactive manner. We have entered into
promotional agreements or partnering arrangements with Peapod,
GeoCities, America Online and Excite. We use a mix of
traditional and online marketing techniques, including online
and print advertising, direct mail, public relations and trade
shows.

Our Competition:........... Although there is no dominant retailer in the gourmet and
specialty food market, the specialty food market is extremely
competitive. We face competition from traditional physical
store and catalog retailers, as well as other online retailers.
Moreover, we expect more online competitors in the future as
barriers to entry are low.

Our Web Site:.............. Our online store is accessed on the Internet at
WWW.GREATFOOD.COM. It provides pictures and detailed
information relating to specialty food products, and is
conveniently organized by category, brand, or meal occasion.
Shoppers can search for, browse and select products throughout
the store and place their selection in a "virtual shopping
cart" for purchase. Traffic on our Web site reached 1.2 million
"unique visits" in 1998 and approximately 1.6 million "unique
visits" in the first six months of 1999.
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THE OFFERING

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Type of security............................. Common stock
Common stock offered......................... 2,500,000 shares
Common stock to be outstanding
after this offering........................ 6,527,532 shares(1)
Use of proceeds.............................. For expansion of advertising and promotion,
implementation of a new order processing
system, increases of our management team and
personnel, expansion of our business
operations and general corporate purposes.
See "Use of Proceeds" at page 18 for more
information.
Proposed Nasdaq National Market Symbol....... GTFD
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(1) Does not include 1,550,888 shares reserved as of June 30, 1999 for future
issuance as follows: (a) 884,000 shares of common stock reserved for
issuance pursuant to outstanding options granted under our 1997 Stock
Incentive Plan; (b) 343,811 shares of common stock reserved for issuance
pursuant to outstanding warrants; and (c) 323,077 shares of common stock
reserved for issuance upon conversion of Series C preferred stock issuable
upon the exercise of warrants which will only become exercisable if the per
share price in this offering is less than $10.00. This also does not include
1,116,000 shares reserved for issuance pursuant to future grants under our
1997 Stock Incentive Plan and our 1999 Employee Stock Purchase Plan.

2
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SUMMARY FINANCIAL DATA
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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SIX
FISCAL YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
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1996 1997 1998 1998 1999
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STATEMENT OF OPERATIONS DATA:
Net revenues............................ $ 18 $ 120 $ 748 $ 65 $ 410
Gross profit............................ 4 28 143 12 64
Loss from operations.................... (61) (83) (1,493) (145) (2,524)
Net loss................................ (40) (82) (1,463) (145) (2,488)
Basic and diluted net loss per share.... (0.04) (0.06) (0.93) (0.09) (1.58)
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AS OF JUNE 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents......................... $3,438 $ 3,438 $ 30,998
Total assets...................................... 4,210 4,210 31,770
Mandatorily redeemable convertible preferred
stock........................................... 2,993 -- --
Total shareholders' equity........................ 396 3,389 30,949
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The pro forma information above gives effect to the conversion of all
outstanding shares of preferred stock into common stock upon the closing of this
offering.

The pro forma as adjusted information above also gives effect to our receipt
of the estimated net proceeds from the sale of 2,500,000 shares of common stock
in this offering at an assumed public offering price of $12.00 per share.

UNLESS OTHERWISE INDICATED, ANY INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES THAT:

- THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION; AND

- ALL OUTSTANDING CONVERTIBLE PREFERRED STOCK WILL BE CONVERTED TO COMMON
STOCK BEFORE THIS OFFERING IS COMPLETED.

3
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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND ALL OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IF THIS OCCURS, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF THE
MONEY YOU PAID TO BUY OUR COMMON STOCK.

RISKS RELATED TO GREATFOOD.COM'S OPERATIONS

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS.

We were incorporated in August 1995, began operations in March 1996. As of
June 30, 1999 we had generated total revenues of $1,295,000 since inception.
Accordingly, we have a limited operating history upon which you may evaluate us.
You must consider our prospects in light of the risks, uncertainties, expenses
and difficulties frequently encountered by early stage companies like us in new
and rapidly evolving markets, including the market for the sale of goods and
services on the Internet. To address these risks we must:

- attract and retain a larger number of retail and business customers to our
online store;

- increase our profit margin;

- increase awareness of the GreatFood.com brand;

- attract a significant number of high quality suppliers and expand our
product offerings;

- work with our suppliers to develop and expand order fulfillment processes
and systems to ensure prompt delivery of customer orders;

- respond effectively to competitive pressures;

- upgrade and develop our information systems to effectively manage rapidly
expanding operations and traffic on our Web site;

- attract, retain and motivate qualified personnel; and

- anticipate and adapt to a developing market.

We may not be able to successfully accomplish all of these objectives, and
if we fail to do so, our business, financial condition, and operating results
will be harmed. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" beginning on page 21 for more information on our
limited operating history.

WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE
FUTURE.

We have not achieved profitability and expect to incur significant operating
losses for the foreseeable future. As of June 30, 1999, we had an accumulated
deficit of $4.0 million. We incurred net losses of $2.5 million during the first
six months of 1999, $1.4 million in 1998, $81,937 in 1997, and $39,833 in 1996.
We expect our operating losses will increase in future periods because we expect
to incur additional costs and expenses related to:

- marketing and promotional activities to enhance the GreatFood.com brand;

- implementation of a new order processing system to link us to our
suppliers, improve order processing and expand the capacity of order
fulfillment;

- improvements and enhancements to our Web site;

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- expansion of our retail product offerings and Web site content;

- expansion of our wholesale program and implementation of our international
program; and

- attracting and retaining talented personnel.

We will need to generate significant revenues to achieve profitability and
we may not be able to do so. Even if we do achieve profitability, we may not be
able to sustain it. If our revenues grow more slowly than we anticipate or if
our operating expenses exceed our expectations, our financial results would be
harmed. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 21 for more information on our
operating history.

OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. WE MAY FAIL TO MEET
THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS WHICH COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECREASE SIGNIFICANTLY.

Our operating results have fluctuated on a quarterly basis in the past and
may fluctuate significantly in the future. Many of the factors which could cause
these fluctuations are outside of our control. It is likely that in some future
quarter our operating results may fall below the expectations of securities
analysts and investors which may cause our stock price to significantly decline.
Factors that may harm our business or cause our operating results to fluctuate
include those discussed in greater detail in this section and the following:

- our ability to obtain new customers or encourage repeat purchases;

- the ability of our competitors to offer new or enhanced Web sites,
services or products;

- fluctuations in the amount of consumer spending on specialty food and
gifts;

- our ability to manage order fulfillment and maintain or increase gross
margins;

- our ability to obtain a breadth of desirable products for sale on our Web
site;

- the termination of existing, or failure to develop new, marketing
relationships which would give us exposure to traffic on other Web sites;
and

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

BECAUSE THE DEMAND FOR OUR PRODUCTS IS SEASONAL, OUR QUARTERLY SALES WILL
CONTINUE TO FLUCTUATE AND WE MAY HAVE INSUFFICIENT CASH FLOW TO MAINTAIN OUR
OPERATIONS.

We have experienced, and expect to continue to experience, substantial
seasonality in our sales. Approximately 86% of our 1998 net sales were realized
in the fourth quarter. Since most of our operating costs are not directly
related to our sales volume, these seasonal sales patterns may result in
insufficient cash flow to support our operations during the times of the year
when our sales are lower. This seasonality reflects a combination of seasonal
fluctuations in Internet usage as well as traditional retail seasonality for the
gift and "special occasion" oriented products we offer. We plan to increase our
advertising and promotional spending even more significantly in the third
quarter of 1999 and hire additional employees to handle the increased order
activity which we expect to occur in the fourth quarter of 1999. If sales fall
below expectations in the fourth quarter, our quarterly or annual results could
be below the expectation of securities analysts and investors which could cause
our stock price to decline.

5
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WE MAY NOT BE ABLE TO ACHIEVE THE BROAD RECOGNITION OF THE GREATFOOD.COM BRAND
NECESSARY FOR SUCCESS.

We believe that broader recognition and a favorable consumer perception of
the GreatFood.com brand are essential to our future success. Accordingly, we
intend to continue to pursue a substantial advertising and marketing campaign to
establish the GreatFood.com brand. This campaign will involve significant
expense. See "Use of Proceeds" on page 17. If we are unable to achieve broader
brand recognition, we may be unable to increase future revenues and we may never
recover these expenses. In addition, even if brand recognition increases, the
number of new customers or the number of transactions in our online store, and
consequently our revenues, may not increase.

THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL OR OUR FAILURE TO
HIRE, INTEGRATE OR RETAIN OTHER QUALIFIED PERSONNEL COULD DISRUPT OUR BUSINESS.

We depend upon the continued services and expertise of our Chairman and
Chief Executive Officer, Benjamin Nourse, and our President, William Cuff. The
loss of the services of Mr. Nourse or Mr. Cuff may make us unable to continue
our operations. Mr. Nourse and Mr. Cuff are not bound by employment agreements
for any specific term. Our future success also depends on our ability to attract
and retain additional qualified technical, operating, marketing and customer
service personnel. Competition for qualified personnel in the Internet industry
is intense and we may not be able to retain or hire necessary personnel.

OUR EFFORTS TO DEVELOP OUR WHOLESALE BUSINESS MAY NOT BE SUCCESSFUL.

Prior to December 1998, we focused our operations exclusively on sales to
retail consumers. In December 1998, we launched an initial version of our
wholesale program through which we sell products to retailers in bulk quantities
at wholesale prices. Our expansion into this area will require significant
additional expenses and management resources to develop, market and promote this
program. As a result, this expansion may strain our management, financial and
operational resources. To date, we have had limited experience in the wholesale
market and our wholesale sales have only generated limited revenue. Certain
aspects of our business model may limit the growth of our wholesale business.
These include:

- retailers' unfamiliarity with Internet commerce;

- limitations of our current order processing system which require us to
base our shipping charges on estimated rather than actual costs;

- our current inability to extend credit to wholesale purchasers; and

- potentially higher shipping costs due to our inability to consolidate
orders because we do not operate a warehouse.

As a result, we may not be able to successfully expand into the wholesale
market and may not be able to recover our expenses in developing this program.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" on page 21.

OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL.

We are in the process of developing a Canadian GreatFood.com site and
establishing a network of suppliers in Canada which will offer products to
customers in Canada. In addition, we currently contemplate replicating our
online store in other international markets. To date, we have no experience in
distributing products on an international basis and in developing localized
versions of our business

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model. We cannot assure you that our international efforts will be successful.
We expect to incur significant costs in:

- establishing international distribution networks;

- promoting our brand name internationally;

- developing localized versions of our Web site in other countries;

- complying with local regulations;

- overseeing the distribution of products in foreign markets; and

- modifying our order processing system for each international market we
enter.

If our international revenues are inadequate to offset the expense of
establishing and maintaining foreign operations, our business could be harmed.
In addition, there are several risks inherent in doing business on an
international level. These risks include:

- potentially complex regulatory requirements;

- export and import restrictions;

- tariffs and other trade barriers;

- difficulties in staffing and managing foreign operations;

- fluctuations in currency exchange rates;

- seasonal fluctuations in business activity in other parts of the world;
and

- potentially adverse tax consequences.

Any of these risks could adversely impact the success of our international
operations.

IF WE ENTER NEW BUSINESS CATEGORIES THAT DO NOT ACHIEVE MARKET ACCEPTANCE, OUR
BUSINESS COULD BE SERIOUSLY HARMED.

We may choose to expand our operations by developing new Web sites, offering
products or services not currently offered, or expanding our market presence
through relationships with third parties. Although we have no present
understandings, commitments or agreements with respect to any material
acquisitions or investments, we may pursue the acquisition of new or
complementary businesses, products or technologies. Any new Web site or product
category that is launched by us but not favorably received by consumers could
damage our brand or reputation and harm our net sales and results of operations.
In addition, any expansion of our business in any of these manners would require
significant additional expenses, and strain our management, financial and
operational resources.

BECAUSE WE DO NOT HAVE LONG TERM OR EXCLUSIVE CONTRACTS WITH OUR SUPPLIERS, WE
MAY BE UNABLE TO OFFER A SUFFICIENT SELECTION OF HIGH QUALITY SPECIALTY FOOD
PRODUCTS AND MAY LOSE CUSTOMERS.

We depend on many specialty food suppliers for products and order
fulfillment. However, sales of products from our five largest suppliers
accounted for approximately 42% of our net revenues in 1998. As a result, we are
substantially dependent on the continued participation of these key suppliers.
We do not have exclusive arrangements with any of our suppliers, and in some
cases, do not have a formal contractual relationship. Our suppliers may
terminate their relationship with us, elect to supply our competitors or decide
to compete with us by offering products on their own Web sites. If we are unable
to maintain a large supplier base and offer an attractive selection of specialty
food products, or if we lose the participation of key suppliers, we may be
unable to attract new customers, or may lose current customers, which would
reduce our ability to generate revenue.

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OUR SUPPLIERS MAY NOT BE ABLE TO FULFILL CUSTOMER ORDERS IN A TIMELY MANNER,
WHICH COULD CAUSE US TO LOSE SALES AND HARM OUR BUSINESS.

We currently rely on our suppliers to fulfill our customers' orders directly
and therefore do not maintain inventory or operate distribution centers. Failure
of our suppliers to deliver products to our customers in a timely manner could
cause us to lose sales or damage our reputation which would be harmful to our
business. Many of our suppliers are small businesses with limited production and
delivery capabilities. As a result, during the 1998 holiday season, several of
our suppliers were not able to fulfill orders in a timely manner, which caused
us to experience customer complaints on approximately 3% of the orders placed
with us during that season and, in some cases, lost sales.

WE MAY CHOOSE TO ESTABLISH DISTRIBUTION CENTERS AND STOCK SOME NON-PERISHABLE
PRODUCTS WHICH WOULD INCREASE OUR EXPENSES AND EXPOSE US TO INVENTORY RELATED
RISKS.

The inventory practices of many online retailers have evolved from largely
non-inventory models to limited or expanded inventory and direct distribution
models. We will evaluate on an ongoing basis whether we should maintain
inventories or distribution centers. We may choose to do so for a number of
reasons which are described more fully in "Business -- Supplier Relationships"
beginning on page 37.

If we decide to maintain our own distribution centers:

- our operating and capital costs would significantly increase;

- we would be exposed to additional inventory holding risks; and

- our product offerings could be limited.

IF THE CARRIERS WHICH DISTRIBUTE OUR PRODUCTS EXPERIENCE BUSINESS INTERRUPTIONS,
OUR BUSINESS WOULD BE SERIOUSLY HARMED.

We rely upon third party carriers for delivery of products from our
suppliers to our customers. As a result, we face the risk that these carriers
may not always be able to promptly deliver products to our customers. For
example, these carriers' delivery capabilities may be affected adversely by
employee strikes or inclement weather. Since a disproportionate amount of our
sales are made in the fourth quarter, any inability to deliver our products
during this time would substantially reduce our annual revenues and severely
harm our business. In addition, failure to deliver products to our customers in
a timely manner would harm our reputation and brand name.

WE MAY BE HELD LIABLE IF CUSTOMERS ARE HARMED BY ANY OF THE PRODUCTS SOLD ON OUR
WEB SITE.

Food products are subject to spoilage and can convey a variety of food
related human illnesses, including allergies and bacterial contamination.
Customers may sue us if they are harmed by any products purchased in our online
store. Liability claims could require us to spend significant time and money in
litigation or to pay significant damages which could harm our business. Although
our supplier contracts generally require suppliers to maintain product liability
insurance, and we carry insurance for product liability claims, our insurance
carrier may deny coverage in any particular case or the amount of damages could
exceed our policy limits of $2 million.

OUR CONVERSION TO A NEW ORDER PROCESSING SYSTEM MAY NOT BE SUCCESSFUL AND
CONSEQUENTLY WE MAY BE UNABLE TO PROCESS ORDERS AND MAY LOSE CUSTOMERS.

We are in the process of converting to a new customer order processing
system which eventually will include electronic links between our order
processing system and many of our suppliers. If this system does not work
effectively, or if we cannot deploy it without system downtime, particularly
during

8
<PAGE>

the fourth quarter, we may be unable to process orders, may lose customers and
our business could be severely harmed. The implementation of this system will be
a complex undertaking. The conversion to new technologies and systems is often
accompanied by unexpected technical problems, operational disruptions and
delays. This may happen to us, and we may lose sales, customers, or suppliers as
a result. Also, if we do not successfully implement this system, we may
experience difficulties fulfilling orders through our remote supplier network as
our sales increase. These difficulties may cause customer complaints, damage to
our reputation, or lost sales which would be harmful to our business. See
"Business -- Technology and Intellectual Property" on page 42 for more
information.

YEAR 2000 READINESS ISSUES OF OUR MATERIAL SYSTEMS OR THOSE OF OUR SUPPLIERS OR
OTHER THIRD PARTIES MAY PREVENT US FROM OPERATING OUR WEB SITE EFFECTIVELY OR
CONDUCTING OTHER FUNDAMENTAL ASPECTS OF OUR BUSINESS.

We have been advised that our existing order processing system is not fully
year 2000 compliant and our credit card processing company has indicated it will
not support this system after October 31, 1999 unless we upgrade to a version
which is year 2000 compliant. We are currently in the process of replacing this
system with a new order processing system. We have received assurances from the
third party supplier of this new system that it is year 2000 compliant and that
the transfer of our order processing functions to the new system can be
completed by October 31, 1999. In addition, we are assessing the year 2000
readiness of other third party supplied software, computer technology, and
embedded systems used in our business. Following this review, we may need to
replace or modify other systems. If we are not able to properly complete the
replacement of our order processing system or the assessment and remediation of
our other software, technology and systems in a timely manner, we may be unable
to operate our Web site, process customer orders, and perform other necessary
operations which would harm our business.

Additionally, our business could be harmed if the systems used by third
parties material to our operations, including Internet service providers,
financial institutions which process credit card orders, telecommunications
vendors, our suppliers, and third party carriers, or the Internet in general,
are not year 2000 compliant. We are still evaluating and have not yet developed
a contingency plan to address situations that may result if we, our suppliers,
other third parties, or the Internet are unable to achieve year 2000 compliance.
The cost of developing and implementing such a plan, if necessary, could be
significant. Any failure of our material systems, our suppliers' or other third
parties' material systems, or the Internet, to be year 2000 compliant could
prevent us from operating our Web site effectively, taking product orders,
making product deliveries or conducting other fundamental aspects of our
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Readiness" on page 27 for more detailed
information.

WE ARE GROWING RAPIDLY AND MAY HAVE DIFFICULTY MANAGING OUR GROWTH EFFECTIVELY.

We have increased the number of our employees from 2 as of March 31, 1996 to
22 as of June 30, 1999. In addition, we have increased the number of our
suppliers from approximately 10 to 72 in the same time period. We expect to
continue to grow rapidly both by adding new products and hiring new employees.
This growth is likely to place a significant strain on our management, resources
and systems. If we cannot effectively manage our growth, our business could be
harmed. To manage our growth, we must improve our existing systems or implement
new systems for operational and financial management and effectively train and
manage our growing employee base. If we acquire new businesses, we will also
need to integrate new operations, technologies and personnel.

WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.

We believe that our current cash resources, combined with the net proceeds
from this offering, will meet our anticipated working capital and capital
expenditure requirements for at least the 18 months

9
<PAGE>
following the date of this prospectus. After that time, we may need to raise
additional capital. Alternatively, we may need to raise additional funds sooner
to:

- fund more rapid expansion;

- respond to competitive pressures;

- acquire complementary businesses; or

- finance our operations if our revenues are lower than expected or our
expenses are greater than expected.

We may not be able to obtain the additional financing we may require on
favorable terms, or at all. If adequate capital is not available on acceptable
terms, we may not be able to fund expansion, take advantage of opportunities,
respond to competitive pressures or acquire complementary businesses.

WE MAY ISSUE ADDITIONAL SECURITIES TO FUND OUR CAPITAL REQUIREMENTS WHICH WOULD
DILUTE OUR SHAREHOLDERS' INTEREST.

We may need to issue equity or convertible debt securities to fund future
capital requirements. If we do so, the percentage ownership of our then current
shareholders will be reduced. In addition, these securities may have rights,
preferences or privileges senior to those of our current shareholders.

WE MAY ENGAGE IN FUTURE ACQUISITIONS WHICH MAY HARM OUR FINANCIAL RESULTS, CAUSE
OUR STOCK PRICE TO DECLINE, OR DILUTE OUR SHAREHOLDERS' INTEREST IN
GREATFOOD.COM.

As part of our business strategy, we expect to review acquisition prospects
that would complement our current content offerings, increase our market share
or otherwise offer growth opportunities. However, to date we have not had any
experience in these types of transactions and have no current agreements or
commitments with respect to any acquisitions. These acquisitions may harm our
operating results or cause our stock price to decline because we may:

- issue equity or equity related securities that dilute our current
shareholders' percentage ownership of GreatFood.com;

- incur substantial debt or assume contingent liabilities of an acquired
business;

- be required to amortize a significant amount of intangible assets acquired
in an acquisition;

- have difficulty assimilating acquired operations, technologies or
products;

- experience diversion of our management's attention from our other business
operations; or

- lose key employees of acquired businesses or of GreatFood.com.

ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER DOCUMENTS AND WASHINGTON LAW
MAY DELAY OR PREVENT A CHANGE OF CONTROL.

Provisions of our articles of incorporation, our bylaws and Washington law
could:

- delay or prevent a change in control of our company;

- discourage bids for our common stock at a premium over the market price;
or

- prevent changes in management.

See "Description of Capital Stock" on page 57 for more detailed information.

10
<PAGE>
RISKS RELATED TO GREATFOOD.COM'S INTERNET BUSINESS AND PROSPECTS

THE SUCCESS OF OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF INTERNET COMMERCE,
WHICH GROWTH MAY NOT OCCUR.

Our success is highly dependent upon continued growth in the use of the
Internet generally and in particular as a medium for electronic commerce. If
Internet usage does not grow or grows slower than expected, our business will
suffer. Internet use by consumers is still in an early stage of development and
a sufficiently broad base of consumers may not adopt, or continue to use, the
Internet as a medium for commerce. A number of factors may inhibit the growth of
Internet usage, including:

- failure to develop an adequate network infrastructure to support
substantial growth in usage;

- increased governmental regulation and taxation;

- consumer concerns about security of electronic commerce transactions; and

- inconsistent quality of service and limited availability of cost
effective, high speed access.

OUR SUCCESS DEPENDS ON THE RELIABILITY OF THE INTERNET INFRASTRUCTURE.

The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend on the development and maintenance of the Internet infrastructure to
support these increased demands and perform reliably. If the Internet
infrastructure is not adequately developed or maintained, use of our Web site
may be reduced and we may not be able to generate revenues. Even if the Internet
infrastructure is adequately developed and maintained, we may incur substantial
expenditures in order to adapt our services and products to changing Internet
technologies. The Internet has experienced outages and other delays as a result
of damage to portions of its infrastructure, and could face such outages and
delays in the future. These outages and delays could reduce the level of
Internet usage and traffic on our Web site. In addition, commerce over the
Internet could be harmed if the development or adoption of new standards and
protocols to handle increased levels of activity is delayed or governmental
regulation is increased.

ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.

We rely on encryption and authentication technology licensed from third
parties to provide secure transmission of confidential information such as
customer credit card numbers. However, the security procedures we use to protect
customer transaction data may be compromised or breached as a result of
developments in computer capabilities or in the field of cryptography. A party
who is able to circumvent our security measures could misappropriate proprietary
information, including customer credit card information, or cause interruptions
in the operation of our Web site. A security breach could result in litigation
against us, potential liability, and damage to our reputation, any of which
could severely harm our business.

We may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. However, protection may not be available at a reasonable
price or at all. In addition, publicized security breaches could increase
consumer concerns over the security of electronic commerce and may inhibit the
growth of the Internet as a means of conducting commercial transactions.

OUR OPERATING RESULTS WOULD BE HARMED IF WE EXPERIENCE SIGNIFICANT CREDIT CARD
FRAUD.

Under current practices, we are liable for fraudulent credit card
transactions because we do not require a customer's signature to authorize a
transaction. A failure to adequately control fraudulent credit card transactions
would harm our results of operations because we do not carry insurance against
this risk. Although we have developed internal controls to safeguard ourselves
from this problem, as of June 30, 1999, we had suffered total losses of
approximately $19,000 since we began operations as a result of orders placed
with fraudulent credit card data. We may suffer these types of losses in greater
amounts in the future.

11
<PAGE>

WE MAY NOT BE ABLE TO RESPOND EFFECTIVELY TO RAPID TECHNOLOGICAL CHANGES IN A
MANNER NECESSARY TO REMAIN COMPETITIVE.

The Internet and the online commerce industry are rapidly changing. To
remain competitive, we must:

- adapt to rapidly changing technologies;

- adapt our business to evolving industry standards; and

- continually improve the performance, features and reliability of our Web
site.

If we face material delays in introducing new products, services or
enhancements, our customers may stop shopping in our online store and use those
of our competitors. Developing our Web site and other proprietary technology
will require significant technical expertise. We may be unable to develop this
expertise. As a result we may use new technologies ineffectively or we may fail
to adapt our Web site, order processing systems, and computer network to
customer requirements or emerging industry standards.

OUR SYSTEMS MAY FAIL OR LIMIT USER TRAFFIC, WHICH WOULD CAUSE US TO LOSE SALES
AND POSSIBLY HARM OUR BUSINESS.

Substantially all of our computer and communications hardware operations for
our Web site is located in a single facility in Seattle, Washington. Our systems
and operations are vulnerable to damage or interruption from fire, floods,
earthquakes, power loss, telecommunications failure, break-ins and similar
events. Computer viruses, electronic break-ins or other similar disruptive
problems could cause users to stop visiting our Web site. If any of these
circumstances occurred, we would incur substantial replacement costs, would be
unable to generate revenue during the downtime and could lose customers. As a
result, our business would be harmed. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures of or
interruptions in our systems. We do not presently have any backup systems or a
formal disaster recovery plan.

Since we began operations, our Web site has experienced slower response
times or decreased traffic for periods ranging from a few minutes to several
hours for a variety of reasons approximately one or two times a month. In
addition, although we are unable to accurately estimate the frequency, we
believe that many of the Internet service providers and operators that our
customers use for access to our Web site have experienced significant outages in
the past, and could experience outages, delays and other difficulties in the
future due to system failures unrelated to our systems. Any of these system
failures could cause us to lose sales or customers and harm our business.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.

The market for Internet commerce is relatively new, rapidly changing and
intensely competitive. We expect future competition to intensify because:

- barriers to entry are minimal;

- current and new competitors can launch new Web sites at a relatively low
cost; and

- we do not have an exclusive relationship with any of our suppliers.

In addition, the specialty food retailing business is highly competitive and
a large number of companies in the industry are attempting to market their
products over the Internet. If we do not compete effectively or if we experience
any pricing pressures, reduced profit margins or loss of market share resulting
from increased competition, our business could be harmed.

12
<PAGE>
Many of our present and potential competitors are likely to enjoy
substantial competitive advantages, including the following:

- larger customer bases;

- greater brand recognition;

- better access to content;

- longer operating histories; and

- substantially greater financial, marketing, technical and other resources.

As a result, it is possible we may not be able to compete effectively in our
market. See "Business -- Competition" on page 44.

MARKETING AGREEMENTS AND STRATEGIC ALLIANCES MAY NOT GENERATE THE EXPECTED
NUMBER OF NEW CUSTOMERS OR MAY BE TERMINATED WHICH COULD CAUSE OUR SALES TO BE
LOWER THAN EXPECTED.

We use marketing agreements and strategic alliances with other Internet
companies to create traffic on our Web site. The success of these relationships
depends on the amount of increased traffic we receive from the Web sites of
these other companies. These arrangements may not generate the expected number
of new customers. Our current agreements with America Online, Excite and Yahoo!
expire within the current year and we may not be able to renew these agreements
on terms we find acceptable. If we are unable to renew any of these agreements
or find additional Internet companies to enter into similar agreements with us,
the traffic on our Web site could decrease.

IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BRAND AND REPUTATION COULD BE IMPAIRED AND WE COULD LOSE CUSTOMERS.

The steps we take to protect our proprietary rights may be inadequate. We
regard our service marks, trademarks, trade dress, trade secrets and similar
intellectual property as integral to our success. We rely on trademark and
copyright law, and trade secret protection to protect our proprietary rights. We
have filed a trademark application for GreatFood.com for online ordering
services featuring specialty food items. However, we cannot assure you that this
trademark will be granted. If this trademark is not granted, we might be unable
to prevent other companies from using this or a similar name. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon, or otherwise decrease the value of our trademarks and other
proprietary rights. As a result, potential traffic to our Web site may be
diverted to other sites and we may lose potential customers.

WE MAY FACE LEGAL LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.

While we currently provide a limited amount of content on our Web site, we
anticipate increasing the amount of content in the future. We could face legal
liability for defamation, negligence, copyright, patent or trademark
infringement, or other claims based on the nature and content of materials that
we publish or distribute on our Web site. If we are held liable for the content
on our Web site, our business may suffer.

GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT OUR BUSINESS OR INCREASE
THE COSTS OF OUR OPERATIONS.

13
<PAGE>
Congress has recently enacted legislation addressing such issues as the
transmission of certain materials to children, intellectual property protection,
taxation and the transmission of sexually explicit material. The European Union
recently enacted its own privacy regulations. The governments of some other
countries have been much more active in regulating these areas than has the
United States. There is some risk that the United States and other countries
will increase their regulation of the Internet in the future. An increase in
regulation or the application of existing laws to the Internet may require us to
modify the manner in which we conduct our business and could significantly
increase our costs of operations or harm our business. The law of the Internet
remains largely unsettled and it may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel and
taxation apply to the Internet. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet service
providers and online service providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. Imposition of
access fees could increase the cost of transmitting data over the Internet which
would reduce Internet usage and possibly reduce our profit margins.

POSSIBLE STATE SALES AND OTHER TAXES COULD AFFECT OUR RESULTS OF OPERATIONS.

We do not currently collect sales or other similar taxes on sales of food
products in any state. However, one or more states may seek to impose sales tax
collection obligations on out-of-state companies, including GreatFood.com, which
engage in or facilitate electronic commerce. A number of proposals have been
made at the state and local level that would impose additional taxes on the sale
of goods and services through the Internet. These proposals, if adopted, could
substantially impair the growth of electronic commerce and could reduce our
revenues.

RISKS RELATED TO THIS OFFERING

OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS WILL RETAIN SIGNIFICANT
CONTROL OVER GREATFOOD.COM AFTER THIS OFFERING.

After this offering, executive officers, directors and current holders of 5%
or more of our outstanding common stock will, in the aggregate, own
approximately 45.8% of our outstanding common stock. As a result, these
shareholders will be able to influence significantly all matters requiring
approval by our shareholders, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may also delay, deter or prevent a change in control of GreatFood.com and may
make some transactions more difficult or impossible without the support of these
shareholders.

OUR STOCK PRICE MAY BE HIGHLY VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE INITIAL OFFERING PRICE.

The market price for our common stock is likely to be highly volatile as the
market prices of securities of Internet related companies have been highly
volatile. You may not be able to resell your shares of our common stock
following periods of volatility because of the stock market's adverse reaction
to volatility. In addition, you may not be able to resell your shares at or
above the initial offering price.

The volatility in our stock price will be affected by the following factors,
many of which are outside of our control:

- actual or anticipated variations in quarterly operating results;

- seasonal patterns of our business;

14
<PAGE>
- announcements of technological innovations or new products or services by
us or our competitors;

- changes in financial estimates by securities analysts;

- conditions or trends in the Internet or online commerce industries;

- changes in the economic performance or market valuations of other Internet
or electronic commerce companies;

- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures, or capital commitments;

- additions or departures of key personnel; and

- sales of our common stock.

In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock price.
If we were sued in this type of litigation we could incur substantial costs and
our management's attention and resources would be diverted from our operations.

OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS
OFFERING.

We intend to use the net proceeds from the sale of the common stock for
implementation of a new order processing system, the development and marketing
of our wholesale and international programs, advertising and promotion of the
GreatFood.com brand, expansion of our management team and staffing, and general
corporate purposes, including possible acquisitions. Accordingly, our management
will have significant flexibility in applying the net proceeds of this offering.
See "Use of Proceeds" on page 17.

SALES OF ADDITIONAL SHARES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO
DECLINE AND COULD HARM OUR ABILITY TO RAISE FUNDS FROM STOCK OFFERINGS IN THE
FUTURE.

Sales of a large number of shares of our common stock in the market after
the offering, or the belief that such sales could occur, could cause a drop in
the market price of our common stock and could impair our ability to raise
capital through offerings of our equity securities. Immediately after this
offering 6,527,532 shares of common stock will be outstanding. Of this number,
the 2,500,000 shares sold in this offering will be freely tradeable and an
additional 2,722,011 shares will be eligible for sales under Rule 144 of the
Securities Act after 180 days. See "Shares Eligible for Future Sale" at page 60.

THERE MAY NOT BE A PUBLIC MARKET FOR OUR COMMON STOCK.

While we have applied to list our common stock on the Nasdaq National
Market, a trading market for our common stock may not develop or, if a market
does develop, the common stock may still be difficult to trade. In addition, to
enable our common stock to continue to be listed on the Nasdaq National Market,
we must continue to meet Nasdaq's requirements for continued listing. These
requirements include thresholds with respect to our net tangible assets, public
float, and share price. If we fail to meet these requirements, our common stock
may be delisted from the Nasdaq National Market. As a result of these risks, you
may not be able to resell your shares at or above the initial public offering
price.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering.

15
<PAGE>

Accordingly, purchasers of common stock in this offering will experience
immediate and substantial dilution of approximately $7.26 in net tangible book
value per share, or approximately 60.5% of the assumed offering price of $12.00
per share. In contrast, existing shareholders paid an average price of $1.80 per
share. If outstanding stock options and warrants are exercised, your interest
would be further diluted. See "Dilution" at page 19.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This prospectus contains "forward looking statements." These statements may
include statements regarding:

- our business strategy;

- timing of and plans for the introduction or phase-out of products and
services;

- plans for hiring additional personnel;

- entering into strategic alliances;

- adequacy of anticipated sources of funds, including the proceeds from this
offering, to fund our operations for at least the 18 months following the
date of this prospectus; and

- other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts.

When used in this prospectus, the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions are generally
intended to identify forward looking statements. Because these forward looking
statements involve risks and uncertainties, actual results could differ
materially from those expressed or implied by these forward looking statements
for a number of reasons, including those discussed under "Risk Factors" and
elsewhere in this prospectus. We assume no obligation to update any forward
looking statements.

16
<PAGE>
USE OF PROCEEDS

We estimate that we will receive net proceeds of $27,560,000 from the sale
of the 2,500,000 shares of common stock offered hereby, assuming an initial
public offering price of $12.00 per share and after deducting estimated
underwriting discounts and offering expenses. If the underwriters exercise their
over-allotment option in full, the net proceeds are estimated to be $31,835,000.
We currently intend to use:

- approximately $14 to $20 million of the net proceeds of this offering to
expand our advertising and promotion of the GreatFood.com brand;

- approximately $2 million to implement a new order processing system
linking us with our suppliers;

- approximately $4 to $5 million to increase our management team and
personnel; and

- approximately $2 to $4 million to continue the development of our
wholesale and international programs.

The remainder of the net proceeds will be used for working capital and
general corporate purposes or be allocated to the above categories as deemed
appropriate. In addition, although we do not have any current agreements or
commitments with respect to any acquisition, we may use some of the proceeds for
acquisitions of complementary businesses.

Pending these uses, the net proceeds of the offering will be invested in
short-term, interest bearing investments or accounts.

The allocations described above are only an estimate and the amounts that we
actually spend on these items and the cost, timing and amount of funds we need
cannot be precisely determined at this time. Our expenditures and need for funds
will be based on numerous factors, including our future revenue growth, the
amount of cash generated by our operations, the frequency and timing of the need
for advertising expenditures and the need for additional or upgraded systems and
technology. Our management has broad discretion in determining how the proceeds
of this offering will be applied.

DIVIDEND POLICY

We have never paid cash dividends on our common stock and do not anticipate
paying such dividends in the foreseeable future. We currently intend to retain
any future earnings to develop and expand our business.

17
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:

- on an actual basis;

- on a pro forma basis to reflect:

- the automatic conversion of all outstanding shares of preferred stock
into common stock; and

- the increase of our authorized capital stock to 60,000,000 shares of
common stock and 20,000,000 shares of preferred stock prior to
completion of this offering; and

- on a pro forma as adjusted basis to also reflect our receipt of the
estimated net proceeds from the sale of 2,500,000 shares of common stock
in this offering at an assumed initial public offering price of $12.00 per
share, after deducting underwriting discounts and commission and estimated
offering expenses.

<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- -------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Long term debt--including current portion................................ $ 87 $ 87 $ 87
--------- ------- -----------
Mandatorily redeemable convertible preferred stock, no par value, 900,000
shares authorized and 600,000 shares issued and outstanding (actual),
none outstanding (pro forma and pro forma as adjusted)................. 2,993 -- --
Shareholders' equity
Preferred stock, no par value; 5,000,000 shares authorized and
1,848,368 shares issued and outstanding (actual); 20,000,000 shares
authorized and none outstanding (pro forma and pro forma as
adjusted)............................................................ 4,069 -- --
Common stock, no par value; 20,000,000 shares authorized and 1,579,164
shares issued and outstanding (actual); 60,000,000 shares authorized
(pro forma and pro forma as adjusted); 4,027,532 shares issued and
outstanding (pro forma); and 6,527,532 shares issued and outstanding
(pro forma as adjusted).............................................. 421 7,483 35,043
Deferred compensation.................................................. (143) (143) (143)
Accumulated deficit.................................................... (3,951) (3,951) (3,951)
--------- ------- -----------
Total shareholders' equity............................................. 396 3,389 30,949
--------- ------- -----------
Total capitalization..................................................... $ 3,476 $ 3,476 $ 31,036
--------- ------- -----------
--------- ------- -----------
</TABLE>

The common stock outstanding as shown above is based on shares outstanding
as of June 30, 1999 and excludes: (a) 884,000 shares of common stock reserved
for issuance under outstanding options granted under our 1997 Stock Incentive
Plan; (b) 716,000 shares of common stock reserved for issuance under future
grants under our 1997 Stock Incentive Plan; (c) 343,811 shares of common stock
reserved for issuance under outstanding warrants; and (d) 400,000 shares of
common stock reserved for issuance under our 1999 Employee Stock Purchase Plan.
The above table also excludes 323,077 shares of common stock issuable upon the
conversion of shares of Series C preferred stock issuable upon the exercise, at
a nominal exercise price, of warrants which will only become exercisable if the
per share price in this offering is less than $10.00.

18
<PAGE>
DILUTION

Our net tangible book value as of June 30, 1999 was approximately
$3,389,000, or $2.15 per share of outstanding common stock. Net tangible book
value per share is equal to our total tangible assets less our total
liabilities, divided by the number of outstanding shares of common stock.
Dilution per share represents the difference between the price per share paid by
investors in this offering and the pro forma as adjusted net tangible book value
per share immediately after this offering.

After giving effect to the automatic conversion of all 2,448,368 outstanding
shares of preferred stock into common stock upon completion of this offering,
our pro forma net tangible book value at June 30, 1999 would have been
approximately $0.84 per share. After giving effect to the sale of the 2,500,000
shares of common stock in this offering at an assumed initial public offering
price of $12.00 per share (after deducting the estimated fee payable to the
underwriter and offering expenses payable by us), our pro forma as adjusted net
tangible book value at June 30, 1999 would have been approximately $30,949,000,
or $4.74 per share. This represents an immediate dilution of $7.26 per share to
new investors purchasing shares in this offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 12.00
Pro forma net tangible book value per share as of June 30, 1999........... $ 0.84
Increase per share attributable to new investors.......................... $ 3.90
---------
Pro forma as adjusted net tangible book value after this offering........... $ 4.74
---------

Dilution per share to new investors in this offering........................ $ 7.26
---------
</TABLE>

The following table summarizes, on a pro forma basis assuming conversion
into common stock of all outstanding shares of preferred stock, and after giving
effect to this offering, the number of shares purchased from us, the total
consideration paid and the average price per share paid by existing shareholders
and by the new investors purchasing the shares offered in this prospectus
assuming an initial public offering price of $12.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................... 4,027,532 62% $ 7,232,083 19% $ 1.80
New public investors................................ 2,500,000 38 30,000,000 81 12.00
---------- --- ------------- -----
Total............................................. 6,527,532 100% $ 37,232,083 100%
---------- --- ------------- -----
---------- --- ------------- -----
</TABLE>

This information is based on pro forma shares outstanding as of June 30,
1999 and excludes (a) 884,000 shares of common stock reserved for issuance under
outstanding options granted under our 1997 Stock Incentive Plan; (b) 716,000
shares of common stock reserved for issuance under future grants under our 1997
Stock Incentive Plan; (c) 343,811 shares of common stock reserved for issuance
under outstanding warrants; and (d) 400,000 shares of common stock reserved for
issuance under our 1999 Employee Stock Purchase Plan. The above table also
excludes 323,077 shares of common stock issuable upon the conversion of shares
of Series C preferred stock issuable upon the exercise, at a nominal exercise
price, of warrants which will only become exercisable if the per share price in
this offering is less than $10.00.

19
<PAGE>
SELECTED FINANCIAL DATA

The following table sets forth our selected financial data as of and for
each of the fiscal years in the period from August 31, 1995 (inception) to
December 31, 1998 and as of June 30, 1999 and for the six month periods ended
June 30, 1998 and 1999. The statements of operations data for each of the fiscal
years in the period from January 1, 1996 to December 31, 1998 and the balance
sheet data as of December 31 1996, 1997 and 1998 have been derived from our
financial statements, audited by PricewaterhouseCoopers LLP, independent
accountants. The statements of operations data for the period from August 31,
1995 (inception) to December 31, 1995 and for the six month periods ended June
30, 1998 and 1999 and the balance sheet data as of December 31, 1995 and June
30, 1999 have been derived from our unaudited financial statements that include,
in the opinion of management, all normal and recurring adjustments that
management considers necessary for a fair statement of the results. The
operating results for the six months ended June 30, 1999 are not necessarily
indicative of results that may be expected for the year ending December 31,
1999. The following information is qualified by reference to, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes. The audited financial statements and related notes as of December 31,
1997 and 1998 and for the three years in the period ended December 31, 1998 and
the unaudited financial statements as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are included elsewhere in this prospectus.

<TABLE>
<CAPTION>
SIX
AUGUST 31, 1995 MONTHS
(INCEPTION) TO FISCAL YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, JUNE 30
----------------- ------------------------------- ---------
1995 1996 1997 1998 1998
----------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................... $ 0 $ 18 $ 120 $ 748 $ 65
Cost of goods sold............................................. 0 14 92 605 53
----- --------- --------- --------- ---------
Gross profit................................................... 0 4 28 143 12
Operating expenses:
Sales and marketing.......................................... 0 11 36 1,102 48
Product and site development................................. 0 1 9 84 8
General and administrative................................... 8 53 66 450 101
----- --------- --------- --------- ---------
Total operating expenses....................................... 8 65 111 1,636 157
----- --------- --------- --------- ---------
Loss from operations........................................... (8) (61) (83) (1,493) (145)
Other income, net.............................................. 6 21 1 30 --
----- --------- --------- --------- ---------
Net loss....................................................... $ (2) $ (40) $ (82) $ (1,463) $ (145)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Basic and diluted net loss per share........................... $ (.01) $ (.04) $ (.06) $ (.93) $ (.09)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share................. 304 1,007 1,274 1,579 1,579
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Pro forma basic and diluted net loss per share................. $ (.70)
---------
---------
Shares of common stock used in computing pro forma basic and
diluted net loss per share..................................... 2,090
---------
---------

1999
---------

<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................... $ 410
Cost of goods sold............................................. 346
---------
Gross profit................................................... 64
Operating expenses:
Sales and marketing.......................................... 1,709
Product and site development................................. 153
General and administrative................................... 725
---------
Total operating expenses....................................... 2,587
---------
Loss from operations........................................... (2,523)
Other income, net.............................................. 35
---------
Net loss....................................................... $ (2,488)
---------
---------
Basic and diluted net loss per share........................... $ (1.60)
---------
---------
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share................. 1,579
---------
---------
Pro forma basic and diluted net loss per share................. $ (0.76)
---------
---------
Shares of common stock used in computing pro forma basic and
diluted net loss per share..................................... 3,277
---------
---------
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
AS OF DECEMBER 31, ------------------------
----------------------------------------------
1995 1996 1997 1998 ACTUAL PRO FORMA
----- ----- --------- --------- ----------- -----------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 5 $ 14 $ 124 $ 678 $ 3,438 $ 3,438
Working capital..................................... 0 (1) 51 633 3,079 3,079
Total assets........................................ 33 55 161 1,428 4,210 4,210
Total long term liabilities (including current
portion).......................................... 0 15 13 47 87 87
Mandatorily redeemable convertible preferred
stock............................................. 2,993 --
Total shareholders' equity.......................... 28 25 74 716 396 3,389

PRO FORMA AS
ADJUSTED
-------------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C>
Cash and cash equivalents........................... $ 30,998
Working capital..................................... 30,639
Total assets........................................ 31,770
Total long term liabilities (including current
portion).......................................... 87
Mandatorily redeemable convertible preferred
stock............................................. --
Total shareholders' equity.......................... 30,949
</TABLE>

The pro forma information above gives effect to the conversion of all
outstanding shares of preferred stock into common stock upon closing of this
offering.

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
EXCEPT FOR HISTORICAL INFORMATION, THE DISCUSSION IN THIS PROSPECTUS CONTAINS
CERTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE
STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS "EXPECTS,"
"ANTICIPATES," "INTENDS," "PLANS" AND SIMILAR EXPRESSIONS. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS. THE PRINCIPAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO DIFFERENCES
IN OUR ACTUAL RESULTS ARE DISCUSSED IN THE SECTION TITLED "RISK FACTORS."

OVERVIEW

GreatFood.com is an electronic commerce company focused on the sale of
gourmet and specialty food over the Internet to the retail, corporate gift and
wholesale markets. We offer a broad selection of high quality branded specialty
food products which appeal to a wide range of customers for special occasions,
parties and gifts. Our product offering includes specialty and gourmet food such
as chocolates, caviar, prime beef, fancy fruit, and lobster dinners. Our
merchandise mix is focused on a carefully selected assortment of high quality
products, and our Web site combines a unique blend of merchandise and related
content. We do not operate a warehouse and our customers' orders are fulfilled
directly by our suppliers.

We were incorporated in August 1995 and launched our online retail store in
March 1996. Since March 1996, we have focused on expanding our product
offerings, building our brand name through advertising and promotional
campaigns, pursuing participation in shopping programs conducted by other
Internet sites, recruiting personnel, developing our wholesale and corporate
gift programs and exploring a variety of strategic partnerships which take
advantage of our specialty food oriented products and services. In November 1998
we launched our corporate gift program which targets businesses and
professionals purchasing gifts for customers and clients. In December 1998 we
launched a wholesale program enabling retailers to purchase in bulk at wholesale
prices. Our expenses have increased significantly since inception as we have
increased our advertising and promotional expenses to raise our brand
recognition and added personnel.

We generate all of our revenues from sales of specialty food products. From
inception until December 1998, we generated revenues exclusively from retail
sales. We derive income from our retail sales from the excess of the retail
prices we charge our customers over the product costs we pay our suppliers. We
have initiated a wholesale program in which we will sell bulk quantities of
specialty food products to registered retailers at wholesale prices. In this
program, we purchase products from suppliers at a distributor's discounted price
and derive income from the difference between this discounted price and the
wholesale price we charge. Currently our retail and wholesale customers pay for
orders by credit card while we pay our suppliers on extended terms. As a result,
we are able to increase our working capital between the time we receive payment
for orders and the time we are required to pay suppliers.

Our business model differs from many other electronic commerce businesses
since we do not currently hold inventory in our own facility. Our orders are
fulfilled directly by our suppliers who follow our specifications and
procedures. This reduces procurement and carrying costs, as well as costs of
shipping to a distribution center, and risks of spoilage and oversupply which
are associated with holding inventory. This model also allows us to offer a
greater selection and higher volume of products, including perishable products
and products with a limited shelf life, than we could if constrained by
warehouse space, timing pressures, or inventory holding costs.

Since 1996, we have expanded our management team to help implement our
growth strategy. We hired William Cuff as our President in April 1998, a Vice
President of Merchandising in August 1998, a Vice President of Finance and
Administration in April 1999 and a Vice President of Information

21
<PAGE>
Technology and Site Development and a Vice President of Wholesale Programs in
June 1999. In addition we plan to hire a Vice President of Consumer Marketing in
1999.

Our net revenues have grown since inception, from $17,530 in 1996 to
$747,860 in 1998. Specialty food sales are inherently seasonal, with highest
volumes during the fourth quarter holiday season. Additionally, our business has
a large gift-giving component. As a result of these two factors, approximately
86% of our 1998 sales were realized in the fourth quarter. We have taken steps
intended to reduce the magnitude of this trend such as introducing our wholesale
program, expanding our product selection, and emphasizing non-holiday occasions
and personal consumption. However, we expect fourth quarter sales to continue to
represent a disproportionate amount of annual sales in the future.

As of June 30, 1999, we had generated a limited amount of revenues from our
wholesale program. We believe several aspects of our business model have limited
the growth of this program to date. Our current order processing system does not
enable us to offer credit or extended payment terms and requires credit card
payment from our wholesale purchasers, which is not typical in the wholesale
market. Our current system also requires us to charge wholesale customers
estimated, rather than actual, shipping costs. In addition, our wholesale
business is affected by the unfamiliarity of many retailers with the Internet in
general and, more specifically, as a means for conducting commerce. We are in
the process of implementing a new order processing system which should enable us
to offer credit and extended payment terms and improve our shipping cost
structure. We are also working to increase Internet familiarity among specialty
food retailers by making them aware of the opportunity to order products over
the Internet and educating them about the online ordering process. We are
increasing awareness of the Internet opportunities through advertising, direct
marketing campaigns and discussions at industry trade shows. We are also
instituting training programs and providing incentives to try our entire
service.

We incurred net losses of $2.5 million in the six months ended June 30,
1999, $1.4 million in 1998, $81,937 in 1997, and $39,833 in 1996. At June 30,
1999 we had an accumulated deficit of $4.0 million. We expect operating losses
and negative cash flow to continue for at least the next 2 years. In addition,
we anticipate our losses will increase as we increase advertising and
promotional expenditures to build our brand name and attract customers, continue
the development of our Web site, expand product offerings, develop relationships
with strategic business partners, add personnel, and make capital expenditures
to implement a new order processing system to electronically link us to our
suppliers to improve order processing.

We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as online commerce. To address these risks, we must maintain and expand our
customer base, continue to increase our product offerings, successfully
implement our business, marketing and promotional strategies, continue to
develop our order processing technology, respond to competitive developments in
the specialty food market, and attract, retain and motivate qualified personnel.
We cannot assure you that we will be successful in addressing these risks and
our failure could be harmful to our business, prospects, financial condition and
results of operations.

22
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth statement of operations data as a percentage
of net revenues for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................. 76.9 76.5 80.9 81.9 84.5
--------- --------- --------- --------- ---------
Gross profit....................... 23.1 23.5 19.1 18.1 15.5
Operating expenses:
Sales and marketing.............. 62.9 30.3 147.4 74.6 417.2
Product and site development..... 4.0 7.4 11.2 11.3 37.4
General and administrative....... 301.3 54.9 60.1 156.2 177.0
--------- --------- --------- --------- ---------
Total operating expenses........... 368.2 92.6 218.7 242.1 631.6
--------- --------- --------- --------- ---------
Loss from operations............... (345.1) (69.1) (199.6) (224.0) (616.1)
Other income (expense), net........ 117.9 0.6 4.0 (0.7) 8.7
--------- --------- --------- --------- ---------
Net loss........................... (227.2)% (68.5)% (195.6)% (224.7)% (607.4)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 AND 1999

NET REVENUES. Net revenues consist of product sales to customers and
charges to customers for outbound shipping and handling costs and are net of
product returns and promotional discounts. Revenues are recognized upon the
shipment of products from our suppliers. Net revenues increased to $409,628 for
the six months ended June 30, 1999 from $64,560 for the six months ended June
30, 1998. This increase reflects an increased number of transactions due to
expanded advertising and promotional efforts, broader product offerings, and
improvements to our Web site made over the second half of 1998 and first half of
1999.

COST OF GOODS SOLD. Cost of goods sold consists primarily of the costs of
products sold to customers and actual outbound shipping and handling costs. Cost
of goods sold increased to $345,940 for the six months ended June 30, 1999 from
$52,877 for the six months ended June 30, 1998. This $293,063 increase was
primarily attributable to our increased sales volume. Our gross profit margin
decreased to 15.5% of net revenues for the six months ended June 30, 1999 from
18.1% of net revenues for the six months ended June 30, 1998. This decrease in
gross profit margin was due to a number of factors. During the first quarter of
1999, we offered many products at promotional prices to increase sales after the
holiday season. In addition, during the first quarter of 1999, we experienced an
increase in actual shipping cost due to an increase in the number of customers
ordering goods from multiple suppliers during a single visit to our Web site.
Since we base our shipping charges to retail customers on the size of their
order, rather than the number of suppliers from whom goods are to be shipped, we
do not always recoup our actual shipping costs on multiple supplier orders. We
also experienced substantial demand in the first quarter of 1999 for products
for which our prices did not allow us to recoup our shipping costs. During the
second quarter of 1999, we increased our prices for these products and made
other adjustments to our pricing structure. However, while we attempt to price
products in a manner to absorb product and shipping costs adequately,
promotional pricing and changes in product mix may lead to fluctuating margins
in the future.

SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of advertising and promotional expenditures and payroll and related
expenses for personnel engaged in sales and marketing activities. Sales and
marketing expenses increased to $1,709,127, or 417.2% of net revenues, for the
six months ended June 30, 1999, from $48,184, or 74.6% of net revenues, for the
six months

23
<PAGE>

ended June 30, 1998. This increase in actual dollars expended and as a
percentage of net revenues is attributable to the expansion of our online, print
and direct mail advertising campaigns and primarily reflects payments under
marketing agreements with America Online, Excite and Yahoo! entered into in the
second half of 1998. These agreements call for fixed monthly payments without
regard to the seasonal nature of our sales. Since most of our sales occur in the
fourth quarter, these agreements contributed to the significant increase in
sales and marketing expenses as a percentage of net revenues in the six months
ended June 30, 1999. In addition, this increase reflects the hiring of
additional personnel and promotional consultants and related expenses required
to execute our marketing strategy which we substantially began to implement in
the second half of 1998. We intend to continue to aggressively pursue
advertising and marketing campaigns and, therefore, expect sales and marketing
expenses to increase significantly in dollar terms in future periods.

PRODUCT AND SITE DEVELOPMENT EXPENSES. Product and site development
expenses consist primarily of payroll and related expenses incurred in
connection with the expansion of our product offerings, Web site development,
and information technology personnel. Product and site development expenses
increased to $153,283, or 37.4% of net revenues, for the six months ended June
30, 1999, from $7,258, or 11.3% of net revenues, for the six months ended June
30, 1998. This increase was primarily attributable to increased staffing and
associated costs related to expanding our product offerings, improving the
design of our Web site, enhancing the content of our online store and increasing
the capacity of our systems that we use to process customers' orders and
payments. We expect product and site development expenses to continue to
increase in dollar terms in future periods as we continue to enhance the
functions of our site.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of payroll and related expenses for executive and administrative
personnel, facilities expenses, professional services expenses, travel and other
general corporate expenses. General and administrative expenses increased to
$725,193, or 177.0% of net revenues, for the six months ended June 30, 1999,
from $100,838, or 156.2% of net revenues, for the six months ended June 30,
1998. This increase was primarily attributable to increased headcount and
related expenses, as well as increased professional services expenses. We expect
general and administrative expenses to increase in dollar terms as we expand our
staff and incur additional costs related to the growth of our business and being
a public company.

OTHER INCOME, NET. Other income consists of earnings on our cash and cash
equivalents, net of interest expense attributable to short-term loans payable
and obligations under capital leases. Other income increased to $35,712 for the
six months ended June 30, 1999 from other expense of $494 for the six months
ended June 30, 1998. This increase was primarily attributable to earnings on
higher average cash and cash equivalent balances in 1999 following our sale of
$2.1 million of Series B preferred stock in March 1999 and our sale of $3.0
million of Series C preferred stock on May 17, 1999.

FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

NET REVENUES. Net revenues increased to $747,860 in 1998 from $119,633 in
1997 and $17,530 in 1996. These increases primarily were attributable to an
increased number of transactions as a result of the significant growth of our
customer base. Our customer base increased in 1997 as we made improvements to
our Web site and expanded our product offerings. In 1998, we believe the growth
of our customer base was primarily attributable to increased advertising and
promotional activities we began in the second half of 1998, with funds made
available by our sale of $2.0 million of Series A preferred stock in July 1998.

COST OF GOODS SOLD. Cost of goods sold increased to $605,140 in 1998 from
$91,550 in 1997 and $13,484 in 1996. These increases were primarily due to
increases in our sales volume during each period. Our gross profit margin was
19.1% of net revenues in 1998, 23.5% of net revenues in 1997, and 23.1% of net
revenues in 1996. The decrease in gross margin between 1997 and 1998 was
primarily due

24
<PAGE>
to changes in product mix and a reduction made in the second half of 1998 in the
amounts charged to customers for outbound shipping.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$1.1 million, or 147.4% of net revenues, in 1998 from $36,264, or 30.3% of net
revenues, in 1997 and $11,028, or 62.9% of net revenues, in 1996. The increase
in sales and marketing expense in actual dollars and as a percentage of net
revenue in 1998 was primarily attributable to expansions of our online and print
advertising, direct mail, and publicity campaigns, as well as to increased
personnel and related expenses required to implement our marketing strategy. Our
ability to finance advertising and publicity efforts was restricted in 1996 and
1997 by our limited working capital. The substantial increase in advertising and
publicity spending in 1998 reflects the increased availability of funds
following our sale of $2.0 million of Series A preferred stock in July 1998.

PRODUCT AND SITE DEVELOPMENT EXPENSES. Product and site development
expenses increased to $84,000, or 11.2% of net revenues, in 1998, from $8,801,
or 7.4% of net revenues, in 1997 and $706, or 4.0% of net revenues, in 1996.
These increases were primarily attributable to increased staffing and associated
costs related to developing our online store and increasing our product
offerings.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased in dollar terms to $449,623, or 60.1% of net revenues, in 1998 from
$65,707, or 54.9% of net revenues, in 1997 and $52,815, or 301.3% of net
revenues, in 1996. These increases in dollar terms are primarily attributable to
increased headcount and related expenses associated with the hiring of
additional personnel and increased professional services expenses. The increase
in 1998 also reflects the hiring of our president in April 1998, and the
transition of our chairman and chief executive officer from a part-time employee
drawing no salary to a full-time salaried employee in June 1998.

OTHER INCOME, NET. Other income increased to $30,299 in 1998 from $752 in
1997. Other income decreased in 1997 from $20,670 in 1996. Other income in 1996
consisted of income from consulting services while our online store was being
developed. The decrease in other income in 1997 reflects the termination of
these consulting services as we focused our resources on our online store. The
increase in other income between 1997 and 1998 was primarily attributable to
earnings on higher average cash and cash equivalent balances during 1998,
following our receipt of proceeds of $2.0 million from our sale of Series A
preferred stock in July 1998.

INCOME TAXES. As of December 31, 1998, we had $1.3 million of net operating
loss carryforwards for federal income tax purposes, which expire beginning in
2018. We have provided a full valuation allowance on the deferred tax asset,
consisting primarily of net operating loss carryforwards, because of uncertainty
regarding its realizability. Changes in the ownership of our common stock, as
defined in the Internal Revenue Code of 1986, as amended, may restrict the
utilization of such carryforwards. See Note 6 of Notes to Financial Statements.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth quarterly statements of operations data for
the seven quarters ended June 30, 1999. This quarterly information has been
derived from our unaudited financial statements and, in the opinion of our
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
periods covered. The quarterly data should be read in conjunction with our
financial statements and related notes. The operating results for any quarter
are not necessarily indicative of the operating results for any future period.

25
<PAGE>

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
DECEMBER
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 31, MARCH 31, JUNE 30,
1997 1998 1998 1998 1998 1999 1999
------------- ----------- ----------- ------------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.................... $ 97 $ 28 $ 37 $ 43 $ 640 $ 168 $ 242
Cost of goods sold.............. 76 22 31 34 518 147 199
----- ----- ----- ------ ----------- ----------- ---------
Gross profit.................... 21 6 6 9 122 21 43
Operating expenses:
Sales and marketing........... 31 23 25 241 813 565 1,144
Product and site
development................. 4 1 7 26 50 44 109
General and administrative.... 15 20 81 143 206 280 445
----- ----- ----- ------ ----------- ----------- ---------
Total operating expenses........ 50 44 113 410 1,069 889 1,698
----- ----- ----- ------ ----------- ----------- ---------
Loss from operations............ (29) (38) (107) (401) (947) (868) (1,655)
Other income, net............... 1 0 0 16 14 5 30
----- ----- ----- ------ ----------- ----------- ---------
Net loss........................ $ (28) $ (38) $ (107) $ (385) $ (933) $ (863) (1,625)
----- ----- ----- ------ ----------- ----------- ---------
----- ----- ----- ------ ----------- ----------- ---------
Basic and diluted net loss per
share......................... $ (.02) $ (.02) $ (.07) $ (.24) $ (.59) $ (.55) $ (1.05)
----- ----- ----- ------ ----------- ----------- ---------
----- ----- ----- ------ ----------- ----------- ---------

Weighted average shares of
common stock outstanding used
in computing basic and diluted
net loss per share............ 1,274 1,579 1,579 1,579 1,579 1,579 1,579
----- ----- ----- ------ ----------- ----------- ---------
----- ----- ----- ------ ----------- ----------- ---------
</TABLE>

Our operating expenses have increased significantly in the four most recent
quarters, most notably in the quarter just ended, as we have increased our
spending on marketing, advertising and promotional efforts and product and site
development following our sales of preferred stock in July 1998, March 1999 and
May 1999. We expect operating expenses will continue to increase in the future
as we expand our advertising and marketing campaigns, pursue product line
expansion and new channels of distribution such as our wholesale and
international programs and undertake other new business opportunities. To the
extent that these expenses are not accompanied by an increase in net revenue,
our business, results of operations and financial condition could be harmed.

We have experienced significant seasonality in our business, reflecting a
combination of seasonal fluctuations in Internet usage and traditional retail
seasonality patterns. Our business has a large gift giving and special occasion
component and therefore, sales are significantly higher in the fourth calendar
quarter of each year than in the preceding three quarters. In addition, Internet
usage and the rate of Internet growth may be expected to decline during the
summer. We have made efforts to increase our revenues in other quarters by
implementing our wholesale program and increasing our product selection, but we
expect seasonal trends to continue in the future. We are subject to a number of
agreements which require fixed monthly payments, regardless of the seasonal
nature of our sales. As a result, we expect our expenses as a percentage of
revenues to continue to be higher during the first three quarters of each year.

Due to the factors mentioned above, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarter our operating results may
fall below the expectations of securities analysts and investors. In this event,
the trading price of our common stock may fall significantly.

26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operation primarily through short term
borrowings and private sales of common and preferred stock which totaled
approximately $7.2 million, net of stock issuance costs, through June 30, 1999.

We raised $2.0 million in July 1998, $2.1 million in March 1999 and $3.0
million in May 1999 through sales of preferred stock. Each share of preferred
stock will convert into one share of common stock upon the closing of this
offering.

Net cash used in operating activities was $1.4 million in 1998, $5,009 in
1997 and $15,280 in 1996. Net cash used in operating activities for each of
these periods primarily consisted of marketing, product and site development and
general and administrative expenses. The significant increase in 1998 reflects
increased availability of funds following our receipt of $2.0 million from the
sale of Series A preferred stock in July 1998.

Net cash used in investing activities was $34,022 in 1998, $8,510 in 1997,
and $25,923 in 1996. Net cash used in investing activities for each of these
periods primarily consisted of purchases of computer software and hardware.

Net cash provided by financing activities of $123,610 in 1997 and $50,670 in
1996 consisted primarily of proceeds from sales of common stock. Net cash
provided by financing activities of $2.0 million in 1998 consisted primarily of
net proceeds from the sale of Series A preferred stock. Net cash provided by
financing activities of $5.1 million in the first half of 1999 consisted
primarily of net proceeds from the sale of preferred stock.

As of June 30, 1999 we had approximately $3.4 million of cash and cash
equivalents. As of that date, our principal commitments consisted of obligations
under operating and capital leases, contracts for online advertising and
promotion, and payments required in connection with implementation of our new
order processing system. In addition, we anticipate a substantial increase in
our capital expenditures and lease commitments in the future as our operations,
infrastructure and personnel grow.

As of June 30, 1999 we had entered into a number of commitments for online
advertising and promotion, including agreements with America Online, Excite,
Yahoo! and other online sites. As of June 30, 1999, our remaining commitments
under these agreements were approximately $1.2 million during 1999 and
approximately $206,000 during the first half of 2000.

We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 18 months. We
may need to raise additional funds sooner if, for example, we pursue business or
technology acquisitions or experience operating losses that exceed our current
expectations. If we raise additional funds through the issuance of equity,
equity related or debt securities, such securities may have rights, preferences
or privileges senior to those of the rights of our common stock and our
shareholders may experience additional dilution. We cannot be certain that such
additional financing will be available to us on favorable terms, or at all. If
additional financing is not available when required or is not available on
acceptable terms, we may be unable to develop or enhance our products or
services. In addition, we may be unable to take advantage of business
opportunities or to respond to competitive pressures. Any of these events could
harm our business, financial condition or results of operations.

YEAR 2000 READINESS

Many existing computer programs use only two digits to identify a year and
cannot reliably distinguish dates beginning on January 1, 2000 from dates prior
to the year 2000. If not corrected, many computer software applications could
fail or create erroneous results by, on or after the year

27
<PAGE>
2000. We use software, computer technology and other services provided by third
parties that may fail due to the year 2000 phenomenon.

We are currently in the process of replacing our order processing system for
reasons unrelated to the year 2000 problem. However, we have been advised by the
supplier of our existing order processing system and the company that processes
our credit card orders that this system is not fully year 2000 compliant. Also,
the company which processes our credit card orders has indicated that it will
not support our current order processing system after October 31, 1999 unless we
upgrade this system. The third party supplier of the new order processing system
has assured us that the new order processing system is year 2000 compliant. We
have begun transferring our operations to the new system and expect this
transfer to be completed prior to October 31, 1999. Until the transfer is
complete, we will continue to run our existing system in parallel with this
system. However, if installation of the new order processing system is not
completed by October 31, 1999, we may be unable to operate our Web site or
process customer orders until such installation is complete.

We are currently assessing the year 2000 readiness of other third party
supplied software, computer technology, and embedded systems used in our
business, as well as that of the third party which hosts our servers. As part of
our assessment of the year 2000 compliance of these systems, we plan to seek
assurances from these vendors that their software, computer technology and other
services are year 2000 compliant. We expect this assessment process to be
completed during the third and fourth quarters of 1999. Following this
assessment, we will develop, if necessary, a remediation plan with respect to
third party software, third party vendors and computer technology and services
that may fail to be year 2000 compliant. We expect to complete any required
remediation during the fourth quarter of 1999. As of June 30, 1999, we have
spent no funds explicitly to address year 2000 issues. However, we have invested
approximately $25,000 in technology upgrades which are year 2000 compliant, as
discussed above. At this time, we cannot determine the expenses that we may
incur in connection with this assessment and potential remediation plan. If our
assessment and remediation is not properly made or completed in a timely manner,
the reasonable worst case scenario is that we would be unable to operate our Web
site, process customer orders, and perform other necessary operations, which
would have a material adverse effect on our business.

Our business could also be materially harmed if the systems used by other
third parties failed to be year 2000 compliant. If year 2000 issues prevented
our suppliers from being able to fulfill customers' orders, we would lose sales
and our business and reputation may be harmed. During the third quarter of 1999,
we plan to seek assurances from suppliers of products which represent a material
portion of our sales that their systems are year 2000 compliant. However, we
believe that the nature and size of our suppliers' operations makes it unlikely
that year 2000 issues associated with their systems will prevent or
significantly delay order fulfillment.

In addition to our suppliers, our business depends on a network of third
parties, including Internet service providers, the financial institutions which
process our customers' credit card payments, telecommunications vendors, third
party carriers which deliver orders to customers, as well as the integrity of
the Internet in general. In addition, our business could be harmed by the year
2000 problems faced by our customers if they were unable to access our online
store. Since this network consists of unrelated parties located throughout the
world, we do not believe any entity has the ability to manage the year 2000
compliance of the entire network and our ability to assess the year 2000 issues
associated with this network is limited to publicly available information
contained in news reports and other similar media.

At this time, we have not yet developed a contingency plan to address
situations that may result if we, our suppliers, other third parties, or the
Internet are unable to achieve year 2000 compliance. The cost of developing and
implementing such a plan, if necessary, could be material. Any failure of our
material systems, our suppliers' or other third parties' material systems or the
Internet to be year 2000

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compliant could prevent us from operating our Web site effectively, taking
product orders, making product deliveries or conducting other fundamental parts
of our business.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement will
be effective in 1999 and establishes accounting standards for costs incurred in
the acquisition or development and implementation of computer software. These
new standards will require the capitalization of certain software implementation
costs relating to software acquired or developed and implemented for the
Company's use. This statement is not expected to have a significant effect on
GreatFood.com's financial position or results of operations.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start
Up Activities." This statement will be effective in 1999 and will require costs
of start up activities and organization costs to be expensed as incurred. This
statement is not expected to have a significant effect on GreatFood.com's
financial position or results of operations.

The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," replacing the "industry segment" approach with the
"management approach." The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of GreatFood.com's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas
and major customers. GreatFood.com adopted SFAS No. 131 on January 1, 1998.
GreatFood.com has determined that it does not have any separately reportable
business or geographic segments.

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BUSINESS

We have established strategic supplier relationships with specialty food
manufacturers, distributors and importers who ship products directly to our
customers on our behalf. As a result, each of our suppliers serves as a
GreatFood.com "virtual warehouse." This direct supplier to customer fulfillment
model enables us to minimize inventory related risks and holding costs, limit
overhead costs, offer a broad range of perishable and non-perishable products,
and provide prompt delivery. This model allows us to offer products from a
supplier's entire product line rather than just the fastest selling products.

There is no dominant retailer within the gourmet and specialty food
market--a market which we believe exceeded $30 billion at the retail level in
1998. Furthermore, this market is characterized by a fragmented supplier and
distribution network. This limits the product choices and shopping convenience
available to customers. The retail market involves the sale of products to
consumers at retail prices while the wholesale market involves the sale of bulk
quantities of products to retailers at wholesale prices. In both the retail and
wholesale markets, we believe electronic commerce provides opportunities to
improve the specialty food shopping experience and selection.

Our online store is accessed on the Internet at WWW.GREATFOOD.COM. It
provides pictures and detailed information relating to specialty food products
that are conveniently organized by category, brand, or meal occasion. Shoppers
can search for, browse and select products throughout the store for purchase.
Traffic on our Web site reached 1.2 million "unique visits" in 1998 and
approximately 1.6 million "unique visits" in the first six months of 1999.
"Unique visits" are defined as periods of time in which a person (or in some
cases, a computer, automatically) views one or more screens of the GreatFood.com
Web site. A unique visit ends when a 30 minute period has gone by in which that
person or computer has not viewed any additional screens of the GreatFood.com
site.

INDUSTRY OVERVIEW

The following discussion of GreatFood.com's industry contains market
projections prepared by various research firms. These market projections may not
be achieved.

GROWTH IN ELECTRONIC COMMERCE

The growing popularity of the Internet represents an opportunity for
companies to take advantage of the potential for commercial transactions
conducted online, referred to as electronic commerce. International Data
Corporation, a market research firm, estimates that sales by businesses to
consumers over the Internet will increase from over $50 billion worldwide at the
end of 1998 to approximately $1.3 trillion worldwide by the end of 2003.
Further, according to a 1997 report by Jupiter
Communications, another market research firm, an estimated 70% of adult Internet
users will make purchases online by the year 2002, as compared to an estimated
22% that did so in 1997. Several factors are driving the growth in sales to both
consumers and businesses over the Internet. These factors include:

- increasing familiarity with the Internet;

- broadening consumer acceptance of online shopping;

- increasing acceptance of online distribution relationships by businesses;

30
<PAGE>
- improved online network security;

- the growing base of personal computers and improved hardware, software and
services to access the Internet; and

- expanded ability of computer systems to process larger amounts of data at
higher speeds.

We believe the Internet is particularly well suited for promoting,
marketing, selling and distributing merchandise both on a retail and a wholesale
level. The Internet permits customers throughout the world to have direct access
to suppliers. Online stores can provide direct customer service and product
information to a large number of customers at the same time with a substantially
smaller sales staff than traditional stores. Online stores also have the ability
to rapidly and continually update this information. Internet merchandisers,
unlike traditional stores, do not have the same expenses associated with
operation of physical stores and warehouse facilities, and can change store
design without substantial cost. In contrast to catalog merchandisers, Internet
retailers can react quickly to change product descriptions, pricing or product
mix and are not subject to the costs of catalog publication and distribution.
Additionally, online merchandisers have the ability to track directly customer
responses and preferences which enables the merchandisers to customize their
online stores to target specific customer groups and individuals.

THE SPECIALTY FOOD MARKET TODAY

The products we sell are known as "gourmet and specialty food," defined as
distinctive food of high quality. This includes traditional gourmet food and
confections, as well as such products as prime beef, extra fancy fruit and
seafood. This category also includes branded specialty products which are
available in specialty restaurants or retail shops. Our criteria for determining
whether to classify a food product as gourmet or specialty include:

- cost of ingredients;

- cost of processing;

- freshness/perishability;

- uniqueness;

- newness/cutting edge;

- cost of packaging; and

- cost of importation/distribution.

We select products for our Web site through a formal review process which
involves review of the supplier background and the details of their product
line. Our product review committee then samples representative products from
each supplier and rates the products by standardized criteria.

THE RETAIL MARKET. The retail food market involves the sale of food
products to individual consumers and households. The gourmet and specialty food
industry is a sizable segment of the United States retail food market. According
to a 1995 market report published by Packaged Facts, retail sales of gourmet and
specialty food are projected to reach approximately $48 billion in 2000.
Currently, specialty food is principally sold through the following retail
channels:

- supermarkets;

- gourmet and specialty food stores;

- mail order catalogs;

- department stores;

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- television shopping channels; and

- discount warehouse retailers.

The combination of the size of the specialty food market and the growth of
online shopping has created what we believe to be a sizable market opportunity.

THE WHOLESALE MARKET. The wholesale market involves sales to specialty food
retailers, gift shops, caterers, restaurants and other resellers of specialty
food products. Traditionally, suppliers of specialty food have distributed their
products either by using a food broker to sell to retailers at wholesale prices,
or by selling their products to specialty food distributors who in turn sell to
retailers. In these arrangements, food brokers generally receive a 10%
commission on the wholesale price and distributors generally purchase the
product at a 20% to 25% discount from the supplier's wholesale price. The
assortment of specialized food brokers and distributors that currently supports
the industry is highly fragmented. As a result, many retail outlets for
specialty food products are underserved or have limited access to these food
brokers and distributors.

THE ONLINE OPPORTUNITY IN SPECIALTY FOOD

In both the retail and wholesale markets, we believe electronic commerce
offers opportunities to improve the specialty food shopping experience and
selection. We believe traditional specialty food businesses face a number of
challenges in providing a satisfying experience:

- the specialty food market is highly fragmented with no single dominant
retailer or wholesaler, and we estimate there are at least 5,000 suppliers
throughout the United States;

- this fragmentation leaves both retail and wholesale customers without
access to a broad base of specialty food products;

- distributors who carry specialty food products are limited in the products
they can offer by inventory holding costs, inventory spoilage and
warehouse size, which restricts the supply and selection available for
customers;

- mail order catalogs are not updated as inventory level or consumer demand
changes and are expensive to produce and mail; and

- traditional retail stores have costs associated with occupying and
operating a physical store and selection is limited by the size of the
store and inventory considerations.

We believe that sales of gourmet and specialty food over the Internet
provides a means to address many of these challenges.

THE GREATFOOD.COM SOLUTION

GreatFood.com provides online retail and wholesale customers a broad
selection of high quality specialty food which can be ordered at any time and
promptly delivered. We aim to generate repeat business by providing a positive
ordering experience for our customers.

Our online sales model offers several advantages over traditional specialty
food retail sales channels. These advantages include:

- our ability to offer a large selection of products organized for easy
browsing by our customers;

- our ability to change, update, or delete our product offerings quickly;

- low incremental costs of increasing our product offerings;

- a business model that reduces many of the costs associated with physical
retail locations and catalog distribution;

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- the convenience of ordering from home or office 24 hours a day, seven days
a week;

- our ability to sell unique, hard to find items not easily obtainable at a
local supermarket; and

- access to Web technology that can be used to directly yet inexpensively
target specific customer groups for special offers and promotions based on
their preferences or ordering history.

In addition, GreatFood.com's individual suppliers ship goods directly to
customers. By using this supplier direct fulfillment model, we do not have to
operate a warehouse and can limit our overhead costs, but still offer a wide
selection of products from numerous suppliers. As of June 30, 1999, we offered
products from 72 specialty food suppliers.

BUSINESS STRATEGY

Our objective is to be the leading online provider of gourmet and specialty
food. Key elements of our strategy include:

EXPAND BRAND RECOGNITION. As an early entrant to online specialty food
retailing, we have established GreatFood.com as a leading online brand in our
industry. We believe that expanding our brand recognition is critical to growing
our customer base. Our strategy is to promote, advertise and increase the
recognition and visibility of the GreatFood.com brand. We intend to do this
through:

- offering an extensive selection of high quality gourmet and specialty food
products;

- providing excellent customer service;

- advertising on leading Web sites and in other media;

- conducting an ongoing public relations campaign; and

- developing business alliances and partnerships.

Additionally, we plan to expand our food oriented content which includes
product reviews, recipes, visiting chefs, and helpful hints, in order to make
our customers' experience more enjoyable and to more tightly tie together
content with our product offerings. We believe that GreatFood.com is well
positioned as not only an online specialty food store, but as an online
gathering place or "community" for people with interests related to specialty
food. Additionally, we believe GreatFood.com provides high quality product
offerings and related content as well as excellent customer service.

UTILIZE OUR SUPPLIERS AS "VIRTUAL WAREHOUSES." Our suppliers ship products
directly to our customers on our behalf. As a result, we do not operate our own
warehouse. Instead, each of our suppliers serves as a GreatFood.com "virtual
warehouse." This direct supplier to customer fulfillment model enables us to
minimize inventory related risks and holding costs, limit overhead costs, offer
a broad range of perishable and non-perishable products, and provide prompt
delivery. We are in the process of converting to a new electronic commerce
transaction processing and order fulfillment system. This system is being
designed to, among other things, directly link our suppliers' warehouses with
our order processing system and provide our customers with online order
tracking. See "-- Technology and Intellectual Property" at page 42 for more
information concerning implementation of this new system.

EXPAND THE BREADTH AND DEPTH OF OUR PRODUCT OFFERINGS. We continually
strive to expand our product offerings by working with suppliers of high quality
goods who respond on a timely basis to orders and ship products directly to our
customers. Our objective is to aggressively, yet selectively, add additional
specialty food products to our Web site in 1999. Additionally, we are
considering expansion into complementary product offerings which would enhance
the specialty food "occasion," such as wine, tableware and music.

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TAKE ADVANTAGE OF THE RELATIONSHIP BETWEEN RETAIL AND WHOLESALE DISTRIBUTION
CHANNELS. We have established supplier relationships with 72 manufacturers,
distributors and importers of specialty food products. We believe the retail and
wholesale aspects of our business complement one another. The wide recognition
of our consumer brand has helped us gain credibility among our targeted
wholesale customer base. Just as our online retail store offers hard to find,
high quality specialty food products to consumers, our wholesale site provides a
convenient channel for retailers of specialty food to purchase these products in
bulk quantities. Additionally, by building our overall sales volume through our
wholesale program, we believe we will be able to obtain preferential pricing
from suppliers and enjoy more favorable margins from our retail business.

ACQUIRE LEADING MARKET SHARE TO LEVERAGE ECONOMIES OF SCALE. By moving
quickly to take advantage of our brand recognition, we believe we can become the
online high volume market share leader in the specialty food industry. In order
to increase sales volume on our site, we have entered into an arrangement with
Peapod in which GreatFood.com products will be offered to Peapod customers on a
special area of the Peapod site which includes both GreatFood.com and Peapod
branding logos. We have also entered into an affiliate arrangement with
GeoCities in which GeoCities members can receive a finder's fee in return for
referring customers to our site. In addition, we have been selected to be a
regularly featured, or "tenant," merchant on both the America Online and Excite
networks and have entered into targeted marketing arrangements with Yahoo!,
Lycos and other Internet sites. We believe that our business model will allow us
to take advantage of economies of scale as our sales volume increases.

EXPAND INTERNATIONALLY. Although we have historically focused on specialty
food customers and suppliers in the United States, we believe that growth in the
use of the Internet outside of the United States will represent additional
specialty food market opportunities for us. To take advantage of these
opportunities, we intend to replicate our business model and build our brand
name in selected international markets with appropriate demographics and market
characteristics. As our first expansion into this area, we are currently
developing a Canadian GreatFood.com site and establishing a network of suppliers
in Canada who will sell and deliver specialty food products to customers in
Canada.

THE GREATFOOD.COM SITE

Our Web site is divided into the following areas: THE RETAIL SHOP, THE
WHOLESALE SITE, CORPORATE GIFTS, and ABOUT GREATFOOD.COM. The following is a
summary of some of these areas:

THE RETAIL SHOP. GreatFood.com has established a leading consumer brand in
specialty food on the Internet through our retail shop, which is the most
popular destination within the GreatFood.com site. In addition to offering
products for sale, the retail shop has several areas that provide information,

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<PAGE>
allow visitors to exchange ideas and stimulate buying. The front page of the
retail shop usually has a featured brand, special offers and seasonal
suggestions. Information is provided in categories such as:

<TABLE>
<S> <C>
PRODUCT REVIEWS..... PRODUCT REVIEWS are written by our in-house food expert for every
product line offered in our store. These reviews highlight the reasons
for selecting each product line, and provide interesting commentary
and colorful facts about the products and companies that produce them.

SEASONAL IDEAS...... SEASONAL IDEAS present products or groups of products around seasonal
themes. In the past we have featured barbecue items during the summer
months and gourmet snacks during the fall football season.

VISITING CHEF....... VISITING CHEF features biographical information and recipes from a
number of celebrity chefs. In cases where the chefs' products are
featured in our store, links are provided to the product offerings.

RECIPES............. RECIPES feature and highlight different product lines. These recipes,
many of which are provided by our suppliers, are linked to areas in
our store where the products can be purchased.

CUSTOMER FORUMS..... CUSTOMER FORUMS allow visitors to the site to share their own product
reviews and comments.
</TABLE>

THE WHOLESALE SITE. In December 1998, we launched our wholesale site which
offers products from suppliers, typically in case quantities, to retail stores,
specialty food shops, gift shops, caterers, restaurants and other traditional
merchants. Initial access to the GreatFood.com wholesale home page is available
to anyone, but information on products and pricing is limited to retailers who
register with us and are issued a password. Once a password is issued, these
customers can view products and pricing and can buy bulk quantities at wholesale
prices. Our wholesale shop uses a different search methodology than our retail
shop. In the wholesale shop, wholesale customers principally search by product
categories and the brand names of our suppliers.

CORPORATE GIFTS. Our corporate gifts site is designed for use by businesses
and professionals who are procuring gifts for their customers or clients. We
offer these customers the assistance of our gift consultants, available online
or by phone, to facilitate the purchasing decision. The corporate gifts site
features a number of products which are particularly appropriate for corporate
gifts. Customers can shop online for a variety of specialty food gift baskets
and have them sent directly to their customers and clients. We believe that the
convenience of ordering gifts for customers and clients from the workplace is an
attractive solution for businesses and professionals.

SHOPPING AT OUR SITE

We believe that the sale of specialty food at our Web site offers several
benefits to our customers. These benefits include enhanced selection,
convenience, ease of use, depth of content and information, and competitive
pricing. Key features of our online store include:

BROWSING. Our Web site offers visitors a variety of highlighted subject
areas and special features arranged in a simple, easy to use format intended to
enhance product search, selection and discovery. Our visitor starts by selecting
a shop among retail, wholesale or corporate gifts. By clicking on these
permanently displayed shop names, the visitor moves directly to the home page of
the desired shop and can quickly view promotions and featured products. Visitors
can use a quick keyword search in order to locate a specific product. They can
also execute more sophisticated searches based on pre-selected

35
<PAGE>
criteria depending upon the shop that they are in. For example, at our retail
shop, visitors can search using the following sample criteria:

<TABLE>
<CAPTION>
Sample Categories Meal Occasion Gift Finder
- ----------------- -------------- ----------------
<S> <C> <C>
Appetizers Backpacking $15 and under
Candy Barbecue $20 range
Cheese Beach party $30 range
Chocolates Cocktail party $40 range
Fruits Dessert $50-$75
Gift baskets Dinner party $75-$100
Meats Fireside $100 and up
Pastas Picnic Gift basket
Sauces Pre-game Gift certificate
Seafood Romantic meal Gift of the
month
</TABLE>

In addition, visitors can browse our online retail store by clicking on
links which bring them to specially designed pages dedicated to products from
key national and specialty brands. Customers can also click through to "Featured
Brand" pages and browse through our seasonal "Express Shoppes," designed to
facilitate holiday shopping for the harried customer who needs a quick gift.

GETTING INFORMATION. One of the unique advantages of an Internet retail
store is the ability to combine product information and editorial content. Our
site includes destinations where visitors can read food reviews, featured
recipes and about selected chefs. In addition, visitors can enter a forum where
they can read or offer customer reviews, suggestions and comments.

FINDING A GIFT. We have designed parts of our site to encourage and
facilitate gift giving. Visitors can draw down the Gift Finder menu to help them
find a gift in a particular price range. Our site also has an area called "Gift
giving etiquette" which offers guidance on appropriate occasions for business-
related gifts.

SELECTING A PRODUCT AND CHECKING OUT. To purchase products, customers
simply click on either the "add to cart" or "buy it now" buttons to add products
to their "shopping cart." Customers can add and subtract products from their
shopping cart as they browse around our online store, prior to making a final
purchase decision, just as in a physical store. To execute orders, customers
click on the "checkout" button and, depending upon whether the customer has
previously shopped with us, the customer may be prompted to supply shipping
details online. America Online members can access the AOL Quick Checkout feature
which already has the customer's billing and shipping information online. Prior
to finalizing an order by clicking the "submit order" button, customers are
shown their total charges along with the various products and shipping options
chosen. The customer then has the ability to change their order or cancel it
entirely. As an additional service, we offer customers the option to place
orders directly over the telephone by calling our toll free number.

PAYING. Customers must use a credit card to pay for their orders. They
authorize charges to their credit card during the checkout process, but we do
not process the charge until our suppliers ship the customer's items from their
distribution facilities.

ORDER PROCESSING AND FULFILLMENT. Upon receipt of a customer order, we
transmit fulfillment instructions to the appropriate supplier via e-mail or
facsimile, depending upon their systems. The supplier, in turn, ships the
products directly to the customer and supplies to us confirmation of shipment.
Over time, we anticipate that a majority of our suppliers' warehouses will be
electronically linked to our order processing system. Because we do not
currently use a warehouse, the risks and costs associated with carrying
inventory are reduced. Suppliers fulfill orders placed through our Web site
through a variety of third party shippers, including UPS and Federal Express.
See "-- Technology

36
<PAGE>

and Intellectual Property" beginning on page 42 for more information on order
processing and fulfillment.

CUSTOMER SERVICE. GreatFood.com places significant emphasis on customer
service and offers a 100% satisfaction guarantee on all of our products and
services through which GreatFood will replace or provide a refund for any
product for which a customer is not 100% satisfied. In this area of our site, we
assist customers in searching for, shopping for, ordering and returning
products. We also provide information on shipping charges and other policies. In
addition, we provide customers with answers to the most frequently asked
questions and encourage our visitors to send us feedback and suggestions via
e-mail. Furthermore, customer service agents are available via telephone or
e-mail to answer questions about products and the shopping process as well as
assist in the corporate gift giving process. One of the key features of the
GreatFood.com site is our Safe Shopping Guarantee, which ensures that all of our
customers' personal information is encrypted, and covers the full amount of each
shopper's personal liability for unauthorized credit card usage.

THE GREATFOOD.COM RETAIL CUSTOMER

We believe that in general, customers are visiting our site in anticipation
of a food related event: special occasions, birthdays, holidays or parties,
where convenience and ease of use are essential. The average customer spent
approximately $48 per visit in the first six months of 1999, including shipping
charges. According to surveys conducted among a limited number of our customers
in the 1998 calendar year by BizRate.com, a market research firm:

- 65% of our customers were female;

- 75.3% of our customers were 35 years of age or older, with an average age
of 45 years; and

- average annual income of our customers was approximately $87,000.

We are highly committed to excellent customer service with the goal of
providing a positive ordering experience that will capture the customer for
repeat visits. The BizRate.com survey indicated that 89% of the customers
responding were highly or very highly satisfied with their shopping experience
and 80% of the customers responding were likely or very likely to shop in our
online store again.

SUPPLIER RELATIONSHIPS

GreatFood.com currently features approximately 3,700 products from 72 of the
country's leading specialty food companies. Our five most popular product lines
during 1998 were those offered by Port Chatham Smoked Salmon, Lobster Gram, Ham
I Am!, Chukar Cherry Company, and Pacific Cookie Company. We evaluate all of our
products for quality and freshness and inclusion in our Web site is by
invitation only. We bear the cost of setting up and operating a Web site for our
suppliers within our site so that they have no setup fees or site operating
costs.

In our GreatFood.com retail business, we pay our suppliers at wholesale
prices and generally sell our products to customers at standard retail prices.
GreatFood.com wholesale orders are sold at wholesale pricing to retailers while
we pay our suppliers at a discount from wholesale. Terms with our suppliers
typically require payment within 30 days.

As of June 30, 1999, we offered products from the following suppliers and
brands:

Ackerman & Cooke -- PRIME BEEF STEAKS AND ROASTS

Advantage Int'l Foods Corp. -- IMPORTED CHEESES

Barrows Tea -- GOURMET TEA

Bella Cucina Artful Food -- PASTA, SAUCES AND OLIVE OIL

Blue Crab Bay Company -- SOUPS, CRACKERS AND BLOODY MARY MIX FROM THE
CHESAPEAKE BAY AREA

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Brown & Haley -- ALMOND ROCA AND OTHER FINE CHOCOLATES

Caffe Appassionato -- SPECIALTY COFFEE

California Harvest (Grapevine Trading) -- TAPENADES, FRUIT VINEGARS AND
OLIVE OIL FROM
CALIFORNIA

Calio Groves -- OLIVE OILS FROM CALIFORNIA

Carson's Ribs -- BARBECUE RIBS FROM CHICAGO

Celebration Specialty Foods -- BIRTHDAY AND SPECIAL OCCASION CAKES, TARTS
AND PASTRIES

Charlie Palmer Foods -- COOKING SAUCE FOR MEAT, POULTRY AND FISH

Chewy's Rugulach -- FLAVORED RUGULACH PASTRIES

Chukar Cherry Company -- DRIED FRUITS, CANDIES AND GIFT BASKETS

Cibo Fresh Specialties -- FRESH HERB BUTTERS, CHEESES AND PESTOS

Cinnabar Specialty Foods, Inc. -- CHUTNEYS AND SAUCES

Cinnabon -- CINNAMON ROLLS

Cornfields -- GOURMET POPCORN

Crinklaw Farms -- WREATHS, DRIED FLOWERS AND GARLIC BRAIDS

D'Artagnan -- PATES, SAUSAGES AND SPECIALTY MEATS

Da Vinci Gourmet -- FLAVORED SYRUPS

Delacre (Liberty Richter) -- EUROPEAN STYLE COOKIES AND BISCUITS

Desserts on Us -- BAKLAVA

Downey's Cakes (Liberty Richter) -- LIQUEUR CAKES FOR SPECIAL OCCASIONS
AND GIFTS

Edible Eats -- GOURMET CHEESECAKES

Elena's -- PASTA AND PASTA SAUCES

Farm Country Specialties -- FRENCH TOAST BATTER MIX

The Famous Pacific Dessert Company -- CHOCOLATE DECADENCE, TORTES AND
BROWNIES

Formula 9 -- GOURMET KETCHUP

Fox's Fine Foods -- RELISHES AND PESTOS

Golden Malted -- WAFFLES AND PANCAKES

Goldwater's Foods of Arizona -- ALL NATURAL HOT AND FRUIT SALSAS

Grafton Village Cheese -- VERMONT CHEDDAR CHEESES

Graysmarsh Farms -- JAMS AND PRESERVES

Greenwich Bay Clams -- RHODE ISLAND LITTLENECK CLAMS

Grimaud Farms -- MUSCOVY DUCK, RABBIT AND GOOSE

Hagerty Foods -- SAUCES AND PICKLED VEGETABLES

Ham I Am! -- HICKORY SMOKED HAMS, TURKEYS, QUAIL AND BEEF BRISKET

Harbor Sweets -- HANDMADE GIFT CHOCOLATES

Highland Sugarworks -- VERMONT MAPLE SYRUP AND BREAKFAST GIFT PACKS

Hogue Cellars (Hogue Farms) -- PICKLED VEGETABLES FOR APPETIZERS AND
SNACKS

John Wm. Macy Cheesesticks -- GOURMET CHEESESTICKS

Kids Cooking Kits -- BAKING KITS FOR KIDS

Killer Pecans (People Gotta Eat) -- TWICE-COOKED JUNIOR MAMMOTH PECAN
HALVES

Kim & Scotts's Gourmet Pretzels -- PRETZELS

Lobster Gram -- LIVE MAINE LOBSTER DINNERS

Loewy Foods Inc. (Chef's Pride) -- FRESH TURKEYS AND KOSHER TURKEYS

Melissa's -- EXOTIC FRUIT AND GIFT BASKETS

Mo Hotta Mo Betta -- HOT SAUCES

Moonshine Trading -- HONEYS AND NUT BUTTERS

Native Kjalii -- FRESH CUT TORTILLA CHIPS

Omaha Steaks -- CORN FED MIDWEST BEEF

Oregon Orchard (Hazelnut Growers of Oregon) -- SEASONED AND CHOCOLATE
COATED HAZELNUTS

Pacific Cookie Company -- OATMEAL, CHOCOLATE CHIP AND OTHER COOKIES

Parmacotto Ham -- PARMA HAM FROM ITALY

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<PAGE>
Partners Crackers -- CRACKERS

Patti's Plum Puddings -- PLUM PUDDING

Paul Proudhomme's Magic Seasoning Blends -- SPICE MIXES

Perona Farms -- ATLANTIC SMOKED SALMON

Perugina (Peters Imports) -- CHOCOLATES IMPORTED FROM ITALY

Petrossian Paris -- IMPORTED CAVIAR

Port Chatham Smoked Salmon (Icicle Seafoods) -- SMOKED SALMON AND GIFT
PACKS

Quality Citrus Packs -- EXTRA FANCY FRUIT

Reward Specialty Food Company -- GOURMET GRANOLA

The Rainforest Company -- BRAZIL NUTS AND CASHEWS WITH A BUTTER CRUNCH
COATING

Restaurant Lulu -- VINEGARS, SAUCES AND SEASONINGS

Scharffen Berger -- CHOCOLATES

Torn Ranch -- DRIED FRUITS, NUTS AND GIFT PACKS

Tortuga -- RUM CAKES

Two Buddies BBQ -- BBQ SAUCES AND MARINADES

Ultimate Baking Company -- GOURMET BISCOTTI

The Ultimate Basket -- GIFT BASKETS

Walker's Shortbreads (Peters Imports) -- IMPORTED SHORTBREAD FROM
SCOTLAND

Wild Thymes -- FRUIT SPREADS, CHUTNEYS, SAUCES AND MUSTARDS

We currently rely on our suppliers to fulfill our customers' orders directly
and therefore do not maintain inventory or operate distribution centers. Many of
our suppliers are small businesses with limited production and delivery
capabilities. Supplier order fulfillment difficulties may limit the growth or
our sales. We will evaluate on a continuous basis whether we should maintain
inventories or one or more distribution centers. We may choose to do so, for
example:

- if the timing or amount of purchases causes our significant suppliers to
be unable to deliver to our customers in a timely manner;

- if we determine it is necessary or beneficial to be able to consolidate
orders, particularly from wholesale customers, to reduce shipping costs or
achieve other cost savings;

- if we determine that it would be worthwhile in order to enable us to
purchase products in bulk at a discount from wholesale prices and obtain
the resulting higher profit margin on sales of these products; and

- if we begin experiencing problems maintaining consistent quality of
packaging and order fulfillment.

MARKETING AND PROMOTION

GreatFood.com targets potential online customers, both retail and wholesale,
in a proactive manner, using a mix of traditional and online marketing
techniques. These techniques include online and print advertising, direct mail,
public relations and trade shows.

OUR RETAIL CUSTOMER MARKETING STRATEGY

ONLINE ADVERTISING AND PROMOTION. Online advertising to date has been the
most successful method in directing traffic to our Web site. We use commercially
available tracking software to track and monitor our incoming traffic. We
believe that our promotional relationships are a critical component of achieving
brand recognition. We have entered into promotional arrangements with major Web
sites called "portals" which bring together a large variety of content. Through
these agreements, we believe we can reach a significant portion of the online
consumer audience and obtain visibility on new and

39
<PAGE>
innovative programs within these sites. We intend to continue to pursue
distribution arrangements with additional portals and other leading Internet
sites to further broaden awareness of the GreatFood.com brand and drive more
users to our Web site. Our current aggregate obligations under these promotional
agreements are approximately $1.2 million through the end of 1999 and
approximately $206,000 through the first half of 2000. We anticipate spending a
portion of the proceeds of this offering to increase our online advertising and
promotional spending.

In August 1998, we entered into a shopping channel promotional agreement
with America Online. Under this agreement, we became a regularly featured
merchant in America Online's Shopping Channel. The Shopping Channel can be
accessed through the America Online and CompuServe online services and the AOL
Web site. A link to our Web site is located in the Gourmet and Grocery area of
the Shopping Channel. America Online has also selected us to participate in the
AOL Quick Checkout program which enables America Online members to enter their
credit card and shipping information once and subsequently make purchases from
selected merchants without having to reenter their credit card and shipping
information. Our contract with America Online extends through December 1999.
America Online is a leading Internet shopping site. According to a January 1999
press release issued by America Online, its members spent over $1 billion with
online retailers available through their network during the six weeks of the
1998 holiday shopping season.

In September 1998, we entered into a sponsorship agreement with Excite.
Under this agreement, links to our Web site and promotional materials have been
placed on several areas of the Excite Web site including the Gourmet and
Groceries department of the Excite site. In addition, we participate in Excite's
one click shopping program, where shoppers can choose from a wide array of
seasonal gift items and are able to reorder without having to re-enter their
credit card number. Our agreement with Excite extends through December 1999.

GreatFood.com also participated in targeted online programs with
approximately 15 other sites during 1998. We have contracted for approximately
100 food related search "keywords" under our agreement with Yahoo! where we
expect to show GreatFood.com advertising banners 110 million times to viewers of
the Yahoo! site. Our agreement with Yahoo! extends until December 31, 1999. In
addition, we purchase advertising space or structure promotional arrangements
with a variety of other Web sites which we believe are appropriately targeted to
our customers.

AFFILIATE PROGRAM. Our retail shop also has an affiliate program which
encourages users to set up links to our Web site, and, in turn, allows us to
work collaboratively with owners of other Web sites. In this program, qualified
Web sites operated by third parties can sign up to become GreatFood.com
affiliates and will share in the profits on every transaction directly referred
by their Web sites. In addition to the affiliate program we run directly, we
have entered into a contract with GeoCities to participate in their "Pages That
Pay" affiliate network. GeoCities is an Internet company which has, according to
GeoCities, approximately four million members, many of whom create their own Web
sites. We expect to significantly increase our customer base through these
programs.

THE PRIVATE LABEL, CO-BRANDED PROGRAM. We team with marketing partners that
maintain Web sites which target customers outside GreatFood.com's primary
customer base. GreatFood.com products are offered to these customers and we
fulfill the orders through our supplier channel, in return for sharing profits
on the sale with our marketing partner. We have established these "co-branded"
relationships with Peapod, Wells Fargo and YourSchoolShop.com, among others.

40
<PAGE>

PRINT ADVERTISING. We have conducted a print advertising campaign aimed at
gourmet and mail order consumers. During 1998 and the first six months of 1999,
we have placed ads in the following publications:

<TABLE>
<S> <C>
Better Homes and Gardens The New York Times Magazine
Bon Appetit The New Yorker
Country Living The Puget Sound Business Journal
Eating Well Saveur
Fine Cooking Southern Living
Food and Wine Sunset
Gourmet Town and Country
House Beautiful The Wall Street Journal
</TABLE>

CATALOGS. GreatFood.com has implemented a limited distribution of catalogs
to heighten brand awareness and stimulate traffic from our existing customer
base.

SPECIAL DRAWINGS AND PROMOTIONS. From time to time we hold special drawings
to encourage visitors to register on our site. For example, we conducted a
drawing for visitors considering specialty food for corporate gifts and selected
five winners who received a Varietal Sampler of Caffe Appasionato coffee. We
believe special promotions increase return visits by our customers and we plan
to continue similar promotions in the future.

GIFT CERTIFICATES. We offer gift certificates to both retail and corporate
clients. We believe this is particularly effective during the holiday season as
it provides an opportunity for additional customers to visit our Web site and
purchase products of their choice.

DIRECT MAIL. During 1998 we initiated two fourth quarter direct mail
campaigns aimed at specialty food consumers and the corporate gift market. We
plan on continuing our direct mail campaigns and instituting systems for
tracking the effectiveness of our direct mail programs.

OUR WHOLESALE CUSTOMER MARKETING STRATEGY

TRADE SHOWS. Industry trade shows, in particular the National Association
of the Specialty Food Trade (NASFT) Fancy Food & Confection Shows held annually
in San Francisco, Chicago, and New York, are an important part of the marketing
activity between specialty food suppliers and their retailer customers. As part
of our activities to grow our wholesale program, we plan to participate as an
exhibitor at these industry trade shows during 1999.

PRINT ADVERTISING. As part of our wholesale business, we have advertised in
such specialty food industry publications as GOURMET NEWS, FANCY FOOD, GOURMET
RETAILER, GIFT BASKET REVIEW and the NASFT SHOWCASE.

TELEMARKETING. We believe another way to reach specialty food retailers is
through telemarketing. We plan to use this method to attract and recruit these
customers.

GOVERNMENT REGULATION

Government regulation of communications and commerce on the Internet varies
greatly from country to country. In the United States and Canada, the federal
governments have not adopted many laws and regulations to specifically regulate
online communications and commerce. However, the U.S. Congress has recently
enacted legislation addressing such issues as the transmission of certain
materials to children, intellectual property protection, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. The governments of some other countries have been
much more active in regulating in these areas than has the United States. The

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<PAGE>
United States and other countries may increase their regulation of the Internet
in the future. The law of the Internet, however, remains largely unsettled and
it may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. An increase in regulation or the application of existing laws to the
Internet may require us to modify the manner in which we conduct our business
and could significantly increase our costs of operations or harm our business.

CUSTOMER SERVICE

We believe that excellent customer service and support is critical to
retaining and expanding our customer base. Customers can access our customer
service representatives either through our toll free number or e-mail. Our
customer service team is responsible for handling general customer inquiries and
investigating the status of orders, shipments and payments. In addition, we
process orders for customers who prefer live interaction or are uncomfortable
transmitting their credit card information over the Internet. Our customer
service representatives are a valuable source of feedback regarding customer
satisfaction. Our Web site also contains customer service pages that outline
store policies, provide answers to frequently asked questions, and provide an
opportunity for customers to easily send us inquiries by e-mail.

TECHNOLOGY AND INTELLECTUAL PROPERTY

TECHNOLOGY. We have implemented a variety of site management, search,
customer interaction and order processing systems that we use to process
customers' orders and payments. These systems use a combination of commercially
available, licensed technologies and, to a lesser extent, our own proprietary
software. We are currently focusing our internal development efforts on:

- enhancement of the appearance and functionality of our Web site;

- systems to support order processing, fulfillment and accounting; and

- databases to track customer activities, preferences and contacts.

We currently use the Netscape Merchant System provided by Netscape
Communications Corporation to provide an electronic "shopping cart" interface
and an Oracle database to store product and order information. This system
includes a built-in credit card approval and processing facility which
interfaces directly to First Data Corporation, a credit card processing company.
Our Web site currently is maintained on two servers connected to the Internet.
The servers are capable of supporting thousands of Web visitors and hundreds of
transactions per day. For information concerning the year 2000 compliance status
of our systems, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Readiness" on page 27.

We have recently completed an internal evaluation of our electronic commerce
systems for customer interaction, transaction processing, order fulfillment and
customer service. As a result, we have begun a major upgrade of our systems to:

- provide capacity for added order volume;

- enable us to offer state of the art online shopping technology; and

- tie together internal order processing systems to more fully automate the
business processes related to fulfilling and monitoring orders generated
through our online sales.

To effect this upgrade, we have chosen a commercially available system
provided by Pandesic, a joint venture of Intel and SAP, for this implementation.
This system provides business automation features based on SAP R/3 software and
will be configured by Pandesic specifically for our electronic commerce
requirements. Additionally, the Pandesic system will provide servers, networking
equipment

42
<PAGE>
and connection to the Internet, which will replace our current system. Hardware
will be located at a third party facility operated by Digex, Inc. in Sunnyvale,
CA, which will provide several servers dedicated to the GreatFood.com site,
communications lines and emergency power backup.

The Pandesic system is intended to provide advantages to both our ordering
customers and our order processing and fulfillment departments. For our
customers the Pandesic system is expected to facilitate online order tracking,
recommendations of alternative or related products and processing of gift
certificates and coupons. In support of GreatFood.com's wholesale program, the
Pandesic system also will be used to automate account management functions:
setting up accounts, providing credit terms and credit limits. For our order
processing and fulfillment departments, the Pandesic system is expected to
provide an Internet based means for transferring orders to suppliers, generating
packing lists and shipping labels, tracking shipments, invoicing and payment.
Additionally, we expect the Pandesic system to provide overall financial
reporting with respect to vendor payments.

We will be running our existing system in parallel with the Pandesic system
during its implementation. The schedule for implementation of the Pandesic
system calls for installation and testing of the system as well as introduction
of the features that will affect our customers during the third quarter of 1999.
Subsequently, we expect to introduce the portions of the system which will
assist our order processing and fulfillment departments with a small group of
our key suppliers during the fourth quarter of 1999 and to complete installation
with the majority of our suppliers in mid to late 2000. In return for software
licenses, support, use of hardware and Internet hosting, we have agreed to pay
Pandesic a monthly fee.

REMOTE ORDER PROCESSING AND TRACKING NETWORK. Currently, our suppliers ship
orders directly to our customers on our behalf. To date, we have transmitted
orders to our suppliers through traditional means, including facsimile, or, in
some cases, e-mail. By contrast, in connection with our implementation of the
Pandesic system, we expect to be able to provide greater automation of the
process of submitting orders to our suppliers and tracking their status by
creating an "extranet" which will consist of electronic links between our order
processing system and our suppliers over the Internet. Many of our suppliers
have limited technical capabilities. We believe that the successful
implementation of this system is essential to our business to mitigate the order
fulfillment problems we have experienced during high volume periods.
Implementing this system will require us to provide a number of suppliers with
personal computers, software, Internet access and training. For this and other
reasons, implementation of our supplier extranet will be a complex undertaking.
We may not be able to implement this system successfully or implementation may
interfere with the successful operation of our business due to:

- the substantial capital expenditures required to purchase the hardware and
software;

- difficulties in training our suppliers to use the new system;

- the availability of technical support for these new systems;

- the demands the maintenance of the new system and training will place on
our financial, personnel and other resources; and

- difficulties we may encounter in achieving acceptance of this system by
our suppliers.

To succeed in the market in which we compete, we must:

- adapt to rapidly changing technologies;

- adapt our business to evolving industry standards; and

- continually improve the performance, features and reliability of our
service in response to competitive service and product offerings and
evolving demands of the marketplace.

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<PAGE>
Our failure to adapt to changes in our market would have a material adverse
effect on our business, results of operations and financial condition. In
addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures by us to modify or adapt our services or technology.
This could harm our business, results of operations and financial condition.

INTELLECTUAL PROPERTY. We regard our service marks, trademarks, trade
dress, trade secrets and similar intellectual property as integral to our
success. We rely on trademark and copyright law, and trade secret protection to
protect our proprietary rights. We have filed a trademark application for
GreatFood.com for online ordering services featuring specialty food items.
However, we cannot assure you that this trademark will be granted. If this
trademark is not granted, we might be unable to prevent other companies from
using this or a similar name. In addition, effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which we plan to sell our products online.

COMPETITION

The specialty food market is extremely competitive but there is no single
dominant competitor. We believe that the principal competitive factors in our
market are:

- brand recognition;

- selection;

- personalized services;

- convenience;

- price;

- accessibility;

- customer service;

- quality of search tools;

- quality of site content; and

- reliability and speed of fulfillment.

On the retail side of our business, we compete with supermarkets, warehouse
clubs, and other specialty food retailers who have physical stores but do not
offer the convenience of shopping from home or work 24 hours a day, 7 days a
week. We also compete with specialty food catalogs and mail order companies such
as Omaha Steaks, Harry & David, Dean & DeLuca, Balducci's and Hickory Farms.
Many of these catalog and mail order companies have established their own Web
sites and offer their products for sale online.

There are other online specialty food retailers which sell products or offer
content that compete with discreet portions of our business including Virtual
Vineyards, Digital Chef and Cooking.com. However, we are not aware of any
significant online specialty food stores dedicated to selling a broad line of
specialty food products. To a lesser extent, we also compete with Internet
grocery stores such as Peapod and HomeGrocer.com and Internet "mall" retailers
such as Shopping.com and CyberShop.

On the wholesale side of our business, we compete with the food brokers and
distributors that currently serve the specialty food distribution market.

We expect many more online competitors in the future, as barriers to entry
are minimal, and new competitors can launch sites at a relatively low cost.

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<PAGE>
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do. In addition, online
retailers may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as use of the Internet and other online services increases. Some of
our competitors may be able to secure merchandise from manufacturers on more
favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to Web site and systems development than we
can. Increased competition may result in reduced operating margins, loss of
market share and diminished brand recognition. New technologies and the
expansion of existing technologies may increase the competitive pressures on us.

EMPLOYEES

As of June 30, 1999, we had 22 full-time employees, including eight in
product and site development, seven in sales and marketing and eight in general
and administration. None of our employees are represented by a union. We believe
that our relationship with our employees is good.

FACILITIES

We lease approximately 3,000 square feet of space in Seattle, Washington for
our corporate headquarters. The rent for this space is currently $4,313 per
month. Our lease expires in February 2002, although we may terminate it, at our
option, in September 2000. We have an option to renew our lease for this space
for an additional three year term at a then current market rate of rent. We have
also signed a letter of intent to enter into an agreement to lease an additional
5,800 square feet with a monthly rental expense of approximately $13,000.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

GreatFood.com's executive officers, key employees and directors and their
ages as of June 30, 1999 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
Benjamin Nourse..................................... 41 Chief Executive Officer, Chairman of the Board of
Directors and Secretary
William Cuff........................................ 57 President and Director
Gayle Stetson....................................... 37 Vice President of Finance and Administration and
Chief Financial Officer
Donna Nourse........................................ 47 Vice President of Merchandising
Ronald Pankiewicz................................... 47 Vice President of Information Technology and Site
Development
Noel Thompson....................................... 47 Vice President of Wholesale Programs
Scott Ellis......................................... 36 Director of Operations
R. Stockton Rush III................................ 37 Director
Geoffrey Barker..................................... 36 Director
David E. Wyman...................................... 54 Director
Mark Koulogeorge.................................... 35 Director
</TABLE>

BENJAMIN NOURSE founded GreatFood.com and has served as the Chairman of our
board of directors since September 1995. Mr. Nourse served as our President from
September 1995 until April 1998 and became our Chief Executive Officer in May
1999. From 1996 to 1998, Mr. Nourse was the Vice President of Development for
The Cobalt Group, Inc., a provider of Internet marketing solutions to automotive
dealerships. From 1993 to 1995, Mr. Nourse was an Executive Vice President of
Scifor Corporation, a start up company which developed a large area video and
multimedia graphic display system. From 1991 to 1992, he was the Vice President
of Finance and Corporate Development of Tera Computer Company, a supercomputer
manufacturer. From 1987 to 1991, he was an investment banker with U.S. Bancorp
Piper Jaffray, Inc. Mr. Nourse holds a bachelor's degree in Engineering Sciences
from Dartmouth College and a Masters in Business Administration from the Wharton
School of the University of Pennsylvania.

WILLIAM CUFF has been our President since April 1998, a director since May
1998, and was our Chief Executive Officer from April 1998 until May 1999. From
1990 to 1997, Mr. Cuff was President and Chief Executive Officer of Diamond
Walnut Growers, Inc., a nut marketing and processing company. From 1986 to 1990,
Mr. Cuff served as President of The Bachman Company, a major regional snack food
company. From 1982 to 1986, he was the Vice President of Specialty Foods for
Nestle Corporation, and from 1979 to 1982 he was the Vice President of Business
Development for the Libby subsidiary of Nestle. Prior to joining Nestle, Mr.
Cuff spent 11 years in various marketing management positions with General
Foods. Mr. Cuff holds a bachelor's degree in Economics from Yale University and
a Masters in Business Administration from Columbia University.

GAYLE STETSON was appointed our Vice President of Finance and Administration
in April 1999, and our Chief Financial Officer in May 1999. From 1993 until
joining us, Ms. Stetson was a partner of Stetson Guske & Koenes, PLLC, an
accounting firm. From 1985 to 1991, Ms. Stetson worked as an audit manager with
KPMG Peat Marwick. Ms. Stetson holds a bachelor's degree in Accounting from
Western Washington University and is a Certified Public Accountant.

DONNA NOURSE joined GreatFood.com as our Vice President of Merchandising in
August 1998. Prior to that time, Mrs. Nourse acted as an advisor to
GreatFood.com since its inception. From 1988 to 1998, she was the corporate home
economist for Quality Food Centers (QFC), an upscale Pacific

46
<PAGE>
Northwest supermarket chain. From 1982 to 1987, she served as the Senior Manager
for the Creative Food Center of Campbell Soup Company. From 1978 to 1982, Mrs.
Nourse was Food Editor for Seventeen Magazine. She holds a bachelor's degree in
Home Economics from Plattsburgh State University. Mr. and Mrs. Nourse are
husband and wife.

RON PANKIEWICZ joined GreatFood.com as our Vice President of Information
Technology and Site Development in June 1999. From March 1996 until joining us,
Mr. Pankiewicz was the Director of Information Systems Development for Advanced
Radio Telecom. From January 1995 to March 1996, he was the Manager of
Applications Software for NORCOM Networks Corporation. Prior to that time, from
March 1993 to January 1995, he was a Lead Software Developer for NavGuard, Inc.
Before joining NavGuard, he was employed for 13 years by Fluke Corporation, a
manufacturer of electronic instrumentation. Mr. Pankiewicz holds a bachelor's
degree in Applied Mathematics from the University of Washington, a Masters in
Computer Science from Massachusetts Institute of Technology and a Masters in
Management Science from the Sloan School of Management of Massachusetts
Institute of Technology.

NOEL THOMPSON joined GreatFood.com as our Vice President of Wholesale
Programs in June 1999. From September 1994 until joining us, Mr. Thompson was
the general manager of The Newmarket Co., a specialty foods distributor. From
1986 to 1994, Mr. Thompson served as a Vice President and National Sales Manager
for Select Origins, a cooking ingredient and condiment manufacturer. Prior to
joining Select Origins, he was employed in Sales Management positions at The
Silver Palate and Dean and Deluca Imports. Mr. Thompson holds a bachelor's
degree in German from Dartmouth College.

SCOTT ELLIS has been our Director of Operations since December 1998. Prior
to joining us, from 1990 to 1998, Mr. Ellis held various positions at Unisea,
Inc., a processor of seafood for wholesale and retail distribution, including
most recently, production director. He holds a bachelor's degree in
International Studies from the Jackson School of International Studies at the
University of Washington.

R. STOCKTON RUSH III has served as a director of GreatFood.com since May
1998 and is a private investor. Since 1990, Mr. Rush has been the President and
Chairman of the Board of Directors of Remote Control Technology, Inc., a
manufacturer of industrial wireless remote control products. Mr. Rush holds a
bachelor's degree in Aerospace Engineering from Princeton University and a
Masters in Business Administration from the Haas Business School at the
University of California at Berkeley.

GEOFFREY BARKER has been a director of GreatFood.com since May 1998. Mr.
Barker co-founded The Cobalt Group, Inc., a provider of Internet marketing
solutions to automotive dealerships, in 1995, and has been its Co-Chief
Executive Officer since that time. From 1994 to 1995, he was the Vice President
for New Business at IVI Publishing, Inc., a multimedia developer and publisher.
From 1989 to 1994, Mr. Barker was an investment banker with U.S. Bancorp Piper
Jaffray, Inc. Mr. Barker holds a bachelor's degree in Economics from Tufts
University and a Masters in Business Administration from Columbia University.

DAVID E. WYMAN has served as a director of GreatFood.com since November 1998
and is a private investor. From 1990 to 1998, Mr. Wyman served as the Chairman
of the Board of Directors of Prime Advisors, a fixed income investment advisory
firm. From 1973 to 1994, he was a director and Vice President of Kinzua
Corporation, a privately held forest products manufacturing company. He is also
a director of P.C. Fixx, Inc., a closely held computer networking and repair
business.

MARK KOULOGEORGE became a director of GreatFood.com in May 1999. Mr.
Koulogeorge is a managing director of First Analysis Corporation, a venture
capital investment firm. Prior to joining First Analysis in 1994, he was the
Vice President of Corporate Development of Eagle Industries, Inc., a diversified
manufacturer, from 1991 to 1994. Mr. Koulogeorge holds a bachelor's degree in
Economics from Dartmouth College and a Masters in Business Administration from
Stanford University.

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<PAGE>
BOARD OF DIRECTORS

Our board of directors currently consists of six members. Prior to the date
of this offering, each director was elected to serve until the next annual
meeting of shareholders or until the election and qualification of his successor
or his earlier resignation or removal. In connection with the closing of this
offering, the board of directors will be divided into three classes (Class 1,
Class 2 and Class 3), each class containing two directors. Messrs. Wyman and
Koulogeorge will be the Class 1 directors, with terms expiring at the annual
shareholders' meeting in 2000; Messrs. Cuff and Barker will be the Class 2
directors, with terms expiring at the annual shareholders' meeting in 2001; and
Messrs. Nourse and Rush will be the Class 3 directors, with terms expiring at
the annual shareholders' meeting in 2002. Beginning with the annual
shareholders' meeting in 2000, each newly elected director will be elected to
serve for a period of three years. The classification of the board may make it
more difficult for a third party to acquire, or discourage a third party from
acquiring control of, GreatFood.com.

COMMITTEES OF THE BOARD OF DIRECTORS

Our board of directors established a compensation committee in March 1999
and an audit committee in May 1999. Messrs. Rush, Barker and Wyman are the sole
members of both committees. The compensation committee makes recommendations to
the board concerning salaries and incentive compensation for our officers and
employees and administers our employee benefit plans. The audit committee
reviews GreatFood.com's financial statements and accounting practices, makes
recommendations to the board regarding the selection of our independent auditors
and reviews the results and scope of the audit and other services provided by
the independent auditors.

DIRECTOR COMPENSATION

Our directors currently do not receive any cash compensation from us for
their service as members of the board of directors, although they are reimbursed
for reasonable travel and lodging expenses in connection with attendance at
board or committee meetings. Under our stock incentive plan, non-employee
directors are entitled to receive stock option grants and stock purchase rights
at the discretion of the board of directors or other administrator of the plan.
In addition, Messrs. Rush, Barker and Wyman each hold an option to purchase
10,000 shares of common stock which becomes exercisable in full one year after
the date of grant. Messrs. Rush and Barker's options are exercisable at $0.30
per share and Mr. Wyman's option is exercisable at $1.75 per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the formation of the compensation committee in March 1999, the
entire board participated in all executive compensation decisions. None of our
executive officers presently serves, or in the past fiscal year has served, as a
member of the compensation committee or board of directors of any other company
whose executive officers served in the past fiscal year on our compensation
committee. Certain of our directors have purchased our securities. See
"Relationships with Greatfood.com and Related Transactions" on page 53 and
"Principal Shareholders" on page 55.

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<PAGE>
SUMMARY COMPENSATION

The following table sets forth information concerning the compensation paid
for services rendered to GreatFood.com in all capacities during 1996, 1997 and
1998 to our Chief Executive Officer and all other persons who earned
compensation in excess of $100,000 in any of those years.

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL -----------------
COMPENSATION SECURITIES
----------------- UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) OPTIONS(#)
- ---------------------------------------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
William Cuff(1)............................... 1998 $ 57,282 514,286
President
Benjamin Nourse............................... 1998 40,000
Chief Executive Officer 1997 1,820
1996 8,000
</TABLE>

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

(1) Mr. Cuff has served as President since April 1998 and served as Chief
Executive Officer from April 1998 to May 1999. On an annual basis, Mr.
Cuff's salary in 1998 would have been approximately $80,000.

OPTIONS GRANTED IN 1998

We did not grant Mr. Nourse any stock options during 1998. However, on May
6, 1999, we granted Mr. Nourse an option to purchase 60,000 shares at an
exercise price of $5.50, which option becomes exercisable in four equal annual
amounts on each anniversary of the grant date. The following table sets forth
certain information regarding stock options we granted Mr. Cuff during 1998.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(3)
OPTIONS FISCAL PRICE($/ EXPIRATION --------------------
GRANTED(1) YEAR(2) SHARE) DATE 5% 10%
--------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William Cuff.................... 100,000(4) 18.4% $ 0.30 4/13/08 $ 67,921 $ 172,124
President 100,000(5) 18.4 0.30 4/13/08 67,921 172,124
300,000(6) 55.2 1.75 4/13/08 330,170 836,715
14,286(7) 2.6 1.75 7/20/08 15,723 39,844
</TABLE>

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

(1) 500,000 options were granted to Mr. Cuff under the 1997 Stock Incentive
Plan. In addition, Mr. Cuff was granted a warrant for 14,286 shares outside
of the 1997 Stock Incentive Plan.

(2) Based on an aggregate of 529,500 option shares and 14,286 warrant shares
granted to employees in 1998.

(3) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.

(4) This option became exercisable in full on April 13, 1999.

(5) This option becomes exercisable in equal amounts on a monthly basis from the
vesting commencement date of April 13, 1998 until fully vested on April 13,
2001.

49
<PAGE>
(6) This option becomes exercisable in equal amounts on a monthly basis from the
vesting commencement date of April 13, 1998 until fully vested on April 13,
2003.

(7) This warrant was fully vested upon issuance on July 20, 1998.

1997 STOCK INCENTIVE PLAN

GreatFood.com's 1997 Stock Incentive Plan was adopted by GreatFood.com's
board of directors and approved by our shareholders in September 1997.
Initially, 250,000 shares of common stock were reserved for issuance under the
plan. In May 1998, this total was increased to 1,000,000, and in May 1999, this
total was increased to 1,600,000.

As of June 30, 1999, no shares had been issued upon the exercise of options
granted under the plan, options to purchase 884,000 shares of common stock were
outstanding with a weighted average exercise price of $2.22 and 716,000 shares
remained available for future grant. No awards may be granted under the plan
after September 27, 2007, but the vesting and effectiveness of awards previously
granted may extend beyond that date.

The plan provides for the grant of incentive stock options, as defined under
the Internal Revenue Code of 1986, to employees (including officers and employee
directors) of GreatFood.com and its affiliates. The plan also provides for the
grant of nonqualified options to such employees as well as to non-employee
directors, consultants, agents and other key contributors to GreatFood.com.

The board of directors has appointed its compensation committee to
administer the plan. The compensation committee determines both the recipients
of options and the type of options to be granted, including the exercise price,
number of shares subject to the option and the exercisability of the option. The
compensation committee also has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the plan and to
interpret its provisions. The board of directors also granted the chairman of
GreatFood.com the authority to grant options under the plan (in an amount not to
exceed 25,000 shares in the aggregate to any individual) to eligible
participants under the plan, other than our officers, at an exercise price which
is not less than the fair market value of GreatFood.com's common stock on the
date of grant.

While the compensation committee determines the exercise price of the
options, the exercise price of an incentive stock option may not be less than
100% of the fair market value of the common stock on the date of the option
grant.

The compensation committee may not grant an incentive stock option to a
person who, at the time of the grant, owns (or is deemed to own) stock
representing more than 10% of the total combined voting power of GreatFood.com
or any affiliate of GreatFood.com, unless the option exercise price is at least
110% of the fair market value of the common stock from the date of grant. In
addition, the aggregate fair value, determined at the time of grant, of the
shares of common stock with respect to which incentive stock options are
exercisable for the first time by the optionee during any calendar year may not
exceed $100,000.

The plan also provides for the grant of restricted shares, which are shares
of common stock, the transfer of which is restricted and which may be forfeited
in the manner determined by the compensation committee. The plan also authorizes
the compensation committee to award or offer bonuses of shares of common stock,
either restricted or non-restricted, as current or deferred compensation,
instead of all or any portion of the cash compensation to which the employee is
entitled. In addition, the compensation committee may grant cash bonus rights
under the plan in connection with options, stock bonuses or shares granted under
to the plan.

In the event of certain corporate transactions, such as a merger or sale of
GreatFood.com, each outstanding option and restricted stock award will
automatically accelerate and become 100% vested

50
<PAGE>
immediately before the corporate transaction and the holder of an option will be
able to purchase the full number of shares of our stock under such option,
unless the option or restricted stock award is, in connection with the corporate
transaction, assumed by GreatFood.com's successor corporation or parent or
subsidiary of this successor.

1999 EMPLOYEE STOCK PURCHASE PLAN

In May 1999, the board of directors adopted an employee stock purchase plan,
and we have reserved a total of 400,000 shares of our common stock for issuance
under the 1999 Employee Stock Purchase Plan. We have not issued any shares under
the employee stock purchase plan. The employee stock purchase plan permits
eligible employees to purchase our common stock at a discount through payroll
deductions during offering periods of up to 24 months. An offering period
generally will be six months in duration and begin on the first trading day of
each January and July. The initial offering period will begin no earlier than
July 1999. The price at which stock is purchased under the employee stock
purchase plan will be equal to 85% of the fair market value of our common stock
on the first day of the offering period or the date of purchase, whichever is
lower.

EMPLOYMENT ARRANGEMENTS

In April 1998, we entered into a letter agreement with Mr. Cuff, our
President. The agreement entitles Mr. Cuff to an annual salary of $80,000 per
year. Under the agreement, we granted Mr. Cuff options to purchase (a) 100,000
shares of common stock at an exercise price of $0.30 per share which became
exercisable in equal amounts over the first twelve months of his employment; (b)
100,000 shares of common stock at an exercise price of $0.30 a share which vest
monthly in equal amounts over a 36 month period and (c) 300,000 shares of common
stock at an exercise price of $1.75 which vest monthly in equal amounts over a
sixty month period. The vesting of these options will accelerate upon a change
of control of GreatFood.com. We also granted Mr. Cuff a warrant to purchase
14,286 shares of our common stock at an exercise price of $1.75 per share under
the terms of the agreement.

DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY

Our articles of incorporation limit the liability of directors and officers
to the fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, except as
otherwise provided in the Washington Business Corporation Act, no director or
officer will be personally liable to GreatFood.com or its shareholders for
monetary damages resulting from his or her conduct as a director or officer of
GreatFood.com, except liability for:

- acts or omissions involving intentional misconduct or knowing violations
of law;

- unlawful distributions to our shareholders; or

- transactions from which the director or officer personally receives a
benefit in money, property or services to which the director or officer is
not legally entitled.

Our articles of incorporation also require us to indemnify any individual
made a party to a proceeding because that individual is or was a director or
officer of GreatFood.com and to advance or reimburse reasonable expenses
incurred by such individual in advance of the final disposition of the
proceeding to the full extent permitted by applicable law. Any repeal or
modification to our articles of incorporation may not adversely affect any right
of a director or officer of GreatFood.com who is a director or officer at the
time of such repeal or modification. To the extent provisions of our articles of
incorporation provide for indemnification of directors for liabilities arising
under the Securities Act, those provisions are, in the opinion of the SEC,
against public policy as expressed in the Securities Act and are therefore
unenforceable. In addition, we have entered into separate indemnification

51
<PAGE>
agreements with our directors and officers that may require us, among other
things, to indemnify them against liabilities that arise because of their status
or service as directors or officers and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified. We
also intend to purchase and maintain a liability insurance policy, under which
our directors and officers may be indemnified against liability they may incur
for serving in their capacities as directors and officers of GreatFood.com.

We believe that the limitation of liability provisions in our articles of
incorporation, the indemnification agreements and the liability insurance policy
will facilitate our ability to continue to attract and retain qualified
individuals to serve as directors and officers of GreatFood.com.

52
<PAGE>
RELATIONSHIPS WITH GREATFOOD.COM AND RELATED TRANSACTIONS

Upon our inception in August 1995, we issued 1,000,000 shares of common
stock to Benjamin Nourse, our Chairman of the Board and Chief Executive Officer,
in exchange for $48,590, which was paid in several installments over a period
beginning in September 1995 and ending in November 1996. On March 23, 1997, Mr.
Nourse purchased 50,000 shares of common stock for $10,000, and on October 12,
1997, Mr. Nourse purchased 33,333 shares of common stock for $10,000. On July 17
1998, Mr. Nourse purchased 7,142 shares of Series A preferred stock for $12,499
and on March 18, 1999, he purchased 5,000 shares of Series B preferred stock for
$15,000. Donna Nourse, our Vice President of Merchandising, owns these shares
jointly with Mr. Nourse, her husband.

In April 1998, we entered into a letter agreement with Mr. Cuff, our
President, which is described at page 52 above in "Management -- Employment
Arrangements." In July 1998, Mr. Cuff purchased 28,571 shares of Series A
preferred stock for $49,999 and in March 1999 he purchased 5,000 shares of
Series B preferred stock for $15,000. Mr. Cuff also received a warrant to
purchase 14,286 shares of common stock at a price of $1.75 per share under his
employment agreement.

R. Stockton Rush, III, one of our directors, purchased 50,000 shares of
common stock for $10,000 in December 1996, 75,000 shares of common stock for
$15,000 in March 1997, and 83,333 shares of common stock for $25,000 in
September 1997. In July 1998, the Ralph K. Davies Trust FBO R.S. Rush III, a
trust of which Mr. Rush III is the sole trustee and an income beneficiary,
purchased 60,000 shares of Series A preferred stock for $105,000 and in March
1999 the trust purchased 66,666 shares of Series B preferred stock for $199,998.
In July 1998, Catherine W. Rush, Mr. Rush III's sister, purchased 28,571 shares
of Series A preferred stock for $49,999. In October 1997, R. Stockton Rush, Mr.
Rush III's father, purchased 33,333 shares of common stock for $10,000. In July
1998, Mr. Rush purchased 17,142 shares of Series A preferred stock for $29,999
and in March 1999 he purchased 16,666 shares of Series B preferred stock for
$49,998. In July 1998, Richard M. Weil, Mr. Rush III's brother-in-law, purchased
14,285 shares of Series A preferred stock for $24,999.

In October 1997, David E. Wyman, a director of GreatFood.com, purchased
83,333 shares of common stock for $25,000. In July 1998, Mr. Wyman purchased
42,857 shares of Series A preferred stock for $75,000. In the same private
placement, WYNOT Investments, of which Mr. Wyman and his sister, Ann McCall
Wyman, are each fifty percent beneficial owners, purchased 56,571 shares of
Series A preferred stock for $98,999 and in March 1999, WYNOT Investments
purchased 33,333 shares of Series B preferred stock for $99,999.

In March 1998, Geoffrey T. Barker, one of our directors, purchased 8,333
shares of Series B preferred stock for $24,999.

In connection with the issuances of preferred stock, we entered into an
Investors' Rights Agreement with the holders of our common stock, Series A
preferred stock, and Series B preferred stock, including Messrs. Nourse, Cuff,
Wyman and Barker, WYNOT Investments, and Mr. Rush III, his trust, his sister,
his father and his brother-in-law. Under the terms of this agreement, we may
become obligated to effect a registration under the Securities Act of 1933 of
shares of common stock held by these holders or obtained upon the conversion of
their preferred stocks. See "Description of Capital Stock -- Registration
Rights" on page 58 for more information on this agreement and when this
obligation arises.

In exchange for a warrant (which vests ratably over a period of 36 months if
the conditions to its vesting are met) to purchase 36,000 shares of our common
stock at an exercise price of $0.20 per share, The Cobalt Group hosted our
servers from March 1997 through May 1999 and provided us with high speed
Internet access. The vesting of this warrant terminated on May 14, 1999 with
25,000 shares vested. Mr. Barker, one of our directors, is the Co-Chief
Executive Officer, a director, and a significant

53
<PAGE>
shareholder of The Cobalt Group. Mr. Koulogeorge, another of our directors, is a
director of The Cobalt Group.

On May 17, 1999, we sold 600,000 shares of Series C preferred stock at $5.00
per share of which 588,000 shares were purchased by partnerships controlled by
First Analysis Corporation: 528,000 by Riverside Partnership and 60,000 by The
Productivity Fund IV, L.P. First Analysis owns a majority ownership interest in
two limited liability companies: one of which is the direct general partner of
The Productivity Fund IV, L.P. and the other of which is the indirect general
partner of Riverside Partnership. In addition, 10,000 shares were purchased by
Mr. Koulogeorge, one of our directors. Mr. Koulogeorge is a member of the
limited liability company which is the direct general partner of The
Productivity Fund IV, L.P. and is also a member of the limited liability company
which is indirect general partner of Riverside Partnership. The purchasers of
the Series C preferred stock also agreed to purchase, at our option, up to
300,000 additional shares of Series C preferred stock at $5.00 per share. We
have until May 17, 2000 to exercise this option to sell additional shares of
Series C preferred stock. The purchasers of the Series C preferred stock also
received warrants to purchase up to a total of 323,077 additional shares of
Series C preferred stock at $0.01 per share (up to 484,615 shares if we exercise
our option to sell the additional 300,000 shares of Series C preferred stock).
The warrants issued to Riverside Partnership entitle it to purchase up to
284,307 shares; the warrants issued to The Productivity Fund IV, L.P. entitle it
to purchase up to 32,308 shares and the warrants issued to Mr. Koulogeorge
entitle him to purchase up to 5,385 shares. These share amounts would be
proportionately increased if we exercise our option to sell 300,000 additional
shares of Series C preferred stock. These warrants will become exercisable only
if we fail to complete a public offering of at least $10,000,000 of our common
stock at a price of at least $10.00 per share by January 31, 2000. If we
complete a public offering of that size and value at any time in the future, all
shares of Series C preferred stock will automatically convert into shares of our
common stock. We also granted to these purchasers the right to require us to
register their shares of common stock for resale under the Securities Act. See
"Description of Capital Stock -- Registration Rights" on page 58 for more
information.

We are a party to a Merchant Agreement, dated December 20, 1995, which
obligates us to honor Visa and Mastercard credit cards when properly presented
as payment by our customers. Mr. Nourse has personally guaranteed our
obligations under this agreement.

54
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table describes the beneficial ownership of GreatFood.com's
common stock as of June 30, 1999 and as adjusted to reflect the sale of the
shares of common stock offered in this prospectus by:

- each person or group that we know beneficially owns more than 5% of our
outstanding common stock;

- each of our directors;

- our chief executive officer; and

- all of our executive officers and directors as a group.

Unless otherwise indicated, the address for each of the named individuals is
c/o GreatFood.com, 2731 Eastlake Avenue East, Seattle, Washington 98102. Except
as otherwise indicated or as may otherwise be determined by applicable community
property laws, the persons named in the table have sole voting and investment
power over all shares of common stock held by them. The number of shares in the
table assumes no exercise of the underwriters' over-allotment option.

Applicable percentage ownership in the table is based on 4,027,532 shares of
common stock outstanding as of June 30, 1999 (assuming the conversion of all
outstanding shares of preferred stock), and 6,527,532 shares outstanding
immediately following the completion of this offering. Beneficial ownership is
determined according to the rules of the SEC. Shares of common stock which are
issuable upon the exercise of options or warrants that are presently exercisable
or exercisable within 60 days of June 30, 1999 are deemed outstanding for the
purpose of computing the percentage ownership of the person or entity holding
such options or warrants, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person or entity. To the extent
that any shares are issued upon the exercise of options, warrants or other
rights to acquire GreatFood.com's common stock that are presently outstanding or
which may be granted in the future or reserved for future issuance under
GreatFood.com's stock plans, the percentage ownership of new public investors
will be reduced.

<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF SHARES OUTSTANDING
BENEFICIALLY ------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER OFFERING
- ----------------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Benjamin Nourse................................ 1,095,475 27.2% 16.8%
William Cuff................................... 272,300 6.4 4.0
R. Stockton Rush, III.......................... 344,999 8.5 5.3
Geoffrey Barker................................ 43,333 1.1 *
David E. Wyman................................. 216,094 5.4 3.3
Mark Koulogeorge............................... 598,000 14.8 9.2
All directors and executive officers as a group
(10 persons)................................. 2,570,201 59.6 37.7
5% SHAREHOLDERS
Furman C. and Susan R. Moseley................. 700,000 17.4 10.7
411 University Street, Suite 1200
Seattle, Washington 98101
First Analysis Corporation..................... 588,000 14.6 9.0
9500 Sears Tower
Chicago, IL 60606
</TABLE>

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

* Less than one percent.

55
<PAGE>
Shares listed as held by Mr Cuff include 14,286 shares of common stock
issuable upon exercise of a warrant currently exercisable and 224,443 shares
subject to options exercisable within 60 days of June 30, 1999.

Shares listed as held by Mr. Rush III include 10,000 shares of common stock
issuable upon exercise of an option currently exercisable and 126,666 shares of
preferred stock held by the Ralph K. Davies Trust FBO R.S. Rush III of which Mr.
Rush III is the sole trustee and an income beneficiary.

Shares listed as held by Mr. Barker include 25,000 shares of common stock
issuable upon exercise of a warrant currently exercisable held by The Cobalt
Group of which Mr. Barker is the Co-Chief Executive Officer, a director and a
significant shareholder and 10,000 shares of common stock issuable upon exercise
of an option currently exercisable.

Shares listed as held by Mr. Wyman include 89,904 shares held by WYNOT
Investments. Mr. Wyman and his sister, Ann McCall Wyman, are each fifty percent
equity owners of WYNOT Investments.

Shares listed as held by Mr. Koulogeorge include 528,000 shares of preferred
stock held by Riverside Partnership and 60,000 shares of preferred stock held by
The Productivity Fund IV, L.P. Mr. Koulogeorge is a member of a limited
liability company which is the direct general partner of The Productivity Fund
IV, L.P. and is also a member of a limited liability company which is the
indirect general partner of Riverside Partnership. Mr. Koulogeorge is also an
executive officer of First Analysis Corporation which holds a majority ownership
interest in these limited liability companies.

Shares listed as held by First Analysis Corporation include 528,000 shares
of common stock held by Riverside Partnership and 60,000 shares of common stock
held by The Productivity Fund IV, L.P. First Analysis Corporation holds a
majority ownership interest in a limited liability company which is the direct
general partner of The Productivity Fund IV, L.P. and also holds a majority
ownership in another limited liability company which is the indirect general
partner of Riverside Partnership.

56
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, we will be authorized to issue up to
60,000,000 shares of common stock, and 20,000,000 shares of preferred stock. The
following discussion summarizes key provisions of the common stock and preferred
stock. You should also refer to our articles of incorporation and bylaws, which
are included as exhibits to the Registration Statement, of which this prospectus
is a part, and to the provisions of applicable Washington law.

COMMON STOCK

As of June 30, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 4,027,532 shares of common stock outstanding held of
record by 46 shareholders. Following this offering, there will be 6,527,532
shares of common stock outstanding, assuming there is no exercise of the
underwriters' over-allotment option or of outstanding options or warrants. The
holders of common stock are entitled to one vote per share on all matters to be
voted on by the shareholders. Cumulative voting for the election of directors is
not authorized by our articles of incorporation, which means that the holders of
a majority of the shares voted can elect all of the directors then standing for
election. After payment is made to holders of outstanding shares of preferred
stock which have preferential rights to dividends, the holders of common stock
are entitled to receive ratably any dividends the board of directors declares
out of funds legally available for the payment of dividends. If GreatFood.com is
liquidated, dissolved or wound up, the holders of common stock are entitled to
share pro rata all assets remaining after payment of liabilities and liquidation
preferences of any outstanding shares of preferred stock. Holders of common
stock have no preemptive rights or rights to convert their common stock into any
other securities. There are no redemption or sinking fund provisions applicable
to the common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued following this
offering will be fully paid and nonassessable.

PREFERRED STOCK

As of June 30, 1999, there were 2,448,368 shares of preferred stock
outstanding, all of which will be converted into common stock on a one for one
basis at the time of the closing of this offering. Thereafter, under our
articles of incorporation, our board of directors is authorized to issue up to
20,000,000 shares of preferred stock in one or more series without shareholder
approval. The board has discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences of each
series of preferred stock.

The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a shareholder vote on specific issuances. The ability to issue preferred stock,
while providing desirable flexibility in connection with possible acquisitions,
financings and other corporate purposes, could make it more difficult for a
third party to acquire, or could discourage a third party from acquiring, a
majority of the outstanding voting stock of GreatFood.com. GreatFood.com has no
present plans to issue any shares of preferred stock.

STOCK PLANS

As of June 30, 1999, (1) options to purchase a total of 884,000 shares of
common stock were outstanding, and (2) up to 716,000 additional shares of common
stock are reserved for issuance under options granted in the future under the
1997 Stock Incentive Plan. See "Management -- 1997 Stock Incentive Plan" on page
51. In addition, 400,000 shares are reserved for issuance under the 1999
Employee Stock Purchase Plan. See "Management -- 1999 Employee Stock Purchase
Plan" on page 51.

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<PAGE>
WARRANTS

As of June 30, 1999, GreatFood.com had the following outstanding warrants to
purchase shares of common stock: (1) a warrant to purchase up to 300,000 shares
of common stock at an exercise price of $3.00 per share; (2) a warrant to
purchase up to 25,000 shares of common stock at an exercise price of $0.20 per
share that is held by The Cobalt Group; (3) a warrant to purchase up to 14,286
shares of common stock at an exercise price of $1.75 per share that is held by
William Cuff, our President; (4) warrants issued to an entity to purchase up to
2,858 shares of common stock at an exercise price of $1.75 per share and up to
1,667 shares of common stock at an exercise price of $3.00 per share; and (5)
warrants to purchase up to a total of 323,077 shares of Series C preferred stock
at an exercise price of $0.01 per share which will become exercisable only if we
fail to complete a public offering of at least $10,000,000 of our common stock
at a price of at least $10.00 per share by January 31, 2000. For additional
information concerning the warrants described in items (2), (3) and (5) above,
see "Relationships with GreatFood.com and Related Transactions" at page 53.

REGISTRATION RIGHTS

After this offering, the holders of 4,027,532 shares of common stock will be
entitled to rights with respect to the registration of such shares under the
Securities Act. If we propose to register our common stock under the Securities
Act, either for our own account or for the account of other security holders
exercising registration rights, in connection with the public offering of common
stock solely for cash, then these holders are entitled to notice of the
registration and to include shares of common stock in the registration at our
expense. Additionally, holders of 3,427,532 of these shares may require us to
file up to four additional registration statements on Form S-3 at our expense.
Holders of up to 600,000 of these shares have the right to demand on one
occasion that we register their shares for resale at our expense on any form of
SEC registration statement available for use by us. All of these registration
rights are limited by the terms and conditions of our agreements with these
shareholders, including the right of the underwriters of an offering to limit
the number of shares included in such registration and our right to decline to
effect such a registration before six months after the closing of the initial
public offering.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION, BYLAWS
AND WASHINGTON LAW

PREFERRED STOCK. As noted above, our board of directors, without
shareholder approval, has the authority under our articles of incorporation to
issue preferred stock with rights superior to the rights of the holders of
common stock. As a result, preferred stock could be issued quickly and easily,
could adversely affect the rights of holders of common stock and could be issued
with terms calculated to delay or prevent a change in control of GreatFood.com
or make removal of management more difficult.

ELECTION AND REMOVAL OF DIRECTORS. Following this offering, our board of
directors will be divided into three staggered classes, each of whose members
will serve a three year term. See "Management -- Board of Directors" on page 48.
Also following this offering, directors may be removed only for cause. Because
this system of electing and removing directors generally makes it more difficult
for shareholders to replace a majority of the board of directors, it may tend to
discourage a third party from making a tender offer or otherwise attempting to
gain control of GreatFood.com and may maintain the incumbency of the board of
directors.

APPROVAL OF CERTAIN BUSINESS COMBINATIONS. Upon completion of this
offering, our articles of incorporation will require that mergers, share
exchanges, sales, leases, exchanges, mortgages, pledges, transfers or other
dispositions or encumbrances of a substantial part of our assets other than in
the usual and regular course of business, and other business combinations be
approved by the holders of not less than two-thirds of the outstanding shares,
unless such business combination has been approved

58
<PAGE>
by a majority of the board of directors, in which case the affirmative vote of
only a majority of the outstanding shares will be required.

REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND
PROPOSALS. Upon completion of this offering, our bylaws will establish advance
notice procedures with respect to shareholder proposals and the nomination of
candidates for election as directors, other than nominations made by or at the
direction of the board of directors or a committee of the board of directors.

AMENDMENT OF BYLAWS AND ARTICLES. Upon completion of this offering, our
articles of incorporation will provide that amendments to our bylaws which are
proposed by our shareholders and amendments to our articles of incorporation
must be approved by a two-thirds vote of all shares eligible to vote.

TRANSACTIONS WITH CERTAIN SIGNIFICANT SHAREHOLDERS. Washington law contains
provisions which restrict transactions between a public corporation and
significant shareholders. Chapter 23B.19 of the Washington Business Corporation
Act prohibits a "target corporation," from engaging in the significant business
transactions described in that provision with an "acquiring person," which is
defined as a person or group of persons that beneficially owns 10% or more of
the voting securities of the target corporation, for a period of five years
after such acquisition, unless the transaction or acquisition of shares is
approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition or another exception to this
provision is available. Such prohibited transactions include, among other
things:

- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;

- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or

- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.

After the five year period, a "significant business transaction" may occur,
as long as it complies with the "fair price" provisions of the statute or is
approved by the target corporation's shareholders. A public corporation may not
"opt out" of this statute. This provision may have the effect of delaying,
deterring or preventing a change in control of GreatFood.com.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the common stock is Chase Mellon
Shareholder Services, 400 S. Hope St., 4th Floor, Los Angeles, CA 90071.

LISTING

We have applied to have the common stock listed for quotation on the Nasdaq
National Market under the symbol "GTFD."

59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock. We cannot guarantee that a significant public market for the common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock in the public market, including shares issued upon
exercise of outstanding options and warrants, could adversely affect prevailing
market prices for the common stock or our future ability to raise capital
through the sale of our equity securities.

After this offering, we will have outstanding 6,527,532 shares of common
stock, assuming no exercise of outstanding warrants and options, which as of
June 30, 1999 were vested for an aggregate of 332,824 shares of common stock and
will vest for up to an additional 1,197,564 shares of common stock in the
future. Of these shares, the 2,500,000 shares that we expect to sell in this
offering will be freely tradable in the public market without restriction under
the Securities Act, unless such shares are held by "affiliates" of
GreatFood.com, as that term is defined in Rule 144 under the Securities Act.

The remaining 4,027,532 shares of common stock that will be outstanding
after this offering will be restricted shares. We issued and sold the restricted
shares in private transactions in reliance on exemptions from registration under
the Securities Act. Restricted shares may be sold in the public market only if
they are registered or if they qualify for an exemption from registration under
Rule 144 or Rule 701 under the Securities Act, as summarized below.

All of our existing shareholders have entered into lock-up agreements in
which they have agreed to not sell or otherwise dispose of any of the 4,027,532
shares held by them for a period of 180 days from the date of this prospectus.
We also have entered into an agreement with the underwriters that we will not
offer, sell or otherwise dispose of common stock for a period of 180 days from
the date of this prospectus.

On the date of the expiration of the 180 day period described above,
2,517,846 shares will be eligible for sale under Rule 144 but will be limited by
the Rule 144 volume restrictions and 204,165 shares will be eligible for sale
under Rule 144(k). The remaining 1,305,521 restricted shares will be eligible
for sale under Rule 144 on the expiration of various one year holding periods
over the six months following the expiration of the lock up period.

Under Rule 144, a person who has beneficially owned restricted shares for at
least one year would be entitled to sell in any three month period up to the
greater of:

- one percent of the then outstanding shares of common stock (approximately
6,527,532 shares immediately after this offering); and

- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.

Sales under Rule 144 must also comply with the manner of sale and notice
requirements in that Rule and to the Rules requirement that there be current
public information available about GreatFood.com. Under Rule 144(k), a person
who has not been an affiliate of GreatFood.com during the preceding 90 days and
who has beneficially owned the restricted shares for at least two years is
entitled to sell them without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register the 2,000,000 shares of common stock reserved
for issuance under the 1997 Stock Incentive Plan and the 1999 Employee Stock
Purchase Plan. The registration statement will become effective automatically
upon filing. Shares issued under the foregoing plans, after the filing of a
registration statement on Form S-8, may be sold in the open market, subject, in
the case of certain holders, to the Rule 144 limitations applicable to
affiliates, and to the above referenced lock-up agreements and vesting
restrictions imposed by us.

In addition, following this offering, the holders of 4,027,532 shares of
outstanding common stock will have rights to require us to register their shares
for future sale. See "Description of Capital Stock -- Registration Rights" on
page 58.

60
<PAGE>
PLAN OF DISTRIBUTION

In accordance with the terms of an underwriting agreement, W.R. Hambrecht &
Company, LLC and First Security Van Kasper, as underwriters, will purchase from
GreatFood.com the following respective number of shares of common stock at the
public offering price less the underwriting discounts and commissions described
on the cover page of this prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
W.R. Hambrecht & Company, LLC....................................................
First Security Van Kasper........................................................
----------
Total............................................................................ 2,500,000
----------
----------
</TABLE>

The underwriting agreement provides that the obligations of the underwriters
are subject to conditions, including the absence of any material adverse change
in GreatFood.com's business, and the receipt of certificates, opinions and
letters from GreatFood.com and its counsel and independent accountants. Subject
to those conditions, the underwriters are committed to purchase all shares of
common stock offered if any of the shares are purchased.

The underwriters propose to offer the shares of common stock directly to the
public at the offering price set forth on the cover page of this prospectus, as
this price is determined by the process described below, and to certain dealers
at this price less a concession not in excess of $[ ] per share. Any dealers
or agents that participate in the distribution of the common stock may be deemed
to be underwriters within the meaning of the Securities Act, and any discounts,
commissions or concessions received by them and any provided by the sale of the
shares by them might be deemed to be underwriting discounts and commissions
under the Securities Act. After the completion of the initial public offering of
the shares, the public offering price and other selling terms may be changed by
the underwriters.

The public offering price set forth on the cover page of this prospectus
will be based on the results of an auction process, rather than solely through
negotiations between GreatFood.com and the underwriters. The plan of
distribution of the offered shares differs somewhat from traditional
underwritten public offerings of equity securities.

The auction process will proceed as follows:

- Prior to effectiveness of the registration statement relating to this
offering, the underwriters and participating dealers will solicit
indications of interest from prospective investors through the Internet as
well as by traditional means. The auction is open for purposes of
receiving indications of interest following the posting of the preliminary
prospectus on the Web site of W.R. Hambrecht & Company, LLC. The
indications of interest will specify the number of shares the potential
investor proposes to purchase and the price the investor is willing to pay
for the shares. After effectiveness, W.R. Hambrecht & Company, LLC will
open the auction for offers to purchase (firm bids). The underwriters will
contact all pre-effective bidders, either in person, by e-mail, telephone,
voice mail, facsimile, mail and/or posting a notice on the Web site of
W.R. Hambrecht & Company, LLC to notify them that the registration
statement is effective and that the prospectus is available on the Web
site of W.R. Hambrecht & Company, LLC and to confirm whether their
indications are firm bids. Pre-effective bidders who have not furnished
e-mail addresses will be contacted in person, by telephone, voice mail,
facsimile or mail. All indications of interest that are not confirmed
prior to a time specified by the underwriters or, if no time is specified,
the close of the auction will be deemed withdrawn. After an indication of
interest has been confirmed, it may be modified or withdrawn at any time
until the auction is closed. Similarly, new bids may be placed at any time
prior to the close of the auction. The

61
<PAGE>
public offering price will ultimately be determined by negotiation between
the underwriters and GreatFood.com following the close of the auction. The
principal factor in establishing the public offering price will be the
price per share, or clearing price, resulting from the auction that equals
the highest price set forth in valid firm bids at which all of the shares
(excluding any shares which may be sold pursuant to exercise of the
over-allotment option) may be sold to potential investors. The public
offering price may be lower (but will not be higher) than the clearing
price based on negotiations between the underwriters and GreatFood.com.
However, the clearing price will always determine the allocation of
shares. Thus, if the public offering price is below the clearing price all
bids which are below the clearing price will be rejected even if they are
higher than the public offering price. If sufficient bids are not received
or GreatFood.com does not consider the clearing price to be adequate or
the underwriters and GreatFood.com are not able to reach agreement on the
offering price, GreatFood.com and the underwriters will either postpone or
cancel the offering or file a post-effective amendment and conduct a new
auction.

- A simplified example of how the public offering price will be determined
via the auction process is as follows: Company X offers to sell 100 shares
in its public offering through this auction process. W.R. Hambrecht &
Company, LLC, on behalf of Company X, receives five indications of
interest, all of which are kept confidential until the auction process
ends. The first indication of interest is to pay $10 per share for 10
shares, the second is for $9 per share for 30 shares, the third for $8 per
share for 60 shares, the fourth for $8 per share for 40 shares and the
last for $7 a share for 80 shares. After the registration statement
becomes effective, all potential investors who have submitted
pre-effective indications of interest will be advised of that fact and
asked to confirm that their indications of interest are now firm bids. The
auction is closed and a clearing price is set. Assuming all of these
indications of interest are confirmed as offers to purchase shares and no
additional offers to purchase are received, the clearing price used to
determine the public offering price would be $8 a share because $8 equals
the highest price at which all 100 shares may be sold to potential
investors who have submitted valid bids. The two potential investors with
the highest offers to purchase would receive all the shares they
requested, totaling 40 shares. The next two potential investors would
receive the remaining 60 shares in proportion to the amounts they asked
for or 36 and 24 shares each. The potential investor with the lowest offer
to purchase would receive no shares in this example.

- Valid indications of interest and offers to purchase are those that meet
the requirements, including eligibility, account status and size,
established by the underwriters or participating dealers. In determining
the validity of offers to purchase, in addition to minimum account
balances, a prospective investor submitting an offer to purchase after the
registration statement is effective through a W.R. Hambrecht & Company,
LLC brokerage account may be required to have an account balance equal to
or in excess of the aggregate dollar amount of the prospective investor's
offer to purchase. Although funds may be required to be in an account as a
condition to the offer to purchase being considered valid, the funds will
not be transferred to the underwriters until the closing of the offering.
Conditions for valid indications of interest and offers to purchase,
including eligibility standards and account funding requirements, of other
underwriters or participating dealers may vary.

- The auction will close not earlier than on a date publicly disclosed in
advance by the underwriters on the Web site of W.R. Hambrecht & Company,
LLC. The offered shares will be purchased from GreatFood.com by the
underwriters and sold through the underwriters and participating dealers
to investors who have submitted offers to purchase at or in excess of the
clearing price, and these investors will be notified by e-mail, telephone,
voice mail, facsimile or mail as soon as practicable following the close
of the auction that their offers to purchase have been accepted. The
number of shares sold to an investor submitting an offer to purchase
precisely at the clearing price may be subject to a pro rata reduction.
Each participating dealer

62
<PAGE>
has agreed with the underwriters to sell shares they purchase from the
underwriters in this manner, unless otherwise consented to by the
underwriters. Shares issued upon exercise of the underwriters'
over-allotment option will be allocated in the same manner, with investors
who have submitted bids in excess of the clearing price receiving 100% of
shares bid for, and investors who have submitted bids at the clearing
price receiving available shares on a pro rata basis. The underwriters
reserve the right to reject bids that they deem manipulative, disruptive
or necessary or beneficial to facilitate the orderly completion of the
offering, and reserve the right, in exceptional circumstances, to alter
this method of allocation as they deem necessary to effect a fair and
orderly distribution of the shares. For example, large orders may be
reduced to insure a public distribution and indications of interest or
offers to purchase may be rejected by the underwriters or participating
dealers based on eligibility or creditworthiness criteria.

Price and volume volatility in the market for GreatFood.com's common stock
may result from the somewhat unique nature of the proposed plan of distribution.
Price and volume volatility in the market for GreatFood.com's common stock after
the completion of this offering may adversely affect the market price of
GreatFood.com's common stock.

GreatFood.com has granted to the underwriters an option, exercisable no
later than 30 days after the date of this prospectus, to purchase up to an
aggregate of 375,000 additional shares of common stock at the offering price,
less the underwriting discount, set forth on the cover page of this prospectus.
To the extent that the underwriters exercise this option, the underwriters will
have a firm commitment to purchase the additional shares, and GreatFood.com will
be obligated to sell the additional shares to the underwriters. The underwriters
may exercise the option only to cover over-allotments made in connection with
the sale of shares offered.

The underwriting agreement provides that GreatFood.com will indemnify the
underwriters against specified liabilities, including liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make.

GreatFood.com has agreed not to offer, sell, contract to sell, or otherwise
dispose of any shares of common stock, or any options or warrants to purchase
common stock other than the shares of common stock or options to acquire common
stock issued under GreatFood.com's 1995 stock option plan, employee stock
purchase plan or upon the conversion of outstanding warrants, for a period of 90
days after the date of this prospectus, except with the prior written consent of
W.R. Hambrecht & Company, LLC.

Prior to the offering, there has been no public market for GreatFood.com's
common stock. The initial public offering price for the common stock will be
determined by the process described above and does not necessarily bear any
direct relationship to GreatFood.com's assets, current earnings or book value or
to any other established criteria of value, although these factors were
considered in establishing the initial public offering price range. Other
factors considered in determining the initial public offering price range
include:

- market conditions;

- the industry in which GreatFood.com operates;

- an assessment of GreatFood.com's management;

- GreatFood.com's operating results;

- GreatFood.com's capital structure;

- the business potential of GreatFood.com;

- the demand for similar securities of comparable companies; and

63
<PAGE>
- other factors deemed relevant.

In connection with the offering, persons participating in the offering may
purchase and sell shares of common stock on the open market. These transactions
may include short sales, stabilizing transactions in accordance with Rule 104 of
Regulation M under the Exchange Act and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering which
creates a syndicate short position. Stabilizing transactions consist of certain
bids or purchases made for the purpose of preventing or retarding a decline in
the market price of the common stock. The underwriters also may impose a penalty
bid. This occurs when a particular underwriter repays to the underwriters a
portion of the underwriting discount received by it because the representative
has repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

Persons participating in this offering may also engage in passive market
making transactions in the common stock on the Nasdaq National Market. Passive
market making consists of displaying bids on the Nasdaq National Market limited
by the prices of independent market makers and affecting purchases limited by
such prices and in response to order flow. Rule 103 of Regulation M promulgated
by the SEC limits the amount of net purchases that each passive market maker may
make and the displayed size of each bid.

Passive market making may stabilize the market price of the common stock at
a level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time.

W.R. Hambrecht & Company, LLC currently intends to act as a market maker for
the common stock following this offering. However, W.R. Hambrecht & Company, LLC
is not obligated to do so and may discontinue any market making at any time.

W.R. Hambrecht & Company, LLC is an investment banking firm formed as a
limited liability company in February 1998. In addition to this offering, W.R.
Hambrecht & Company, LLC has engaged in the business of public and private
equity investing and financial advisory services since its inception. The
manager of W.R. Hambrecht & Company, LLC, William R. Hambrecht, has 40 years of
experience in the securities industry. Persons affiliated and associated with
W.R. Hambrecht & Company, LLC beneficially own an aggregate of 116,666 shares of
GreatFood.com's common stock issuable upon the conversion of preferred stock.

64
<PAGE>
LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for GreatFood.com by Heller Ehrman White & McAuliffe. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Morrison and Foerster LLP. Upon the closing of the offering, Heller Ehrman will
own 4,285 shares of GreatFood.com's common stock.

EXPERTS

The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as expects in auditing and accounting.

WHERE TO FIND ADDITIONAL INFORMATION ABOUT GREATFOOD.COM

We have filed with the SEC a registration statement on Form S-1. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information included in the registration statement. We have
omitted information which the SEC does not require to be included in this
prospectus and you should refer to the registration statement and its exhibits.
You may review a copy of the registration statement, including exhibits, at the
SEC's public reference rooms at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or Seven World Trade Center, 13th Floor, New York, New
York 10048 or Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. Our SEC filings are also available to the
public from the SEC's Web site at http://www.sec.gov.

Upon completion of this offering, we will be required to comply with the
information and periodic reporting requirements of the Exchange Act, and will
file periodic reports, proxy statements and other information with the SEC. Such
periodic reports, proxy statements and other information will be available for
inspection and copying at the SEC's public reference rooms and the SEC's Web
site, which is described above.

65
<PAGE>
GREATFOOD.COM, INC.

INDEX TO FINANCIAL STATEMENTS

DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2

Balance Sheet as of December 31, 1997 and 1998 and June 30, 1999 (unaudited).......... F-3

Statement of Operations for the Years Ended December 31, 1996, 1997 and 1998 and for
the
Six Months Ended June 30, 1999 and 1998 (unaudited)................................. F-4

Statement of Changes in Shareholders' Equity for the Years Ended December 31, 1996,
1997, 1998 and for the Six Months Ended June 30, 1999 (unaudited)................... F-5

Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and for
the
Six Months Ended June 30, 1999 and 1998 (unaudited)................................. F-6

Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Shareholders of
GreatFood.com, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of GreatFood.com, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Seattle, Washington
May 17, 1999

F-2
<PAGE>
GREATFOOD.COM, INC.
BALANCE SHEET

<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY AT
DECEMBER 31, JUNE 30, JUNE 30,
---------------------- 1999 1999
1997 1998 (UNAUDITED) (UNAUDITED)
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................... $ 124,092 $ 678,096 $ 3,437,628
Accounts receivable, net of allowance for doubtful accounts of $0,
$2,000 and $3,500 (unaudited) in 1997, 1998 and 1999,
respectively...................................................... 1,931 500,084 13,120
Prepaid expenses.................................................... 140,270 403,067
--------- ----------- ----------- ------------
126,023 1,318,450 3,853,815
Property and equipment, net........................................... 34,626 99,594 255,877
Other assets.......................................................... 10,363 100,328
--------- ----------- ----------- ------------
Total assets...................................................... $ 160,649 $ 1,428,407 $ 4,210,020
--------- ----------- ----------- ------------
--------- ----------- ----------- ------------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................... $ 73,768 $ 625,982 $ 720,003
Accrued payroll and related benefits................................ 38,934 13,858
Current portion of shareholder loans payable........................ 1,489
Current portion of capital lease obligation......................... 20,391 41,143
--------- ----------- ----------- ------------
75,257 685,307 775,004
--------- ----------- ----------- ------------
Noncurrent portion of shareholder loans payable....................... 11,791
---------
Noncurrent portion of capital lease obligation........................ 27,012 45,584
----------- ----------- ------------
Commitments and contingencies (Note 5)

Series C mandatorily redeemable convertible preferred stock, no par
value; 900,000 (unaudited) shares authorized in 1999; 600,000
(unaudited) shares issued and outstanding in 1999; no shares issued
and outstanding, pro forma (unaudited); liquidation value of $5.00
per share plus unpaid dividends..................................... 2,993,045 $ --
----------- ------------
Shareholders' equity
Series A convertible preferred stock, no par value; 1,142,857 shares
authorized in 1998 and 1999 (unaudited); 1,142,847 shares issued
and outstanding in 1998 and 1999 (unaudited); no shares issued and
outstanding, pro forma (unaudited); liquidation value of $1.75 per
share............................................................. 1,964,066 1,964,066
Series B convertible preferred stock, no par value; 1,000,000
(unaudited) shares authorized in 1999; 705,521 (unaudited) shares
issued and outstanding in 1999; no shares issued and outstanding,
pro forma (unaudited); liquidation value of $3.00 per share....... 2,104,830
Common stock, no par value; 5,000,000, 20,000,000 and 20,000,000
(unaudited), respectively, shares authorized; 1,545,831, 1,579,164
and 1,579,164 (unaudited) shares issued and outstanding,
respectively; 60,000,000 (unaudited) shares authorized, 4,027,532
(unaudited) shares issued and outstanding, pro forma.............. 197,043 314,891 421,604 7,483,545
Deferred compensation................................................. (100,203) (143,244) (143,244)
Accumulated deficit................................................... (123,442) (1,462,666) (3,950,869) (3,950,869)
--------- ----------- ----------- ------------
73,601 716,088 396,387 $3,389,432
--------- ----------- ----------- ------------
------------
Total liabilities, mandatorily redeemable convertible preferred
stock and shareholders' equity.................................. $ 160,649 $ 1,428,407 $ 4,210,020
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>
GREATFOOD.COM, INC.
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............................ $ 17,530 $ 119,633 $ 747,860 $ 64,560 $ 409,628
Cost of goods sold...................... 13,484 91,550 605,140 52,877 345,940
--------- --------- ---------- --------- ----------
Gross profit............................ 4,046 28,083 142,720 11,683 63,688
Operating expenses
Sales and marketing................... 11,028 36,264 1,102,062 48,184 1,709,127
Product and site development.......... 706 8,801 84,000 7,258 153,283
General and administrative............ 52,815 65,707 449,623 100,838 725,193
--------- --------- ---------- --------- ----------
Total operating expenses.............. 64,549 110,772 1,635,685 156,280 2,587,603
--------- --------- ---------- --------- ----------
Loss from operations.................... (60,503) (82,689) (1,492,965) (144,597) (2,523,915)
Other income (expense)
Other income.......................... 24,500 3,200 793
Interest income....................... 63 164 33,298 506 39,426
Interest expense...................... (3,893) (2,612) (3,792) (1,000) (3,714)
--------- --------- ---------- --------- ----------
Net loss................................ $ (39,833) $ (81,937) $(1,462,666) $(145,091) $(2,488,203)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Net loss available to common
shareholders.......................... $ (39,833) $ (81,937) $(1,462,666) $(145,091) $(2,519,151)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Basic and diluted net loss per share.... $ (0.04) $ (0.06) $ (0.93) $ (0.09) $ (1.58)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Weighted average shares outstanding..... 1,007,432 1,273,915 1,579,164 1,579,164 1,579,164
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Pro forma basic and diluted net loss per
share (unaudited)..................... $ (0.70) $ (0.76)
---------- ----------
---------- ----------
Pro forma weighted average shares
outstanding (unaudited)............... 2,089,531 3,276,505
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>
GREATFOOD.COM, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------------------------------
SERIES A SERIES B COMMON STOCK
-------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995............................. -- $ -- -- $ -- 1,000,000 $ 30,090
Net loss..................................................
Capital contribution from founder......................... 18,500
Proceeds from issuance of stock, net...................... 87,500 17,500
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1996............................. -- -- -- -- 1,087,500 66,090

Net loss..................................................
Proceeds from issuance of stock, net...................... 458,331 125,000
Issuance of stock options to non-employees................ 2,320
Issuance of warrants...................................... 3,633
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1997............................. -- -- -- -- 1,545,831 197,043

Net loss..................................................
Conversion from S corporation to C corporation............ (123,442)
Proceeds from issuance of stock, net...................... 1,142,847 1,964,066 33,333 10,000
Issuance of stock options to employees.................... 196,134
Issuance of warrants...................................... 35,156
Amortization of deferred compensation.....................
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1998............................. 1,142,847 1,964,066 -- -- 1,579,164 314,891

Net loss (unaudited)......................................
Proceeds from issuance of stock, net (unaudited).......... 705,521 2,104,830
Issuance of stock options to employees (unaudited)........ 126,205
Issuance of warrants (unaudited).......................... 11,456
Amortization of deferred compensation (unaudited).........
Accretion of mandatorily redeemable convertible preferred
stock (unaudited)....................................... (948)
Dividends on mandatorily redeemable convertible preferred
stock (unaudited)....................................... (30,000)
--------- --------- --------- --------- --------- ---------
Balances at June 30, 1999 (unaudited)..................... 1,142,847 $1,964,066 705,521 $2,104,830 1,579,164 $ 421,604
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------

DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ------------ ----------
<S> <C> <C> <C>
Balances at December 31, 1995............................. $ -- $ (1,672) $ 28,418
Net loss.................................................. (39,833) (39,833)
Capital contribution from founder......................... 18,500
Proceeds from issuance of stock, net...................... 17,500
------------ ------------ ----------
Balances at December 31, 1996............................. -- (41,505) 24,585
Net loss.................................................. (81,937) (81,937)
Proceeds from issuance of stock, net...................... 125,000
Issuance of stock options to non-employees................ 2,320
Issuance of warrants...................................... 3,633
------------ ------------ ----------
Balances at December 31, 1997............................. -- (123,442) 73,601
Net loss.................................................. (1,462,666) (1,462,666)
Conversion from S corporation to C corporation............ 123,442
Proceeds from issuance of stock, net...................... 1,974,066
Issuance of stock options to employees.................... (196,134) --
Issuance of warrants...................................... 35,156
Amortization of deferred compensation..................... 95,931 95,931
------------ ------------ ----------
Balances at December 31, 1998............................. (100,203) (1,462,666) 716,088
Net loss (unaudited)...................................... (2,488,203) (2,488,203)
Proceeds from issuance of stock, net (unaudited).......... 2,104,830
Issuance of stock options to employees (unaudited)........ (126,205) --
Issuance of warrants (unaudited).......................... 11,456
Amortization of deferred compensation (unaudited)......... 83,164 83,164
Accretion of mandatorily redeemable convertible preferred
stock (unaudited)....................................... (948)
Dividends on mandatorily redeemable convertible preferred
stock (unaudited)....................................... (30,000)
------------ ------------ ----------
Balances at June 30, 1999 (unaudited)..................... $ (143,244) $(3,950,869) $ 396,387
------------ ------------ ----------
------------ ------------ ----------
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>
GREATFOOD.COM, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- ----------- ---------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................... $ (39,833) $ (81,937) $(1,462,666) $ (145,091) $(2,488,203)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization................... 14,004 14,577 24,827 8,729 32,319
Amortization of deferred compensation........... 95,931 18,752 83,164
Expense related to the issuance of stock options
and warrants.................................. 5,953 7,737 1,268 11,456
Changes in:
Accounts receivable........................... (1,931) (498,153) 1,931 486,964
Prepaid expenses.............................. (140,270) (262,797)
Other assets.................................. (5,802) (91,260)
Accounts payable.............................. 10,549 58,329 552,214 (49,576) 94,021
Accrued payroll and related benefits.......... 38,934 16,313 (25,076)
--------- --------- ----------- ---------- -----------
Net cash used in operating activities......... (15,280) (5,009) (1,387,248) (147,674) (2,159,412)

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment............... (25,923) (8,510) (34,022) (11,806) (133,336)
--------- --------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital contributions from founder
and issuance of common and preferred stock, net
of costs........................................ 36,000 125,000 1,996,924 10,000 5,066,927
Proceeds from preferred stock subscriptions....... 486,000
Proceeds from issuance of shareholder loan
payable......................................... 15,000 60,000 40,000 100,000
Payments of shareholder loan payable.............. (330) (1,390) (73,280) (810) (100,000)
Payment of capital lease obligation............... (8,370) (14,647)
--------- --------- ----------- ---------- -----------
Net cash provided by financing activities..... 50,670 123,610 1,975,274 535,190 5,052,280
--------- --------- ----------- ---------- -----------
Net increase in cash and cash equivalents........... 9,467 110,091 554,004 375,710 2,759,532
Cash and cash equivalents, beginning of period...... 4,534 14,001 124,092 124,092 678,096
--------- --------- ----------- ---------- -----------
Cash and cash equivalents, end of period............ $ 14,001 $ 124,092 $ 678,096 $ 499,802 $ 3,437,628
--------- --------- ----------- ---------- -----------
--------- --------- ----------- ---------- -----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest.............................. $ 3,893 $ 2,612 $ 3,792 $ 1,000 $ 3,790

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Property and equipment purchased under capital
leases............................................ $ 55,773 $ 53,971
Conversion from S corporation to C corporation...... $ 123,442 $ 123,442
Issuance of stock warrants.......................... $ 27,419
Issuance of stock options........................... $ 15,625 $ 196,134 $ 126,205
Accretion of mandatorily redeemable convertible
preferred stock................................... $ 948
Dividends on mandatorily redeemable convertible
preferred stock................................... $ 30,000
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996, 1997 AND 1998

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS

GreatFood.com (the Company) is an electronic commerce company focused on the
sale of gourmet and specialty food over the Internet to the retail, corporate
gift and wholesale markets. The Company offers a broad selection of high quality
branded specialty food products to a wide range of customers for special
occasions, parties and gifts. The Company's Web site combines a unique blend of
merchandise and related content.

The Company was incorporated as StratMan Associates, Inc. on August 31, 1995
under the laws of the state of Washington. The Company's name was legally
changed to Online Specialty Retailing, Inc. on September 25, 1997, and the name
was again legally changed to GreatFood.com, Inc. on May 14, 1999.

CASH AND CASH EQUIVALENTS

The Company considers all short term highly liquid investments purchased
within three months of their original maturity date to be cash equivalents.

CONCENTRATION OF CREDIT RISK AND MAJOR SUPPLIERS

Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash and
cash equivalents. The majority of the Company's sales are charged to customer
credit cards. The Company mitigates its credit risk by receiving
preauthorizations on all credit card charges. The Company's customers primarily
consist of small retail and wholesale customers, none of which accounted for
more than 10% of accounts receivable or net revenues as of and for the years
ended December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999
(unaudited). The Company maintains an allowance for doubtful accounts based upon
its historical experience and the expected collectibility of all accounts
receivable. Credit losses to date have been within the Company's estimates.

The Company maintains its cash accounts with a financial institution where
certain deposits up to $100,000 are insured by the Federal Deposit Insurance
Corporation. The Company's deposits in overnight repurchase accounts are not
insured.

The Company purchases its products from specialty food suppliers. In 1996,
1997 and 1998, four suppliers provided 66%, 56%, and 34%, respectively, of the
Company's product purchases. In 1998, a fifth supplier provided 12% of the
Company's product purchases. For the six months ended June 30, 1998 and June 30,
1999, these five suppliers provided 46% and 28% (unaudited), respectively, of
the Company's product purchases.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued payroll and related benefits,
capital lease obligations and mandatorily redeemable convertible preferred
stock. Except for capital lease obligations and mandatorily redeemable
convertible preferred stock, the carrying amounts of financial instruments
approximate fair value due to their short maturities. The fair value of capital
lease obligations at December 31, 1998 and

F-7
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

June 30, 1999 (unaudited) is not materially different from the carrying amount,
based on interest rates available to the Company for similar types of
arrangements. The fair value of the mandatorily redeemable convertible preferred
stock at June 30, 1999 is equal to the estimated initial public offering price
of the common stock into which it is convertible plus unpaid dividends
(unaudited).

PROPERTY AND EQUIPMENT

Property and equipment are stated at historical cost. Depreciation and
amortization is computed using the straight line method over the estimated
useful lives of the assets or the term of the lease, whichever is shorter. The
useful lives of the property and equipment range from three to seven years.
Maintenance and repairs, which neither materially add to the value of the
property nor prolong its life, are charged to expense as incurred. Gains or
losses on dispositions of property and equipment are included in income.

IMPAIRMENT OF LONG LIVED ASSETS

The Company periodically evaluates the carrying value of long lived assets
to be held and used, including but not limited to, property and equipment and
other assets, when events and circumstances warrant such a review. The carrying
value of a long lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair value of the long lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Losses on long lived assets to be
disposed of are determined in a similar manner, except that fair values are
reduced for the cost to dispose. No losses from impairment have been recognized
in the financial statements.

PRO FORMA SHAREHOLDERS' EQUITY (UNAUDITED)

Effective upon the closing of this offering, the outstanding shares of
Series A, Series B and Series C convertible preferred stock will automatically
convert into 1,142,847, 705,521 and 600,000 shares, respectively, of common
stock. Also effective prior to the closing of this offering, 60,000,000 shares
of common stock and 20,000,000 shares of convertible preferred stock will be
authorized. The pro forma effects of these transactions are unaudited and have
been reflected in the accompanying pro forma shareholders' equity at June 30,
1999.

REVENUE RECOGNITION

The Company recognizes revenue from product sales, shipping and handling,
net of any returns and discounts, when the products are shipped to customers.
The Company provides an allowance for sales returns, which to date have not been
significant, based on historical experience.

PRODUCT AND SITE DEVELOPMENT

Product and site development expenses consist principally of payroll and
related expenses for Web site development and systems personnel and systems
programming costs. To date, all product and site development costs have been
expensed as incurred.

F-8
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ADVERTISING COSTS

The Company utilizes print and online advertising, direct mail, trade shows
and online promotions to expand brand and product awareness. The Company's
online advertising contracts include contracts for presence on third party Web
sites and Internet page impressions. These contracts require either monthly or
quarterly payments and range in length from one to sixteen months. Costs
incurred for online advertising contracts are recognized ratably over the term
of the arrangements. All other advertising costs are expensed as incurred.
Advertising costs for 1996, 1997 and 1998 were $11,028, $26,864 and $1,044,591,
respectively, and for the six months ended June 30, 1998 and June 30, 1999 were
$27,779 and $1,623,787 (unaudited), respectively. At December 31, 1998 and June
30, 1999, the Company has recorded in prepaid expenses $138,602 and $28,558
(unaudited), respectively, of prepayments under online advertising contracts.

INCOME TAXES

The Company provides for income taxes using the liability method. This
method requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. If it is more likely than
not that some portion of a deferred tax asset will not be realized, a valuation
allowance is recorded.

NET LOSS PER SHARE

Basic net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding during
the period. Diluted net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding
including the potentially dilutive impact of common stock options and warrants
and convertible preferred stock. Common stock options and warrants are converted
using the treasury stock method. Convertible preferred stock is converted using
the if converted method. Basic and diluted net loss per share are equal for the
periods presented because the impact of common stock equivalents is
anti-dilutive. Potentially dilutive securities totaling 126,000 and 2,145,491
shares for 1997 and 1998, respectively, and 551,000 and 3,999,256 (unaudited)
for the six months ended June 30, 1998 and June 30, 1999, respectively, were
excluded from diluted net loss per share due to their anti-dilutive effect.
There were no potentially dilutive securities during 1996.

PRO FORMA NET LOSS PER SHARE

Pro forma 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 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 the date the shares were
originally issued.

F-9
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

The following table sets forth the computation of the numerators and
denominators in the basic and pro forma net loss per share calculation for the
periods indicated:

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss........................................ $ (39,833) $ (81,937) $(1,462,666) $ (145,091) $(2,488,203)
Dividends on mandatorily redeemable convertible
preferred stock............................... (30,000)
Accretion of mandatorily redeemable convertible
preferred stock............................... (948)
--------- --------- ----------- ---------- -----------
Net loss available to common
shareholders.................................. $ (39,833) $ (81,937) $(1,462,666) $ (145,091) (2,519,151)
--------- --------- ----------- ----------
--------- --------- ----------- ----------
Effect of pro forma conversion of securities:
Dividends on mandatorily redeemable
convertible preferred stock................. 30,000
Accretion of mandatorily redeemable
convertible preferred stock................. 948
-----------
-----------
Pro forma net loss available to common
shareholders (unaudited).................... $(2,488,203)
-----------
-----------
Denominator:
Weighted average shares outstanding............. 1,007,432 1,273,915 1,579,164 1,579,164 1,579,164
Weighted average effect of pro forma securities:
Series A converible preferred stock
(unaudited)................................. 510,367 1,142,847
Series B convertible preferred stock
(unaudited)................................. 407,827
Series C mandatorily redeemable convertible
preferred stock (unaudited)................. 146,667
----------- -----------
Pro forma weighted average shares outstanding
(unaudited)..................................... 2,089,531 3,276,505
----------- -----------
----------- -----------
</TABLE>

STOCK OPTIONS

The Company's stock option plan is subject to the provisions of the
Financial Accounting Standards Board (FASB) Statement No. 123, "Accounting for
Stock Based Compensation" (SFAS 123). Under the provisions of this statement,
employee stock based compensation expense is measured using either the intrinsic
value method as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), or the fair value method.
The Company has elected to account for its employee stock based compensation
under the provisions of APB 25 and to disclose the pro forma impact of the fair
value method on net loss and net loss per share. The Company accounts for stock
based awards issued to non-employees in accordance with the fair value

F-10
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
method of SFAS 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting
for Equity Instruments with Variable Terms that are Issued for Consideration
other than Employee Services under FASB Statement No. 123."

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.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement will
be effective in 1999 and establishes accounting standards for costs incurred in
the acquisition or development and implementation of computer software. These
new standards will require the capitalization of certain software implementation
costs relating to software acquired or developed and implemented for the
Company's use. This statement is not expected to have a significant effect on
the Company's financial position or results of operations.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start
Up Activities." This statement will be effective in 1999 and will require costs
of start up activities and organization costs to be expensed as incurred. This
statement is not expected to have a significant effect on the Company's
financial position or results of operations.

The FASB recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 supersedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management approach." The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas and major customers. The Company adopted SFAS 131
on January 1, 1998. The Company has determined that it does not have any
separately reportable business or geographic segments.

UNAUDITED INTERIM FINANCIAL STATEMENTS

The interim financial data as of June 30, 1999 and for the six months ended
June 30, 1999 and June 30, 1998 is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments necessary to present fairly the Company's financial
position as of June 30, 1999 and the results of its operations and cash flows
for the six months ended June 30, 1999 and 1998.

F-11
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

2. PROPERTY AND EQUIPMENT

A summary of property and equipment follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment........................................................... $ 40,108 $ 88,149 $ 171,271
Furniture and office equipment............................................... 1,461 42,445 124,896
Software..................................................................... 22,337 23,107 33,235
Leasehold improvements....................................................... 11,606
---------- ---------- -----------
63,906 153,701 341,008
LESS: Accumulated depreciation and amortization.............................. (29,280) (54,107) (85,131)
---------- ---------- -----------
$ 34,626 $ 99,594 $ 255,877
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

Computer and office equipment held under capital leases are included in
property and equipment. The cost of the leased equipment is $55,773 and $109,747
(unaudited) at December 31, 1998 and June 30, 1999, respectively. Accumulated
amortization for these items was $6,247 and $20,309 (unaudited) at December 31,
1998 and June 30, 1999, respectively.

3. SHAREHOLDER LOANS PAYABLE

During 1996, a shareholder entered into a $15,000 loan on behalf of the
Company for the purchase of property and equipment. The loan was payable in
monthly installments over four years, with interest at 13.9% per annum. During
1998, the Company repaid its entire obligation under this loan to the
shareholder.

During 1998, two shareholders each loaned the Company $30,000 for working
capital needs prior to obtaining the Series A preferred stock financing. These
loans bore interest at 10% per annum. Upon receipt of the proceeds from the
Series A financing, the two shareholder notes were repaid.

4. SHAREHOLDERS' EQUITY

SERIES A CONVERTIBLE PREFERRED STOCK

In July 1998, the Company issued 1,142,847 shares of Series A convertible
preferred stock for $1.75 per share. These shares have voting rights,
registration rights and liquidation preferences, and are convertible, on a one
for one basis, into common stock at any time at the option of the holder. These
shares automatically convert to common stock upon an initial public offering.
The holders of the Series A preferred shares, voting separately as a class, are
entitled to elect one member of the Company's Board of Directors.

STOCK WARRANTS

During March 1997, the Company issued warrants to purchase 36,000 shares of
common stock with an exercise price of $0.20 per share. These warrants were
issued to the company from which the Company subleases space in consideration
for the shared use of certain technology facilities. The warrants vest ratably
over 36 months; vesting ceases upon termination of shared use of the technology

F-12
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

4. SHAREHOLDERS' EQUITY (CONTINUED)
facilities. Vested warrants are exercisable through the earlier of (i) March 15,
2002, (ii) the effective date of an initial public offering of the Company's
common stock with cash proceeds of at least $10 million (an IPO), (iii) three
months following the termination of shared use of the technology facilities or
(vi) the effective date of a merger of the Company or the sale of substantially
all of the Company's assets (a Change of Control). The value of these warrants
is estimated using the Black Scholes pricing model and is being recorded as
general and administrative expense over the vesting period using the accelerated
amortization method prescribed by FASB Interpretation No. 28, "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans" (FIN
28). The Company recognized expense of $3,633 and $7,737 in 1997 and 1998,
respectively. Vesting terminated May 14, 1999 upon termination of shared use of
technology facilities.

In conjunction with the Series A preferred stock offering in July 1998, the
Company issued 14,286 warrants to purchase common stock with an exercise price
of $1.75 per share. The warrants expire after the earlier of ten years, an IPO
or a Change of Control. These warrants were recorded at their Black Scholes fair
value of $22,858, which was recorded as a stock issue cost.

In August 1998, the Company issued warrants to purchase 2,858 shares of
common stock with an exercise price of $1.75 per share. The warrants expire
after the earlier of ten years, an IPO or a Change of Control. These warrants
were issued in conjunction with obtaining a capital lease line. The warrants
were recorded at their Black Scholes fair value of $4,561, which was recorded as
a debt issue cost and is being amortized over the term of the capital lease
line.

In October 1998, the Company issued warrants to purchase 300,000 shares of
common stock with an exercise price of $3.00 per share. These warrants were
issued in conjunction with entering into a marketing agreement. The Company may
cancel the marketing agreement and these warrants if certain sales targets are
not achieved by December 31, 1999. The warrants become exercisable on February
1, 2000, if not previously canceled, and remain exercisable through the earlier
of (i) December 31, 2001, (ii) 30 days following notice of completion of a stock
sale of at least $500,000 on or after December 31, 2000 or (iii) the date, if
any, the marketing agreement is terminated. The Company will record the value of
the warrants when it determines that it is probable that the sales targets will
be achieved. No value for the warrants was recorded during 1998.

STOCK OPTION PLAN

In September 1997, the Company adopted the 1997 Stock Incentive Plan (the
Plan) which provides for the granting of incentive stock options to key
employees and non qualified stock options to employees, consultants, and
nonemployee directors of the Company. The Plan also contains provisions for
stock bonuses, cash bonus rights, performance units and other stock based
incentives. A maximum of 1,000,000 shares of common stock may be issued under
the Plan. In May 1999, the maximum number of common shares reserved for issuance
under the Plan was increased to 1,600,000 shares.

The option price, number of shares, grant date and vesting schedule are
determined at the discretion of the Company's board of directors. While some
options vest immediately upon grant, options generally vest over one to five
years and are exercisable for a period not to exceed ten years from the grant
date.

F-13
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

4. SHAREHOLDERS' EQUITY (CONTINUED)
In 1997, compensation expense of $2,320 was recognized under the Plan for
certain options granted to third parties. The fair value of each option grant
was estimated on the date of grant using the Black Scholes option pricing model.
The Company did not grant any options to third parties in 1996 and 1998.

In 1998, compensation expense of $95,931 was recognized under the Plan for
certain options that were granted to employees with exercise prices below the
fair value of the common stock. The compensation expense represents the
differential between the exercise price and the fair value, as determined by the
board of directors. Compensation related to these options is recognized as
expense using the accelerated method of FIN 28. There was no compensation
expense relating to option grants with exercise prices below fair market value
in 1996 or 1997.

Had the Company determined compensation expense based on the fair value of
the option at the grant date for its stock options issued to employees, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
<S> <C> <C>
1997 1998
---------- -------------
Net loss
As reported....................................................................... $ (81,937) $ (1,462,666)
Pro forma......................................................................... $ (82,903) $ (1,502,441)
Basic and diluted net loss per share
As reported....................................................................... $ (0.06) $ (0.93)
Pro forma......................................................................... $ (0.07) $ (0.95)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing model. The following weighted average
assumptions were used for employee stock option grants in 1997 and 1998,
respectively: risk free interest rate at grant date of 5.99% and 5.48%, expected
lives of 4.1 and 4.6 years and 0% volatility and no dividends in both years.

The full impact of calculating compensation expense for stock options based
on fair value at the grant date is not reflected in the pro forma net loss
amounts because compensation expense is reflected over the options' vesting
period. In addition, because the determination of the fair value of all options
granted after such time as the Company becomes a public entity will include an
expected volatility factor in addition to the factors described in the
preceeding paragraph, the above results may not be representative of future
periods.

F-14
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

4. SHAREHOLDERS' EQUITY (CONTINUED)

The following summarizes the activity under the Plan:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED- WEIGHTED-
SHARES UNDER AVERAGE AVERAGE
OPTION EXERCISE GRANT DATE
AGREEMENTS PRICE FAIR VALUE
------------ ----------- -----------
<S> <C> <C> <C>
Options granted during 1997.................................................. 90,000 $ 0.30 $ 0.08
------------
Balance at December 31, 1997................................................. 90,000 $ 0.30
Options granted.............................................................. 559,500 $ 1.17 $ 0.29
------------
Balance at December 31, 1998................................................. 649,500 $ 1.05
------------
------------
Options exercisable at:
December 31, 1997.......................................................... 10,000 $ 0.30
December 31, 1998.......................................................... 180,139 $ 0.62
</TABLE>

At December 31, 1998, 350,500 shares remained reserved and available for
grant under the Plan.

The following table summarizes information about stock options outstanding
under the Plan at December 31, 1998:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.30 315,000 7.7 $ 0.30 140,139 $ 0.30
$ 1.75 334,500 9.1 $ 1.75 40,000 $ 1.75
----------- -----------
649,500 8.4 $ 1.05 180,139 $ 0.62
----------- -----------
----------- -----------
</TABLE>

F-15
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

5. COMMITMENTS

CAPITAL LEASES

The Company leases various equipment under capital lease agreements which
expire at various dates between February 2001 and June 2001. Future minimum
lease payments under capital leases at December 31, 1998 are as follows:

<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999.......................................................... $ 24,415
2000.......................................................... 24,788
2001.......................................................... 5,810
---------
Total minimum lease payments...................................... 55,013

LESS: Portion representing interest............................... (7,610)
---------
Present value of capital lease obligation......................... 47,403

LESS: Current portion............................................. (20,391)
---------
Noncurrent portion of capital lease obligation.................... $ 27,012
---------
---------
</TABLE>

At December 31, 1998, the Company had a $50,000 capital lease line, $2,597
of which remained unused. In March 1999, the total amount available under this
capital lease line was increased to $100,000.

OPERATING LEASES

As of December 31, 1998 the Company sublet its office facilities on a month
to month basis from a company whose chief executive officer is a shareholder and
director of the Company. This sublease was terminated in April 1999. In March
1999, the Company entered into an operating lease of office space from a
shareholder. The three year lease term expires February 2002 with a termination
option available in September 2000 and is subject to one three year renewal
option at the then fair market rent. Monthly rental payments under this lease
are $4,313.

Operating lease expense was $0, $1,413 and $5,631 in 1996, 1997 and 1998,
respectively, and $997 and $10,675 (unaudited) for the six months ended June 30,
1998 and June 30, 1999, respectively.

ADVERTISING AND AFFILIATE AGREEMENTS

The Company has entered into several long term agreements to display its
logo and other messages on third party Web sites. Under these agreements, the
Company pays a fixed monthly or quarterly fee. One agreement also requires the
Company to pay commissions on sales generated through the agreement. During
1998, the Company paid $745,360 under these and other short term agreements,
including $1,215 in commissions. At December 31, 1998, future minimum payments
under these agreements are approximately $1,418,000 all payable in 1999. During
1999, the Company entered into additional advertising agreements.

In May 1999, the Company entered into an affiliate agreement with a
community oriented Web site. The affiliate program encourages users to create
links to the Company's Web site. Under this

F-16
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

5. COMMITMENTS (CONTINUED)
agreement, the Company pays a fixed monthly fee of $25,000 through May 2000, as
well as referral fees.

OTHER COMMITMENTS

In March 1999, the Company entered into an arrangement to purchase Web site
hosting services and license order processing software from a third party for a
monthly fee. For monthly sales up to $2,500,000, the monthly base fee is
$12,500, with an incremental transaction fee of 2% per sales dollar. For monthly
sales in excess of $2,500,000, the monthly base fee is $62,500, with an
incremental transaction fee of 1% per sales dollar in excess of $2,500,000. This
agreement has an initial term of two years and will be automatically renewed if
not previously cancelled.

6. INCOME TAXES

Effective January 1, 1998, the Company became a C corporation for income tax
reporting purposes. Previously, it was organized as an S Corporation, and as
such, the tax effects were passed directly to the shareholders. A current
provision for income taxes has not been recorded for the year ended December 31,
1998 due to taxable losses incurred during the year. A valuation allowance has
been recorded for deferred tax assets because realization is primarily dependent
on generating sufficient taxable income prior to expiration of net operating
loss carry forwards.

At December 31, 1998, the Company has net operating loss carry forwards
which have been generated since becoming a C corporation of approximately
$1,347,000 which will expire in the year 2018, if not previously utilized.
Should certain changes in the Company's ownership occur, there could be a
limitation on the utilization of these net operating losses.

Temporary differences that give rise to the Company's deferred tax assets
and liabilities comprise the following at December 31, 1998:

<TABLE>
<S> <C>
Deferred income tax assets:
Net operating loss carry forwards.............................. $ 458,000
Stock options and warrants..................................... 35,000
Allowance for doubtful accounts................................ 1,000
Accrued liabilities............................................ 3,000
---------
497,000
---------

Deferred income tax liabilities:
Depreciation and amortization.................................. (1,000)
---------
496,000
Valuation allowance.............................................. (496,000)
---------
$ --
---------
---------
</TABLE>

F-17
<PAGE>
GREATFOOD.COM, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

6. INCOME TAXES (CONTINUED)
For 1998, the first year in which the Company was a C corporation, a
reconciliation of taxes on loss at the federal statutory rate is as follows:

<TABLE>
<S> <C>
Tax at statutory rate............................................ $(497,306)
Nondeductible items.............................................. 1,306
Change in valuation allowance.................................... 496,000
---------
$ --
---------
---------
</TABLE>

7. SUBSEQUENT EVENTS

On March 18, 1999, the Company sold 705,521 shares of Series B convertible
preferred stock for $3.00 per share, or approximately $2.1 million. These shares
are convertible into common stock on a one-for-one basis and have rights and
preferences similar to the Series A preferred shares, including automatic
conversion into common stock upon an initial public offering. On May 17, 1999,
the Company sold 600,000 shares of Series C mandatorily redeemable convertible
preferred stock for $5.00 per share, or $3,000,000. The Company also has the
option to sell an additional 300,000 shares of Series C preferred stock at $5.00
per share prior to May 17, 2000. In connection with the sale of the Series C
shares, the Company issued warrants to purchase up to a total of 323,077 shares
of Series C preferred stock at $.01 per share (up to 484,615 shares if the
Company exercises its option to sell the additional 300,000 shares). These
warrants will be exercisable in the event that the Company does not complete a
public offering of at least $10,000,000 of common stock at a price of at least
$10.00 per share by January 31, 2000. The Series C preferred shares
automatically convert into common stock on a one for one basis upon a qualified
initial public offering.

In April 1999, the Company issued warrants to purchase 1,667 shares of
common stock with an exercise price of $3.00 per share in conjunction with
increasing its capital lease line. The terms of these warrants are similar to
those issued in August 1998. Between January 1, 1999 and May 17, 1999, the
Company issued 214,000 common stock options to employees at a weighted average
exercise price of $4.05 per share.

In May 1999, the Company's Board of Directors adopted an employee stock
purchase plan which permits employees to purchase common stock at a discount
from fair market value. A total of 400,000 shares of common stock have been
reserved for issuance under this plan.

In May 1999, the Company's Board of Directors authorized the Company to file
a Registration Statement with the Securities and Exchange Commission to permit
the Company to proceed with an initial public offering of its common stock.

F-18
<PAGE>
[LOGO]

Until , 1999, which is 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions to be paid by GreatFood.com, in
connection with this offering. All amounts shown are estimates except for the
registration fee and the NASDAQ listing fee.

<TABLE>
<CAPTION>
<S> <C>
SEC registration fee.............................................................. $ 10,790
NASD filing fee................................................................... 5,000
NASDAQ National Market listing fee................................................ 66,875
Blue Sky fees and expenses........................................................ 10,000
Printing and engraving expenses................................................... 110,000
Legal fees and expenses........................................................... 225,000
Accounting fees and expenses...................................................... 190,000
Director and Officer Securities Act liability insurance........................... 300,000
Transfer Agent and Registrar fees................................................. 10,000
Miscellaneous expenses............................................................ 12,335
----------
Total......................................................................... $ 940,000
----------
----------
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Sections 23B.08.500 through 23.B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). The directors and officers of the registrant also may be
indemnified against liability they may incur for serving in that capacity
pursuant to a liability insurance policy maintained by the registrant for such
purpose.

Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omission as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or any transaction from which
the director personally receives a benefit in money, property or services to
which the director is not legally entitled. Section of the registrant's
Amended and Restated Articles of Incorporation contains provisions implementing,
to the fullest extent permitted by Washington law, such limitations on a
director's liability to the registrant and its shareholders.

The registrant has entered into certain indemnification agreements with its
directors and certain of its officers, the form of which is attached as Exhibit
10.1 to this Registration Statement and incorporated hereby by reference. The
indemnification agreements provide the registrant's directors and certain of its
officers with indemnification to the maximum extent permitted by the WBCA.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriter of the registrant and its executive officers and directors
and by the registrant of the Underwriter, for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in this
Registration Statement.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since May 1996, the registrant has issued and sold unregistered securities
as follows:

(1) Between December 1996 and March 1997, the registrant issued an aggregate
of 212,500 shares of common stock in a private placement to three accredited
investors. The aggregate consideration received for such shares was $42,500.

(2) On March 15, 1997, the registrant issued a warrant for the purchase of
36,000 shares of common stock with an exercise price of $0.20 per share to The
Cobalt Group, Inc. in consideration of The Cobalt Group hosting the registrant's
servers and providing the registrant with high speed Internet access.

(3) Between September 1997 and January 1998, the registrant issued an
aggregate of 366,664 shares of common stock in a private placement to eight
accredited investors. The aggregate consideration received for such shares was
$109,999.

(4) On July 17, 1998, the registrant issued an aggregate of 1,142,847 shares
of Series A preferred stock to twenty two accredited investors pursuant to a
Series A preferred stock purchase agreement. The aggregate consideration
received for such shares was $1,999,982.

(5) On July 20, 1998, the registrant issued a warrant for the purchase of
14,286 shares of common stock with an exercise price of $1.75 per share to
William Cuff, the President of the registrant.

(6) On August 23, 1998, the registrant issued a warrant for the purchase of
2,858 shares of common stock with an exercise price of $1.75 and on April 9,
1999, the registrant issued a warrant for the purchase of 1,667 shares of common
stock with an exercise price of $3.00, each as partial consideration for
obtaining a capital lease credit line.

(7) On October 5, 1998, the registrant issued a warrant for the purchase of
300,000 shares of common stock with an exercise price of $3.00 per share to
Peapod, Inc. as partial consideration for Peapod's performance under a marketing
agreement between Peapod and the registrant.

(8) The registrant issued an aggregate of 705,521 shares of Series B
preferred stock in a private placement on March 18, 1999 to twenty seven
accredited investors pursuant to a Series B Preferred Stock Purchase Agreement.
The aggregate consideration received for such shares was $2,116,563.

(9) On May 17, 1999, the registrant sold 600,000 shares of Series C
preferred stock to four accredited investors. The aggregate consideration
received for such shares was $3,000,000. The purchasers of the Series C
preferred stock also agreed to purchase, at the registrant's option, up to
300,000 additional shares of Series C preferred stock at $5.00 per share. The
registrant has until May 17, 2000 to exercise this option. The purchasers of the
Series C preferred stock also received warrants to purchase up to a total of
323,077 additional shares of Series C preferred stock at $.01 per share (up to
484,615 shares if the registrant exercises the option to sell 300,000 additional
shares of Series C preferred stock).

(10) From September 1997 through June 30, 1999, the registrant granted stock
options to purchase an aggregate of 863,500 shares of common stock to employees,
executive officers, consultants and directors with exercise prices ranging from
$0.30 to $5.50 per share pursuant to the registrant's 1997 Stock Incentive Plan
in consideration for services.

The issuances described above in this Item 15 were deemed exempt from
registration under the Securities Act in reliance on either (1) Rule 701
promulgated under the Securities Act of 1933 as offers or sales of securities
pursuant to certain compensatory benefit plans and contracts relating to
compensation in compliance with Rule 701 and (2) Section 4(2) of the Securities
Act as transactions by an issuer not involving a public offering.

II-2
<PAGE>
No underwriters were used in connection with these issuances. The recipients
of securities in each such transaction represented their intention to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in such transactions. All
recipients either received adequate information about GreatFood.com or had
access, through employment or other relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1++ Form of Underwriting Agreement.
3.1+ Amended and Restated Articles of Incorporation of the registrant, as amended to date.
3.2+ Form of Amended and Restated Articles of Incorporation of the registrant to be in effect immediately
prior to the closing of this offering.
3.3+ Amended and Restated Bylaws of the registrant.
3.4+ Form of Amended and Restated Bylaws of the registrant to be in effect immediately prior to the closing
of this offering.
4.1+ Amended and Restated Investors' Rights Agreement, dated March 18, 1999, as amended to date.
4.2+ Registration Rights Agreement, dated May 17, 1999, between the registrant and the persons listed on
the schedule of purchasers attached thereto.
5.1++ Opinion of Heller Ehrman White & McAuliffe as to the legality of the shares.
10.1+ 1997 Stock Incentive Plan, as amended.
10.2+ 1999 Employee Stock Purchase Plan.
10.3+ Form of Series A Preferred Stock Purchase Agreement, dated July 17, 1998, between the registrant and
the investors named therein.
10.4+ Form of Series B Preferred Stock Purchase Agreement, dated March 18, 1999, between the registrant and
the investors named therein.
10.5+ Series C Preferred Stock Purchase Agreement, dated May 17, 1999, between the registrant and the
investors named therein.
10.6+ Form of Indemnification Agreement between the registrant and each of its directors and executive
officers.
10.7+ Employment Letter Agreement, dated April 2, 1998, between the registrant and William Cuff.
10.8+ Lease Agreement, dated January 25, 1999, between the registrant and Eastlake at Hamlin, LLC.
10.9+ Equipment Lease, dated August 23, 1998, between the registrant and First Portland Corporation.
10.10+* "Pages that Pay" Affiliates Program Merchant Agreement, dated May, 1999, between the registrant and
GeoCities.
10.11+* Shopping Channel Promotional Agreement, dated October 1, 1998, between the registrant and America
Online, Inc.
10.12+* Advertising Insertion Order, dated March 15, 1999, between the registrant and Yahoo! Inc.
10.13+* Sponsorship Agreement, dated September 17, 1998, between the registrant and Excite, Inc. with respect
to the Excite Network.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.14+* Sponsorship Agreement, dated September 17, 1998, between the registrant and Excite, Inc. with respect
to the Netscape Network.
10.15+ Internet Data Center Services Agreement, dated April 10, 1999, between the registrant and Exodus
Communications, Inc.
10.16+* Pandesic Agreement, dated March 18, 1999, between the registrant and Pandesic LLC.
10.17+ Professional Services Agreement, dated July 8, 1996, between the registrant and Netscape
Communications Corporation.
10.18+* Marketing Partners Agreement, dated October 5, 1998, between the registrant and Peapod, Inc.
10.19+ Common Stock Purchase Warrant, dated March 15, 1997, issued by the registrant to The Cobalt Group,
Inc.
10.20+ Common Stock Purchase Warrant, dated July 20, 1998, issued by the registrant to William Cuff.
10.21+ Common Stock Purchase Warrant, dated August 23, 1998, issued by the registrant to First Portland
Corporation.
10.22+ Common Stock Purchase Warrant, dated April 9, 1999, issued by the registrant to First Portland
Corporation.
10.23+ Common Stock Purchase Warrant, dated October 5, 1998, issued by the registrant to Peapod, Inc.
10.24+ Form of Series C Preferred Stock Warrant, dated May 17, 1999, issued by the registrant to purchasers
of Series C preferred stock.
21.1+ List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2++ Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5.1).
23.3+ Consent of Jupiter Communications.
23.4 Consent of International Data Corporation.
23.5 Consent of Kalorama Information LLC (with respect to Packaged Facts study).
23.6+ Consent of BizRate.com.
24.1+ Power of Attorney (included on page II-6).
27.1+ Financial Data Schedule (EDGAR filed version only).
</TABLE>

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

+ Previously filed

++ To be filed by amendment

* Certain portions of this document have been omitted pursuant to a
confidential treatment request.

(B) FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-4
<PAGE>
Insofar as indemnification by GreatFood.com for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of GreatFood.com pursuant to the provisions described in Item 14 above,
or otherwise, GreatFood.com has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by GreatFood.com of expenses incurred or paid by a director,
officer, or controlling person of GreatFood.com in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, GreatFood.com will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial BONA FIDE offering thereof.

II-5
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933,
GreatFood.com certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, in the
City of Seattle, State of Washington, on the 22nd day of July, 1999.

<TABLE>
<S> <C> <C>
GREATFOOD.COM, INC.

By: /s/ BENJAMIN NOURSE
------------------------------------------
Benjamin Nourse
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
</TABLE>

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------ -------------------

<S> <C> <C>
Chief Executive Officer,
/s/ BENJAMIN NOURSE Chairman of the Board of
- ------------------------------------ Directors, and Secretary July 22, 1999
Benjamin Nourse (Principal Executive Officer)

*
- ------------------------------------ President and Director July 22, 1999
William Cuff

Vice President of Finance and
* Administration and Chief
- ------------------------------------ Financial Officer (Principal July 22, 1999
Gayle Stetson Financial and
Accounting Officer)

*
- ------------------------------------ Director July 22, 1999
R. Stockton Rush, III

*
- ------------------------------------ Director July 22, 1999
Geoffrey Barker

*
- ------------------------------------ Director July 22, 1999
David E. Wyman

*
- ------------------------------------ Director July 22, 1999
Mark Koulogeorge

*By: /s/ BENJAMIN NOURSE
------------------------------
Benjamin Nourse
(ATTORNEY-IN-FACT)
</TABLE>

II-6
<PAGE>
INDEX TO EXHIBITS

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.20+ Common Stock Purchase Warrant, dated July 20, 1998, issued by the registrant to William Cuff.
10.21+ Common Stock Purchase Warrant, dated August 23, 1998, issued by the registrant to First Portland
Corporation.
10.22+ Common Stock Purchase Warrant, dated April 9, 1999, issued by the registrant to First Portland
Corporation.
10.23+ Common Stock Purchase Warrant, dated October 5, 1998, issued by the registrant to Peapod, Inc.
10.24+ Form of Series C Preferred Stock Warrant, dated May 17, 1999, issued by the registrant to purchasers
of Series C preferred stock.
21.1+ List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2++ Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5.1).
23.3+ Consent of Jupiter Communications.
23.4 Consent of International Data Corporation.
23.5 Consent of Kalorama Information LLC (with respect to Packaged Facts study).
23.6+ Consent of BizRate.com.
24.1+ Power of Attorney (included on page II-6).
27.1+ Financial Data Schedule (EDGAR filed version only).
</TABLE>

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

+ Previously filed

++ To be filed by amendment

* Certain portions of this document have been omitted pursuant to a
confidential treatment request.

<PAGE>

CONSENT TO USE OF NAME
IN
REGISTRATION STATEMENT

This Consent to Use of Name in Registration Statement is executed as of
June 30, 1999, by a duly authorized representative of International Data
Corporation (the "Company").

The Company hereby consents to the use of its name in the Registration
Statement on Form S-1 (the "Registration Statement"), which has been filed by
GreatFood.com, Inc. with the Securities and Exchange Commission (File No.
333-78885) in connection with its anticipated initial public offering. The
Company understands that GreatFood.com, Inc. intends to use the Company name and
reference certain market surveys and projection reports produced by the Company
in the Registration Statement. The Company understands that the Registration
Statement is a public document.

INTERNATIONAL DATA
CORPORATION

By: /s/ Barry L. Parr
-------------------------
Name: Barry L. Parr
Title: Director

<PAGE>

CONSENT TO USE OF NAME
IN
REGISTRATION STATEMENT

This Consent to Use of Name in Registration Statement is executed as of
July 22, 1999, by a duly authorized representative of Kalorama Information LLC
(the "Company"), which owns the brand Packaged Facts (formerly owned by
Find/SVP) (the "Brand Name").

The Company hereby consents to the use of the Brand Name and data from
certain market surveys and projection reports in the Registration Statement on
Form S-1 (the "Registration Statement"), which has been filed by
GreatFood.com, Inc. with the Securities and Exchange Commission (File No.
333-78885) in connection with its anticipated initial public offering. The
Company understands that the Registration Statement is a public document.

Kalorama Information, LLC

By: /s/ Kathy Anker
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Kathy Anker
Director of Customer
Service and Telemarketing