SHOPNOW COM INC, S-1/A, 2000-02-10

SHOPNOW COM INC
S-1/A, 2000-02-10
COMPUTER PROCESSING & DATA PREPARATION

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<PAGE>

As filed with the Securities and Exchange Commission on February 10, 2000

Registration No. 333-95085
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2
to
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SHOPNOW.COM INC.

(Exact name of registrant as specified in its charter)

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<S> <C> <C>
Washington 7374 91-1628103
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
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411 First Avenue South
Suite 200 North
Seattle, Washington 98104
(206) 223-1996

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

DWAYNE M. WALKER
Chief Executive Officer
411 First Avenue South
Suite 200 North
Seattle, Washington 98104
(206) 223-1996

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:

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<S> <C>
STEPHEN M. GRAHAM DANIEL G. KELLY, JR.
FAITH M. WILSON Davis Polk & Wardwell
PAMELA M. ALMAGUER 1600 El Camino Real
Perkins Coie LLP Menlo Park, California 94025
1201 Third Avenue, 48th Floor (650) 752-2000
Seattle, Washington 98101-3099
(206) 583-8888
</TABLE>

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

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

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

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

If delivery of this prospectus is expected to be made pursuant to Rule 434,
please 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 hereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.

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<PAGE>
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 the securities
in any state where the offer or sale is not permitted.
<PAGE>

Subject to completion, dated February 10, 2000

Prospectus

10,000,000 SHARES

[LOGO]

COMMON STOCK

Shopnow.com Inc. is offering 8,550,000 shares of its common stock and the
selling shareholders are selling an additional 1,450,000 shares.

ShopNow's common stock is traded on the Nasdaq National Market under the symbol
"SPNW." The last reported sale price of the common stock on the Nasdaq National
Market on February 7, 2000 was $16.75 per share.

Investing in the common stock involves risks. 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 passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

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Underwriting
Public discounts Proceeds to
offering and Proceeds to selling
price commissions ShopNow shareholders
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<S> <C> <C> <C> <C>
Per Share $ $ $ $
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Total $ $ $ $
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We have granted the underwriters the right to purchase up to an additional
1,500,000 shares of common stock to cover over-allotments.

The shares of common stock will be ready for delivery in New York, New York, on
, 2000.

J.P. Morgan & Co.

CIBC World Markets

PaineWebber Incorporated

U.S. Bancorp Piper Jaffray

February , 2000

<PAGE>
[Inside Front Cover]

[Laptop computer with the following text superimposed:

"ShopNow provides end-to-end solutions that enable e-commerce.

- - Order and Payment Processing

- - Fraud Prevention

- - E-commerce Technology Platform

- - Online and Traditional Sales and Marketing

- - Direct Marketing Services

- - Order Fulfillment and Call Center"]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.

"ShopNow" is our registered trademark, and we have applied for trademark
registration for each of the following additional marks: "ShopNow.com" and
"b2bNow.com." This prospectus also contains trademarks of companies other than
ShopNow.

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Table of Contents

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Page
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Prospectus Summary.................... 1
Risk Factors.......................... 4
Use of Proceeds....................... 14
Price Range of Our Common Stock and
Dividend Policy................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial
Data.............................. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 20
Business.............................. 31
</TABLE>

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Management............................ 41
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Page
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Related Transactions with Executive
Officers, Directors and 5%
Shareholders...................... 50
Principal and Selling Shareholders.... 52
Description of Capital Stock.......... 55
Shares Eligible For Future Sale....... 57
Underwriting.......................... 59
Legal Matters......................... 60
Experts............................... 60
Change in Independent Public
Accountants....................... 60
Where You Can Find More Information... 61
Index to Consolidated Financial
Statements........................ F-1
</TABLE>

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Special Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as may, will, should,
expect, plan, intend, anticipate, believe, estimate, predict, potential or
continue, the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined in the Risk Factors section beginning on
page 4. These factors may cause our actual results to differ materially from any
forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
<PAGE>
Prospectus Summary

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. BEFORE MAKING AN INVESTMENT DECISION YOU SHOULD READ THE ENTIRE
PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS, THE UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION AND RELATED NOTES. THE TERMS "WE" AND
"SHOPNOW" MEAN SHOPNOW.COM INC. AND ITS SUBSIDIARIES. EXCEPT AS OTHERWISE
STATED, ALL INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.

ShopNow.com Inc.

ShopNow provides an end-to-end solution that enables businesses to engage in
e-commerce with other businesses, merchants and shoppers. We offer access to
online marketplaces and a comprehensive suite of e-commerce enabling products
and services. These products and services include secure payment and order
processing, fraud prevention, hosting and maintenance, custom application and
online store development, marketing and customer acquisition and order
fulfillment.

The ShopNow online marketplace aggregates merchants and shoppers over a
distributed network of web sites. With access to the ShopNow marketplace,
merchants can reach concentrated and targeted groups of shoppers at the
ShopNow.com portal site and at our more than 4,000 affiliate and syndication
shopping sites. There are currently over 45,000 merchants offering more than
five million products on the ShopNow marketplace. In the quarter ended
December 31, 1999, there were more than 20 million visits to the ShopNow
marketplace.

In January 2000, we launched b2bNow.com, a business-to-business portal and
marketplace that aggregates businesses that seek to transact with one another.
We intend to continually expand the features offered on b2bNow.com and have
recently agreed to acquire Ubarter.com, an online barter marketplace, to
facilitate the exchange of goods and services between businesses.

By combining the ShopNow marketplace, b2bNow.com, and the web sites of clients
utilizing our end-to-end solution, we have created the ShopNow network. The
ShopNow network, together with our suite of e-commerce products and services,
allows our business and merchant clients to address the challenges of online
commerce by providing the following benefits:

- END-TO-END INTEGRATED SOLUTION. We believe that we provide all of the
critical capabilities required to enable businesses and merchants to
conduct commerce online. Our end-to-end solution minimizes the time,
complexity, inconvenience and cost ordinarily associated with a
multi-vendor or internally developed solution.

- QUICK TIME TO MARKET. Our extensive experience typically allows us to
create commerce-enabled web sites for our clients in less time than an
in-house developer.

- IMMEDIATE AND LONG-TERM SAVINGS. Our clients are able to avoid the
significant investment of resources required to develop and maintain
end-to-end e-commerce capabilities internally or to integrate an
outsourced multi-vendor solution.

- FACILITATE CUSTOMER ACQUISITION. With our custom sales and marketing
services, and access to the ShopNow marketplace, merchants can more
effectively and more efficiently attract targeted shoppers to their online
stores.

- COMPREHENSIVE TECHNOLOGY PLATFORM. We provide a flexible scaleable
technology platform from which we can tailor solutions to meet the
changing needs of our clients.

ShopNow was incorporated in Washington in January 1994. Our executive offices
are located at 411 First Avenue South, Suite 200 North, Seattle, Washington
98104. Our telephone number is (206) 223-1996 and our main web site is located
at http://www.shopnow.com. Information contained on our web sites is not a part
of this prospectus.

1
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Risk Factors

This offering involves a high degree of risk. Since our inception in
January 1994, we have incurred significant losses, and as of December 31, 1999,
we had an accumulated deficit of $105.3 million. We expect our operating losses
and negative cash flow to continue for the foreseeable future. We face
significant competition from other providers of e-commerce enabling products and
services and online marketplaces. You should carefully consider these risks and
uncertainties as well as those other risks and uncertainties described in "Risk
Factors" beginning on page 4 of this prospectus before deciding whether to
invest in shares of our common stock.

The Offering

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Common stock offered by ShopNow.............. 8,550,000 shares
Common stock offered by selling
shareholders............................... 1,450,000 shares
Common stock to be outstanding after this
offering................................... 51,568,035 shares
Use of proceeds.............................. To obtain working capital for general
corporate purposes, including expansion of
sales and marketing activities, research and
development and potential acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol................ SPNW
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The number of shares of common stock to be outstanding after this offering is
based on shares outstanding as of December 31, 1999. This calculation excludes:

- 11,842,957 shares of common stock issuable upon the exercise of options,
which consist of:

- 10,287,983 shares of common stock underlying options outstanding as of
December 31, 1999, at a weighted average exercise price of $6.08 per
share, of which 3,231,952 were exercisable as of December 31, 1999; and

- 1,554,974 shares of common stock underlying options available for
future grants;

- 2,000,000 shares of common stock issuable under our employee stock
purchase plan; and

- 3,736,281 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 to purchase common stock at a weighted
average exercise price of $6.80 per share.

2
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Summary Consolidated Financial Information

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January 20,
1994 Pro Forma
(Inception) to Years Ended December 31, Year Ended
December 31, ---------------------------------------------------- December 31,
1994 1995 1996 1997 1998 1999 1999(1)
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(Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues................................. $ 279 $ 727 $ 993 $ 604 $ 7,154 $ 36,955 $ 32,588
Cost of revenues......................... 127 323 430 515 5,849 27,329 17,285
------------ ------ ------ ------- -------- -------- --------------
Gross profit........................... 152 404 563 89 1,305 9,626 15,303
Total operating expenses................... 332 510 1,323 4,691 26,221 88,320 146,731
------------ ------ ------ ------- -------- -------- --------------
Loss from operations..................... (180) (106) (760) (4,602) (24,916) (78,694) (131,428)
Nonoperating income (expense), net......... (1) (7) (50) (164) 171 2,751 2,505
------------ ------ ------ ------- -------- -------- --------------
Net loss............................... $ (181) $ (113) $ (810) $(4,766) $(24,745) $(75,943) $ (128,923)
============ ====== ====== ======= ======== ======== ==============
Basic and diluted net loss per share(2).... $ (0.11) $(0.06) $(0.40) $ (1.83) $ (7.01) $ (5.80)
============ ====== ====== ======= ======== ========
Basic and diluted pro forma net loss per
share(2)................................. $ (6.07)
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December 31, 1999
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Pro Forma As
Actual Pro Forma(3) Adjusted(4)
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DOLLARS IN THOUSANDS
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $ 10,660 $ 12,506 $ 147,275
Working capital............................................. 43,431 43,064 177,833
Total assets................................................ 274,174 338,878 473,647
Total liabilities........................................... 44,961 65,780 65,780
Total shareholders' equity.................................. 229,213 273,098 407,867
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As of and for the three months ended
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June 30, Sept. 30, Dec. 31,
1999 1999 1999
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Other Data(5):
Number of advertising and merchandising clients on the
ShopNow marketplace....................................... 181 336 514
Number of merchants listed on the ShopNow marketplace....... 33,841 37,099 45,522
Number of shopper visits to the ShopNow marketplace......... 6,422,000 7,485,000 21,461,497
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(1) We acquired GO Software in June 1999, SpeedyClick in November 1999 and
WebCentric in December 1999. In January 2000, we entered into a definitive
agreement to acquire Ubarter.com and expect to close this acquisition in the
second quarter of 2000. In June 1999, we ceased operations of our
BuySoftware.com business. The pro forma statement of operations data reflect
consolidation of the operations results from these businesses and the
cessation of BuySoftware.com as if they had occurred on January 1, 1999. The
pro forma information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the Unaudited Pro Forma Combined Financial Information and related Notes
appearing elsewhere in this prospectus.

(2) See Note 1 to the Consolidated Financial Statements for a description of the
method used to compute basic and diluted net loss per share. In addition,
see Note 2(h) to the Unaudited Pro Forma Combined Financial Information for
a description of the method used to compute basic and diluted pro forma net
loss per share.

(3) The pro forma consolidated balance sheet data gives effect to the proposed
acquisition of Ubarter.com.

(4) The pro forma as adjusted balance sheet data gives effect to the sale of the
8,550,000 shares of common stock that we are offering under this prospectus
at an assumed public offering price of $16.75 per share, after deducting
underwriting discounts, commissions and estimated expenses payable by us
upon closing of this offering.

(5) The number of advertising and merchandising clients represents the number of
clients that purchased an advertising/merchandising package during the
applicable quarter; the number of merchants listed represents the number of
merchants as of the last day of the applicable quarter; the number of
shopper visits represents the total number of shopper visits to the ShopNow
marketplace during the applicable quarter.

3
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Risk Factors

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN OUR COMMON
STOCK. WHILE WE HAVE ATTEMPTED TO IDENTIFY ALL RISKS THAT ARE MATERIAL TO OUR
BUSINESS, ADDITIONAL RISKS THAT WE HAVE NOT YET IDENTIFIED OR THAT WE CURRENTLY
THINK ARE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. THE TRADING PRICE
OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, IN WHICH CASE YOU
COULD LOSE ALL OR PART OF YOUR INVESTMENT. IN ASSESSING THESE RISKS, YOU SHOULD
ALSO REFER TO THE OTHER INFORMATION IN THIS PROSPECTUS, INCLUDING THE
CONSOLIDATED FINANCIAL STATEMENTS, THE UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION AND RELATED NOTES.

Risks Related to Our Business

OUR RAPID GROWTH AND EVOLUTION MAY MAKE IT DIFFICULT TO EVALUATE OUR BUSINESS
AND PROSPECTS

ShopNow was incorporated in January 1994 and operated initially as a computer
services company. In 1996, we began to change the focus of our business to
conducting commerce over the Internet. In August 1998, we launched our first
online marketplace, ShopNow.com. In recent months, particularly with the launch
of b2bNow.com, our business-to-business marketplace, we have increasingly
focused on developing and providing products and services to enable businesses
to conduct online commerce. The recent shifts in our business focus may make it
difficult for you to evaluate our business and prospects. When making your
investment decision, you should also consider the risks, expenses and
difficulties that we may encounter as a young company in a rapidly evolving
market.

WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES

We incurred net losses of $24.7 million for the year ended December 31, 1998 and
$75.9 million for the year ended December 31, 1999. At December 31, 1999, we had
an accumulated deficit of $105.3 million. We have historically invested heavily
in sales and marketing, technology infrastructure and research and development
and expect to continue to do so in the future. As a result, we must generate
significant revenues to achieve and maintain profitability. We expect that our
sales and marketing expenses, research and development expenses and general and
administrative expenses will continue to increase in absolute dollars and may
increase as a percentage of revenues. In addition, we may incur substantial
expenses in connection with future acquisitions.

OUR FUTURE REVENUES ARE UNPREDICTABLE AND WE EXPECT OUR OPERATING RESULTS TO
FLUCTUATE FROM PERIOD TO PERIOD

Our business model has only been applied to the Internet since the mid-1990's
and continues to evolve. Therefore we have limited experience in planning the
financial needs and operating expenses of our business. It is difficult for us
to accurately forecast our revenues in any given period. We may not be able to
sustain our recent revenue growth rates or obtain sufficient revenues to achieve
profitability. If our revenues in a particular period fall short of our
expectations, we will likely be unable to quickly adjust our spending in order
to compensate for that revenue shortfall.

Our operating results are likely to fluctuate substantially from period to
period as a result of a number of factors, such as:

- declines in the number of businesses and merchants to which we provide our
products and services;

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

- the mix of products and services that we sell.

In addition, factors beyond our control may also cause our operating results to
fluctuate, such as:

- the announcement or introduction of new or enhanced products or services
by our competitors; and

- the pricing policies of our competitors.

4
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Period-to-period comparisons of our operating results are not a good indicator
of our future performance. It is likely that our operating results in some
quarters may not meet the expectations of stock market analysts and investors
and this could cause our stock price to decline.

OUR BUSINESS MODEL IS UNPROVEN AND CHANGING

Our business model consists of providing businesses and merchants with
e-commerce enabling solutions. We have limited experience as a company and,
additionally, the Internet, on which our business model relies, is still
unproven as a business medium. Accordingly, our business model may not be
successful, and we may need to change it. Our ability to generate sufficient
revenues to achieve profitability will depend, in large part, on our ability to
successfully market our e-commerce products and services to businesses and
merchants that may not be convinced of the need for an online presence or may be
reluctant to rely upon third parties to develop and manage their e-commerce
offerings and marketing efforts.

OUR FUTURE GROWTH WILL DEPEND ON OUR ABILITY TO MAKE AND SUCCESSFULLY INTEGRATE
ADDITIONAL ACQUISITIONS

Our success depends on our ability to continually enhance and expand our
e-commerce enabling products and services and our online marketplaces in
response to changing technologies, customer demands and competitive pressures.
Consequently, we have acquired complementary technologies or businesses in the
past, and intend to do so in the future. We have entered into a definitive
agreement to acquire Ubarter.com, subject to the approval of Ubarter.com's
shareholders. The acquisition of Ubarter.com is intended to expand our
capability to enable businesses to exchange business products and services. If
we are unable to identify suitable acquisition targets, or if we are unable to
successfully complete acquisitions and successfully integrate the acquired
businesses, technologies and personnel, our ability to increase product and
service offerings will be reduced. This could cause us to lose business to our
competitors, and our operating results could suffer.

ACQUISITIONS INVOLVE A NUMBER OF RISKS

We actively seek to identify and acquire companies with attributes complementary
to our e-commerce products and services. Since October 1, 1999, we have acquired
five companies. In addition, as described above, we recently agreed to acquire
Ubarter.com.

Acquisitions that we make may involve numerous risks, including:

- diverting management's attention from other business concerns;

- being unable to maintain uniform standards, controls, procedures and
policies;

- entering markets in which we have no direct prior experience;

- improperly evaluating new services and technologies or otherwise being
unable to fully exploit the anticipated opportunity; and

- being unable to successfully integrate the acquired businesses,
technologies and other assets.

If we are unable to accurately assess any newly acquired businesses or
technologies, our business could suffer. For example, in June 1998 we acquired
e-Warehouse and CyberTrust. These companies had developed payment processing
technologies that we planned to utilize as part of our e-commerce products and
services. However, we are not currently utilizing the acquired technologies, and
we have determined that the technologies have no other use or value to us.
Because we are not using the acquired technologies, we wrote off substantially
all of the $5.4 million aggregate purchase price for e-Warehouse and CyberTrust
in 1998. Future acquisitions may involve the assumption of obligations or large
one-time write-offs and amortization expenses related to goodwill and other
intangible assets. Any of the factors listed above would adversely affect our
results of operations.

5
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In addition, in order to finance any future acquisition, we may need to raise
additional funds through public or private financings. In this event, we could
be forced to obtain equity or debt financing on terms that are not favorable to
us and that may result in dilution to our shareholders.

OUR SUCCESS DEPENDS UPON ACHIEVING ADEQUATE MARKET SHARE TO INCREASE OUR
REVENUES AND BECOME PROFITABLE

Our success depends upon achieving significant market penetration and acceptance
of our e-commerce enabling products and services. We have only recently begun to
expand our business-to-business initiatives designed to enable businesses to
maximize their e-commerce opportunities, and our online marketplaces have
achieved only limited market acceptance to date. We may not currently have
adequate market share to successfully execute our business plan. If we are
unable to reach and retain substantial numbers of businesses, merchants and
shoppers, our business model may not be sustainable.

To successfully market and sell our e-commerce enabling products and services we
must:

- become recognized as a leading provider of end-to-end enabling solutions;

- enhance existing products and services;

- add new products and services;

- complete projects on time;

- increase the number of businesses and merchants using our e-commerce
products and services and online marketplaces; and

- continue to increase the attractiveness of the ShopNow marketplace to
shoppers.

IF WE DO NOT INCREASE BRAND AWARENESS OUR SALES MAY SUFFER

Due in part to the emerging nature of the markets for e-commerce enabling
products and services and online marketplaces, together with the substantial
resources available to many of our competitors, our opportunity to achieve and
maintain a significant market share may be limited. Developing and maintaining
awareness of the ShopNow.com and b2bNow.com brand names is critical in achieving
widespread acceptance of our e-commerce enabling products and services and our
online marketplaces. We launched the ShopNow marketplace in August 1998 and we
have only recently begun to expand our business-to-business initiatives designed
to enable businesses to maximize their e-commerce opportunities. The importance
of brand recognition will increase as competition in our markets increases.
Successfully promoting and positioning our brands will depend largely on the
effectiveness of our marketing and sales efforts and our ability to develop
reliable and useful products and services at competitive prices. If our planned
marketing and sales efforts are ineffective, we may need to increase our
financial commitment to creating and maintaining brand awareness among
businesses, merchants and shoppers, which could divert financial and management
resources from other aspects of our business, or cause our operating expenses to
increase disproportionately to our revenues. This could cause our business and
operating results to suffer.

WE FACE SIGNIFICANT COMPETITION

The market for e-commerce enabling products and services and online marketplaces
is highly competitive, and we expect competition to intensify in the future.
Barriers to entry are not significant. Our failure to compete effectively could
result in the following:

- fewer businesses and merchants relying upon our enabling solutions;

- the obsolescence of the technology underlying our products and services;

- fewer businesses and merchants listed in our directories;

- a decrease in shopper traffic on our web sites; and

6
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- a reduction in the prices of or profits on our products and services.

The number of companies providing e-commerce enabling products and services is
large and increasing at a rapid rate. We expect that additional companies which
to date have not had a substantial commercial presence on the Internet or in our
markets will offer competing products and services. Although we believe no one
company currently offers a range of e-commerce enabling solutions as
comprehensive as our suite of products and services, companies such as
InfoSpace, Go2Net, Yahoo! and Cybersource offer alternatives to one or more of
our products and services.

Many of our competitors and potential competitors have substantial competitive
advantages as compared to us, including:

- larger customer or user bases;

- the ability to offer a wider array of e-commerce products and solutions;

- greater name recognition and larger marketing budgets and resources;

- substantially greater financial, technical and other resources;

- the ability to offer additional content and other personalization
features; and

- larger production and technical staffs.

These advantages may enable our competitors to adapt more quickly to new
technologies and customer needs, devote greater resources to the promotion or
sale of their products and services, initiate or withstand substantial price
competition, take advantage of acquisition or other opportunities more readily
or develop and expand their product and service offerings more quickly.

In addition, as the use of the Internet and online products and services
increases, larger well-established and well-financed entities may continue to
acquire, invest in or form joint ventures with providers of e-commerce enabling
solutions, and existing providers may continue to consolidate. Providers of
Internet browsers and other Internet products and services who are affiliated
with providers of web directories and information services that compete with our
products and services may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would increase
the competition we face.

IF WE FAIL TO MAINTAIN OUR STRATEGIC BUSINESS RELATIONSHIPS AND ENTER INTO NEW
RELATIONSHIPS OUR BUSINESS WILL SUFFER

An important element of our strategy involves entering into business
relationships with other companies. Our success is dependent on maintaining our
current contractual relationships and developing new strategic relationships.
These contractual relationships typically involve joint marketing, licensing or
promotional arrangements. For example, we have entered into a licensing and
co-marketing agreement with Chase Manhattan Bank, a marketing agreement with
About.com, a cross promotion agreement with 24/7 Media and a software license
agreement with HNC Software. Although these relationships are an important
factor in our strategy because they enable us to enhance our product and service
offerings, the parties with which we contract may not view their relationships
with us as significant to their own businesses. To date, we have not derived
material revenue from these relationships, and some of these relationships
impose substantial obligations on us. It is not certain that the benefits to us
will outweigh our obligations. For example, our relationship with 24/7 Media
requires us to refer to them any business that would benefit from the
advertising services offered by 24/7 Media and makes 24/7 Media the only third
party authorized to sell advertising on our web site. Several of our significant
business arrangements do not establish minimum performance requirements but
instead rely on contractual best efforts obligations of the parties with which
we contract. In addition, most of these relationships may be terminated by
either party with little notice. Accordingly, in order to maintain our strategic
business relationships we will need to meet our partners' specific business
objectives, including incremental revenue, brand awareness and implementation of
specific e-commerce applications. If our strategic business relationships are
discontinued for any reason, or if we are unsuccessful in entering into new
relationships in the future, our business and results of operations may be
harmed.

7
<PAGE>
IF WE FAIL TO EFFECTIVELY MANAGE THE RAPID GROWTH OF OUR OPERATIONS OUR BUSINESS
WILL SUFFER

Our ability to successfully offer e-commerce enabling products and services and
implement our business plan in a rapidly evolving market requires an effective
planning and management process. We are increasing the scope of our operations
domestically and internationally, and we have recently increased our headcount
substantially. From December 31, 1997 to December 31, 1999, our total number of
employees increased from less than 50 to 476. This growth has placed and will
continue to place a significant strain on our management systems, infrastructure
and resources. We will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and will need to continue to
expand, train and manage our workforce worldwide. Furthermore, we expect that we
will be required to manage an increasing number of relationships with various
customers and other third parties. Any failure to expand any of the foregoing
areas efficiently and effectively could cause our business to suffer.

WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL FOR SUCCESSFUL OPERATION OF OUR
BUSINESS

Our success depends on the skills, experience and performance of our senior
management and other key personnel. Our key personnel include Dwayne Walker, our
Chairman and Chief Executive Officer, Joe Arciniega, our President and Chief
Operating Officer, Alan Koslow, our Chief Financial Officer, and Dr. Ganapathy
Krishnan, our Chief Technology Officer. Only Mr. Walker has an employment
agreement with ShopNow. Many of our executive officers have joined us within the
past three years. If we do not quickly and efficiently integrate these new
personnel into our management and culture, our business could suffer. Our
business could also suffer if we do not retain our key personnel.

WE MUST HIRE ADDITIONAL PERSONNEL TO EXPAND OUR OPERATIONS

Our future success depends on our ability to identify, hire, train, retain and
motivate highly skilled executive, technical, managerial, sales and marketing,
business development and administrative personnel. We intend to hire a
significant number of personnel during the next year, and as of December 31,
1999 we had openings for 67 job positions. Competition for qualified personnel
is intense, particularly in the technology and Internet markets. If we fail to
successfully attract and retain a sufficient number of qualified executive,
technical, managerial, sales and marketing, business development and
administrative personnel, our ability to manage and expand our business could
suffer.

OUR ABILITY TO DEVELOP AND INTEGRATE E-COMMERCE TECHNOLOGIES IS SUBJECT TO
UNCERTAINTIES

We have limited experience delivering our e-commerce products and services and
operating online marketplaces. In order to remain competitive, we must regularly
upgrade our e-commerce products and services to incorporate current technology,
which requires us to integrate complex computer hardware and software
components. If we do not successfully integrate these components, the quality
and performance of our online offerings may be reduced. In addition, the ability
of our online marketplaces to accommodate an increasing number of businesses,
merchants and shoppers would suffer. While these technologies are generally
commercially available, we may be required to expend considerable time and money
in order to successfully integrate them into our products and services and this
may cause our business to suffer. We must also maintain an adequate testing and
technical support infrastructure to ensure the successful introduction of
products and services.

OUR COMPUTER SYSTEMS MAY BE VULNERABLE TO SYSTEM FAILURES

Our success depends on the performance, reliability and availability of the
technology supporting our e-commerce products and services and our online
marketplaces. Our revenues depend, in large part, on the number of businesses
and merchants that use our products and services and the number of shoppers that
access the ShopNow marketplace. This depends, in part, upon our actual and
perceived reliability and performance. Any inability to provide our products and
services or any slowdown or stoppage of our online marketplaces could cause us
to lose clients and therefore lose revenue. Substantially all of our computer
and communications hardware is located at

8
<PAGE>
leased and third-party facilities in Seattle, Washington and Sterling, Virginia.
Our systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-in, earthquake and similar
events. Because we presently do not have fully redundant systems or a formal
disaster recovery plan, a systems failure could adversely affect our business.
Our computer systems are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which may lead to interruptions, delays, loss
of data or inability to process online transactions for our clients. We may be
required to expend considerable time and money to correct any system failure. If
we are unable to fix a problem that arises, we may lose clients or be unable to
conduct our business at all.

OUR BUSINESS MAY BE HARMED BY DEFECTS IN OUR SOFTWARE AND SYSTEMS

We have developed custom software for our network servers and have licensed
additional software from third parties. This software may contain undetected
errors or defects. Although we have not suffered significant harm from any
errors or defects to date, we may discover significant errors or defects in the
future that we may be unable to fix in a timely or cost-effective manner.

WE WILL NEED TO EXPAND AND UPGRADE OUR SYSTEMS IN ORDER TO MAINTAIN CUSTOMER
SATISFACTION

We must expand and upgrade our technology, transaction processing systems and
network infrastructure if the number of businesses and merchants using our
e-commerce products and services and online marketplaces, or the volume of
traffic on our web sites or our clients' web sites, increases substantially. We
could experience periodic capacity constraints, which may cause unanticipated
system disruptions, slower response times and lower levels of customer service.
We may be unable to accurately project the rate or timing of increases, if any,
in the use of our products or services or our web sites or when we must expand
and upgrade our systems and infrastructure to accommodate these increases in a
timely manner. Any inability to do so could harm our business.

OUR INTERNATIONAL OPERATIONS INVOLVE RISKS

We are subject to risks specific to Internet-based companies in foreign markets.
These risks include:

- delays in the development of the Internet as a commerce medium in
international markets;

- restrictions on the export of encryption technology; and

- increased risk of piracy and limits on our ability to enforce our
intellectual property rights.

In addition, we intend to begin developing business opportunities in Japan in
the first half of 2000. We may be unable to develop sufficient relationships in
Japan to take advantage of business opportunities there. In recent periods, the
Japanese economy has experienced weakness. If the Japanese economy continues to
exhibit weakness, our efforts to develop business opportunities in Japan and our
ability to grow in that market could be impaired. In addition, the failure to
succeed in the Japanese market could impair our ability to enter other
international markets.

WE MAY REQUIRE ADDITIONAL FUNDING TO SUCCESSFULLY OPERATE AND GROW OUR BUSINESS

Although we believe that our cash reserves and cash flows from operations will
be adequate to fund our operations for at least the next twelve months, these
resources may be inadequate. Consequently, we may require additional funds
during or after this period. Additional financing may not be available on
favorable terms or at all. If we raise additional funds by selling stock, the
percentage ownership of our then current shareholders will be reduced. If we
cannot raise adequate funds to satisfy our capital requirements, we may have to
limit our operations significantly. Our future capital requirements depend upon
many factors, including, but not limited to:

- the rate at which we expand our sales and marketing operations and our
product and service offerings;

- the extent to which we develop and upgrade our technology and data network
infrastructure; and

- the occurrence, timing, size and success of acquisitions.

9
<PAGE>
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS

We regard our intellectual property rights as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and license agreements with our employees, customers and others to protect our
proprietary rights. Despite our precautions, unauthorized third parties might
copy portions of our software or reverse engineer and use information that we
regard as proprietary. We currently have five patents pending in the United
States Patent and Trademark Office covering different aspects of our product
architecture and technology. However, we do not currently own any issued patents
and there is no assurance that any pending patent application will result in an
issued patent, or that any future patent will not be challenged, invalidated or
circumvented, or that the rights granted under any patent will provide us with a
competitive advantage. The laws of some countries do not protect proprietary
rights to the same extent as do the laws of the United States, and our means of
protecting our proprietary rights abroad may not be adequate. Any
misappropriation of our proprietary information by third parties could adversely
affect our business by enabling third parties to compete more effectively with
us.

OUR TECHNOLOGY MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

Although we have not received notice of any alleged infringement by us, we
cannot be certain that our technology does not infringe issued patents or other
intellectual property rights of others. In addition, because patent applications
in the United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software. We may be subject
to legal proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming, and could divert our management's attention
away from running our business.

IF THE SECURITY PROVIDED BY OUR E-COMMERCE SERVICES IS BREACHED WE MAY BE LIABLE
TO OUR CLIENTS AND OUR REPUTATION COULD BE HARMED

A fundamental requirement for e-commerce is the secure transmission of
confidential information of businesses, merchants and shoppers over the
Internet. Among the e-commerce services we offer to merchants are security
features such as:

- secure online payment services;

- secure order processing services; and

- fraud prevention and management services.

Third parties may attempt to breach the security provided by our e-commerce
products and services or the security of our clients' internal systems. If they
are successful, they could obtain confidential information about businesses and
shoppers using our online marketplaces, including their passwords, financial
account information, credit card numbers or other personal information. We may
be liable to our clients or to shoppers for any breach in security. Even if we
are not held liable, a security breach could harm our reputation, and the mere
perception of security risks, whether or not valid, could inhibit market
acceptance of our products and services. We may be required to expend
significant capital and other resources to license additional encryption or
other technologies to protect against security breaches or to alleviate problems
caused by these breaches. In addition, our clients might decide to stop using
our e-commerce products and services if their customers experience security
breaches.

PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS

Prior to January 1, 2000 we devoted substantial resources in an effort to ensure
that our proprietary software, the third-party software on which we rely, and
the underlying systems and protocols did not contain errors or defects
associated with Year 2000 date functions. Since January 1, 2000, we have not
experienced any disruption to our business as the result of any Year 2000
problems or otherwise. If problems do arise, they could adversely affect our
business.

10
<PAGE>
Risks Related to Our Industry

OUR SUCCESS DEPENDS ON CONTINUED INCREASES IN THE USE OF THE INTERNET AS A
COMMERCIAL MEDIUM

We depend on the growing use and acceptance of the Internet by businesses,
merchants and shoppers as a medium of commerce. Rapid growth in the use of and
interest in the Internet and online products and services is a recent
development. No one can be certain that acceptance and use of the Internet and
online products and services will continue to develop or that a sufficiently
broad base of businesses, merchants and shoppers will adopt and continue to use
the Internet and online products and services as a medium of commerce.

The Internet may fail as a commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies, including
security technology and performance improvements. For example, if technologies
such as software that stops advertising from appearing on a web user's computer
screen gain wide acceptance, the attractiveness of the Internet to advertisers
would be diminished, which could harm our business.

RAPID TECHNOLOGICAL CHANGE COULD NEGATIVELY AFFECT OUR BUSINESS

Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize the
market for e-commerce products and services and online marketplaces. Our future
success will depend in significant part on our ability to improve the
performance, content and reliability of our products and services in response to
both the evolving demands of the market and competitive product and service
offerings. Our efforts in these areas may not be successful. If a large number
of our clients adopt new Internet technologies or standards, we may need to
incur substantial expenditures modifying or adapting our e-commerce products and
services to remain compatible with their systems.

WE RELY ON THE INTERNET INFRASTRUCTURE PROVIDED BY OTHERS TO OPERATE OUR
BUSINESS

Our success depends in large part on other companies maintaining the Internet
infrastructure. In particular, we rely on other companies to maintain a reliable
network backbone that provides adequate speed, data capacity and security and to
develop products that enable reliable Internet access and service. If the
Internet continues to experience significant growth in the number of users,
frequency of use and amount of data transmitted, the Internet infrastructure of
thousands of computers communicating via telephone lines, coaxial cable and
other telecommunications systems may be unable to support the demands placed on
it, and the Internet's performance or reliability may suffer as a result of this
continued growth. If the performance or reliability of the Internet suffers,
Internet users could have difficulty obtaining access to the Internet. In
addition, data transmitted over the Internet, including information and graphics
contained on web pages, could reach Internet users much more slowly. This could
result in frustration of Internet users, which could decrease online traffic and
cause advertisers to reduce their Internet expenditures.

FUTURE GOVERNMENTAL REGULATION AND PRIVACY CONCERNS COULD ADVERSELY AFFECT OUR
BUSINESS

We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to issues such as user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. The adoption of any laws or regulations that have the effect
of imposing additional costs, liabilities or restrictions relating to the use of
the Internet by businesses or consumers could decrease the growth in the use of
the Internet, which could in turn decrease the demand for our products and
services, decrease traffic on our online marketplaces, increase our cost of
doing business, or otherwise have a material adverse effect on our business.
Moreover, the applicability to the Internet of existing laws governing issues
such as property ownership, copyright, trademark, trade secret,

11
<PAGE>
obscenity, libel and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on our business.

The Federal Communications Commission is currently reviewing its regulatory
positions on the privacy protection given to data transmissions over
telecommunications networks and could seek to impose some form of
telecommunications carrier regulation on telecommunications functions of
information services. State public utility commissions generally have declined
to regulate information services, although the public service commissions of
some states continue to review potential regulation of such services. Future
regulation or regulatory changes regarding data privacy could have an adverse
effect on our business by requiring us to incur substantial additional expenses
in order to comply with this type of regulation.

A number of proposals have been made at the federal, state and local level that
would impose additional taxes on the sale of goods and services over the
Internet and certain states have taken measures to tax Internet-related
activities. Foreign countries also may tax Internet transactions. The taxation
of Internet-related activities could have the effect of imposing additional
costs on companies, such as ShopNow, that conduct business over the Internet.
This, in turn, could lead to increased prices for products and services, which
could result in decreased demand for our solutions.

WE COULD FACE LIABILITY FOR MATERIAL TRANSMITTED OVER THE INTERNET BY OTHERS

Because material may be downloaded from web sites hosted by us and subsequently
distributed to others, there is a potential that claims will be made against us
for negligence, copyright or trademark infringement or other theories based on
the nature and content of this material. Negligence and product liability claims
also potentially may be made against us due to our role in facilitating the
purchase of some products, for example firearms. Although we carry general
liability insurance, our insurance may not cover claims of these types, or may
not be adequate to indemnify us against this type of liability. Any imposition
of liability, and in particular liability that is not covered by our insurance
or is in excess of our insurance coverage, could have a material adverse effect
on our reputation and our operating results, or could result in the imposition
of criminal penalties on us.

WE DO NOT CURRENTLY COLLECT SALES TAX FROM ALL TRANSACTIONS

We do not currently collect sales or other similar taxes on products sold by us
and delivered into states other than Washington, California, Georgia, Arizona,
Kansas, New York, Tennessee and Kentucky. However, one or more states or foreign
countries may seek to impose sales tax collection obligations on out-of-state or
foreign companies engaging in e-commerce. In addition, any new operation in
states outside the states for which we currently collect sales tax could subject
shipments into these states to state or foreign sales taxes. A successful
assertion by one or more states or any foreign country that we should collect
sales or other similar taxes on the sale of merchandise or services could result
in liability for penalties as well as substantially higher expenses incurred by
our business.

Risks Related to this Offering

PROVISIONS OF OUR CHARTER DOCUMENTS AND WASHINGTON LAW COULD DISCOURAGE OUR
ACQUISITION BY A THIRD PARTY

Specific provisions of our articles of incorporation and bylaws and Washington
law could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our shareholders.

Our articles of incorporation and bylaws establish a classified board of
directors, eliminate the ability of shareholders to call special meetings,
eliminate cumulative voting for directors and establish procedures for advance
notification of shareholder proposals. The presence of a classified board and
the elimination of cumulative voting may make it more difficult for an acquirer
to replace our board of directors. Further, the elimination of cumulative voting
substantially reduces the ability of minority shareholders to obtain
representation on the board of directors.

Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by our shareholders. The issuance of preferred stock could have the
effect of delaying, deferring or

12
<PAGE>
preventing a change of control of ShopNow and may adversely affect the market
price of the common stock and the voting and other rights of the holders of
common stock.

Washington law imposes restrictions on some transactions between a corporation
and significant shareholders. Chapter 23B.19 of the Washington Business
Corporation Act prohibits a target corporation, with some exceptions, from
engaging in particular significant business transactions 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 the 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 acquisition. 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; or

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

A corporation may not opt out of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of ShopNow.

The foregoing provisions of our charter documents and Washington law could have
the effect of making it more difficult or more expensive for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of ShopNow. These provisions may therefore have the effect of limiting the price
that investors might be willing to pay in the future for our common stock.

OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW WE USE THE PROCEEDS OF THIS
OFFERING

Our management has broad discretion over the use of the proceeds of this
offering. Accordingly, it is possible that our management may allocate the
proceeds differently than investors in this offering would have desired, or that
we will fail to maximize our return on these proceeds.

OUR STOCK PRICE MAY BE VOLATILE

The stock market in general, and the stock prices of Internet-related companies
in particular, have recently experienced extreme volatility, which has often
been unrelated to the operating performance of any particular company or
companies. Our stock price could be subject to wide fluctuations in response to
factors such as the following:

- actual or anticipated variations in quarterly results of operations;

- the addition or loss of merchants and shopper traffic;

- announcements of technological innovations, new products or services by us
or our competitors;

- changes in financial estimates or recommendations by securities analysts;

- conditions or trends in the Internet, e-commerce and marketing industries;

- changes in the market valuations of other Internet or online service or
software companies;

- our announcements of significant acquisitions, strategic relationships,
joint ventures or capital commitments;

- additions or departures of key personnel;

- sales of our common stock;

- general market conditions; and

- other events or factors, many of which are beyond our control.

13
<PAGE>
These broad market and industry factors may materially and adversely affect our
stock price, regardless of our operating performance. The trading prices of the
stocks of many technology companies are at or near historical highs and reflect
price to earnings ratios substantially above historical levels. These trading
prices and price-to-earnings ratios may not be sustained.

In the past, securities class action litigation has often been brought against
companies following periods of volatility in their stock prices. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and divert our management's time and resources, which could
cause our business to suffer.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE

After this offering, a total of approximately 51,568,035 shares of our common
stock will be outstanding. All the 10,000,000 shares sold in this offering will
be freely tradable. Of the remaining 41,568,035 outstanding shares, 33,107,310
are unregistered restricted shares and are or will become available for public
sale as follows:

<TABLE>
------------
Number of
Date of Availability for Sale Shares
- ------------------------------------------------------------ ------------
<S> <C>
Currently available for sale................................ 974,913
On March 27, 2000, upon the expiration of the initial public 10,299,088
offering lock-up period.....................................
Ninety days after the date of this prospectus............... 9,544,622
At various times upon expiration of one-year holding 12,288,687
periods.....................................................
</TABLE>

Many of the shares not currently available for sale are subject to vesting
restrictions and the holding period, volume and other restrictions of Rule 144
under the Securities Act of 1933. These restrictions have the effect of
staggering the dates on which the shares become available for sale and the
number of shares that become available for sale. If our shareholders sell a
substantial number of these shares in the public market during a short period of
time, our stock price could decline significantly.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION OF THE NET TANGIBLE BOOK
VALUE OF THE STOCK YOU PURCHASE.

The assumed public offering price is substantially higher than the net tangible
book value per outstanding share of common stock. Purchasers of our common stock
will incur immediate and substantial dilution of $8.85 per share in the net
tangible book value of our common stock from the assumed public offering price
of $16.75 per share. Additional dilution will occur upon the exercise of
outstanding options and warrants and issuances of shares under our employee
stock purchase plan.

Use of Proceeds

We estimate that the net proceeds to us from the sale of the 8,550,000 shares of
common stock offered by us will be approximately $134.8 million, at an assumed
public offering price of $16.75 per share, and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds from this offering will be $158.6 million. We will not receive any
proceeds from the sale of shares by selling shareholders.

The principal purposes of this offering are to obtain working capital for
general corporate purposes, including expansion of sales and marketing
activities and research and development. We may use a portion of the net
proceeds to acquire or invest in complementary businesses, products and
technologies. From time to time, in the ordinary course of business, we expect
to evaluate potential acquisitions of such businesses, products or technologies.
We will have broad discretion in the way we use net proceeds. Pending use of the
net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.

14
<PAGE>
Price Range of Our Common Stock and Dividend Policy

Since our initial public offering on September 28, 1999, our common stock has
traded on the Nasdaq National Market under the symbol "SPNW." The following
table sets forth the range of high and low closing sales prices of our common
stock for the periods indicated:

<TABLE>
-------------------
High Low
------ ------
<S> <C> <C>
Fourth quarter 1999 (from September 28, 1999)............... $25.13 $10.94
First quarter 2000 (through February 7, 2000)............... $25.94 $15.00
</TABLE>

On February 7, 2000, the last reported sale price for our common stock on the
Nasdaq National Market was $16.75 per share.

We have never declared or paid any dividends on our capital stock. We currently
expect to retain future earnings, if any, for use in the operation and expansion
of our business and do not anticipate paying any cash dividends in the
foreseeable future.

15
<PAGE>
Capitalization

The following table sets forth our capitalization as of December 31, 1999 on an
actual basis; on a pro forma basis to include 2,250,000 shares of common stock
in connection with the proposed acquisition of Ubarter.com and the exercise of
options and warrants to purchase 95,000 shares of common stock at a
weighted-average exercise price of $7.89 per share; and on a pro forma as
adjusted basis to give effect to the sale of 8,550,000 shares of common stock at
the assumed public offering price of $16.75 per share and the application of the
estimated net proceeds from the sale of those shares contemplated in this
prospectus.

<TABLE>
---------------------------------
December 31, 1999
---------------------------------
Pro Forma
As
Actual Pro Forma Adjusted
--------- --------- ---------
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C> <C>
Long-term obligations, including current portion............ $ 19,873 $ 38,029 $ 38,029
Shareholders' equity:
Convertible preferred stock; $.001 par value; authorized
5,000,000 actual, pro forma and pro forma as adjusted;
none issued and outstanding actual, pro forma and pro
forma as adjusted....................................... -- -- --
Common stock; $.001 par value, 200,000,000 shares
authorized actual, pro forma and pro forma as adjusted;
42,923,035 issued and outstanding actual; 45,268,035 pro
forma; 53,818,035 pro forma as adjusted................. 325,502 369,387 504,156
Common stock warrants..................................... 8,260 8,260 8,260
Deferred compensation..................................... (6,713) (6,713) (6,713)
Accumulated other comprehensive income.................... 7,470 7,470 7,470
Accumulated deficit....................................... (105,306) (105,306) (105,306)
--------- --------- ---------
Total shareholders' equity................................ 229,213 273,098 407,867
--------- --------- ---------
Total capitalization.................................... $ 249,086 $ 311,127 $ 445,896
========= ========= =========
</TABLE>

This table excludes the following shares:

- 11,842,957 shares of common stock issuable upon the exercise of options at
December 31, 1999, which consists of:

- 10,287,983 shares of common stock underlying options outstanding as of
December 31, 1999 at a weighted average exercise price of $6.08 per
share, of which 3,231,952 were exercisable as of December 31, 1999; and

- 1,554,974 shares of common stock underlying options available for
future grants;

- 2,000,000 shares of common stock issuable under our employee stock
purchase plan; and

- 3,736,281 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 to purchase common stock at a weighted
average exercise price of $6.80 per share.

16
<PAGE>
Dilution

If you invest in our common stock, your interest will be immediately diluted to
the extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of common stock
after this offering. Our pro forma net tangible book value as of December 31,
1999 was $290.3 million, or $6.41 per share of common stock. Pro forma net
tangible book value per share is determined by dividing the difference between
our total assets excluding goodwill from acquisitions and total liabilities by
the pro forma number of outstanding shares of common stock. Total assets
includes approximately $43.9 million of tangible consideration issuable in the
proposed acquisition of Ubarter.com Inc. After giving effect to the receipt of
the estimated net proceeds from the sale of 8,550,000 shares of common stock
contemplated by this offering at an assumed public offering price of $16.75 per
share and after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book value
as of December 31, 1999 would have been $425.0 million or approximately $7.90
per share. This represents an immediate increase in pro forma net tangible book
value of $1.49 per share to existing shareholders and an immediate dilution in
pro forma net tangible book value of $8.85 per share to new investors purchasing
shares of common stock in this offering. The following table illustrates this
dilution on a per share basis:

<TABLE>
<S> <C> <C>
-------------------
Assumed public offering price per share..................... $ 16.75
Pro forma net tangible book value per share as of
December 31, 1999....................................... $ 6.41
Increase per share attributable to new investors.......... 1.49
=======
Pro forma net tangible book value per share after the
offering.................................................. 7.90
========
Dilution per share to new investors......................... $ 8.85
========
Dilution as a percentage of assumed offering price.......... 52.8%
========
</TABLE>

The following table summarizes, as of December 31, 1999, the differences between
the number of shares of common stock purchased from ShopNow, the total
consideration paid, and the average price per share paid by existing
shareholders and by investors purchasing shares of common stock in this
offering, before deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, at the assumed public offering price
of $16.75 per share:

<TABLE>
------------------------------------------------------------
Shares Purchased Total Consideration Average
--------------------- ----------------------- Price (per
Number Percent Amount Percent share)
---------- -------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 45,268,035 84.1% $369,856,950 72.1% $ 8.17
New shareholders........................ 8,550,000 15.9% 143,212,500 27.9% $16.75
---------- ----- ------------ -----
Total................................... 53,818,035 100.0% $513,069,450 100.0%
========== ===== ============ =====
</TABLE>

The foregoing discussion and tables are based upon the number of shares of
common stock outstanding as of December 31, 1999, and give effect to the
issuance of 2,250,000 shares of common stock from the proposed acquisition of
Ubarter.com Inc. and to the exercise of options and warrants to purchase
95,000 shares of common stock at a weighted average exercise price of $7.89 per
share. These calculations exclude all other shares of common stock issuable upon
the exercise of our outstanding stock options and warrants to purchase common
stock, all shares of common stock available for future grants under our stock
option plans, and all shares of common stock issuable under our employee stock
purchase plan. To the extent any of these options or warrants are exercised,
there will be further dilution to new public investors. See "Capitalization,"
"Management - Employee Benefit Plans," "Description of Capital Stock" and
Note 13 to the Consolidated Financial Statements.

17
<PAGE>
Selected Consolidated Financial Data

The statements of operations data for the years ended December 31, 1996, 1997,
1998 and 1999 are derived from our audited consolidated financial statements
appearing elsewhere in this prospectus. The statements of operations data for
the period from January 20, 1994 (inception) to December 31, 1994 and for the
years ended December 31, 1995 and 1996 are derived from audited consolidated
financial statements not included in this prospectus. The pro forma as adjusted
balance sheet data give effect to the sale of the 8,550,000 shares of common
stock that we are offering under this prospectus at an assumed public offering
price of $16.75 per share and after deducting underwriting discounts and
commissions and estimated expenses payable by us. Due to the acquisitions in
1998 and in 1999, we believe that period-to-period comparisons are not
meaningful, and you should not rely on them as indicative of our future
performance. You should read the following selected consolidated financial data
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Unaudited Pro Forma Combined Financial
Information and the Consolidated Financial Statements and related Notes
appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
January 20,
1994 Pro Forma
(Inception) to Years Ended December 31, Year Ended
December 31, ---------------------------------------------------- December 31,
1994 1995 1996 1997 1998 1999 1999(1)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA -------------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:.................................. $ 279 $ 727 $ 993 $ 604 $ 7,154 $ 36,955 $ 32,588
Cost of revenues:.......................... 127 323 430 515 5,849 27,329 17,285
------------ ------ ------ ------- -------- -------- ------------
Gross profit............................. 152 404 563 89 1,305 9,626 15,303
------------ ------ ------ ------- -------- -------- ------------
Operating expenses:
Sales and marketing...................... 116 163 610 1,201 12,183 55,072 53,932
General and administrative............... 216 347 656 918 3,549 8,342 13,853
Research and development................. -- -- 25 2,436 4,370 8,885 10,247
Amortization of intangible assets........ -- -- 32 136 730 8,805 61,483
Stock-based compensation................. -- -- -- -- 182 7,216 7,216
Unusual item - write-off of acquired
technology............................. -- -- -- -- 5,207 -- --
------------ ------ ------ ------- -------- -------- ------------
Total operating expenses................. 332 510 1,323 4,691 26,221 88,320 146,731
------------ ------ ------ ------- -------- -------- ------------
Loss from operations................... (180) (106) (760) (4,602) (24,916) (78,694) (131,428)
Nonoperating income (expense), net......... (1) (7) (50) (164) 171 2,751 2,505
------------ ------ ------ ------- -------- -------- ------------
Net loss............................... $ (181) $ (113) $ (810) $(4,766) $(24,745) $(75,943) $ (128,923)
============ ====== ====== ======= ======== ======== ============
Basic and diluted net loss per share(2).... $ (0.11) $(0.06) $(0.40) $ (1.83) $ (7.01) $ (5.80)
============ ====== ====== ======= ======== ========
Basic and diluted pro forma net loss per
share(2)................................. $ (6.07)
============
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------
December 31, 1999
------------------------------------------
Pro Forma
As
Actual Pro Forma(3) Adjusted(4)
DOLLARS IN THOUSANDS ------------ ------------ ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $ 10,660 $ 12,506 $ 147,275
Working capital........................................... 43,431 43,064 177,833
Total assets.............................................. 274,174 338,878 473,647
Total liabilities......................................... 44,961 65,780 65,780
Total shareholders' equity................................ 229,213 273,098 407,867
</TABLE>

18
<PAGE>

(3) The pro forma consolidated balance sheet data gives effect to the proposed
acquisition of Ubarter.com.

19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations

Overview

ShopNow provides an end-to-end solution that enables businesses to engage in
e-commerce with other businesses, merchants and shoppers. Our end-to-end
solution consists of access to online marketplaces combined with a comprehensive
suite of e-commerce enabling products and services. These products and services
include custom application and online store development and design, hosting and
maintenance, sales and marketing services and transaction processing. The
ShopNow marketplace aggregates merchants and shoppers over a distributed network
of web sites. Our recently launched business-to-business portal and marketplace,
b2bNow.com, is designed to enable businesses to conveniently engage in online
transactions with one another.

We were incorporated in January 1994 and initially operated as a computer
services company. In 1996, we began to change the focus of our business to
conducting commerce over the Internet. In May 1997, we launched BuySoftware.com,
an online computer products store. During 1998, we completed three acquisitions,
including the acquisition of Media Assets, Inc., a direct marketing company,
launched ShopNow.com and began offering merchants e-commerce enabling products
and services. In April 1999, we changed our name from TechWave Inc. to
ShopNow.com Inc. In June 1999, we ceased operation of BuySoftware.com because we
determined it was inconsistent with our evolving strategy. We consummated three
acquisitions in the fourth quarter of 1999 and two acquisitions in
January 2000, and we recently launched our business-to-business portal,
b2bNow.com.

We currently derive substantially all of our revenues from merchant services and
the ShopNow marketplace. With the recent launch of b2bNow.com, we expect to
derive additional revenues from the purchase, sale and exchange of goods and
services through that portal.

Revenues from merchant services are generated principally through development
fees, hosting fees and sales and marketing services. Our merchant services can
be purchased as a complete end-to-end suite of services or separately, allowing
businesses and merchants to select only those services they desire. We recognize
revenues from development of custom applications and online stores and marketing
projects on a percentage of completion basis over the period of development or
the period of the marketing project. These projects generally range from two to
five months. Hosting contracts typically have a term of one year, with fees
charged on a monthly basis.

Revenues from the ShopNow marketplace, exclusive of BuySoftware.com, are
generated primarily from advertising and merchandising fees paid by merchants,
leads and orders delivered to merchants, as well as transaction processing and
licensing fees. Advertising consists of the sale of impressions on the
ShopNow.com site and merchandising consists of the sale of specific positions or
category sponsorships on the site. These agreements typically have a term of one
to four months. We generate transaction processing and licensing fees from our
payment processing and fraud prevention products and services.

In limited circumstances, we offer products directly to shoppers on the ShopNow
marketplace. We principally offer these products to increase the number of leads
we generate for merchants on the ShopNow marketplace. In these instances where
we act as merchant-of-record, we record as revenues the full sales price of the
product sold and record the full cost of the product to us as our cost of
revenues. These sales revenues represented approximately 20% of our pro forma
(excluding BuySoftware.com) revenues in 1999, and we anticipate that this
percentage will decrease in 2000 and thereafter. Our gross profit on the
products we sell is generally lower than the gross profit on our other revenues.

We expect to derive revenues from transactions, advertising, merchandising and
services fees from b2bNow.com, our business-to-business portal and online
marketplace. In addition, in January 2000 we entered into a definitive agreement
to acquire Ubarter.com, which operates an online business-to-business barter
marketplace. We plan to incorporate the barter marketplace as an additional
feature of b2bNow.com to provide businesses with an alternative way to conduct
transactions with each other. As of December 31, 1999, we had not recorded any
revenues from b2bNow.com.

20
<PAGE>

Cost of revenues generated from merchant services includes all direct labor
costs incurred in connection with the provision of services, as well as fees
charged by third-party vendors that have directly contributed to the design,
development and implementation of our merchant services. Cost of revenues
generated from the ShopNow marketplace consists primarily of the portion of our
Internet telecommunications connections that are directly attributable to
traffic on the ShopNow marketplace and the direct labor costs incurred in
maintaining and enhancing our network infrastructure. In order to fulfill our
obligations under our lead and order delivery programs, we occasionally purchase
shopping traffic from third parties by placing on their web sites advertisements
that, when clicked on by a visitor, send the visitor to the ShopNow marketplace.
Any shopping traffic that we purchase from a third party that is used to fulfill
these obligations is included as cost of revenues. Cost of revenues on the
products that we sell as merchant-of-record includes the cost of the product,
credit card fees and shipping costs.

Results of Operations

COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998

REVENUES

Revenues for the year ended December 31, 1999 were $37.0 million compared to
$7.2 million for the year ended December 31, 1998, an increase of
$29.8 million. The increase in revenues was due primarily to the expansion of
the ShopNow marketplace and increased demand for merchant services, including
the services of Media Assets, which we acquired in September 1998. The
BuySoftware.com portion of revenues for the year ended December 31, 1999 was
$9.9 million compared to $4.5 million for the year ended December 31, 1998, an
increase of $5.4 million, or 18.3% of the total increase in revenues for the
year.

SHOPNOW MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow marketplace and
transaction processing portion of revenues for the year ended December 31, 1999
was $25.8 million compared to $4.2 million for the year ended December 31, 1998,
an increase of $21.6 million. The BuySoftware.com portion of these revenues was
37.7% for the year ended December 31, 1999, compared to 93.4% for the year ended
December 31, 1998. During 1999 we experienced a significant increase in our
merchant listings, shopper traffic and affiliate and syndication shopping sites,
which resulted in an increase in merchandising and advertising revenues,
transaction processing fees and sales of products to shoppers, exclusive of
BuySoftware.com.

MERCHANT SERVICES. The merchant services portion of revenues for the year ended
December 31, 1999 was $11.1 million compared to $2.9 million for the year ended
December 31, 1998, an increase of $8.2 million. The increase in our merchant
services revenues was due primarily to increased demand for merchant services,
including the services of Media Assets.

COST OF REVENUES

The cost of revenues for the year ended December 31, 1999 was $27.3 million
compared to $5.8 million for the year ended December 31, 1998, an increase of
$21.5 million. The increase in our cost of revenues was due primarily to
increased product sales from the ShopNow marketplace and cost of revenues for
merchant services, including the services of Media Assets. The BuySoftware.com
portion of cost of revenues for the year ended December 31, 1999 was
$11.2 million compared to $4.5 million for the year ended December 31, 1998, an
increase of $6.7 million, or 31.4% of the total increase in the cost of
revenues.

SHOPNOW MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow marketplace and
transaction processing portion of cost of revenues for the year ended
December 31, 1999 was $20.2 million compared to $4.5 million for the year ended
December 31, 1998, an increase of $15.7 million. The BuySoftware.com portion of
these cost of revenues was 55.3% for the year ended December 31, 1999, compared
to 96.8% for the year ended December 31, 1998. The increase in our ShopNow
marketplace and transaction processing cost of revenues, exclusive of
BuySoftware.com, was due primarily to increased merchandising revenues and
product sales from the ShopNow marketplace.

MERCHANT SERVICES. The merchant services portion of cost of revenues for the
year ended December 31, 1999 was $7.2 million compared to $1.4 million for the
year ended December 31, 1998, an increase of $5.8 million. The

21
<PAGE>

increase in our merchant services cost of revenues was due primarily to
increased demand for merchant services, including the services of Media Assets.

GROSS PROFIT. Gross profit for the year ended December 31, 1999 was $9.6
million, compared to a gross profit of $1.3 million for the year ended
December 31, 1998, an increase of $8.3 million. This increase in gross profit
was due primarily to the increase in revenues from advertising and merchandising
over the ShopNow marketplace and merchant services, which contribute greater
gross profits than revenues generated on the sales of products over the ShopNow
marketplace. Discontinuing the BuySoftware.com business in June 1999 also had a
positive effect on our overall gross profit. The BuySoftware.com business had
historically operated with minimal or negative gross profits. We expect that any
future sales of products on the ShopNow marketplace will be sold at minimal or
negative gross profits.

SALES AND MARKETING. Sales and marketing expenses consist primarily of costs
associated with marketing programs such as advertising and public relations, as
well as salaries and commissions. Sales and marketing expenses for the year
ended December 31, 1999 were $55.1 million compared to $12.2 million for the
year ended December 31, 1998, an increase of $42.9 million. This increase was
due primarily to increased spending as a result of the expansion of our merchant
services and of the ShopNow marketplace, including additional personnel and
nationwide print, radio and television advertisements. We expect to continue to
increase our sales and marketing expenses in 2000 to promote our merchant
services offerings and the ShopNow network.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other personnel-related costs for executive,
financial, human resources, information services and other administrative
personnel, as well as legal, accounting and insurance costs. General and
administrative expenses for the year ended December 31, 1999 were $8.3 million,
compared to $3.5 million for the year ended December 31, 1998, an increase of
$4.8 million. This increase was due primarily to an increase in personnel from
internal growth and acquisitions. We anticipate continued growth in our general
and administrative expenses at least through 2000. In September 1999, we settled
a lawsuit brought by a party with which we had entered into a contract. As a
result of the terms of this settlement, in the quarter ended September 30, 1999,
we recognized additional general and administrative expenses in the amount of
$1.5 million.

RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily
of salaries and related costs associated with the development of new products
and services, the enhancement of existing products and services, and the
performance of quality assurance and documentation activities. Research and
development expenses for the year ended December 31, 1999 were $8.9 million,
compared to $4.4 million for the year ended December 31, 1998, an increase of
$4.5 million. This increase was due primarily to the development and enhancement
of our technology platform and to an increase in technology personnel. These
employees focus on developing our technology platform as well as building the
overall infrastructure that supports our merchant services and the ShopNow
marketplace. We anticipate continued growth in our research and development
expenses at least through 2000.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets resulting
from acquisitions is primarily related to the amortization of customer lists,
domain names, acquired technology, proprietary concepts and goodwill.
Amortization of intangible assets expense for the year ended December 31, 1999
was $8.8 million, compared to $730,000 for the year ended December 31, 1998, an
increase of $8.1 million. This increase was due primarily to the increase in
intangible assets and related amortization expenses from business acquisitions
completed during 1999, including the acquisitions of GO Software, Inc.,
SpeedyClick, Corp., Cortix, Inc. and Webcentric, Inc. We expect continued growth
in our amortization of intangible assets expense resulting from future business
acquisitions.

STOCK-BASED COMPENSATION. Stock-based compensation expense is related to the
amortization of deferred compensation resulting from stock option grants to
employees with an option exercise price below the estimated fair market value of
our common stock as of the date of grant. Stock-based compensation expense for
the year ended December 31, 1999 was $7.2 million, compared to $182,000 for the
year ended December 31, 1998, an increase of $7.0 million. The amount of
deferred compensation resulting from these grants is generally amortized over a
three-year vesting period. During the fourth quarter of 1999, the contingent
performance criteria relating to a stock option

22
<PAGE>

grant for 310,000 shares of the Company's common stock with an exercise price of
$4.00 were satisfied. Accordingly, a stock-based compensation charge of
approximately $3.3 million was recognized in the fourth quarter of 1999.

GAIN ON SALE OF MARKETABLE EQUITY SECURITIES. Gain on sale of marketable equity
securities consists primarily of the gains recognized from the sale of our
investment in 110,000 shares of common stock of FreeShop.com in the fourth
quarter of 1999. There were no gains on sales of marketable equity securities in
1998.

OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily of
interest income on cash and cash equivalents and interest expense on our
outstanding debt obligations. Other expense, net for the year ended
December 31, 1999 was $127,000, compared to other income, net of $171,000 for
the year ended December 31, 1998, a decrease of $298,000. Although interest
income in 1999 increased due to the increase in our cash and short-term
investments realized from our initial public offering, the amount of additional
interest charges from our notes and leases payable, as well as the amortization
of debt financing costs incurred during 1999, resulted in an overall other
expense, net position for the year ended 1999.

NET LOSS. Net loss for the year ended December 31, 1999 was $75.9 million,
compared to a net loss of $24.7 million for the year ended December 31, 1998, an
increase of $51.2 million. This increase was due primarily to an increase in our
operating expenses, most significantly sales and marketing expenses, partially
offset by our increase in gross profit during the same period. We expect to
incur additional net losses in 2000.

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997

REVENUES

Revenues for the year ended December 31, 1998 were $7.2 million compared to
$604,000 for the year ended December 31, 1997, an increase of $6.6 million. The
increase in revenues was due primarily to increased product sales from the
BuySoftware.com business and revenues generated by Media Assets, which we
acquired in September 1998. The BuySoftware.com portion of revenues for the year
ended December 31, 1998 was $4.5 million compared to $69,000 for the year ended
December 31, 1997, an increase of $4.4 million, or 67.0% of the total increase
in revenues for the year.

SHOPNOW MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow marketplace and
transaction processing portion of revenues for the year ended December 31, 1998
was $4.2 million compared to $69,000 for the year ended December 31, 1997, an
increase of $4.1 million. The increase in our ShopNow marketplace and
transaction processing revenues was due primarily to increased product sales
from the BuySoftware.com business.

MERCHANT SERVICES. The merchant services portion of revenues for the year ended
December 31, 1998 was $2.9 million compared to $535,000 for the year ended
December 31, 1997, an increase of $2.4 million. The increase in our merchant
services revenues was due primarily to revenues generated from Media Assets.
Revenues in 1997 were generated from our previous business of providing computer
services to clients, which was completely phased out in early 1998. These
computer services consisted primarily of providing computer training, consulting
and Internet site design to businesses.

COST OF REVENUES

The cost of revenues for the year ended December 31, 1998 was $5.8 million
compared to $515,000 for the year ended December 31, 1997, an increase of
$5.3 million. The increase in our cost of revenues was due primarily to
increased product sales from the BuySoftware.com business and cost of revenues
incurred by Media Assets. The BuySoftware.com portion of cost of revenues for
the year ended December 31, 1998 was $4.4 million compared to $124,000 for the
year ended December 31, 1997, an increase of $4.3 million, or 81.2% of the total
increase in cost of revenues.

SHOPNOW MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow marketplace and
transaction processing portion of cost of revenues for the year ended
December 31, 1998 was $4.5 million compared to $159,000 for the year ended

23
<PAGE>

December 31, 1997, an increase of $4.3 million. The increase in our ShopNow
marketplace and transaction processing cost of revenues was due primarily to
increased product sales from the BuySoftware.com business.

MERCHANT SERVICES. The merchant services portion of cost of revenues for the
year ended December 31, 1998 was $1.4 million compared to $356,000 for the year
ended December 31, 1997, an increase of $1.0 million. The increase in our
merchant services cost of revenues was due primarily to cost of revenues
incurred by Media Assets. Cost of revenues for 1997 was comprised of direct
labor and related costs to provide computer services to clients.

GROSS PROFIT. Gross profit for the year ended December 31, 1998 was $1.3
million compared to $89,000 for the year ended December 31, 1997, an increase of
$1.2 million. This increase in gross profit was due primarily to the positive
gross profit contributed from Media Assets.

SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1998 were $12.2 million compared to $1.2 million for the year ended
December 31, 1997, an increase of $11.0 million. The increase was due primarily
to increased spending as a result of the development and expansion of the
ShopNow marketplace. Substantially all of the selling expenses incurred in 1997
were in support of our previous computer services business, which was
discontinued in early 1998.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for the year
ended December 31, 1998 were $3.5 million compared to $918,000 for the year
ended December 31, 1997, an increase of $2.6 million. The increase was due
primarily to an increase in personnel from internal growth and acquisitions.

RESEARCH AND DEVELOPMENT. Research and development expenses for the year ended
December 31, 1998 were $4.4 million compared to $2.4 million for the year ended
December 31, 1997, an increase of $2.0 million. The increase was due primarily
to the development of our technology platform, an increase in our technology
personnel and expansion of the overall infrastructure that supports the ShopNow
marketplace.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets expense
for the year ended December 31, 1998 was $730,000 compared to $136,000 for the
year ended December 31, 1997, an increase of $594,000. The acquisition of Media
Assets and The Internet Mall resulted in $387,000 of this increase. The
remainder of this increase resulted from other purchases of intangible assets,
including domain names and customer lists.

STOCK-BASED COMPENSATION. Stock-based compensation expense for the year ended
December 31, 1998 was $182,000 compared to no expense for the same period ended
December 31, 1997. The expenses are related to employee stock option grants with
option exercise prices below the estimated fair market value of our common stock
as of the date of grant. The amount of deferred compensation resulting from
these grants is generally amortized over a three-year period.

UNUSUAL ITEM - IMPAIRMENT OF ACQUIRED TECHNOLOGY. In June 1998, we acquired
e-Warehouse and CyberTrust with the intent of integrating the acquired
technologies with our own e-commerce product and service offerings. The amount
we paid for these acquisitions was $5.4 million. We are presently not utilizing
the acquired technologies and have determined that they have no alternative
future use or value to us, as our technology platform provides superior
functionality. As a result, we wrote off $5.2 million of the purchase price
during the fourth quarter of 1998.

OTHER INCOME (EXPENSE), NET. Other income, net for the year ended December 31,
1998, was $171,000, compared to $164,000 of other expense, net for the year
ended December 31, 1997, an increase of $335,000. The increase was due primarily
to an increase in interest income earned by our increased cash reserves as a
result of our financing activities during 1998 as compared to 1997.

NET LOSS. Net loss for the year ended December 31, 1998 was $24.7 million,
compared to a net loss of $4.8 million for the year ended December 31, 1997, an
increase of $19.9 million. This increase was due primarily to an increase in our
operating expenses, most significantly sales and marketing expenses, partially
offset by our increase in gross profit during the same period.

24
<PAGE>

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

REVENUES

Revenues for the year ended December 31, 1997 were $604,000 compared to $993,000
for the year ended December 31, 1996, a decrease of $389,000. The overall
decrease was due primarily to the phase out beginning in late 1997 of our
computer services business.

SHOPNOW MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow marketplace and
transaction processing portion of revenues for the year ended December 31, 1997
was $69,000 compared to no revenues for the year ended December 31, 1996. All of
ShopNow marketplace and transaction processing revenues were attributable to the
BuySoftware.com business.

MERCHANT SERVICES. The merchant services portion of revenues for the year ended
December 31, 1997 was $535,000 compared to $993,000 for the year ended
December 31, 1996, a decrease of $458,000. All of merchant services revenues
were related to providing computer services to businesses.

COST OF REVENUES

The cost of revenues for the year ended December 31, 1997 was $515,000 compared
to $430,000 for the year ended December 31, 1996, an increase of $85,000. The
overall increase in cost of revenues was due to the cost of expanding the
BuySoftware.com business, partially offset by the phase out of our computer
services business.

SHOPNOW MARKETPLACE AND TRANSACTION PROCESSING. The ShopNow marketplace and
transaction processing portion of cost of revenues for the year ended
December 31, 1997 was $159,000 compared to no cost of revenues for the year
ended December 31, 1996. All of ShopNow marketplace and transaction processing
cost of revenues were attributable to the BuySoftware.com business, which
initially incurred higher cost of revenues as the business was being developed.

MERCHANT SERVICES. The merchant services portion of cost of revenues for the
year ended December 31, 1997 was $356,000 compared to $430,000 for the year
ended December 31, 1996, a decrease of $74,000. The decrease was due primarily
to decreased direct labor and other costs incurred in delivering our previous
business of providing computer services to clients. All of the merchant services
cost of revenues was related to providing computer services to businesses.

GROSS PROFIT. Gross profit for the year ended December 31, 1997 was $89,000
compared to $563,000 for the year ended December 31, 1996, a decrease of
$474,000. This decrease in gross profit was due primarily to the decrease in
revenues from the phase out of our computer services business and the
introduction and operation of the BuySoftware.com business, which had
historically operated at a minimal or negative gross profit level.

SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1997 were $1.2 million compared to $610,000 for the year ended
December 31, 1996, an increase of $591,000. The increase was due primarily to
increased spending as a result of development and expansion of our online
computer products store. In the year ended December 31, 1997, $644,000 of the
sales and marketing expenses were in support of our previous computer services
business compared to $610,000 of such expenses in the year ended December 31,
1996.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for the year
ended December 31, 1997 were $918,000 compared to $656,000 for the year ended
December 31, 1996, an increase of $262,000. The increase was due primarily to an
increase in employees to support our growth and transition to an online computer
products store.

RESEARCH AND DEVELOPMENT. Research and development expenses for the year ended
December 31, 1997 were $2.4 million compared to $25,000 for the year ended
December 31, 1996, an increase of $2.4 million. The increase was due entirely to
the development of our technology platform, which began in 1997 to support our
growth and transition to an online computer products store.

25
<PAGE>
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets expense
for the year ended December 31, 1997 was $136,000 compared to $32,000 for the
year ended December 31, 1996, an increase of $104,000. The increase was due
primarily to various acquisitions of web domain names during 1997, resulting in
an increase in amortization of intangible assets expense recorded from these
transactions.

OTHER INCOME (EXPENSE), NET. Other expense, net for the year ended December 31,
1997, was $164,000 compared to $50,000 for the year ended December 31, 1996, an
increase of $114,000. The increase was due primarily to an increase in interest
expense from our various financing activities by means of notes payable and
lines of credit with commercial banks.

NET LOSS. Net loss for the year ended December 31, 1997 was $4.8 million,
compared to a net loss of $810,000 for the year ended December 31, 1996, an
increase of $4.0 million. This increase was due primarily to an increase in our
operating expenses, most significantly research and development and sales and
marketing expenses, as well as our decrease in gross profit during the same
period.

Net Operating Loss Carryforwards

As of December 31, 1999, we had net operating loss carryforwards of
approximately $76.4 million. If not used, the net operating loss carryforwards
will expire at various dates beginning in 2012. The Tax Reform Act of 1986
imposes restrictions on the use of net operating losses and tax credits in the
event that there has been an ownership change of a corporation since the periods
in which the net operating losses were incurred. Our ability to use net
operating losses incurred prior to July 1999 is limited to an aggregate of
approximately $14.3 million per year due to sales of Series D and Series E
convertible preferred stock to third parties in April 1998 and the sale of
Series I convertible preferred stock to Chase Manhattan Bank in July 1999, which
resulted in ownership changes. We have provided a full valuation allowance on
our deferred tax assets because of the uncertainty regarding their realization.
Our accounting for deferred taxes involves the evaluation of a number of factors
concerning the realizability of our deferred tax assets. In concluding that a
full valuation allowance was required, management considered such factors as our
history of operating losses, potential future losses and the nature of our
deferred tax assets.

Liquidity and Capital Resources

Since inception, we have experienced net losses and negative cash flows from
operations. As of December 31, 1999, we had an accumulated deficit of $105.3
million. We have financed our activities largely through issuances of common
stock and preferred stock, from the issuance of short-term and long-term
obligations and from capital leasing transactions for certain of our fixed asset
purchases. Through December 31, 1999, our aggregate net proceeds have been
$161.4 million from issuing equity securities and $21.8 million from issuing
debt securities. As of December 31, 1999, we had $62.8 million in cash and
short-term investments. During the fourth quarter of 1999, we closed our initial
public offering of 8,337,500 shares of common stock and received net proceeds of
$91.1 million.

Net cash used in operating activities was $48.0 million for the year ended
December 31, 1999, compared to $16.0 million for the year ended December 31,
1998. The increase was due primarily to the increase in our net loss for the
year ended December 31, 1999, to $75.9 million compared to $24.7 million for the
year ended December 31, 1998.

Net cash used in investing activities was $82.0 million for the year ended
December 31, 1999, compared to $5.3 million for the year ended December 31,
1998. The increase was due primarily to the net increase in purchases of
short-term investments of $52.0 million during 1999, compared to $150,000 during
1998, and due to the increase in purchases of property and equipment of $13.5
million during 1999, compared to $2.2 million during 1998.

Net cash provided by financing activities was $130.8 million for the year ended
December 31, 1999, compared to $30.8 million for the year ended December 31,
1998. The increase was due primarily to net proceeds from the issuance of common
stock of $92.8 million during 1999, compared to $25,000 during 1998, and to the
increase in the amount of proceeds from issuances of debt of $12.4 million
during 1999, compared to $3.7 million during 1998.

In March 1999 we entered into a loan and security agreement with Transamerica
Business Credit Corporation for a term loan and line of credit. In May 1999, the
agreement was amended and restated allowing us to borrow up to

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<PAGE>

$8.5 million at any one time, consisting of a $3.5 million term loan, a $4.0
million bridge loan and a line of credit of up to $2.5 million, initially capped
at $1.0 million until the bridge loan was repaid. The line of credit bears
interest at Transamerica Business Credit Corporation's base rate plus 2%, is
secured by substantially all of our assets and was amended in January 2000 to
expire on March 31, 2001. The term loan bears interest at 12%, is secured by
substantially all of our assets and matures in March 2002. The bridge loan bore
interest at 12% and was repaid in October 1999 after the closing of our initial
public offering.

Our capital requirements depend on numerous factors, including the rate of
expansion of the b2bNow.com and ShopNow marketplaces, the investments we make in
our technology platform, the number of acquisitions that are completed and the
composition of the consideration between cash, debt and stock for any future
acquisitions, and the resources we devote to expansion of our sales, marketing
and branding programs. We have also entered into agreements with Chase Manhattan
Bank, About.com and 24/7 Media, which together require us to make aggregate
advertising and marketing expenditures of approximately $6.0 million in 2000,
decreasing annually to $1.0 million in 2004. We believe that existing cash
balances and cash generated from operations, together with the net proceeds from
our initial public offering and the net proceeds from this offering, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures in the short-term (the next 12 months), and at least through the
next 18 months. After that time, we may be required to raise additional
financing. We cannot be sure that the assumed levels of revenues and expenses
underlying our anticipated cash needs will prove to be accurate. The sale of
additional equity or convertible debt securities could result in additional
dilution to our shareholders. We cannot be sure that financing will be available
in amounts or on terms acceptable to us, if at all.

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<PAGE>

Selected Consolidated Pro Forma Quarterly Financial Data

The following table sets forth selected consolidated quarterly financial data on
a pro forma basis for 1999. The financial data presented below excludes our
BuySoftware.com business for all periods presented and includes the operations
of GO Software, SpeedyClick and WebCentric as if we had acquired them on
January 1, 1999. We believe that the pro forma information below provides a
better reflection of our existing business than the historical data provided
elsewhere in this prospectus. All data is unaudited, has been prepared on the
same basis as the audited financial statements and, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, considered necessary for a full presentation of such information
when read in conjunction with the financial statements and accompanying notes
appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
-----------------------------------------------------------------
Three Months Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DOLLARS IN THOUSANDS
Consolidated Statements of Operations
Data:
Revenues:
ShopNow marketplace and transaction
processing.......................... $ 995 $ 2,305 $ 5,105 $ 10,678
Merchant services..................... 1,729 2,447 3,189 3,573
-------------- -------------- -------------- --------------
Total revenues...................... 2,724 4,752 8,294 14,251
-------------- -------------- -------------- --------------
Cost of revenues:
ShopNow marketplace and transaction
processing.......................... 419 844 2,762 5,630
Merchant services..................... 969 1,538 2,250 2,402
-------------- -------------- -------------- --------------
Total cost of revenues.............. 1,388 2,382 5,012 8,032
-------------- -------------- -------------- --------------
Gross profit...................... 1,336 2,370 3,282 6,219
-------------- -------------- -------------- --------------
Operating expenses:
Sales and marketing................... 4,712 11,555 15,965 21,984
General and administrative............ 1,421 1,554 3,273 3,098
Research and development.............. 1,741 1,525 2,611 3,621
Amortization of intangible assets..... 13,687 13,811 14,027 14,335
Stock-based compensation.............. 133 1,822 592 4,669
-------------- -------------- -------------- --------------
Total operating expenses............ 21,694 30,267 36,468 47,707
-------------- -------------- -------------- --------------
Loss from operations.............. $ (20,358) $ (27,897) $ (33,186) $ (41,488)
============== ============== ============== ==============
</TABLE>

The growth in total revenues for each quarter in the year ended December 31,
1999 is attributable to increased advertising and merchandising revenues from
the expansion of the ShopNow marketplace as well as increased revenues from
merchant services, particularly from increased development and hosting revenues.
Although we have experienced significant growth in revenues from our current
operations and increases in the number of advertisers, merchants and shoppers on
the ShopNow network, these historical growth rates are not sustainable and are
not indicative of future growth rates that we may achieve. We believe that
period-to-period comparisons of our operating results are not meaningful and
that you should not rely on the performance of any period as an indication of
future performance.

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<PAGE>

Selected Consolidated Quarterly Financial Data

The following table sets forth our unaudited selected consolidated quarterly
financial data for the years ended December 31, 1998 and 1999.

<TABLE>
<CAPTION>
Three Months Ended 1998 Three Months Ended 1999
------------------------------------------------ -------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA
Revenues................... $ 399 $ 740 $ 1,858 $ 4,157 $ 7,568 $ 8,414 $ 7,555 $ 13,418
Cost of revenues........... 431 753 1,629 3,036 7,140 7,543 4,811 7,835
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............. (32) (13) 229 1,121 428 871 2,744 5,583
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing...... 1,345 3,133 3,212 4,493 5,472 12,808 15,265 21,527
General and
administrative........... 509 699 1,069 1,272 960 1,521 3,012 2,849
Research and
development.............. 459 983 1,560 1,368 1,600 1,334 2,433 3,518
Amortization of
intangible assets........ 57 61 223 389 558 1,080 2,096 5,071
Stock-based
compensation............. -- 2 35 145 133 1,822 592 4,669
Unusual item--write-off
of
acquired technology.... -- -- -- 5,207 -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses................. 2,370 4,878 6,099 12,874 8,723 18,565 23,398 37,634
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Loss from operations... (2,402) (4,891) (5,870) (11,753) (8,295) (17,694) (20,654) (32,051)

Nonoperating income
(expense), net........... 12 97 68 (6) 15 (260) (360) 3,356
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Net loss............... $(2,390) $(4,794) $(5,802) $(11,759) $(8,280) $(17,954) $(21,014) $(28,695)
========= ========== ========== ========== ========== ========== ========== ==========

Basic and diluted pro forma
net loss per share (1)... $ (0.28) $ (0.37) $ (0.41) $ (0.75) $ (0.48) $ (0.80) $ (0.82) $ (0.77)
========= ========== ========== ========== ========== ========== ========== ==========
Weighted average shares
used to calculate pro
forma basic and diluted
net loss per share (1)... 8,639,544 13,022,436 14,017,673 15,661,418 17,168,592 22,538,696 25,776,927 37,313,691
========= ========== ========== ========== ========== ========== ========== ==========
</TABLE>

(1) Basic and diluted pro forma net loss per share is computed based on the
weighted average number of shares outstanding, giving effect to the
conversion of convertible preferred stock on an as-if converted basis from
the original issuance date.

Recent Accounting Pronouncements

In March 1998 the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." Statement of Position 98-1 is effective
for financial statements for years beginning after December 15, 1998. Statement
of Position 98-1 provides guidance on accounting for computer software developed
or obtained for internal use, including the requirement to capitalize specified
costs and amortization of such costs. The implementation of Statement of
Position 98-1 did not have a material impact on our financial position or
operating results.

In April 1998 the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES."
Statement of Position 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As we have expensed these costs
historically, the implementation of Statement of Position 98-5 did not have a
material effect on our financial condition or operating results.

In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "REVENUE RECOGNITION IN FINANCIAL
STATEMENTS," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. We believe our revenue recognition
practices are in conformity with the guidelines prescribed in SAB No. 101.

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<PAGE>
Seasonality

We believe that our advertising and merchandising revenues on the ShopNow
marketplace are subject to seasonality changes as retail transactions and
advertising sales in traditional media, such as television and radio, generally
are lower in the first and third calendar quarters of each year. In addition,
Internet usage typically declines during the summer and certain holiday periods.
If our market makes the transition from an emerging to a more developed market,
seasonal and cyclical patterns may develop in our industry and in the usage of,
and transactions on, our web sites and those of our merchants. Seasonal and
cyclical patterns in online transactions and advertising would affect our
revenues. Those patterns may also develop on our web sites. Given the early
stage of the development of the Internet and our company, however, we cannot
predict to what extent, if at all, our operations will prove to be seasonal.

Impact of the Year 2000 Computer Problem

Prior to January 1, 2000, we devoted substantial resources in an effort to
ensure that our proprietary software, the third-party software on which we rely,
and the underlying systems and protocols did not contain errors associated with
Year 2000 date functions. Since January 1, 2000, we have not experienced any
disruption as a result of any Year 2000 problems or otherwise.

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<PAGE>
Business
Overview

ShopNow offers businesses a tailored end-to-end solution that addresses the
challenges associated with implementing a successful e-commerce strategy. We
offer access to the ShopNow network and a comprehensive suite of products and
services ranging from custom application and online store development to online
and traditional sales and marketing services and transaction processing. The
ShopNow marketplace, which includes the ShopNow.com portal and its affiliate and
syndication sites, allows merchants to target specific groups of shoppers. Our
recently launched business-to-business marketplace, b2bNow.com, allows
businesses to buy, sell and exchange goods and services with one another. This
combination of products, services and marketplace access enables businesses to
create online stores and custom web sites, access customers and transact
business efficiently.

Industry Background

RAPID GROWTH OF THE INTERNET AND E-COMMERCE

The Internet has grown in less than a decade from a limited research tool into a
global network consisting of millions of computers and users. The Internet is an
increasingly significant medium for communication, information and commerce.
International Data Corporation, or IDC, estimates that at the end of 1998 there
were over 62 million web users in the United States and over 142 million web
users worldwide and that by the end of 2003 the number of web users will
increase to 177 million in the United States and to over 502 million worldwide.

The rapid growth of the Internet has given businesses, merchants and shoppers
the opportunity to conduct an increasing amount of commerce online. We believe
that e-commerce offers numerous advantages to businesses, merchants and
shoppers. Shoppers receive increased selection, competitive prices and the
convenience of being able to shop on the Internet 24 hours a day, 7 days a week
from the location of their choice. The Internet enables merchants to reach a
global audience and operate with limited infrastructure, reduced overhead and
greater economies of scale. Merchants can customize web site content to match
the needs and preferences of individual shoppers by transparently personalizing
content for each shopper. By facilitating access to information, the Internet
enables merchants to give customers more detailed product information while
affording merchants the opportunity to obtain detailed information about the
purchasers of their products. In addition, online merchants can reduce selling
costs by reducing or eliminating investments in physical retail locations and
automating much of the interaction with their customers. These advantages are
resulting in a dramatic increase in the amount of commerce conducted over the
Internet and the number of businesses and merchants advertising and selling
goods and services online. According to IDC, worldwide transactions on the
Internet are expected to increase from approximately $111 billion in 1999 to
approximately $1.3 trillion in 2003, with the total number of users who purchase
products and services online increasing from approximately 48 million to
approximately 182 million worldwide during the same period.

CHALLENGES TO CONDUCTING COMMERCE OVER THE INTERNET

Businesses and merchants increasingly are determining that they need an online
presence to take advantage of the rapid growth and benefits of e-commerce. To
conduct commerce online effectively and efficiently, however, businesses and
merchants must address a number of challenges:

- WEB SITE PLANNING AND STOREFRONT DESIGN: Businesses and merchants must
design and implement the look and feel of their online stores and custom
web sites in a way that provides a rich, easy-to-use and generally
satisfying end-user experience that fosters buying and repeat visits.
Storefront design must promote the merchants' brands, identities and
product information through the use of graphics, images and text content.

- VISIBILITY AND CUSTOMER ACQUISITION: Merchants need to effectively
communicate with their targeted online audience to maximize the number of
visits to, and purchases from, their web sites. Both online merchants
seeking to establish a brand and traditional merchants with established
brands need to create visibility online and to distinguish themselves from
the significant number of competitors selling products and services on the
Internet. Achieving widespread brand recognition and customer loyalty in a
crowded market where consumers

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<PAGE>
are inundated with Internet-related advertising requires a comprehensive
and focused marketing strategy to reach the desired audience. These
efforts require a broad range of both online and traditional techniques
ranging from banner and hyperlink advertisements or e-mail communications
to traditional methods, such as direct mail. In order to attract the
highest number of desired online shoppers, merchants need to employ
creative marketing solutions that position their products and services
more effectively than those of their many competitors.

- TRANSACTION PROCESSING: Businesses and merchants must implement solutions
that enable them to efficiently and effectively process orders once they
are placed. Online transaction processing is complex and involves a number
of elements including secure, dependable, automated real-time payment
authorization, calculation of tax and shipping charges, order tracking and
customer service. Online orders for physical goods must be transmitted to
fulfillment centers, distributors or merchant-owned distribution centers
for shipment of the goods.

In light of these challenges, businesses and merchants who choose to internally
develop and maintain an e-commerce presence must invest a significant amount of
capital and technical resources. E-commerce technology evolves rapidly,
necessitating timely implementation and upgrades. The lengthy and often
cost-prohibitive nature of in-house development and maintenance has caused an
increasing number of businesses and merchants to outsource some or all of their
e-commerce capability development to third-party service providers. Outsourced
solutions offer convenience and savings but most service providers specialize in
specific, limited aspects of an Internet merchant's business. Merchants who
outsource their e-commerce capability development typically must devote
significant technical expertise and other resources to coordinate multiple
vendors and integrate the various components.

As e-commerce solutions evolve and online businesses and merchants proliferate,
need and demand increase for outsourced e-commerce solutions that seamlessly
integrate every aspect of an online business from storefront development to
marketing services, transaction processing and fulfillment.

The ShopNow Solution

We are an end-to-end developer and provider of e-commerce enabling solutions for
businesses and merchants. We provide a comprehensive suite of products and
services that enable businesses and merchants to create, support and grow an
efficient, scaleable and reliable online presence. Our marketing services use
both traditional and online methods to bring businesses, merchants and shoppers
together, while our other e-commerce products and services enable businesses and
merchants to develop and complete online transactions. Our e-commerce platform
includes custom application and online store development and design, hosting and
maintenance, fraud prevention, payment processing and order fulfillment. We
provide customers with a wide variety of supporting technologies in order to
meet their specific needs. Our sales and marketing services include merchant and
product listing on our online marketplaces, advertisements and e-mail promotions
and other creative services. We also operate the ShopNow marketplace, a
distributed network of web sites comprised of the ShopNow.com portal and more
than 4,000 affiliate and syndication shopping sites, which together provide
access to more than 45,000 merchants offering over five million products. In
addition, we operate b2bNow.com, our business-to-business portal and online
marketplace.

Key benefits of our solution include:

- END-TO-END INTEGRATED SOLUTION. We believe that we provide all of the
critical capabilities required to enable businesses and merchants to
conduct commerce online. We offer businesses and merchants a comprehensive
suite of e-commerce products and services and access to online
marketplaces. Our marketing services include advertising, merchandising
and e-mail services on our ShopNow marketplace and on our b2bNow.com
marketplace. Our end-to-end solution minimizes the time, complexity,
inconvenience and cost ordinarily associated with a multi-vendor or
internally developed solution.

- QUICK TIME TO MARKET. The pace of change and the rate of growth of the
Internet require greater speed in implementation of e-commerce solutions.
Our extensive experience in web site planning and storefront development
allows us to create commerce-enabled web sites for our clients - ranging
from the basic to the highly customized - in less time than such tasks
typically require of an in-house developer.

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- IMMEDIATE AND LONG-TERM SAVINGS. We enable businesses and merchants to
improve their return on investment by allowing them to avoid the
significant diversion or investment of resources required to develop and
maintain e-commerce capabilities internally or to integrate a multi-vendor
solution. Because we regularly reevaluate and update our merchant services
and network offerings, our clients can easily keep pace with rapidly
evolving e-commerce technology.

- FACILITATE CUSTOMER ACQUISITION. ShopNow.com allows merchants to market
their products and services in an established online marketplace where
shoppers congregate for the specific purpose of making purchases. We
enable shoppers to search for products and services in an organized manner
and to evaluate offerings from numerous merchants based on a variety of
criteria. Unlike content and community-oriented portals, ShopNow.com is
focused principally on, and identified with, shopping. As a result, we can
attract visitors who are more likely to buy a product or service at our
clients' sites. Our ability to utilize detailed demographic and shopper
preference data enables us to offer targeted marketing services to our
merchant customers. The ShopNow marketplace, together with our merchant
marketing services, allows merchants to quickly and efficiently attract a
targeted group of customers.

- COMPREHENSIVE TECHNOLOGY PLATFORM. We provide a flexible scaleable
technology platform from which we can tailor solutions to meet the
changing needs of our clients. Our platform is a combination of
third-party technologies and technologies that we have developed. We also
have serving and hosting capabilities that enable our clients to outsource
the storage and transmission functions of their e-commerce operations.
This technology provides merchants a high level of reliability, 24 hours a
day, 7 days a week. Using data centers with redundant servers, continuous
monitoring and high speed Internet connections, we can provide clients
with the performance they require for uninterrupted e-commerce operations.

Strategy

Our goal is to be the leading e-commerce enabling company for businesses and
merchants. We plan to achieve this goal through the following strategies:

- EXPAND OUR BUSINESS-TO-BUSINESS PORTAL. Through our recently launched
business-to-business portal and online marketplace, b2bNow.com, we provide
e-commerce enabling solutions for businesses and merchants seeking to
transact business with one another online. Currently, b2bNow.com includes
the following features: a request for quotation/request for proposal
search engine, a business directory, online store building tools, sales
and marketing services and information and content relevant to businesses.
We intend to further expand b2bNow.com by adding features such as a
procurement system, by entering into additional key relationships and by
encouraging merchants on the ShopNow marketplace to participate in
b2bNow.com. Upon completion of the acquisition of Ubarter.com, we plan to
integrate Ubarter's online barter marketplace into b2bNow.com. In
addition, we plan to offer our suite of merchant services on b2bNow.com.

- EXPAND THE SHOPNOW MARKETPLACE. We intend to aggressively expand the
ShopNow marketplace primarily by using the technology and services
acquired through our recent acquisitions to broaden the range of features
available to listed merchants. We will continue to promote a high volume
of shopper traffic on our network and attempt to increase the number of
quality customer leads generated for listed merchants. We plan to rapidly
expand the number of new ShopNow affiliate and syndication shopping sites
to increase revenues and make the ShopNow marketplace more visible and
accessible. In addition, we are currently exploring the use of
technologies and applications relating to commerce transactions over
wireless communication devices. We also intend to enrich shoppers'
experiences on the ShopNow marketplace through applications that take
advantage of broadband technologies.

- ENHANCE AND EXTEND OUR SUITE OF E-COMMERCE ENABLING PRODUCTS AND
SERVICES. We intend to continue to add new features to our suite of
e-commerce enabling solutions. We believe that, for little incremental
cost, we can easily integrate into our suite new features that will
contribute additional revenues from lead generation, advertising,
upselling merchant services and licensing and syndication. For example, we
are attempting to expand our merchant marketing services by updating our
technology to increase the quality and amount of

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data provided by shoppers on the ShopNow marketplace. To provide
additional and better quality leads to merchants, we recently expanded the
tools available to shoppers to include price search engines and merchant
rating systems.

- PROMOTE BRAND VISIBILITY. We will continue to promote the ShopNow.com and
b2bNow.com brands as the best means for conducting business on the
Internet. To accelerate the acceptance and penetration of our brands among
businesses, merchants and shoppers, we will continue to advertise our
brands through both online and traditional channels such as radio and
newspapers. Online efforts include placing banner and other hyperlink
advertisements on portal and other destination web sites. To reach a mass
audience, we will continue to conduct national advertising campaigns in
traditional media. We will also expand our efforts to promote our brands
through trade publication advertisements, direct mail and promotional
activities, trade shows and media events.

- PURSUE ACQUISITIONS AND STRATEGIC BUSINESS RELATIONSHIPS. We intend to
make acquisitions and enter into business relationships that enhance the
effectiveness of our products and services and the quality of our online
marketplaces. To date, we have focused on acquisitions and strategic
business relationships that provide us access to improved technology, new
domestic and international markets and prospective clients. In the future,
we expect to focus principally on acquisitions and strategic business
relationships that will enhance and grow b2bNow.com.

- EXPAND INTERNATIONALLY. We will seek to leverage the anticipated global
growth in e-commerce by expanding our online marketplaces internationally.
We plan to commence our international expansion with the development of
business opportunities in Japan in the first half of 2000. We intend to
accelerate our international expansion by entering into strategic
alliances with foreign businesses. We also plan to register our web sites
on international search engines, seek relationships with foreign portal
web sites and develop foreign-language user interfaces. We believe that
these features will enable international shoppers to more easily access
our online marketplaces, thereby increasing the number of participants on
the ShopNow network.

Our Products and Services

MERCHANT SERVICES

We offer businesses and merchants a wide variety of enabling products and
services, including:

- SECURE PAYMENT AND ORDER PROCESSING. We provide online payment and order
processing software and services. Our software and services assist our
merchant clients with credit card authorization, address verification,
automated tax and shipping calculations, order tracking and customer
service. Our payment processing system currently interacts with 21 credit
card processors. For security, we use advanced encryption methods. To
exchange information with merchants and shoppers on our web sites, our
network servers use software that complies with the Secure Sockets Layer
specification, the predominant method for managing the security of
transmissions over a network.

- FRAUD PREVENTION. Our fraud prevention services use artificial
intelligence programs, a database of historical transactions and
validation by an authorized financial institution to confirm shoppers'
identities and to assess their credit status. We can adjust the stringency
of the fraud screening process based upon a merchant's requirements and
the nature of the transaction to assist the merchant in maximizing sales
opportunities. Under an agreement with HNC Software, we have licensed the
right to use their eFalcon fraud management system.

- E-COMMERCE HOSTING AND MAINTENANCE. We provide services to operate and
maintain online stores on behalf of our listed merchants. We use data
centers with redundant servers, 24-hour monitoring and support and
high-speed Internet connections to provide customers with continuous
e-commerce operations. We also provide merchants with detailed electronic
and hard copy reports summarizing visits to and transactions made on their
online stores.

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- CUSTOM APPLICATION AND ONLINE STORE DEVELOPMENT. We provide businesses and
merchants with design and technical development services for their web
sites and online stores, including design and advertisement copy services
and image management and production. We create commerce-enabled web sites
ranging from the basic to the highly customized.

- MARKETING AND CUSTOMER ACQUISITION SERVICES. Our marketing services are
designed to enable merchants to enhance their visibility on the ShopNow
marketplace, facilitate customer acquisition and retention, and increase
sales. We offer a range of online advertising and listing services, e-mail
promotions and lead delivery programs for merchants. We offer merchants a
variety of listing positions in our merchant database, which shoppers
access through ShopNow.com. The merchant listing positions differ by
length of store description, number of search engine keywords that refer
to the merchant's products, order in which the merchant is listed within a
product category and availability of certain promotional listings.
Advertisements can be prominently displayed on ShopNow.com or on the web
site networks of our marketing affiliate, 24/7 Media. From these
advertisements, shoppers can hyperlink directly to an advertiser's web
site, enabling the advertiser to directly interact with an interested
shopper. Merchants can also reach a more focused audience by sponsoring a
specific product category or, alternatively, a wider audience by marketing
to visitors on our affiliate and syndication shopping sites. Our e-mail
promotions enable merchants to alert shoppers registered with us to
special merchant product or service offerings. We also offer a lead
delivery program that provides merchants with a specific number of visits
by shoppers to the merchants' web sites over a given period of time. If we
fail to deliver the specified number of visits, the contractual term is
extended until we have delivered the required number of leads.

- CUSTOMER ORDER FULFILLMENT AND CALL CENTER MANAGEMENT. We have preferred
supplier agreements with several companies that specialize in providing
customer order fulfillment services for merchants that lack such
capabilities. These services include warehousing, packaging and
distribution and call center services. Our preferred supplier agreements
allow us to obtain pricing discounts and other favorable terms from these
companies by aggregating several of our clients' order fulfillment and
call center activities under one contract that we enter into and manage on
behalf of our clients. We also have relationships with several vendors
whose warehouses we use to fill orders that we take on behalf of our
clients through our web sites and to deliver the purchased merchandise
directly to shoppers. We have integrated our order processing, payment
processing and fraud prevention systems with those of our preferred
suppliers to provide our merchants with an integrated e-commerce platform.

Our various merchant services can be purchased as an integrated suite or
individually, which allows businesses and merchants to tailor their service
package to their particular needs. Fee arrangements are based on the specific
service purchased and may be computed on a project basis, a monthly fee basis, a
per transaction basis or a combination thereof.

THE SHOPNOW MARKETPLACE

The ShopNow marketplace aggregates merchants and shoppers over a distributed
network of web sites. The ShopNow marketplace consists of ShopNow.com, our
shopping portal, and more than 4,000 affiliate and syndication sites. Our
marketplace aggregates more than five million products and services offered by
more than 45,000 merchants, including retailers, catalog companies,
manufacturers and individuals. The ShopNow.com directory lists merchants under
28 different product categories. Our web site provides shoppers with multiple
ways to search our merchant database. To reach a specific merchant's web site, a
shopper clicks on the hyperlink to that site. Shoppers complete transactions
directly at a merchant's web site, allowing merchants to conduct e-commerce
under their own brand names. In some cases, we act as the merchant-of-record and
offer products directly to consumers from the ShopNow marketplace. These
products usually are shipped directly from the manufacturer or distributor. We
principally offer these products to drive traffic to the ShopNow marketplace.

During the last quarter of 1999, we completed three acquisitions to enhance the
ShopNow marketplace. They were the acquisition of the SpeedyClick community web
site, the bottomdollar.com comparison shopping engine and the Cortix merchant
rating system. The acquired businesses also provide additional means for
shoppers to access our

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merchants' web sites. We believe that these enhancements will generate
additional consumer traffic on the ShopNow marketplace, which in turn will
attract additional participating merchants to whom we can cross-sell our
e-commerce enabling products and services.

We recently launched eBuy, our proprietary transactional banner service. eBuy
allows a shopper to click on a banner advertisement from within any web site and
purchase the product or service in the banner advertisement without leaving the
site where the shopper originally saw the banner advertisement. We have licensed
the eBuy technology to 24/7 Media, GiftSpot.com, AthleteNow.com, ChickClick.com
and ArtGalleryLive.com. The private label version of eBuy for 24/7 Media is
marketed as Click2Buy.

b2bNow.com

b2bNow.com is a global business-to-business portal that enables businesses to
buy, sell and promote their products and services to other businesses in a
single online marketplace. Launched in January 2000, b2bNow.com's e-commerce
features currently include a request for quotation/request for proposal search
engine, enhanced business listings and placements, business web hosting,
business web store building tools, business headlines, financial news, targeted
newsletters, stock quotes, site traffic reports and other sales and marketing
services. In addition, following completion of our proposed acquisition of
Ubarter.com, we plan to integrate Ubarter.com's online barter marketplace into
b2bNow.com. We believe barter provides a valuable and flexible alternative to
cash transactions for businesses wishing to exchange goods and services without
disadvantaging their distribution partners. The availability of an online barter
marketplace will allow our clients to better manage sales of business assets,
excess inventory, surplus production and other goods and services.

Customers

The following is a list of our top ten customers in terms of revenues from
merchant services and revenues from our top ten advertising and merchandising
customers on the ShopNow marketplace for the year ended December 31, 1999:

<TABLE>
<CAPTION>
Merchant Services ShopNow Marketplace
- ----------------- -------------------
<S> <C>
ArtGalleryLive.com Accounting.net
AthleteNow.com AuctioNet.com
Birkenstock Damark
Hallmark Cards eBay
The Nature Company ephones.com
Palm Computing FashionMall.com
SelfCare iWin.com
Service Merchandise MVP.com
Snowball.com Perfumania.com
Sony Social Net
</TABLE>

Our top ten merchant services customers accounted for 19% of our total revenues
for the year ended December 31, 1999. Our top ten advertising and merchandising
customers on the ShopNow marketplace accounted for 8% of our total revenues for
the year ended December 31, 1999.

Recent Acquisitions

We have acquired a number of businesses that expand the range of our e-commerce
enabling products and services, enhance our technology and facilitate our
international expansion. We intend to continually evaluate acquisition
opportunities. In the future, we expect to focus principally on acquisitions
that will enhance and grow b2bNow.com.

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Since January 1999, we have acquired seven companies that possess attributes
complementary to our products and services for an aggregate consideration of
approximately $132 million in common stock (valued as of the date of each
acquisition) and $19 million in cash. The companies acquired include:

SPEEDYCLICK. On November 12, 1999, we acquired SpeedyClick, Corp., one of the
fastest growing web communities for women. SpeedyClick is highly targeted, with
a special focus on creating a fun, interactive and commerce-oriented community
for women. Of the sites specifically targeted to women, SpeedyClick has had the
first or second largest number of hits from women Internet users in each of the
seven months between June and December 1999, according to PC Data Online.
SpeedyClick is headquartered in Glendale, California.

CORTIX (20-20CONSUMER.COM). On December 3, 1999, we acquired Cortix Inc., an
operator of comparison-shopping services, which include online reviews and
ratings of commerce oriented businesses, merchants and products. Cortix's
independent and unbiased online comparison-shopping service saves online
shoppers time and money and generates qualified leads for merchants. The service
tracks prices and information on thousands of products. Shoppers can comparison
shop and retrieve and post ratings of Internet merchants using Cortix
technology. We believe that this technology will enhance the shopping experience
on ShopNow.com.

WEBCENTRIC (BOTTOMDOLLAR.COM). On December 17, 1999, we acquired
WebCentric, Inc., a developer of e-commerce integration technology and
applications, including bottomdollar.com. Bottomdollar.com is a comparison
shopping engine that provides shoppers with comparisons of products offered by
Internet merchants in the United States, the United Kingdom, France and Canada.
The bottomdollar.com shopping engine also provides comparison services on
affiliate web sites.

In addition, in January 2000 we entered into a definitive agreement to acquire
Ubarter.com Inc., a business-to-business barter marketplace. We believe that the
availability of an online barter marketplace will allow our clients to better
manage sales of business assets, excess inventory, surplus production and other
goods and services. We expect to complete this acquisition in the second quarter
of 2000.

Strategic Business Relationships

We have entered into strategic business relationships with the following
companies:

PRIVASEEK. On January 5, 2000, we announced a strategic alliance with
PrivaSeek, Inc., a developer of permission marketing and privacy management
solutions. We intend to jointly launch Persona, PrivaSeek's suite of identity
and permission management tools, by the end of 2000. Persona will allow shoppers
and merchants to conveniently exchange and effectively manage shopper
information, permissioning and usage online across the ShopNow marketplace.
Currently, an online shopper's personal information is stored on individual web
sites, and use of the information is determined by the web sites' operators.
After we launch Persona, shoppers visiting the ShopNow marketplace will
experience personalized advertisements or special offers relevant to their
interests or personal life events.

TRADEX TECHNOLOGIES. On January 27, 2000, we entered into a strategic
relationship with TRADEX Technologies, Inc., a platform provider for
business-to-business marketplaces which enables businesses to exchange goods,
services and information over the Internet. We intend to integrate the TRADEX
platform on b2bNow.com to enable the businesses using our business-to-business
portal to simplify their procurement and trading processes. We expect to receive
transaction fees from businesses that buy or sell products or services in the
b2bNow marketplace using this and other online trading technologies. We expect
that this integration will be complete by the end of the second quarter of 2000.
On December 16, 1999, TRADEX and Ariba Inc. announced the execution of a
definitive agreement for Ariba's acquisition of TRADEX. We believe that our
strategic relationship with TRADEX and Ariba will allow the businesses on
b2bNow.com to satisfy their procurement needs in a competitive e-commerce
marketplace while enabling such businesses to buy and sell more efficiently.

ESCROW.COM. On October 25, 1999, we entered into a three-year agreement to
serve as the exclusive payment processing service provider to escrow.com, Inc.,
a developer of e-commerce processing and fulfillment for buyer and

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seller sites, including online auctions, online business-to-business sites and
online business-to-consumer sites. As part of the agreement, we will receive a
fee for each escrow transaction processed by escrow.com through our payment
processing technology.

CHASE MANHATTAN BANK. In July 1999, we entered into an agreement with Chase
Manhattan Bank, through one of its affiliates, to launch an Internet shopping
site featuring Chase and ShopNow. This site, ChaseShop.com, was launched in
October 1999 and is part of Chase's online banking site. It possesses the same
core functionality as ShopNow.com with the design, color scheme and branding of
Chase.com. Similar to ShopNow.com, visitors can shop at the sites of over 45,000
merchants, as well as shop for particular products and brands. We jointly sell
advertising and merchandising on the site. Pursuant to this agreement, Chase
pays us a licensing fee to use the technology underlying the site. Chase is a
preferred provider of financial services for ShopNow.com and the exclusive
marketer of credit cards featuring the ShopNow brand. Each party shares in the
revenues of the other based on the amount of business generated through the
agreement. The agreement has an initial term of 27 months, with a three-year
renewal at Chase's option.

ABOUT.COM. In July 1999, we entered into an agreement with About.com, Inc., a
leading Internet network of commerce communities. Under this agreement, we
became the exclusive generalized shopping directory service on About.com,
obtained designated placement on About.com of a hyperlink to the ShopNow.com
site and are guaranteed to receive a minimum number of banner ads annually from
About.com. This shopping section gives us access to all visitors to the
About.com network, which we believe will attract additional visitors to our
online marketplaces. The agreement has a five-year term, and each party has the
right to terminate upon 90 days notice after April 1, 2000.

HNC SOFTWARE. In May 1999, we entered into a three-year agreement with HNC
Software, Inc. Under the agreement, HNC will provide us with a number of
e-commerce products including marketing, fraud detection and customer support
software at preferential prices. Integration of these products with our
technology platform will allow us to provide merchants with better tools to
manage their customer relationships.

24/7 MEDIA. In April 1999, we entered into a three-year cross promotion
agreement with 24/7 Media, Inc., an online advertising network. Under the
agreement, 24/7 Media promotes our e-commerce and marketing services to its
network of affiliated web sites in exchange for our promotion of 24/7 Media's
advertising, representation and e-mail management services to our merchant
customers. 24/7 Media is primarily a point of distribution for advertising
campaigns that serve banner advertisements on web sites or by e-mail. Our
marketing services are oriented toward strategic planning and creative
implementation of the online marketing or advertising campaigns distributed by
companies such as 24/7 Media.

Although we view our business relationships as an important factor in our
overall business strategy, the other parties to these relationships may reassess
their significance at any time. These relationships generally do not establish
minimum performance requirements but instead rely on the contractual best
efforts of the parties. In addition, several of our strategic business
relationships may be terminated with little notice.

Sales and Marketing

SALES

Our sales strategy is designed to increase market awareness of the ShopNow.com
and b2bNow.com brands, expand the ShopNow and b2bNow marketplaces, and develop
additional revenue opportunities by cross-selling and upselling additional
e-commerce and marketing services to our existing clients.

We sell our merchant services primarily through our direct sales force. Our
sales organization targets businesses and merchants seeking online marketing
services and custom e-commerce services. These employees are currently located
at our headquarters in Seattle, Washington. We intend to increase our sales
presence by opening field sales offices. Our success in doing so will depend on
our ability to attract additional qualified sales personnel.

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<PAGE>
MARKETING

We currently employ a variety of traditional and online marketing programs,
business development and promotional activities as part of our marketing
strategy. We place advertisements on high-profile third-party web sites and on
our own web sites. We also rely on relationship marketing, including
word-of-mouth advertising by merchants and shoppers, indirect promotions by
merchants with links to our web sites and indirect advertising arising through
use of our services. Although we have reduced our reliance on traffic promotion
agreements as awareness of the ShopNow brand has increased, we believe that
relationship marketing will continue to generate a substantial number of new
merchant customers and additional shopper traffic. We intend to introduce a
number of other brand awareness and customer loyalty programs through our web
sites.

To augment our online marketing efforts, we have initiated an aggressive brand
promotion campaign using traditional media, including print, radio, billboard
and television advertising. We also rely on public relations activities,
attendance at industry trade shows and direct mail programs to increase merchant
awareness of our products and services and to generate additional sales. We
intend to continue to participate in joint promotions using online and
traditional advertising media.

Technology and Infrastructure

Our e-commerce enabling products and services and online marketplaces require
the development and deployment of advanced e-commerce technologies and
methodologies. Consequently, we have invested heavily in licensing advanced
technologies and in developing a core set of technologies. Our third-party
vendors provide relational databases, such as Oracle and Microsoft SQL server,
search technologies, ad servers, catalog engines and various back-end automation
technologies. Our proprietary technologies include interfaces to customer order
fulfillment systems and payment systems. We provide fraud prevention software
through a proprietary interface with HNC Software.

Our software runs on system hardware that is hosted in leased and third-party
data centers located in Seattle, Washington and Sterling, Virginia. These data
centers are connected to our headquarters in Seattle, Washington through high
speed networks. These data centers, as well as the system hardware located at
our headquarters, are connected to back-up generators to maintain uninterrupted
electrical service and to the Internet through multiple Internet service
providers to avoid connectivity problems. Our systems are redundant, and we
maintain multiple clustered high speed routers, multiple clustered load
balancing hardware, multiple web servers and multiple application and database
servers. Data for our networks is stored on dedicated, high speed and redundant
disk appliances that provide continuous access to the data even if individual
disk drives, computers and power supplies fail. Data is backed up regularly and
is stored off site at the third-party data centers to provide for data recovery
in the event of a disaster. We employ extensive automated and manual monitoring
to maintain a high level of network uptime.

We employ several relational databases to collect product stock keeping unit
transaction data and to track multiple resellers or affiliates. Our databases
have been designed for high levels of performance and scaleability. Shopper data
is maintained in a profile database that is used for targeted shopper
relationship management. The software architecture has been designed to
accommodate our expected growth over the next 24 months.

We believe that our future success will depend in part on our ability to
license, develop and maintain advanced e-commerce technologies. Consequently, we
expect to invest heavily in developing new technologies and to continue to make
strategic acquisitions to increase our direct control and ownership of
proprietary technology.

Intellectual Property

Intellectual property is critical to our success, and we rely upon patent,
trademark, copyright and trade secret laws in the United States and other
jurisdictions to protect our proprietary rights and intellectual property.
However, patent, trademark, copyright and trade secret protection may not be
available in every country in which our products and services are distributed or
made available. Our proprietary software, documentation and other written
materials are provided limited protection by international and United States
copyright laws. In addition, we protect our proprietary rights through the use
of confidentiality and license agreements with employees, consultants and
affiliates.

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<PAGE>
We currently have five pending United States patent applications. We do not have
any issued patents.

We have registered the trademark "ShopNow." We have applied for United States
trademark registrations for the marks "ShopNow.com" and "b2bNow.com." These
marks may also be protected in other jurisdictions.

Our transaction processing and advertisement serving technology collects and
uses data derived from user activity on our web sites and those of our merchants
customers that we maintain. This data is intended to be used for targeted
marketing and for predicting advertisement performance. Although we believe that
we have the right to use such data, trade secret, copyright or other protection
may not be available for such information or others may claim rights to such
information.

In December 1999, we acquired WebCentric, operator and creator of
bottomdollar.com, a proprietary search engine capable of aggregating large
amounts of product data and information (i.e. price, delivery times) from
participating web sites.

Research and Development

Our research and development efforts are directed towards improving the design
and functionality of our online marketplaces, improving our network systems and
enhancing the technology underlying the features of our e-commerce products and
services. Research and development expenses were $2.4 million in 1997,
$4.4 million in 1998 and $8.9 million in 1999.

Competition

The market for e-commerce enabling solutions and online marketplaces is new,
intensely competitive, highly fragmented and rapidly changing. Barriers to entry
are not significant and we expect competition to intensify in the future.
Although we believe no one company currently offers a range of e-commerce
enabling solutions as comprehensive as our suite of products and services, many
companies offer alternatives to one or more of our products and services. These
companies include InfoSpace, Go2Net, Yahoo! and Cybersource.

The number of companies providing products and services that compete with ours
is large and increasing at a rapid rate. Many of our competitors and potential
competitors have substantially greater financial, technical, marketing and other
resources. We expect that additional companies which to date have not had a
substantial commercial presence on the Internet or in our markets, will offer
competing products and services. In addition, as the use of the Internet and
online products and services increases, larger well-established and
well-financed entities may continue to acquire, invest in or form joint ventures
with providers of e-commerce products and services and existing providers of
e-commerce solutions may continue to consolidate. Providers of Internet browsers
and other Internet products and services who are affiliated with providers of
web directories and information services may more tightly integrate these
affiliated offerings into their browsers or other products or services. Any of
these trends would increase the competition we face.

Employees

At December 31, 1999, we had 476 employees, including 208 in merchant services
and b2bNow.com, 229 in the ShopNow marketplace, and 39 in general and
administrative functions. We are not subject to any collective bargaining
agreements and believe that our employee relations are good.

Facilities

Our principal executive offices are located in Seattle, Washington, where we
lease approximately 57,000 square feet under a lease that expires in
August 2001. We also lease space in various geographic locations for sales and
marketing personnel and for our servers. We also lease space in San Francisco,
California; Glendale, California; Phoenix, Arizona; Savannah, Georgia; and
Wichita, Kansas for the operations of various subsidiaries. We believe that our
current facilities are adequate to meet our needs through the end of 2000, at
which time we may need to lease additional space. In December 1999, we executed
a new lease for our principal executive offices in Seattle, Washington. This
lease covers approximately 100,000 square feet and has a ten year term. We
expect to move into our new offices in February 2001. This move could cause a
disruption in our operations and unexpected costs, which would adversely affect
our business.

Legal Proceedings

From time to time we have been, currently are and expect to continue to be,
subject to legal proceedings and claims in the ordinary course of business. We
do not believe that any of our currently pending litigation is material.

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<PAGE>
Management

Executive Officers and Directors

The following table sets forth certain information with respect to the executive
officers and directors of ShopNow as of January 20, 2000.

<TABLE>
- --------------------------------------------------------------------------------------------------
Name Age Position
- --------------------------------------- -- ----------------------------------------------
<S> <C> <C>
Dwayne M. Walker 38 Chairman of the Board and Chief Executive
Officer
Joe E. Arciniega, Jr. 41 President, ShopNow.com USA and Chief Operating
Officer
Alan D. Koslow 42 Executive Vice President, Chief Financial
Officer,
General Counsel and Secretary
Ganapathy Krishnan, Ph.D. 39 Executive Vice President and Chief Technology
Officer
Othniel D. Palomino 36 Executive Vice President
William D. Pittman 38 Executive Vice President and Chief Technical
Architect
Anne-Marie K. Savage 35 Executive Vice President
Jacob I. Friesel 50 Director
Eytan J. Lombroso 48 Director
David M. Lonsdale 46 Director
Bret R. Maxwell 40 Director
Mark C. McClure 49 Director
John R. Snedegar 50 Director
Mark H. Terbeek 29 Director
</TABLE>

Dwayne M. Walker has been our Chairman of the Board since March 1996, our Chief
Executive Officer since August 1996 and a director since August 1995.
Mr. Walker was our President from March 1996 to January 2000. From April 1995 to
April 1996, he was President and Chief Executive Officer of Integra
Technologies, a wireless communications company. From September 1989 to
March 1995, he was a Director for Microsoft Windows NT and Networking Products
and a General Manager of Microsoft Corporation, a software company.

Joe E. Arciniega, Jr. has been the President of ShopNow.com USA since January
2000 and our Chief Operating Officer since November 1998. From May 1996 to
November 1998, he was Vice President of Operations for GT Interactive Software,
an entertainment software company. From November 1994 to May 1996, he was Vice
President of Operations of Humongous Entertainment, a children's software
company. From September 1994 to October 1994, he was the Operations Consultant
for Humongous Entertainment. From October 1991 to July 1994, he served as
Director at the Pritikin Longevity Center, a cardio-health facility.

Alan D. Koslow has been our Executive Vice President, Chief Financial Officer,
General Counsel and Secretary since June 1998. From May 1997 to June 1998, he
was of counsel to Graham & James LLP/Riddell Williams P.S., a law firm. From
February 1990 to April 1997, he was an attorney at Foster Pepper & Shefelman
PLLC, a law firm. Mr. Koslow received a B.A. in Economics and Accounting from
Rutgers University and a J.D. from Rutgers Law School. Mr. Koslow is a certified
public accountant.

Ganapathy Krishnan, Ph.D. has been our Executive Vice President and Chief
Technology Officer since January 1997. From March 1996 to December 1996, he was
Chief Executive Officer of Web Solutions, an e-commerce software company. From
September 1991 to December 1996, he was Chief Executive Officer of Intelligent
Software Solutions, an e-commerce software company. Dr. Krishnan received a B.S.
in Technology, Chemical Engineering from IIT Madras in India, an M.S. in
Chemical Engineering from the University of Louisville and an M.S. and Ph.D. in
Computer Science from the State University of New York/Buffalo.

Othniel D. Palomino has been an Executive Vice President since April 1997.
Mr. Palomino manages e-commerce services and the b2bNow.com portal. From
September 1991 to March 1997, he was a Group Manager for Microsoft. He received
a B.S. in Engineering from Princeton University and an M.B.A. from Stanford
University.

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<PAGE>
William D. Pittman has been our Executive Vice President and Chief Technical
Architect since June 1999. From 1993 to June 1999, he was founder and Chief
Technical Officer of GO Software, a developer of e-commerce payment processing
technologies. Mr. Pittman received a B.S. in Chemical Engineering from the
University of Southern Florida and an M.B.A. from Georgia Southern University.

Anne-Marie K. Savage has been an Executive Vice President since June 1999.
Ms. Savage has primary responsibility for the ShopNow.com marketplace. From
February 1998 to June 1999, she was our Senior Vice President, Marketing and
Business Development. From March 1997 to February 1998, she was our Vice
President of Online Stores, and from July 1996 to March 1997, she was our
Director of Marketing. From April 1995 to April 1996, she was the Director of
Marketing of Integra Technologies. From April 1994 to April 1995, she was an
independent marketing consultant. Ms. Savage received a B.A. in Hotel and
Restaurant Administration from Washington State University.

Jacob I. Friesel has served as a director since November 1999. Since
February 1998, he has been the Executive Vice President-Sales and Marketing and
a director of 24/7 Media, an Internet advertising and direct marketing firm.
From 1997 to 1998, he was President of Katz Millennium Marketing, the Internet
media sales division of Katz Media Group, Inc. From 1994 to 1997, he was Vice
President, Strategic Planning for the Katz Television Group. From 1993 to 1994,
he was a Vice President and General Sales Manager of Katz American Television,
an advertising representative of major market television stations. Mr. Friesel
was elected as one of our directors pursuant to a provision of our cross
promotion agreement with 24/7 Media. Mr. Friesel received a B.A. from the City
University of New York.

Eytan J. Lombroso has served as a director since October 1999. Since May 1998,
he has been Senior Vice President-Card Member Services at Chase Manhattan Bank.
From September 1996 to May 1998, he was Senior Vice President-International
Consumer at Chase. From August 1995 to September 1996, he was Senior Vice
President-Merger Integration at Chase. From January 1993 to August 1995, he was
Senior Vice President-Retail Bank Transformation at Chase. Mr. Lombroso was
elected as one of our directors pursuant to our agreement with Chase Manhattan
Bank. Mr. Lombroso received a B.S. from Technion-Israel Institute of Technology
and an M.B.A. from Pepperdine University.

David M. Lonsdale has served as a director since October 1998. Since
December 1998, he has been President and Chief Executive Officer of Uppercase, a
Xerox subsidiary and software development company. From November 1996 to
November 1998, he was the Chief Executive Officer and President of Major
Connections, a software distribution company. From April 1995 to November 1996,
he was Vice President of Worldwide Sales at Integrated Micro Products, a
computer manufacturer. From May 1990 to April 1995, he was President and Chief
Executive Officer of A.C. Nielsen Software and Systems, a direct marketing
software company delivering software and solutions for direct marketing.
Mr. Lonsdale received a B.S. in Physics and a B.S. in Mathematics from the
University of Leeds in England and an M.B.A. from Cornell University.

Bret R. Maxwell has served as a director since February 1997. Since June 1982,
he has been co-Chief Executive Officer of First Analysis, a venture capital
firm. He also serves on the board of directors and is a member of the
compensation committee of Dynamic Healthcare Technologies, a healthcare
information systems company. Mr. Maxwell received a B.S. in Engineering and an
M.B.A. from Northwestern University.

Mark C. McClure has served as a director since August 1998. From January 1979 to
November 1997, he was President and Chief Executive Officer of Cobra Golf, a
golf club manufacturer.

John R. Snedegar has served as a director since September 1998. Since
April 1999, he has been President and Chief Executive Officer of Micro General,
a telecommunications and commerce service provider. From September 1991 to
March 1999, he was the President of United Digital Network, a long distance
telephone company. He also serves on the boards of directors of StarBase
Corporation, a software configuration management company, STAR
Telecommunications, a multi-national telecommunications company, and Micro
General, an information technology and telecommunications company. Mr. Snedegar
received a B.A. from Kansas State University.

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<PAGE>
Mark H. Terbeek has served as a director since February 1997. Since July 1999 he
has been Vice President, Corporate Development at Vitaltone, Inc. From August
1997 to July 1999, he was an independent management consultant. From May 1995 to
August 1997, he was an associate for First Analysis Corporation, a venture
capital firm. From August 1993 to May 1995, he was a business analyst at
McKinsey & Co., a management consulting company. He received a B.A. from DePauw
University and an M.B.A. from Stanford University.

Board of Directors

Our articles of incorporation provide for nine directors. Our board currently
consists of eight directors with one vacancy. Our board of directors is divided
into three classes. Class I consists of Messrs. Friesel, McClure and Terbeek,
whose terms will expire at the annual meeting of shareholders to be held in
2000; Class II consists of Messrs. Maxwell, Lombroso and Snedegar, whose terms
will expire at the annual meeting of shareholders to be held in 2001; and
Class III consists of Messrs. Lonsdale and Walker, whose terms will expire at
the annual meeting of shareholders to be held in 2002. At each annual meeting of
shareholders, successor directors are elected to replace those whose terms have
expired. Directors serve from the time of election and qualification until the
third annual meeting following election and until their successors have been
duly elected and qualified. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of an equal number of
directors. This classification of the board of directors may have the effect of
delaying or preventing a change in control or management. Pursuant to our
agreements with 24/7 Media and Chase Manhattan Bank, each company has the right
to nominate one director. Our officers serve at the discretion of the board of
directors. There are no family relationships among any of our directors or
executive officers.

Board Committees

The board has an audit committee and a compensation committee.

The audit committee reviews our financial controls and our accounting, audit and
reporting activities. The audit committee also makes recommendations to our
board of directors regarding the selection of independent auditors, reviews the
results and scope of audit and other services provided by our independent
auditors and reviews the accounting principles and auditing practices and
procedures to be used for our financial statements. Messrs. Lonsdale, Maxwell
and McClure constitute the audit committee.

The compensation committee reviews and recommends to the board of directors the
compensation and benefits for our officers, directors and employees. The
compensation committee also administers our stock option plans and our employee
stock purchase plan. Messrs. Lonsdale, McClure and Snedegar constitute the
compensation committee.

Compensation Committee Interlocks and Insider Participation

During fiscal 1999, Mr. Walker served both as our President and Chief Executive
Officer and as a member of the compensation committee. Currently, no member of
the compensation committee is an officer or employee of ShopNow. No member of
the compensation committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.

Director Compensation

Directors currently do not receive any cash compensation from us for serving as
directors or on board committees, but are reimbursed for their reasonable
expenses incurred in attending board meetings. We are, however, authorized to
pay members for attending meetings or a salary in addition to reimbursement for
expenses in connection with attending meetings. In the past, we have granted
options to purchase common stock to non-employee directors. See "Related
Transactions with Executive Officers, Directors and 5% Shareholders."

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<PAGE>
Executive Compensation

The following table sets forth the compensation paid by us to our Chief
Executive Officer, other executive officers whose salary and bonus for fiscal
1999 exceeded $100,000 and certain other highly compensated employees:

Summary Compensation Table

<TABLE>
---------------------------------------------
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------- Underlying
Name and Principal Position Year Salary Bonus Options
- ------------------------------------------------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Dwayne M. Walker...................................... 1999 $321,923 $101,566 950,175
Chairman and 1998 187,092 50,000 335,475
Chief Executive Officer 1997 97,778 -- 461,458

Joe E. Arciniega, Jr.................................. 1999 173,672 1,566 50,175
President, ShopNow.com USA and 1998 21,875 -- 250,100
Chief Operating Officer

Alan D. Koslow........................................ 1999 173,654 26,566 160,175
Executive Vice President, 1998 95,996 -- 190,475
Chief Financial Officer,
General Counsel and
Secretary

Othniel Palomino...................................... 1999 134,263 26,566 50,175
Executive Vice President 1998 80,000 12,000 40,475
Corporate Development 1997 23,282 -- 368,000

Anne-Marie K. Savage.................................. 1999 134,263 26,566 122,850
Executive Vice President 1998 84,167 14,000 43,475
1997 68,750 -- 48,750

Jeffrey B. Haggin..................................... 1999 173,654 1,566 300,175
Former Executive Vice President 1998 29,167 -- 220,100

Timothy E. Jones...................................... 1999 76,069 158,712(1) 17,875
General Manager, Sales 1998 71,000 61,561(2) 13,475
1997 24,194 -- 10,000

Marguerite Athoe...................................... 1999 77,600 130,661(3) 6,175
Vice President Business Development 1998 -- -- 8,864
</TABLE>

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

(1) Includes commission of $151,546 and bonus of $7,166.

(2) Includes commission only.

(3) Includes commission of $126,958 and bonus of $3,703.

OPTION GRANTS. During fiscal 1999, we granted options to purchase a total of
7,409,430 shares of common stock both outside of and under our stock option
plans to our employees, directors and consultants, including the individuals
listed in the Summary Compensation Table. No stock appreciation rights were
granted during fiscal 1999.

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<PAGE>
The following table sets forth certain information with respect to stock options
granted to each of the individuals listed in the Summary Compensation Table in
fiscal 1999. In accordance with Securities and Exchange Commission rules,
potential realizable values for the following table are:

- net of exercise price before taxes;

- based on the assumption that our common stock appreciates at the annual
rates shown, compounded annually, from the date of grant until the
expiration of the term; and

- based on the assumption that the option is exercised at the exercise price
and sold on the last day of its term at the appreciated price.

These numbers are calculated based on Securities and Exchange Commission
requirements and do not reflect our projection or estimate of future stock price
growth. Actual gains, if any, on stock option exercises will depend on the
future performance of our common stock.

Option Grants in Fiscal 1999

<TABLE>
-----------------------------------------------------------------------------------------------------
Individual Grants
----------------------------------- Potential Realizable
% of Total Fair Value at Assumed
Number of Options Market Annual Rates of
Securities Granted to Value on Stock Price Appreciation
Underlying Employees Exercise the Date for Option Term
Options In Last Price of Grant* Expiration -------------------------------------
Name Granted Fiscal Year ($/share) ($/share) Date 0% 5% 10%
- --------------------- ----------- ----------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dwayne M. Walker..... 450,000 6.46% $ 10.00 $ 8.54 6/18/09 $ -- $1,759,842 $5,467,752
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
500,000 7.18 12.00 9.50 9/27/09 -- 1,737,249 6,320,277

Joe E. Arciniega,
Jr................. 50,000 ** 10.00 8.54 6/18/09 -- 195,538 607,528
175 ** 9.00 9.50 8/11/09 88 1,133 2,737

Alan D. Koslow....... 110,000 1.58 10.00 8.54 6/18/09 -- 430,184 1,336,562
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
50,000 ** 2.00 11.63 10/1/09 481,250 846,795 1,407,613

Othniel Palomino..... 50,000 ** 10.00 8.54 6/18/09 -- 195,538 607,528
175 ** 9.00 9.50 8/11/09 88 1,133 2,737

Anne-Marie K.
Savage............. 122,675 1.76 10.00 8.54 6/18/09 -- 479,752 1,490,570
175 ** 9.00 9.50 8/11/09 88 1,133 2,737

Jeffrey B. Haggin.... 300,000 4.31 2.00 7.22 9/15/08 1,566,000 2,760,177 4,507,315
175 ** 9.00 9.50 8/11/09 88 1,133 2,737
</TABLE>

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

* Prior to our initial public offering, fair market value was established in
good faith by our Board of Directors based on several factors; subsequent to
our initial public offering, fair market value is based on the closing price
for the Common Stock as reported by the Nasdaq National Market on the date
of grant.

** Less than 1% of total options granted to employees in 1999.

FISCAL YEAR-END OPTION VALUES. The following table presents information about
options held by the executive officers named in the Summary Compensation Table
and the value of those options as of December 31, 1999. The value of
in-the-money options is based on the closing price on December 31, 1999, net of
the option exercise price.

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<PAGE>
Aggregated Option Exercises in 1999 and
Fiscal Year-End Option Values

<TABLE>
--------------------------------------------------------------------------------------------------
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Shares December 31, 1999 at December 31, 1999
Acquired on Value --------------------------- ------------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------ -------------- ------------ ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dwayne M. Walker....... 25,650 $ 203,588 704,792 1,016,666 $ 11,976,342 $ 8,736,446
Joe E. Arciniega,
Jr................... -- -- 83,575 216,700 1,247,527 2,936,956
Alan D. Koslow......... 127,200 1,003,700 93,450 130,000 1,589,397 1,321,875
Othniel Palomino....... 52,510 463,845 341,140 65,000 6,246,321 700,938
Anne-Marie K. Savage... 10,000 97,500 95,736 144,339 1,718,183 1,473,338
Jeffrey B. Haggin...... -- -- 262,775 257,500 4,586,827 4,443,906
</TABLE>

Employment Contracts, Termination of Employment and Change-in-Control
Arrangements

ShopNow has entered into a written employment agreement with Mr. Walker
effective as of July 1, 1999. This agreement may be terminated by either
Mr. Walker or ShopNow at any time, upon written notice to the other. The
agreement provides for an initial annual salary of $400,000 and a yearly bonus
of up to $200,000 based upon the achievement of performance criteria specified
by the compensation committee. Mr. Walker's salary is to be reviewed at the end
of each calendar year by the compensation committee and adjusted at the board's
sole discretion; provided, however, that Mr. Walker's salary may not be adjusted
downward without his consent. Pursuant to the agreement, Mr. Walker received, as
of September 27, 1999, an option to purchase 500,000 shares of common stock at
an exercise price equal to $12.00, which option will vest in four equal
semi-annual installments subject to Mr. Walker's continued employment with
ShopNow. After the first year of the agreement, ShopNow will grant Mr. Walker
during each of the next eight quarters an option to purchase up to 125,000
shares of common stock at an exercise price equal to the closing price of
ShopNow's common stock on the Nasdaq National Market on the date of grant, which
option will vest in four equal semi-annual installments subject to Mr. Walker's
continued employment with ShopNow. Mr. Walker receives a $400 monthly car
allowance and life insurance of $2,000,000. If Mr. Walker is terminated by
ShopNow at any time without cause, or if he terminates his employment for "good
reason" after we have received 30 days' notice and have failed to cure or leaves
within six months after a change in control of ShopNow, ShopNow will pay him a
lump-sum amount equal to his annual base salary and his salary for a period of
24 months following termination and all options granted to him under this
agreement shall vest. In addition, upon such termination Mr. Walker may elect to
borrow up to $2,000,000 from us to finance the exercise of those options. For
purposes of the agreement, "good reason" means and includes the occurrence
without Mr. Walker's consent of a material reduction in his title, authority,
status or responsibilities or our material breach of the agreement.

Employee Benefit Plans

401(K) PLAN. In November 1996, we established a discretionary 401(k)
tax-qualified employee savings and retirement plan covering all employees who
satisfy certain eligibility requirements relating to minimum age. Pursuant to
our 401(k) plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of their base compensation or the
statutorily prescribed annual limit, currently $10,000, and have the amount of
such reduction contributed to the 401(k) plan. Our 401(k) plan is intended to
qualify under Section 401 of the Internal Revenue Code of 1986, so that
contributions, and income earned on the contributions, are not taxable until
withdrawn. The 401(k) plan permits us to make discretionary contributions based
on compensation. To date, we have not made any contributions to the 401(k) plan.

STOCK OPTION PLAN. In October 1996, our board and our shareholders adopted our
stock option plan. Our board of directors amended and restated our stock option
plan in June 1999 and, in July 1999, the amendment was approved by our
shareholders. The stock option plan provides for the grant to employees of
incentive stock options within the

46
<PAGE>
meaning of Section 422 of the Internal Revenue Code of 1986 and for the grant to
employees, directors and consultants of nonstatutory stock options and stock
purchase rights. Unless sooner terminated, the stock option plan will
automatically terminate in 2009. A total of 8,000,000 shares of common stock are
reserved for issuance pursuant to the stock option plan. In addition, the stock
option plan provides for automatic annual increases equal to the least of

- 750,000 shares,

- 3% of the outstanding shares under the plan on such date or

- an amount determined by the board of directors. As of December 31, 1999,
options to purchase 538,776 shares of common stock had been exercised and
options to purchase 7,390,900 shares of common stock were outstanding
under the stock option plan with a weighted-average exercise price of
$6.24 per share.

The stock option plan is administered by the board of directors. The board has
the power to determine the terms of the options granted, including the exercise
price, the number of shares subject to the option, and the exercisability
thereof, and the form of consideration payable upon such exercise. In addition,
the board of directors has the authority to amend, suspend or terminate the
stock option plan, provided that no such action may affect any share of common
stock previously issued and sold or any option previously granted under the
stock option plan without the option holder's consent.

The exercise price of all incentive stock options granted under the stock option
plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted under
the stock option plan is determined by the board of directors. The term of all
options granted under the stock option plan may not exceed 10 years.

Options and stock purchase rights granted under the stock option plan are not
generally transferable by the optionee, and each option and stock purchase right
is generally exercisable during the lifetime of the optionee only by such
optionee. Options granted under the stock option plan must generally be
exercised within three months following termination of an optionee's status as
an employee, director or consultant of ShopNow or within 12 months following
termination of an optionee by death or disability, but in no event later than
the expiration of the option's 10 year term. In the case of stock purchase
rights, unless the administrator determines otherwise, a restricted stock
purchase agreement shall grant us a repurchase option that lapses at a rate
determined by the plan administrator. The purchase price for shares repurchased
pursuant to a restricted stock purchase agreement will be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to us.

The stock option plan provides that in the event of our merger with or into
another corporation or a sale of all or substantially all of our assets, each
option and stock purchase right will be assumed or substituted for by the
successor corporation. In the event the successor corporation refuses to assume
or substitute for the option or stock purchase right, the optionee will have the
right to exercise all of the optioned stock, including shares as to which it
would not otherwise be exercisable, for a period of 15 days from the date of
notice from the administrator, after which date the option or stock purchase
right will terminate.

1999 EMPLOYEE STOCK PURCHASE PLAN. Our employee stock purchase plan was adopted
by the board of directors in June 1999, and approved by our shareholders in
July 1999. A total of 2,000,000 shares of common stock are reserved for issuance
under the employee stock purchase plan. Additionally, the employee stock
purchase plan provides for an automatic annual increase in the number of shares
reserved for issuance beginning on the first day of our fiscal year 2002 equal
to the least of

- 600,000 shares,

- 2% of the reserved shares or

- an amount determined by the board of directors.

The employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, will be administered by the
board of directors or by a committee appointed by the board. Our employees,

47
<PAGE>

including officers and employee directors, are eligible to participate in the
employee stock purchase plan if they are employed for at least 20 hours per week
and for more than five months in any calendar year. The employee stock purchase
plan will be implemented with consecutive offering periods, generally six months
in duration. However, the initial offering period under the employee stock
purchase plan began on September 28, 1999, the effective date of our initial
public offering, and will terminate on April 30, 2000. The board of directors
may change the timing or duration of the future offering periods.

The employee stock purchase plan permits eligible employees to purchase shares
of common stock through payroll deductions at 85% of the lesser of the fair
market value per share of the common stock on the first day of the offering
period or on the purchase date. Participants generally may not purchase shares
if, immediately after the grant, the participant would own stock or options to
purchase shares of common stock totaling 5% or more of the total combined voting
power of all of ShopNow's capital stock, or more than $25,000 of our capital
stock in any calendar year. In addition, a participant may not purchase more
than 5,000 shares during any offering period. In the event of a sale of all or
substantially all of our assets or the merger of ShopNow with or into another
corporation, the board of directors may accelerate the exercise date of the
current purchase period to a date prior to the change in control.

1999 NONOFFICER EMPLOYEE STOCK OPTION PLAN. On December 8, 1999, our board of
directors adopted our 1999 nonofficer employee stock option plan. The purposes
of the plan are to attract and retain personnel, to provide additional incentive
to our employees and consultants and to promote the success of our business. The
plan permits the issuance of nonqualified stock options and shares of common
stock or units denominated in common stock, all of which may be subject to
restrictions determined by the plan administrator. All employees and consultants
who are not directors or Section 16 officers of ShopNow at the time of grant of
an award are eligible to participate in the plan.

Our board has reserved a total of (a) 1,000,000 shares of common stock plus
(b) an automatic increase to be added on the first day of each fiscal quarter
beginning on January 1, 2000 equal to 10,000 shares multiplied by the number of
individuals who began employment or services with us in the preceding fiscal
quarter in connection with our acquisition of another corporation or business
entity. The aggregate maximum number of shares available for issuance under the
plan cannot exceed 4,000,000 shares, and no more than 30% of the shares
authorized for issuance may be issued to officers of ShopNow who are not subject
to Section 16 of the Securities Exchange Act of 1934. As of December 31, 1999,
no options had been exercised under the plan and options to purchase
432,814 shares of common stock were outstanding under the plan with a
weighted-average exercise price of $18.12 per share.

The compensation committee of the board of directors administers the plan and
determines the individuals to whom awards are granted. In addition, our board
has authorized Mr. Walker to grant options to new and current employees, up to
an aggregate maximum of 50,000 shares of common stock per employee in any
calendar year. Unless the plan administrator permits otherwise, awards may not
be assigned or transferred by the holder other than by will or by the applicable
laws of descent and distribution, and, during the holder's lifetime, awards
generally may be exercised only by the holder. The board may suspend, amend or
terminate the plan at any time, provided that no action may affect any share of
common stock previously issued and sold or any option previously granted without
the holder's consent.

The plan administrator has the authority to specify the terms and conditions of
each option granted under the plan, including the vesting schedule, the term and
the exercise price. Options granted under the plan generally must be exercised
within three months following termination of employment or consulting services
at ShopNow or within 12 months following termination by death or disability, but
in no event later than the expiration of the option's term.

The plan administrator may also award stock awards subject to terms and
conditions determined by the plan administrator, including conditions on how the
shares subject to restrictions must be held while restricted and the
circumstances under which a holder will forfeit the shares if services with us
are terminated. Holders of restricted stock are shareholders of ShopNow and
have, subject to certain restrictions, all the rights of shareholders with
respect to their shares.

48
<PAGE>
In the event of our merger with or into another corporation or a sale of all or
substantially all of our assets, each outstanding award will be assumed or
substituted for by the successor corporation. In the event the successor
corporation refuses to assume or substitute for the award, the forfeiture
restrictions applicable to stock awards will lapse and outstanding options will
become fully exercisable for a period of 15 days from the date of notice from
the plan administrator, after which date the options will terminate and no
longer be exercisable.

Director and Officer Indemnification and Liability

Our articles of incorporation limit the liability of directors 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, subject to the
Washington Business Corporation Act, no director will be personally liable to us
or our shareholders for monetary damages resulting from his or her conduct as a
director of ShopNow, except liability for

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

- unlawful distributions, or

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

Any repeal of or modification to our articles of incorporation may not adversely
affect any right or protection of a director of ShopNow who is or was a director
at the time of such repeal or modification.

In addition, our bylaws provide that we will indemnify any individual who was,
is or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit, claim or proceeding by reason of
the fact that he or she is or was a director or officer of ShopNow. This right
to indemnification will continue as to an individual who has ceased to be a
director or officer. Our bylaws will provide that we may indemnify our other
officers and employees and other agents. We have obtained and maintain
directors' and officers' liability insurance, under which our directors and
officers may be indemnified against liability they incur for serving in their
capacities as directors and officers.

We understand that the current position of the Securities and Exchange
Commission is that any indemnification of our directors and officers for
liabilities arising under the Securities Act of 1933 is against public policy
and is, therefore, unenforceable.

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

49
<PAGE>
Related Transactions With Executive Officers, Directors
and 5% Shareholders

In connection with our acquisition of Media Assets in September 1998, Jeff
Haggin, the sole shareholder of Media Assets, joined ShopNow as an executive
officer and he received 600,000 shares of our common stock based upon an
agreed-upon value of $6.00 per share, $300,000 in cash, a convertible promissory
note in the aggregate principal amount of $1,050,000 and options to purchase an
aggregate of 1,120,000 shares of our common stock. These options included an
option to purchase 220,000 shares at an exercise price of $1.00 per share and
performance-based options to purchase 900,000 shares of common stock at an
exercise price of $2.00 per share. The total value of the package Mr. Haggin
received at the time of the acquisition equaled $4,941,500. In May 1999,
Mr. Haggin exchanged his performance-based options for options to purchase
300,000 shares of common stock at an exercise price of $2.00 per share.

In April 1999, we issued to 24/7 Media 4,300,000 shares of Series G convertible
preferred stock at $7.00 per share in exchange for $30.1 million in
consideration, consisting of cash, 466,683 shares of 24/7 Media common stock and
24/7 Media's majority interest in CardSecure. A portion of the shares of
Series G convertible preferred stock were placed in escrow pending consummation
of our acquisition of CardSecure, which occurred on June 15, 1999. 24/7 Media
also received warrants to purchase 860,000 shares of common stock at $7.00 per
share. As of December 31, 1999, 24/7 Media beneficially owned 11.8% of our
outstanding common stock. In connection with the acquisition of CardSecure, we
acquired an additional 9,727 shares of 24/7 Media common stock. As of
December 31, 1999, we owned 476,410 shares of 24/7 Media common stock. In
connection with this purchase, we also entered into both a cross promotion
agreement and a mutual promotion agreement with 24/7 Media.

Under the cross promotion agreement, 24/7 Media promotes our e-commerce and
direct marketing services to its network of over 2,500 affiliated web sites in
exchange for our promotion of 24/7 Media's advertising, representation and
e-mail management services to merchants. This agreement entitles each party to
share in the revenues of the other party based on the amount of business
generated through this relationship. The agreement prohibits 24/7 Media from
engaging other specifically identified providers of e-commerce services as
co-marketing partners for e-commerce technologies that we offer. We also have a
right of first refusal on any partnership with 24/7 Media for e-commerce
technology or services from other third parties, assuming we provide similar
products and services. 24/7 Media is the only third party authorized to sell
advertising on our web sites. Under this agreement, we are obligated to purchase
at least $1.0 million annually in shopping traffic from 24/7 Media. In
connection with 24/7 Media's investment in ShopNow, 24/7 Media has the right to
nominate a director of ShopNow. 24/7 Media has designated Jacob Friesel as that
nominee.

Under the mutual promotion agreement, we jointly brand 24/7 Media's Click2Buy
transactional banner service with the ShopNow name and receive fees for
processing all Click2Buy transactions. Click2Buy is the process whereby a
shopper can click on a banner advertisement from within a specific web site and
purchase the product or service in the banner advertisement without having to
leave the web site where the shopper originally saw the banner advertisement.

In connection with our acquisition of GO Software in June 1999, William Pittman
joined ShopNow as an executive officer and he received, in exchange for his
shares of capital stock in GO Software, 814,688 shares of our common stock,
$2.0 million in cash, and options to purchase an aggregate of 100,000 shares of
our common stock at an exercise price of $7.00 per share. The total value of the
package Mr. Pittman received at the time of the acquisition equaled $8,517,504.

In June 1999, we entered into a stock purchase agreement with CB Capital
Investors pursuant to which we issued 2,100,000 shares of Series I convertible
preferred stock at $9.00 per share in exchange for $18.9 million in cash. CB
Capital Investors also received warrants to purchase 555,556 shares of common
stock. As of December 31, 1999, CB Capital Investors beneficially owned 6.1% of
our shares of common stock. In July 1999, we entered into a licensing agreement
with Chase Manhattan Capital, an affiliate of CB Capital Investors, which
agreement has been assigned to Chase Manhattan Bank. Pursuant to this agreement,
Chase paid us a licensing fee to use the technology underlying

50
<PAGE>

the site. As part of the agreement, Chase is a preferred provider of financial
services for ShopNow.com and the exclusive marketer of credit cards featuring
the ShopNow brand. The agreement provides that each party shares in the revenues
of the other party based on the amount of business generated through this
relationship. As part of the agreement, we participate equally with Chase in a
cooperative marketing fund to promote the services being offered under this
agreement. Our marketing obligations to Chase include placing an advertisement
on the ShopNow.com home page, making direct mailings regarding Chase's merchant
services to merchants on the ShopNow network and mentioning Chase's merchants in
our own advertising. Our obligation to the fund is to contribute at least
$3.0 million annually. The agreement has an initial term of 27 months, with a
three year renewal period at Chase's option. In connection with Chase's
investment in ShopNow, Chase has the right to designate one nominee to serve as
a director of ShopNow. Chase has designated Eytan Lombroso as its nominee.

On various occasions during fiscal 1999 and fiscal 1998, we granted the
following options to purchase shares of our common stock to the following
executive officers and directors:

- On January 1, 1998, August 1, 1998, November 30, 1998 and December 11,
1998, we granted Mr. Walker options to purchase 25,000, 310,000, 375 and
100 shares of common stock, respectively, with exercise prices of $2.00,
$4.00, $2.50 and $4.00, respectively;

- On September 15, 1998, September 30, 1998 and December 11, 1998, we
granted Mr. Haggin options to purchase 300,000, 220,000 and 100 shares of
common stock, respectively, with exercise prices of $2.00, $1.00 and
$4.00, respectively; the 300,000 options granted to Mr. Haggin on
September 15, 1998 were regranted on May 15, 1999 with the same exercise
price and vesting terms;

- On June 8, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Mr. Koslow options to purchase 150,000, 375, 100 and
40,000 shares of common stock, respectively, with exercise prices of
$1.75, $2.50, $4.00 and $2.00, respectively;

- On March 18, 1998, June 1, 1998, November 30, 1998 and December 11, 1998,
we granted Dr. Krishnan options to purchase 10,000, 100,000, 375 and 100
shares of common stock, respectively, with exercise prices of $2.00,
$2.00, $2.50 and $4.00, respectively;

- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Mr. Palomino options to purchase 10,000, 375, 100 and
30,000 shares of common stock, respectively, with exercise prices of
$2.00, $2.50, $4.00 and $2.00, respectively;

- On January 1, 1998, November 30, 1998, December 11, 1998 and December 31,
1998, we granted Ms. Savage options to purchase 13,000, 375, 100 and
30,000 shares of common stock, respectively, with exercise prices of
$2.00, $2.50, $4.00 and $2.00, respectively;

- On November 16, 1998 and December 11, 1998, we granted Mr. Arciniega
options to purchase 250,000 and 100 shares of common stock, respectively,
with an exercise price of $4.00;

- On both September 30, 1998 and May 3, 1999, we granted Mr. Lonsdale
options to purchase 50,000 shares of common stock with exercise prices of
$4.00 and $7.00, respectively;

- On May 3, 1999, we granted Mr. Maxwell options to purchase 50,000 shares
of common stock with an exercise price of $7.00;

- On both September 30, 1998 and May 3, 1999, we granted Mr. McClure options
to purchase 50,000 shares of common stock with exercise prices of $4.00
and $7.00, respectively;

- On both September 30, 1998 and May 3, 1999, we granted Mr. Snedegar
options to purchase 50,000 shares of common stock with exercise prices of
$4.00 and $7.00, respectively;

- On May 3, 1999, we granted Mr. Terbeek options to purchase 50,000 shares
of common stock with an exercise price of $7.00;

51
<PAGE>

- In June 1999, we granted Mr. Walker, Mr. Koslow, Dr. Krishnan,
Mr. Palomino, Ms. Savage and Mr. Arciniega options to purchase 450,000,
110,000, 35,525, 50,000, 122,675 and 50,000 shares of common stock,
respectively, at an exercise price of $10.00 per share;

- On August 11, 1999, we granted each of Mr. Arciniega, Mr. Haggin,
Mr. Koslow, Mr. Krishnan, Mr. Palomino, Ms. Savage and Mr. Walker options
to purchase 175 shares of common stock with exercise prices of $9.00;

- On October 1, 1999, we granted Mr. Koslow options to purchase 50,000
shares of common stock with an exercise price of $2.00; and

- On September 27, 1999, we granted Mr. Walker options to purchase 500,000
shares of common stock with an exercise price of $12.00.

On October 28, 1999, ShopNow entered into a Stock Purchase Agreement with
escrow.com, Inc., pursuant to which ShopNow purchased 500,000 of escrow.com's
common stock and 2,000,000 shares of its Series A Preferred Stock, representing
in the aggregate approximately 11.9% of the outstanding equity securities of
escrow.com. Dwayne Walker, our Chief Executive Officer and Chairman of the
Board, is a director of escrow.com. John Snedegar, a member of our board of
directors, is the Chief Executive Officer and a director of escrow.com.
Mr. Walker and Mr. Snedegar also beneficially own approximately 1.9% and 2.8% of
the outstanding common stock of escrow.com. In connection with the share
purchase, ShopNow and escrow.com also entered into a Services Agreement,
pursuant to which ShopNow agreed to serve as the exclusive provider of payment
processing services for all escrow transactions effected by escrow.com. In
addition, under the Services Agreement, escrow.com agreed to serve as the
exclusive provider of escrow services for transactions via the ShopNow Network.
Under the agreement, ShopNow will receive 9% of escrow.com's net revenues and
will receive monthly payments in the amount of $100,000 per month for a period
of at least 12 months commencing on October 25, 1999, which may be extended by
Shopnow for an additional six months upon the satisfaction of certain criteria.
In addition, ShopNow received the right to acquire warrants to purchase an
additional 500,000 shares of escrow.com's common stock by introducing escrow.com
to partnering Internet sites for affiliation.

On September 28, 1999, ShopNow entered into a Promissory Note in the principal
amount of $212,500 with Alan Koslow, our Executive Vice President, Chief
Financial Officer, General Counsel and Secretary. The execution of the
promissory note in favor of ShopNow was made pursuant to the exercise of
Mr. Koslow's stock options. The promissory note is secured by the shares of
common stock issued pursuant to such stock options, matures on the earlier of
September 28, 2001 or the sale of the shares subject to the security interest,
and bears interest at 6.25% per annum.

We believe that all of these transactions were made on terms as favorable to us
as we would have received from unaffiliated third parties. Any future
transactions between us and our officers, directors and greater than 5%
shareholders and their affiliates will be approved by a majority of the board of
directors, including a majority of our disinterested, nonemployee directors.

Principal and Selling Shareholders

The following table sets forth information known to ShopNow with respect to the
beneficial ownership of our common stock as of December 31, 1999 by (i) each
shareholder known by ShopNow to own beneficially more than 5% of its common
stock, (ii) each of the individuals listed on the Summary Compensation Table,
(iii) each director of ShopNow, (iv) all directors and executive officers as a
group and (v) the selling shareholders.

The percentage ownership in the table below is based on 42,923,035 shares
outstanding as of December 31, 1999. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. Shares of
common stock subject to options currently exercisable or exercisable within
60 days of the proposed effective date of this offering are deemed outstanding
for the purpose of computing the percentage ownership of the person holding the
options but are not deemed outstanding for computing the percentage ownership of
any other person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with respect to
all shares beneficially owned subject to community property laws where
applicable.

52
<PAGE>
The percentage of shares outstanding after this offering assumes the
underwriters' over-allotment is not exercised.

<TABLE>
------------------------------------------------------------
Beneficially Owned
Prior to Offering Shares After Offering
--------------------- Being ---------------------
Name of Beneficial Owners(1) Number Percent Offered Number Percent
- ------------------------------------------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Named Executive Officers, Directors and
5% Shareholders
24/7 Media, Inc. (2)....................... 5,168,500 11.80% 500,000 4,668,500 8.98%
Jacob I. Friesel (3)....................... 5,168,500 11.80 500,000 4,668,500 8.98
Bret R. Maxwell (4)........................ 2,937,130 6.84 250,000 2,687,130 5.22
Mark H. Terbeek (5)........................ 2,937,130 6.84 250,000 2,687,130 5.22
Eytan Lombroso (6)......................... 2,655,556 6.11 -- 2,655,556 5.10
Chase Manhattan Capital, L.P. (7).......... 2,655,556 6.11 -- 2,655,556 5.10
Dwayne M. Walker(8)........................ 2,660,465 6.09 262,000 2,398,465 4.59
Jeffrey B. Haggin (9)...................... 904,522 2.09 -- 882,922 1.71
Ganapathy Krishnan, Ph.D. (10)............. 917,423 2.13 75,000 842,423 1.63
William Pittman (11)....................... 814,688 1.90 75,000 739,688 1.43
Othniel Palomino (12)...................... 756,986 1.75 75,000 681,986 1.32
Mark C. McClure (13)....................... 161,056 * 43,000 118,056 *
Anne-Marie K. Savage (14).................. 107,868 * -- 107,868 *
Alan D. Koslow (15)........................ 213,450 * 25,000 188,450 *
Joe E. Arciniega, Jr. (16)................. 83,575 * -- 83,575 *
John R. Snedegar (16)...................... 33,345 * -- 33,345 *
David M. Lonsdale (16)..................... 33,345 * -- 33,345 *
All directors and executive officers as a
group (17) (15 persons).................. 17,460,409 37.76 1,305,000 16,121,309 30.55
Other Selling Shareholders
Environmental Private Equity Fund II, L.P.
(18)..................................... 1,462,315 3.40 125,000 1,337,315 2.59
The Productivity Fund III, L.P. (18)....... 1,462,315 3.40 125,000 1,337,315 2.59
Wayne Gilpin (19).......................... 564,310 1.31 75,000 489,310 *
Qwest Communications Corporation (20)...... 100,000 * 70,000 30,000 *
</TABLE>

* Less than 1% of the outstanding shares of common stock.

(1) The address of 24/7 Media, Inc. and Mr. Friesel is 1250 Broadway, 28th
Floor, New York, New York 10001. The address of Messrs. Maxwell and Terbeek
is c/o First Analysis Corporation, the Sears Tower, Suite 950, 233 South
Wacker Drive, Chicago, Illinois 60606. The address of Chase Manhattan
Capital, L.P. and Mr. Lombroso is 2 Chase Manhattan Plaza, 16th Floor, New
York, New York 10081. The address of Messrs. Walker, Arciniega, Pittman,
Palomino, Haggin, Koslow, McClure, Lonsdale and Snedegar and Dr. Krishnan
and Ms. Savage is c/o ShopNow.com Inc., 411 First Avenue South, Suite 200
North, Seattle, Washington 98104.

(2) Includes 860,000 shares issuable pursuant to warrants held by 24/7
Media, Inc. that are currently exercisable.

(3) Represents 4,308,500 shares held by 24/7 Media, Inc. and 860,000 shares
issuable pursuant to warrants held by 24/7 Media, Inc. that are currently
exercisable. Mr. Friesel is a director and an Executive Vice President of
24/7 Media, Inc. Mr. Friesel disclaims beneficial ownership of all shares
held by 24/7 Media, Inc. The shares listed under "Shares Being Offered" are
those of 24/7 Media, Inc.

(4) Includes 1,456,065 shares held by each of Environmental Private Equity Fund
II, L.P. and The Productivity Fund III, L.P. Also includes 6,250 shares
issuable pursuant to warrants held by each of Environmental Private Equity
Fund II, L.P. and The Productivity Fund III, L.P. that are currently
exercisable. Also includes 12,500 shares issuable pursuant to options held
by Mr. Maxwell that are currently exercisable or are exercisable within
60 days of December 31, 1999. Mr. Maxwell is Chief Executive Officer of
First Analysis Corporation, which is the manager of Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. Mr. Maxwell

53
<PAGE>

disclaims beneficial ownership of all shares held by Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. except to the
extent of his pro rata pecuniary interest therein. The shares listed under
"Shares Being Offered" are those of Environmental Private Equity Fund
II, L.P. and the Productivity Fund III, L.P.

(5) Includes 1,456,065 shares held by each of Environmental Private Equity Fund
II, L.P. and The Productivity Fund III, L.P. Also includes 6,250 shares
issuable pursuant to warrants held by each of Environmental Private Equity
Fund II, L.P. and The Productivity Fund III, L.P. that are currently
exercisable. Also includes 12,500 shares issuable pursuant to options held
by Mr. Terbeek that are currently exercisable or are exercisable within
60 days of December 31, 1999. Mr. Terbeek was formerly an associate with
First Analysis Corporation, which is the manager of Environmental Private
Equity Fund II, L.P. and The Productivity Fund III, L.P. Mr. Terbeek
disclaims beneficial ownership of all shares held by Environmental Private
Equity Fund II, L.P. and the Productivity Fund III, L.P., except to the
extent of his pro rata pecuniary interest therein. The shares listed under
"Shares Being Offered" are those of Environmental Private Equity Fund
II, L.P. and The Productivity Fund III, L.P.

(6) Represents 2,100,000 shares held by Chase Manhattan Capital, L.P. and
555,556 shares issuable pursuant to a warrant held by Chase Manhattan
Capital, L.P. that is currently exercisable. Mr. Lombroso is an executive
officer of Chase Manhattan Bank, an affiliate of Chase Manhattan Capital,
L.P.

(7) Represents 2,100,000 shares held by Chase Manhattan Capital, L.P. and
555,556 shares issuable pursuant to a warrant held by Chase Manhattan
Capital, L.P. that is currently exercisable.

(8) Includes 6,400 shares owned by family members of Mr. Walker over which
Mr. Walker holds voting power and 75,000 shares held by various trusts over
which Mr. Walker has voting power. Also includes 771,458 shares issuable
pursuant to options held by Mr. Walker that are currently exercisable or
exercisable within 60 days of December 31, 1999.

(9) Includes 113,500 shares held by Mr. Haggin as trustee of various trusts.
Also includes 284,375 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.

(10) Includes 815,173 shares held jointly with Dr. Krishnan's wife. Also
includes 9,215 shares issuable pursuant to options held by Dr. Krishnan that
are currently exercisable or exercisable within 60 days of December 31,
1999.

(11) Includes 75,000 shares owned jointly with Mr. Pittman's wife, and 4,000
shares held by the Pittman Irrevocable Trust.

(12) Includes 341,140 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.

(13) Represents 127,711 shares held jointly with Mr. McClure's wife, and 33,345
shares issuable pursuant to options held by Mr. McClure that are currently
exercisable or exercisable within 60 days of December 31, 1999.

(14) Includes 97,868 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.

(15) Includes 93,450 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999. Options
representing 25,000 shares of common stock will be exercised by Mr. Koslow
prior to this offering, and such shares will be sold by Mr. Koslow in this
offering.

(16) Represents shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of December 31, 1999.

(17) Includes 1,784,516 shares issuable pursuant to options and 1,428,056 shares
issuable pursuant to warrants that are currently exercisable or exercisable
within 60 days of December 31, 1999.

(18) Includes 6,250 shares issuable pursuant to a warrant that is currently
exercisable.

(19) Includes 222,000 shares issuable pursuant to warrants that are currently
exercisable. Also includes 163,036 shares owned by Mr. Gilpin's wife.
Mr. Gilpin disclaims beneficial ownership of the shares held by his wife.

(20) Represents warrants exercisable within 60 days of December 31, 1999.
Warrants representing 70,000 shares will be exercised by Qwest
Communications prior to this offering, and such shares will be sold by Qwest
Communications in this offering.

54
<PAGE>
Description of Capital Stock

ShopNow's authorized capital stock consists of 200,000,000 shares of common
stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par
value. The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our articles of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Washington law.

Common Stock

As of December 31, 1999, there were outstanding 42,923,035 shares of common
stock held of record by approximately 759 shareholders and options to purchase
10,312,983 shares of common stock.

The holders of common stock are entitled to one vote on each matter submitted to
a vote of the shareholders. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock shall be entitled to receive ratably dividends at such times and in
such amounts as may be determined by the board of directors. In the event of any
dissolution, liquidation or winding up, the holders of common stock are entitled
to share ratably in all of the assets remaining after payment or provision for
payment of the debts and other liabilities and the liquidation preference of any
outstanding shares of preferred stock. The holders of common stock have no
preemptive or subscription rights. There are no conversion rights, redemption
rights, sinking fund provisions or fixed dividend rights with respect to the
common stock. The holders of common stock are not entitled to cumulative voting
at any election of directors. All outstanding shares of common stock are fully
paid and non-assessable, and the shares of common stock to be issued in the
offering will be fully paid and non-assessable.

Preferred Stock

The board of directors has authority, pursuant to our articles of incorporation
and without further action by the shareholders, to issue up to 5,000,000 shares
of preferred stock in one or more series. The board of directors may also
determine or alter for each series such voting powers, designations,
preferences, and special rights, qualifications, limitations or restrictions as
permitted by law. The board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the
effect of delaying, deferring or preventing a change in control of ShopNow and
may adversely affect the market price of the common stock and the voting and
other rights of the holders of common stock. There presently are no shares of
preferred stock outstanding, and we have no current plans to issue any shares of
preferred stock.

Common Stock Warrants

As of December 31, 1999, we had warrants outstanding to purchase an aggregate of
3,806,281 shares of common stock at exercise prices ranging from $1.25 to $18.93
per share. These warrants contain anti-dilution provisions providing for
adjustments to the exercise price and the number of shares of common stock
underlying these warrants upon the occurrence of specified events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction.

Other Equity-Based Agreements

From time to time in connection with the negotiation of material agreements, we
may use equity-based arrangements, including warrants to purchase shares of
common stock, as an incentive for a party with which ShopNow has a business
relationship to enter into an agreement with ShopNow.

55
<PAGE>
Registration Rights

As of December 31, 1999, the holders of 15,062,453 shares of outstanding common
stock and 1,735,771 shares issuable upon exercise of our outstanding warrants
will be entitled to certain rights with respect to the registration of such
shares under the Securities Act of 1933. Under the terms of our registration
rights agreement, the holders of more than 50% of the registrable securities
issued and issuable may request, by written notice nine months after
September 28, 1999, the effective date of our initial public offering of
securities, that we register any registrable securities specified in the notice
in a public offering with a public offering price of at least $5.00 per share of
common stock and the anticipated aggregate proceeds of which would exceed
$4.0 million. Also under the terms of our registration rights agreement, the
holders of more than 50% of the registrable securities issued and issuable may
require that we register their shares for public resale on Form S-2, Form S-3 or
similar short-form registration statement, provided that we are a registrant
entitled to use such a form and that the value of the securities to be
registered is at least $750,000. We are not obligated to effect any such
short-form registration at any time more than three years after the initial
public offering or if we have effected one such registration during the
immediately preceding 12-month period. In addition, the agreement requires us to
provide 60 days notice to holders of registrable securities of our intention to
register our securities. A holder may then elect to include his or her shares in
the proposed registration. We have obtained written waivers of this notice and
registration provision from each shareholder subject to the provision. These
registration rights are subject to the right of the managing underwriter to
reduce the number of shares proposed to be registered in view of market
conditions. All expenses in connection with any registration will be borne by
us. A holder's registration rights will terminate if the holder is entitled to
immediately sell all of its shares under Rule 144 of the Securities Act during
any 90-day period and the holders of the registrable stock own less than 1% of
the outstanding common stock.

Washington Antitakeover Law and Certain Charter and Bylaw Provisions

Certain provisions of Washington law and our articles of incorporation and
bylaws could make more difficult the acquisition of ShopNow by means of a tender
offer, a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of ShopNow to first negotiate with
us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited proposal
to acquire or restructure ShopNow outweigh the disadvantages of discouraging
such proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.

ELECTION AND REMOVAL OF DIRECTORS. Our articles of incorporation provide for
the division of our board of directors into three classes, as nearly equal in
number as possible, with the directors in each class serving for a three-year
term, and one class being elected each year by our shareholders. The initial
term of the Class I directors expires at our annual meeting of shareholders to
be held in 2000; the initial term of the Class II directors expires at our
annual meeting of shareholders to be held in 2001; and the initial term of the
Class III directors expires at our annual meeting of shareholders to be held in
2002. Thereafter, the term of each class of directors will be three years. This
system of electing and removing directors generally makes it more difficult for
shareholders to replace a majority of the members of our board of directors and
may tend to discourage a third party from making a tender offer or otherwise
attempting to gain control of ShopNow and may have the effect of maintaining the
incumbency of our board of directors.

SHAREHOLDER MEETING. Our bylaws provide that, except as otherwise required by
law or by our articles of incorporation, special meetings of the shareholders
may only be called pursuant to a resolution adopted by our board of directors,
the chairman of our board of directors or our president. These provisions of our
articles of incorporation and bylaws could discourage potential acquisition
proposals and could delay or prevent a change of control. Our intent in using
these provisions is to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by them and
to discourage certain types of transactions that may involve an actual or
threatened change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal and to discourage certain
tactics that may be used in proxy fights. However, these provisions

56
<PAGE>
could have the effect of discouraging others from making tender offers for our
shares and, as a consequence, they could inhibit fluctuations in the market
price of our shares that could result from actual or rumored takeover attempts.
Such provisions could have the effect of preventing changes in our management.

REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND
PROPOSALS. Our bylaws contain 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.

WASHINGTON ANTI-TAKEOVER LAW. Washington law imposes restrictions on some
transactions between a corporation and certain significant shareholders. Chapter
23B.19 of the Washington Business Corporation Act prohibits a "target
corporation," with some exceptions, from engaging in certain significant
business transactions 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 acquisition.
Such prohibited transactions include, among others 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 certain "fair price" provisions of the statute. A
corporation may not opt out of this statute. This provision may have the effect
of delaying, deterring or preventing a change in control of ShopNow.

SHAREHOLDER ACTION BY WRITTEN CONSENT. Our articles of incorporation permit
shareholders to act by written consent without a meeting only with the written
consent of all shareholders entitled to vote on the subject matter.

ELIMINATION OF CUMULATIVE VOTING. Our articles of incorporation and bylaws do
not provide for cumulative voting in the election of directors.

UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred stock
makes it possible for the Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of ShopNow. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of ShopNow.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company.

Nasdaq National Market Listing

Our common stock is traded on the Nasdaq National Market under the symbol
"SPNW."

Shares Eligible For Future Sale

Upon the completion of this offering, the Company will have an aggregate of
51,568,035 shares of common stock outstanding, based upon shares outstanding as
of December 31, 1999 and assuming no exercise of the underwriters'
over-allotment option, and no exercise of outstanding options or warrants after
that date, except options representing the 25,000 shares to be sold by
Mr. Koslow in this offering and warrants representing the 70,000 shares to be
sold by Qwest Communications in this offering. Of the outstanding shares, the
10,000,000 shares sold in this offering will be freely tradable without
restriction under the Securities Act of 1933, except for any shares purchased by
"affiliates" of ShopNow, as that term is defined in Rule 144 under the
Securities Act of 1933. Of the remaining 41,568,035

57
<PAGE>

shares of common stock held by existing shareholders, 33,107,310 shares will be
deemed "restricted securities" as that term is defined in Rule 144. Of these
restricted securities 14,189,089 are subject to lock-up agreements that expire
on March 27, 2000 and 10,374,429 shares are subject to lock-up agreements that
expire 90 days after the date of this prospectus. The lock-up agreements provide
that, with certain limited exceptions, the shareholder will not offer, sell,
contract to sell or otherwise dispose of any securities of ShopNow that are
substantially similar to the common stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, common stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities outstanding as
of, the date of the lock-up agreement) for the periods that expire on March 27,
2000 and 90 days after the date of this prospectus, respectively without the
prior written consent of Dain Rauscher Wessels, the managing underwriter of our
initial public offering, and J.P. Morgan & Co., respectively. At various times
after expiration of the lock-up agreements, these restricted securities will be
eligible for sale in the public market, subject, in some cases, to volume
limitations. In addition, as of December 31, 1999, there were outstanding
options to purchase 10,312,983 shares of common stock and warrants to purchase
3,806,281 shares of common stock. Dain Rauscher Wessels and J.P. Morgan & Co.
may, in either of their sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements.

In general, under Rule 144, as currently in effect, a person (or persons whose
shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period after the date of this prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of common stock
(approximately 515,680 shares immediately after this offering) or the average
weekly trading volume in the common stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to
restrictions. In addition, a person who is not deemed to have been an affiliate
at any time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from an affiliate, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.

Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any employee, officer or director of or
consultant to ShopNow who purchased shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All Rule 701 shares held by
ShopNow's executive officers and directors will be subject to lock-up agreements
and will only become eligible for sale at the earlier of the expiration of the
90-day lock-up agreements or upon the prior written consent of J.P. Morgan & Co.

The Company has filed registration statements on Form S-8 under the Securities
Act of 1933 covering a total of 16,007,861 shares of Common Stock. Accordingly,
shares registered under such registration statements will be available for
resale by nonaffiliates in the public market without restriction once they are
exercised.

Holders of 15,062,453 shares of common stock and 1,735,000 shares issuable upon
the exercise of outstanding warrants will be entitled to certain rights with
respect to registration of such shares for sale in the public market. See
"Description of Capital Stock - Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for shares
purchased by affiliates) immediately upon the effectiveness of such registration
to the extent such shares are not already freely tradable.

58
<PAGE>
Underwriting

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom J.P. Morgan Securities Inc., CIBC World Markets Corp., PaineWebber
Incorporated and U.S. Bancorp Piper Jaffray, are acting as representatives, have
severally agreed to purchase, and ShopNow and the selling shareholders have
agreed to sell to them, the respective number of shares of common stock set
forth opposite their names below.

<TABLE>
<CAPTION>
-----------------
Number of Shares
Underwriters -----------------
<S> <C>
J.P. Morgan Securities Inc..................................
CIBC World Markets Corp.....................................
PaineWebber Incorporated....................................
U.S. Bancorp Piper Jaffray..................................
-----------------
Total................................................... 10,000,000
=================
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. Under the
terms and conditions of the underwriting agreement, all of the underwriters are
obligated to take and pay for all such shares of common stock, if any are taken.

The underwriters propose initially to offer the shares of common stock directly
to the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
public offering of the common stock, the offering price and other selling terms
may be changed from time to time by the underwriters.

According to the terms of the underwriting agreement, we have granted the
underwriters an option, exercisable for 30 days after the date of this
prospectus, to purchase up to 1,500,000 additional shares of common stock, on
the same terms and conditions as set forth on the cover page hereof. If such
option is exercised in full the total price to the public, underwriting
discounts and commissions, and proceeds to us from the sale of such shares will
be $ , $ and $ , respectively. The underwriters may exercise such
option only to cover over-allotments, if any, made in connection with the sale
of shares of common stock offered. To the extent that option is exercised, each
of the underwriters will have a commitment, subject to certain conditions, to
purchase approximately the same percentage of those additional shares as the
number of shares of common stock to be purchased by it as shown in the table
above bears to the total number of shares of common stock initially offered
hereby.

ShopNow and each of the selling shareholders have agreed that, without the prior
written consent of J.P. Morgan on behalf of the underwriters, they will not,
during the period commencing on the date hereof and ending 90 days after the
date of this prospectus, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or (2) enter
into any swap or other agreement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the common stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of common stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (a) the sale of any shares to the
underwriters pursuant to the underwriting agreement, (b) transactions relating
to shares of common stock or other securities acquired in open market
transactions after the completion of this offering, (c) the issuance of any
shares of common stock upon the exercise of options granted under existing
employee stock option plans, (d) any options granted by the Company pursuant to
existing employee stock option plans, provided that no such option shall become
vested or exerciseable for a period of at least 90 days after the date of the
initial public offering of the Shares and (e) any shares of common stock or

59
<PAGE>

other securities issued pursuant to the Agreement and Plan of Merger dated as of
January 20, 2000 among ShopNow, Ubarter.com and Shamu Acquisition, Inc. In
addition, the parties have agreed that, without the prior written consent of
J.P. Morgan on behalf of the underwriters, they will not, during the period
commencing on the date hereof and ending 90 days after the date of this
prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of common stock or any security convertible into or
exercisable or exchangeable for common stock.

We have agreed to indemnify the underwriters against specified liabilities,
losses and expenses, including liabilities under the Securities Act of 1933, or
to contribute to payments that the underwriters may be required to make in
connection with such liabilities.

In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with this offering,
creating a syndicate short position. In addition, the underwriters may bid for,
and purchase, shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the common stock in this offering, if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.

It is expected that delivery of the shares sold in this offering will be made to
investors on or about , 2000.

Legal Matters

ShopNow's legal counsel is Perkins Coie LLP, Seattle, Washington. The
underwriters' legal counsel is Davis Polk & Wardwell, Menlo Park, California.

Experts

The audited financial statements for ShopNow.com Inc. and SpeedyClick, Corp. and
schedule included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

The audited financial statements for WebCentric, Inc. have been audited by KPMG
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The audited financial statements for Ubarter.com Inc. have been audited by Moss
Adams, LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

The financial statements of GO Software, Inc. at December 31, 1998 and 1997, and
for each of the two years in the period ended December 31, 1998, appearing in
the prospectus and registration statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.

Change in Independent Public Accountants

Our board of directors has selected Arthur Andersen LLP to serve as independent
public accountants. Arthur Andersen LLP has served as our independent public
accountants since August 1998. On August 7, 1998, we dismissed Ernst & Young LLP
as our independent accountants. Ernst & Young LLP's report on our consolidated
financial statements for the two years ended December 31, 1997 does not cover
our consolidated financial statements included in this

60
<PAGE>
prospectus. Ernst & Young LLP's reports on the financial statements for the
years ended December 31, 1996 and 1997 did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. The decision to change independent
accountants was approved by the board of directors. During the years ended
December 31, 1996 and 1997 and through August 1998, there were no reportable
events, as defined in regulations of the Securities and Exchange Commission, or
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure. Prior
to retaining Arthur Andersen LLP, we had not consulted with Arthur Andersen LLP
regarding accounting principles.

Where You Can Find More Information

We filed with the Securities and Exchange Commission a registration statement on
Form S-1 under the Securities Act of 1933 that registers the shares of common
stock offered in this prospectus. This prospectus does not contain all the
information set forth in the registration statement and the exhibits and
schedule filed with the registration statement. For more information about us
and the common stock offered hereby, you should review the registration
statement and the exhibits and schedule filed with the registration statement.
Statements contained in this prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and, in each instance, you should review the copy of such contract or other
document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedule filed with the registration
statement may be inspected and copied at the following location of the
Securities and Exchange Commission:

Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549.

You may also obtain copies of all or any part of the registration statement from
that office at prescribed rates. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference room. The Securities and Exchange Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov.

61
<PAGE>
Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
Page
--------
<S> <C>
Unaudited Pro Forma Combined Financial Information
Unaudited Pro Forma Combined Balance Sheet................ F-3
Unaudited Pro Forma Combined Statement of Operations...... F-4
Notes to Unaudited Pro Forma Combined Financial
Statements.............................................. F-5

ShopNow.com Inc.
Report of Independent Public Accountants.................. F-7
Consolidated Balance Sheets............................... F-8
Consolidated Statements of Operations..................... F-9
Consolidated Statements of Comprehensive Loss............. F-10
Consolidated Statements of Shareholders' Equity........... F-11
Consolidated Statements of Cash Flows..................... F-13
Notes to Consolidated Financial Statements................ F-15

GO Software, Inc.
Report of Independent Auditors............................ F-36
Balance Sheets............................................ F-37
Statements of Operations.................................. F-38
Statements of Shareholders' Equity (Deficit).............. F-39
Statements of Cash Flows.................................. F-40
Notes to Financial Statements............................. F-41

WebCentric, Inc.
Independent Auditor's Report.............................. F-46
Balance Sheets............................................ F-47
Statements of Operations.................................. F-48
Statements of Shareholders' Equity (Deficit).............. F-49
Statements of Cash Flows.................................. F-50
Notes to Financial Statements............................. F-51

SpeedyClick, Corp.
Report of Independent Public Accountants.................. F-55
Balance Sheets............................................ F-56
Statements of Operations.................................. F-57
Statements of Cash Flows.................................. F-58
Statements of Stockholders' Equity (Deficit).............. F-59
Notes to Financial Statements............................. F-60

Ubarter.com Inc.
Independent Auditor's Report.............................. F-64
Consolidated Balance Sheet................................ F-65
Consolidated Statement of Operations...................... F-66
Consolidated Statement of Stockholders' Equity............ F-67
Consolidated Statement of Cash Flows...................... F-68
Notes to Consolidated Financial Statements................ F-69
</TABLE>

F-1
<PAGE>
ShopNow.com Inc.

Unaudited Pro Forma Combined Financial Information

The unaudited pro forma combined balance sheet as of December 31, 1999 gives
effect to the proposed acquisition of Ubarter.com Inc. as if this transaction
had occurred on December 31, 1999. The unaudited pro forma combined statement of
operations for the year ended December 31, 1999 gives effect to the acquisitions
of GO Software, Inc., SpeedyClick, Corp., WebCentric, Inc., the proposed
acquisition of Ubarter.com Inc. and the disposition of BuySoftware.com as if
these transactions had occurred January 1, 1999.

The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
ShopNow.com Inc. for the fair value of the assets acquired and liabilities
assumed.

F-2
<PAGE>

ShopNow.com Inc.
Unaudited Pro Forma Combined Balance Sheet
As of December 31, 1999
(in thousands)

<TABLE>
<CAPTION>
---------------------------------------------------------
ShopNow.com Ubarter.com
Inc. Inc. Adjustments(g) Total
------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 10,660 $ 1,846 $ -- $ 12,506
Short-term investments.................................... 52,172 -- -- 52,172
Accounts receivable, net.................................. 6,591 321 -- 6,912
Unbilled services......................................... 2,102 -- -- 2,102
Prepaid expenses and other................................ 5,559 621 -- 6,180
------------- ----------- ------------- --------
Total current assets.................................... 77,084 2,788 -- 79,872

Property and equipment, net................................. 19,385 406 -- 19,791

Goodwill and other intangible assets, net................... 128,573 2,150 (2,150) 189,924
61,351
Investments in marketable equity securities................. 30,884 -- -- 30,884

Other assets, net........................................... 18,248 159 -- 18,407
------------- ----------- ------------- --------
Total assets............................................ $ 274,174 $ 5,503 $ 59,201 $338,878
============= =========== ============= ========

Current Liabilities:
Accounts payable.......................................... $ 8,330 $ 93 $ -- $ 8,423
Accrued liabilities....................................... 8,778 349 -- 9,127
Current portion of notes and leases....................... 8,565 2,492 (2,000) 9,057
Customer deposits......................................... 2,194 -- -- 2,194
Deferred revenue and trade dollars........................ 5,786 2,221 -- 8,007
------------- ----------- ------------- --------
Total current liabilities............................... 33,653 5,155 (2,000) 36,808

Notes and leases payable, less current portion.............. 5,409 771 -- 6,180

Put warrant liability....................................... 1,388 -- -- 1,388

Deferred tax liability...................................... 4,511 -- 16,893 21,404

Shareholders' Equity (Deficit):
Common stock.............................................. 325,502 3,483 40,402 369,387
Common stock warrants..................................... 8,260 -- -- 8,260
Deferred compensation..................................... (6,713) -- -- (6,713)
Accumulated other comprehensive income.................... 7,470 17 (17) 7,470
Accumulated deficit....................................... (105,306) (3,923) 3,923 (105,306)
------------- ----------- ------------- --------
Total shareholders' equity (deficit).................... 229,213 (423) 44,308 273,098
------------- ----------- ------------- --------
Total liabilities and shareholders' equity (deficit).... $ 274,174 $ 5,503 $ 59,201 $338,878
============= =========== ============= ========
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-3
<PAGE>

ShopNow.com Inc.
Unaudited Pro Forma Combined Statements of Operations
For the Year Ended December 31, 1999
(in thousands, except share amounts)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
(1/1/99 to (1/1/99 to (1/1/99 to (1/1/99 to
6/15/99) 11/12/99) 12/17/99) 12/31/99)
ShopNow.com GO Software, SpeedyClick, WebCentric, Ubarter.com Pro Forma Combined
Inc. Inc. Corp. Inc. Inc. Adjustments Total
------------- ------------ ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 36,955 $ 728 $ 646 $ 1,661 $ 2,671 $ (10,073)(c)(e) $ 32,588

Cost of Revenues......... 27,329 45 -- 626 475 (11,190)(c) 17,285
------------- ------------ ----------- ----------- ----------- ----------- ----------
Gross profit........... 9,626 683 646 1,035 2,196 1,117 15,303
------------- ------------ ----------- ----------- ----------- ----------- ----------
Operating Expenses:
Sales and marketing.... 55,072 172 914 512 298 (3,036)(c)(e) 53,932
General and
administrative....... 8,342 514 405 559 4,117 (84)(c)(f) 13,853
Research and
development.......... 8,885 182 186 405 599 (10)(c) 10,247
Amortization of
intangible assets.... 8,805 -- -- -- -- 52,678 (a) 61,483
Stock-based
compensation......... 7,216 -- -- -- -- -- 7,216
------------- ------------ ----------- ----------- ----------- ----------- ----------
Total operating
expenses, net...... 88,320 868 1,505 1,476 5,014 49,548 146,731
------------- ------------ ----------- ----------- ----------- ----------- ----------
Loss from operations..... (78,694) (185) (859) (441) (2,818) (48,431) (131,428)

Nonoperating income
(expense), net......... 2,751 12 (3) (10) (195) (50)(b) 2,505
------------- ------------ ----------- ----------- ----------- ----------- ----------
Loss before provision for
income taxes........... (75,943) (173) (862) (451) (3,013) (48,481) (128,923)

Provision for income
taxes.................. -- 12 -- 151 -- (163)(d) --
------------- ------------ ----------- ----------- ----------- ----------- ----------
Net loss............... $ (75,943) $ (161) $ (862) $ (300) (3,013) $ (48,644) $ (128,923)
============= ============ =========== =========== =========== =========== ==========
Basic and diluted net
loss per share (h)..... $ (5.80) $ (6.07)
============= ==========
Weighted average shares
outstanding used to
compute basic and
diluted net loss per
share.................. 13,095,893 21,225,153
============= ==========
Basic and diluted pro
forma net loss per
share (h).............. $ (2.95) $ (3.80)
============= ==========
Weighted average shares
used to compute basic
and diluted pro forma
net loss per share..... 25,754,882 33,884,142
============= ==========
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-4
<PAGE>
ShopNow.com Inc.
Notes to Unaudited Pro Forma Combined Financial Statements

December 31, 1999

Note 1. Basis of Presentation:

The unaudited pro forma combined balance sheet as of December 31, 1999 gives
effect to the proposed acquisition of Ubarter.com Inc. as if this transaction
had occurred on December 31, 1999. The unaudited pro forma combined statement of
operations for the year ended December 31, 1999 gives effect to the acquisitions
of GO Software, Inc., SpeedyClick, Corp., and WebCentric, Inc., and the proposed
acquisition of Ubarter.com Inc. and the cessation of BuySoftware.com as if these
transactions had occurred January 1, 1999.

Note 2. Pro Forma Adjustments:

(a) To record amortization of intangible assets based on the excess purchase
price. As GO Software, Inc., SpeedyClick, Corp. and WebCentric, Inc. were
acquired prior to December 31, 1999, amortization is based on the actual
purchase price allocations and is computed for the period from January 1, 1999
to the respective dates of acquisition. As the proposed acquisition of
Ubarter.com Inc. is to occur after December 31, 1999, amortization is based on
the estimated purchase price allocation and is computed for the year ended
December 31, 1999. Intangible assets acquired are assumed to have a three-year
life.

<TABLE>
<CAPTION>
Year Ended
December 31, 1999
DOLLARS IN THOUSANDS -------------------
<S> <C>
Five months of GO Software, Inc............................. $ 1,998
Eleven months of SpeedyClick, Corp.......................... 16,984
Twelve months of WebCentric, Inc............................ 13,248
Twelve months of Ubarter.com Inc............................ 20,448
-------------------
Total pro forma amortization................................ $ 52,678
===================
</TABLE>

(b) To record five months of interest expense associated with the GO
Software, Inc. convertible promissory note of $50,000.

(c) To eliminate the results of operations of BuySoftware.com. Given the
Company's continued involvement in certain retailing activities, the results of
BuySoftware.com have been reflected in the historical continuing operations of
ShopNow.com Inc. through June 1999. However, the Company believes that it is
meaningful to present the disposal as if it had occurred as of January 1, 1999.
As BuySoftware.com was run as a separate business segment, the revenues, cost of
revenues and operating expenses directly attributable to the business segment
were removed.

(d) To eliminate tax benefits recorded by GO Software, Inc. and
WebCentric, Inc., which may not be realized by the Company.

(e) To eliminate revenues recognized by SpeedyClick, Corp. of $25,000 and
WebCentric, Inc. of $125,000 related to cash received from ShopNow.com Inc. for
advertising on these companies' web sites. As the pro forma statements of
operations are prepared as if the merger had occurred on January 1, 1999, these
revenues and the related marketing expense have been eliminated.

F-5
<PAGE>
ShopNow.com Inc.
Notes to Unaudited Pro Forma Combined Financial Statements (Continued)

December 31, 1999

Note 2. Pro Forma Adjustments: (Continued)

(f) To record compensation of SpeedyClick, Corp. executives of $352,000 per
employment agreements for the period from January 1, 1999 through November 12,
1999, the date of acquisition. This amount represents compensation above
historical levels.

(g) To record the proposed acquisition of Ubarter.com Inc. for $60.8
million. The acquisition assumes the issuance of 2,250,000 shares of ShopNow.com
Inc. common stock valued at $20.00 per share, reduced by certain debt
obligations of Ubarter.com Inc. of approximately $1.3 million, to be assumed by
ShopNow.com Inc. Also, Ubarter.com Inc.'s historical balance sheet has been
adjusted to eliminate Ubarter.com Inc.'s existing goodwill and to eliminate the
note payable to/note receivable from Ubarter.com Inc. and ShopNow.com Inc.,
respectively. Approximately $16.9 million of additional goodwill is also
reflected relating to the recognition of deferred tax liabilities assumed by
ShopNow.com Inc. as a result of this proposed acquisition. The excess purchase
price of this acquisition has been determined as follows:

<TABLE>
<CAPTION>
------------
Ubarter.com
Inc.
DOLLARS IN THOUSANDS ------------
<S> <C>
Stock consideration issued, reduced by certain
debt obligations assumed.................................. $ 43,884
Additional goodwill resulting from recognition of deferred
taxes..................................................... 16,894
Net liabilities assumed..................................... 573
------------
Excess purchase price....................................... $ 61,351
============
</TABLE>

(h) Basic and diluted net loss per share is computed by dividing net loss by
the weighted average number of shares outstanding during the period assuming
that shares issued for acquisitions were outstanding for the entire period. Pro
forma basic and diluted net loss per share is computed based on the weighted
average number of shares outstanding, giving effect to both shares issued in
acquisitions as if they were outstanding for the entire period and to conversion
of convertible preferred stock on an as-if converted basis from the original
issuance date.

Note 3. Reconciliation of Historical Weighted Average Shares to Pro Forma
Weighted Average Shares:

<TABLE>
<CAPTION>
--------------
December 31,
1999
--------------
<S> <C>
Historical.................................................. 13,095,893
GO Software, Inc., January 1, 1999 - June 14, 1999.......... 511,076
SpeedyClick, Corp., January 1, 1999 - November 11, 1999..... 3,289,202
WebCentric, Inc., January 1, 1999 - December 16, 1999....... 2,078,982
Ubarter.com Inc., January 1, 1999 - December 31, 1999....... 2,250,000
--------------
Pro forma................................................... 21,225,153
==============
</TABLE>

F-6
<PAGE>
Report of Independent Public Accountants

To ShopNow.com Inc.:

We have audited the accompanying consolidated balance sheets of ShopNow.com Inc.
(a Washington corporation) and subsidiaries as of December 31, 1998 and 1999,
and the related consolidated statements of operations, comprehensive loss,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ShopNow.com Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
consolidated financial statements is presented for purpose of complying with the
Securities and Exchange Commission rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.

/s/ Arthur Andersen LLP

Seattle, Washington,
January 19, 2000

F-7
<PAGE>
ShopNow.com Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)

<TABLE>
<CAPTION>
---------------------------
As of December 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>

ASSETS
Current Assets:
Cash and cash equivalents................................. $ 9,849 $ 10,660
Short-term investments.................................... 150 52,172
Accounts receivable, net of allowance for doubtful
accounts of $230 in 1998 and $291
in 1999................................................. 2,266 6,591
Unbilled services......................................... 1,448 2,102
Prepaid expenses and other................................ 709 5,559
------------ ------------
Total current assets.................................... 14,422 77,084
Property and equipment, net................................. 4,185 19,385
Goodwill, net............................................... 515 23,860
Other intangible assets, net................................ 3,944 104,713
Investments in marketable equity securities................. -- 30,884
Other assets, net........................................... 717 18,248
------------ ------------
Total assets............................................ $ 23,783 $ 274,174
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable.......................................... $ 3,551 $ 8,330
Accrued liabilities....................................... 1,132 8,778
Line of credit............................................ 238 --
Current portion of notes and leases....................... 1,133 8,565
Customer deposits......................................... 2,155 2,194
Deferred revenue.......................................... 535 5,786
------------ ------------
Total current liabilities............................... 8,744 33,653
Notes and leases payable, less current portion.............. 1,837 5,409
Put warrant liability....................................... -- 1,388
Deferred tax liabilities.................................... -- 4,511
------------ ------------
Total liabilities....................................... 10,581 44,961
------------ ------------
Commitments (Note 11)
Shareholders' Equity:
Convertible preferred stock, $0.001 par value: Authorized
shares - 20,000,000 in 1998 and 5,000,000 in 1999;
issued shares - 12,299,896 in 1998 and none in 1999,
preference in liquidation of $41,753 in 1998............ 35,070 --
Common stock, $0.001 par value: Authorized
shares - 200,000,000; issued shares - 4,602,573 in 1998
and 42,923,035 in 1999.................................. 6,559 325,502
Common stock warrants..................................... 1,866 8,260
Deferred compensation..................................... (930) (6,713)
Accumulated other comprehensive income.................... -- 7,470
Accumulated deficit....................................... (29,363) (105,306)
------------ ------------
Total shareholders' equity................................ 13,202 229,213
------------ ------------
Total liabilities and shareholders' equity................ $ 23,783 $ 274,174
============ ============
</TABLE>

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

F-8
<PAGE>
ShopNow.com Inc.
Consolidated Statements of Operations
(in thousands, except share amounts)

<TABLE>
<CAPTION>
------------------------------------------
For the Year Ended
December 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
ShopNow marketplace and transaction processing........ $ 69 $ 4,211 $ 25,841
Merchant services..................................... 535 2,943 11,114
------------ ------------ ------------
Total revenues...................................... 604 7,154 36,955
------------ ------------ ------------
Cost of Revenues:
ShopNow marketplace and transaction processing........ 159 4,493 20,169
Merchant services..................................... 356 1,356 7,160
------------ ------------ ------------
Total cost of revenues.............................. 515 5,849 27,329
------------ ------------ ------------
Gross profit............................................ 89 1,305 9,626
------------ ------------ ------------
Operating Expenses:
Sales and marketing................................... 1,201 12,183 55,072
General and administrative............................ 918 3,549 8,342
Research and development.............................. 2,436 4,370 8,885
Amortization of intangible assets..................... 136 730 8,805
Stock-based compensation.............................. -- 182 7,216
Unusual item - impairment of acquired technology...... -- 5,207 --
------------ ------------ ------------
Total operating expenses............................ 4,691 26,221 88,320
------------ ------------ ------------
Loss from operations.............................. (4,602) (24,916) (78,694)
------------ ------------ ------------
Nonoperating Income (Expense):
Gain on sale of marketable equity securities.......... -- -- 2,878
Interest income (expense), net........................ (164) 171 (127)
------------ ------------ ------------
Total nonoperating income (expense)................. (164) 171 2,751
------------ ------------ ------------
Net loss................................................ $ (4,766) $ (24,745) $ (75,943)
============ ============ ============
Basic and diluted net loss per share.................... $ (1.83) $ (7.01) $ (5.80)
============ ============ ============
Weighted average shares outstanding used to compute
basic and diluted net loss per share.................. 2,608,398 3,532,054 13,095,893
============ ============ ============
Basic and diluted pro forma net loss per share.......... $ (2.95)
============
Weighted average shares outstanding used to compute
basic and diluted pro forma net loss per share........ 25,754,882
============
</TABLE>

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

F-9
<PAGE>
ShopNow.com Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)

<TABLE>
<CAPTION>
------------------------------------------
For the Year Ended
December 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss................................................ $ (4,766) $ (24,745) $ (75,943)
Unrealized gain on marketable equity securities......... -- -- 7,470
------------ ------------ ------------
Comprehensive loss...................................... $ (4,766) $ (24,745) $ (68,473)
============ ============ ============
</TABLE>

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

F-10
<PAGE>
ShopNow.com Inc.

Consolidated Statements of Shareholders' Equity

(in thousands, except share amounts)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Convertible Preferred
Stock Common Stock Common
---------------------- ---------------------- Stock Subscription Deferred
Shares Amount Shares Amount Warrants Receivable Compensation
----------- -------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996....... -- $ -- 1,995,722 $ 275 $ -- $ -- $ --
Net loss January 1, 1997 through
February 25, 1997............. -- -- -- -- -- -- --
Conversion from S Corporation to
C Corporation................. -- -- -- (1,252) -- -- --
Conversion of shareholder notes
into Series A preferred
stock......................... 699,612 350 -- -- -- -- --
Issuance of Series B preferred
stock......................... 2,334,079 1,800 -- -- -- -- --
Issuance of common stock........ -- -- 600,000 90 -- -- --
Repurchase of common stock...... -- -- (10,000) (10) -- -- --
Conversion of shareholder notes
into Series C preferred
stock......................... 835,205 1,253 -- -- -- -- --
Conversion of shareholder notes
into common stock............. -- -- 177,333 89 -- -- --
Net loss, February 26, 1997
through December 31, 1997..... -- -- -- -- -- -- --
----------- -------- ---------- -------- -------- ----------- ------------
Balances, December 31, 1997....... 3,868,896 3,403 2,763,055 (808) -- -- --
Issuance of Series D preferred
stock......................... 4,250,000 13,461 -- -- 673 -- --
Common stock, options and
warrants issued for businesses
acquired...................... -- -- 1,744,692 6,105 -- -- --
Issuance of Series E preferred
stock and warrants to acquire
common stock.................. 2,125,000 7,672 -- -- 328 -- --
Issuance of Series F preferred
stock and warrants to acquire
common stock.................. 2,056,000 10,534 -- -- 865 -- --
Exercise of common stock
options....................... -- -- 32,499 25 -- -- --
Issuance of common stock in
consideration for professional
services...................... -- -- 62,327 125 -- -- --
Issuance of compensatory stock
options....................... -- -- -- 1,112 -- -- (1,112)
Compensation attributable to
stock options vesting......... -- -- -- -- -- -- 182
Net loss........................ -- -- -- -- -- -- --
----------- -------- ---------- -------- -------- ----------- ------------
Balances, December 31, 1998....... 12,299,896 35,070 4,602,573 6,559 1,866 -- (930)

<CAPTION>
-------------------------------------------
Accumulated
Other Total
Comprehensive Accumulated Shareholders'
Income Deficit Equity
------------- ----------- -------------
<S> <C> <C> <C>
Balances, December 31, 1996....... $ -- $ (1,104) $ (829)
Net loss January 1, 1997 through
February 25, 1997............. -- (148) (148)
Conversion from S Corporation to
C Corporation................. -- 1,252 --
Conversion of shareholder notes
into Series A preferred
stock......................... -- -- 350
Issuance of Series B preferred
stock......................... -- -- 1,800
Issuance of common stock........ -- -- 90
Repurchase of common stock...... -- -- (10)
Conversion of shareholder notes
into Series C preferred
stock......................... -- -- 1,253
Conversion of shareholder notes
into common stock............. -- -- 89
Net loss, February 26, 1997
through December 31, 1997..... -- (4,618) (4,618)
------------- ----------- ------------
Balances, December 31, 1997....... -- (4,618) (2,023)
Issuance of Series D preferred
stock......................... -- -- 14,134
Common stock, options and
warrants issued for businesses
acquired...................... -- -- 6,105
Issuance of Series E preferred
stock and warrants to acquire
common stock.................. -- -- 8,000
Issuance of Series F preferred
stock and warrants to acquire
common stock.................. -- -- 11,399
Exercise of common stock
options....................... -- -- 25
Issuance of common stock in
consideration for professional
services...................... -- -- 125
Issuance of compensatory stock
options....................... -- -- --
Compensation attributable to
stock options vesting......... -- -- 182
Net loss........................ -- (24,745) (24,745)
------------- ----------- ------------
Balances, December 31, 1998....... -- (29,363) 13,202
</TABLE>

F-11
<PAGE>
ShopNow.com Inc.

Consolidated Statements of Shareholders' Equity (Continued)

(in thousands, except share amounts)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Convertible Preferred
Stock Common Stock Common
---------------------- ---------------------- Stock Subscription Deferred
Shares Amount Shares Amount Warrants Receivable Compensation
----------- -------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuances of Series F preferred
stock and warrants to acquire
common stock.................. 280,000 $ 1,400 -- $ -- $ -- $ -- $ --
Issuance of Series G preferred
stock and warrants to acquire
common stock.................. 5,014,286 33,200 -- -- 1,900 -- --
Issuance of Series H preferred
stock and warrants to acquire
common stock.................. 333,334 2,840 -- -- 160 -- --
Issuance of Series I preferred
stock and warrants to acquire
common stock.................. 2,100,000 16,621 -- -- 2,188 -- --
Exercise of Series C preferred
stock warrants................ 161,545 220 -- -- -- -- --
Preferred stock converted to
common stock upon closing of
initial public offering....... (20,189,061) (89,351) 20,189,061 89,351 -- -- --
Common stock issued upon closing
of initial public offering,
net of issuance costs......... -- -- 8,337,500 91,084 -- -- --
Common stock issued for
businesses acquired........... -- -- 8,039,363 116,345 -- -- --
Issuance of warrants for loan
origination fees.............. -- -- -- -- 588 -- --
Issuance of options and warrants
to marketing partners......... -- -- -- 46 2,041 -- --
Exercise of common stock
options....................... -- -- 800,347 1,541 -- (390) --
Exercise of common stock
warrants...................... -- -- 576,156 994 (483) -- --
Issuance of common stock in
consideration for professional
services...................... -- -- 7,000 4 -- -- --
Issuance of common stock in
consideration for investing
activities.................... -- -- 500,263 7,669 -- -- --
Repurchase of common stock...... -- -- (129,228) (46) -- -- --
Issuance of compensatory stock
options....................... -- -- -- 12,345 -- -- (12,183)
Compensation attributable to
stock options vesting......... -- -- -- -- -- -- 6,400
Unrealized gain on
investments................... -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- --
----------- -------- ---------- -------- -------- ----------- ------------
Balances, December 31, 1999....... -- $ -- 42,923,035 $325,892 $ 8,260 $ (390) $ (6,713)
=========== ======== ========== ======== ======== =========== ============

<CAPTION>
-------------------------------------------
Accumulated
Other Total
Comprehensive Accumulated Shareholders'
Income Deficit Equity
------------- ----------- -------------
<S> <C> <C> <C>
Issuances of Series F preferred
stock and warrants to acquire
common stock.................. $ -- $ -- $ 1,400
Issuance of Series G preferred
stock and warrants to acquire
common stock.................. -- -- 35,100
Issuance of Series H preferred
stock and warrants to acquire
common stock.................. -- -- 3,000
Issuance of Series I preferred
stock and warrants to acquire
common stock.................. -- -- 18,809
Exercise of Series C preferred
stock warrants................ -- -- 220
Preferred stock converted to
common stock upon closing of
initial public offering....... -- -- --
Common stock issued upon closing
of initial public offering,
net of issuance costs......... -- -- 91,084
Common stock issued for
businesses acquired........... -- -- 116,345
Issuance of warrants for loan
origination fees.............. -- -- 588
Issuance of options and warrants
to marketing partners......... -- -- 2,087
Exercise of common stock
options....................... -- -- 1,151
Exercise of common stock
warrants...................... -- -- 511
Issuance of common stock in
consideration for professional
services...................... -- -- 4
Issuance of common stock in
consideration for investing
activities.................... -- -- 7,669
Repurchase of common stock...... -- -- (46)
Issuance of compensatory stock
options....................... -- -- 162
Compensation attributable to
stock options vesting......... -- -- 6,400
Unrealized gain on
investments................... 7,470 -- 7,470
Net loss........................ -- (75,943) (75,943)
------------- ----------- ------------
Balances, December 31, 1999....... $ 7,470 $ (105,306) $ 229,213
============= =========== ============
</TABLE>

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

F-12
<PAGE>
ShopNow.com Inc.
Consolidated Statements of Cash Flows

(in thousands)

<TABLE>
<CAPTION>
------------------------------------------
For the Year Ended
December 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net loss.............................................. $ (4,766) (24,745) $ (75,943)
Adjustments to reconcile net loss to net cash used in
operating activities -
Unusual item - impairment of acquired
technology...................................... -- 5,207 --
Depreciation and amortization..................... 277 1,602 13,180
Write down of long-term investments............... 34 -- --
Amortization of deferred compensation............. -- 182 6,562
Operating expenses paid in stock and warrants..... -- 125 2,041
Changes in operating assets and liabilities,
excluding effect of businesses acquired:
Accounts receivable............................. (51) 2,107 (3,389)
Prepaid expenses and other current assets....... (189) (77) (4,640)
Other assets.................................... -- -- (1,559)
Unbilled services and customer deposits, net.... -- (3,713) (615)
Accounts payable................................ 831 2,303 4,453
Accrued liabilities............................. 417 521 7,222
Deferred revenue................................ -- 535 4,676
------------ ------------ ------------
Net cash used in operating activities................... (3,447) (15,953) (48,012)
------------ ------------ ------------
Investing Activities:
Purchases of property and equipment................... (481) (2,189) (13,457)
Purchase of short-term investments.................... -- (150) (101,734)
Sale of short-term investments........................ -- -- 49,712
Sale of marketable equity securities.................. -- -- 112
Investments in equity securities and other assets..... (943) (147) (7,251)
Acquisition of businesses, net of cash acquired of
$2,850 in 1998 and $711 in 1999..................... (250) (2,851) (9,387)
------------ ------------ ------------
Net cash used in investing activities................... (1,674) (5,337) (82,005)
------------ ------------ ------------
</TABLE>

F-13
<PAGE>
ShopNow.com Inc.
Consolidated Statements of Cash Flows (Continued)

(in thousands)

<TABLE>
<CAPTION>
------------------------------------------
For the Year Ended
December 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Financing Activities:
Borrowings under bank line of credit.................. $ 200 $ 38 $ 1,000
Principal payments under bank line of credit.......... (78) -- (1,238)
Proceeds from convertible subordinated notes.......... 1,253 -- --
Proceeds from debt obligations........................ 2,562 3,700 12,410
Payments on debt obligations.......................... (242) (6,034) (7,544)
Proceeds from sale of preferred stock and warrants,
net of issuance costs............................... 1,800 33,034 33,429
Proceeds from sale of common stock, net of issuance
costs............................................... -- 25 92,817
Common stock repurchased.............................. (10) -- (46)
------------ ------------ ------------
Net cash provided by financing activities............... 5,485 30,763 130,828
------------ ------------ ------------
Net increase in cash and cash equivalents............... 364 9,473 811
Cash and cash equivalents at beginning of period........ 12 376 9,849
------------ ------------ ------------
Cash and cash equivalents at end of period.............. $ 376 $ 9,849 $ 10,660
============ ============ ============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest.............. $ 11 $ 232 $ 962
============ ============ ============
Non-cash investing and financing activities:
Conversion of note payable and convertible
subordinated debt to preferred stock.............. $ 1,603 $ 500 $ --
============ ============ ============
Conversion of note payable to common stock.......... $ 89 $ -- $ --
============ ============ ============
Preferred stock issued as part of investment in
marketable equity securities...................... -- -- 25,100
============ ============ ============
Common stock, options and warrants issued and
liabilities
assumed as part of business and technology
acquisitions...................................... $ 90 $ 6,105 $ 129,825
============ ============ ============
Assets acquired under capital leases................ $ 125 $ 2,092 $ 4,607
============ ============ ============
</TABLE>

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

F-14
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999

Note 1. Organization and Background:

THE COMPANY

ShopNow.com Inc. (the Company), formerly TechWave, Inc., provides an end-to-end
solution that enables businesses to engage in e-commerce with other businesses,
merchants and shoppers. The Company's end-to-end solution consists of access to
online marketplaces combined with a suite of e-commerce enabling products and
services, referred to as merchant services. These merchant services include
custom application and online store development and design, hosting and
maintenance, sales and marketing services and transaction processing. The
Company also maintains an online marketplace, referred to as the ShopNow
marketplace, which aggregates merchants and shoppers over a distributed network
of web sites. In January 2000, the Company launched a business-to-business
portal and marketplace, located at b2bNow.com, which is designed to enable
businesses to engage in online transactions with other businesses.

In June, 1999 the Company ceased operating its BuySoftware.com business. Given
the Company's continued involvement in certain retailing activities over the
ShopNow marketplace, the results of BuySoftware.com have been reflected in
continuing operations until the date operations ceased, as the disposal did not
meet the criteria for discontinued operations under Accounting Principles Board
(APB) No. 30 "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions".

The Company is subject to the risks and challenges associated with other
companies at a similar stage of development, including dependence on key
management personnel, successful development and marketing of its products and
services, the continued acceptance of the Internet as a medium for electronic
commerce, competition from substitute products and services from companies with
greater financial, technical management and marketing resources and risks
associated with recent acquisitions. Further, during the period required to
develop or enhance commercially viable products, services and sources of
revenues, the Company may require additional funds that may not be readily
available.

INITIAL PUBLIC OFFERING

On October 4, 1999, the Company closed its initial public offering (IPO) of
7,250,000 shares of common stock at $12.00 per share, for proceeds net of
underwriters' fees and commissions of $80.9 million. At closing, all of the
Company's issued and outstanding shares of convertible preferred stock were
converted into shares of common stock on a one-for-one basis. On November 2,
1999, the underwriters of the IPO exercised their over-allotment option and sold
an additional 1,087,500 shares at $12.00 per share, for proceeds net of
underwriters' fees and commissions of $12.1 million. The combined net proceeds
to the Company, less additional offering costs of approximately $1.9 million,
were $91.1 million. In addition, a $1 million promissory note in connection with
the Company's acquisition of GO Software, Inc. (GO) and a $4 million bridge loan
with a financial institution plus accrued interest were repaid.

Note 2. Summary of Significant Accounting Policies:

PRINCIPLES OF CONSOLIDATION

The Company's consolidated financial statements include 100% of the assets,
liabilities and results of operations of all subsidiaries in which the Company
has a controlling ownership interest of greater than 50%. Equity investments in
which the Company holds less than a 20% ownership interest are recorded at cost
and are included in other assets,

F-15
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 2. Summary of Significant Accounting Policies: (Continued)

net in the accompanying consolidated balance sheets. All significant
intercompany transactions and balances have been eliminated.

Pro forma basic and diluted net loss per share is computed based on the weighted
average number of shares of common stock outstanding giving effect to the
conversion of convertible preferred stock outstanding that automatically
converted upon completion of the Company's initial public offering (using the
if-converted method from the original issuance date) during the fourth quarter
of 1999 (See Note 2). Pro forma diluted net loss per share excludes the impact
of stock options and warrants as the effect of their inclusion would be
antidilutive.

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, the 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.

REVENUE RECOGNITION

The Company derives substantially all of its revenues from the ShopNow
marketplace and from providing merchant services to businesses.

Revenues from the ShopNow marketplace are generated from advertising and
merchandising paid by merchants, leads and orders delivered to merchants, as
well as transaction processing and licensing fees. Advertising consists of the
sale of impressions on one or more of the Company's network of web sites;
merchandising consists of the sale of specific positions or category
sponsorships on the sites. These agreements typically have a term of one to four
months. Advertising and merchandising revenues are recognized ratably over the
term of the applicable agreement. The Company generates transaction processing
and licensing fees from its payment processing and fraud prevention products and
services. In these cases, the merchant bears the full credit risk and the
Company recognizes a transaction fee upon the consummation of the sale. In
addition, the Company offers products directly to shoppers over the ShopNow
marketplace. In these instances where the Company acts as merchant-of-record,
the Company records as revenue the full sales price of the product sold and
records the full cost of the product to the Company as cost of revenues, upon
shipment of the product. Revenues generated from the Company's BuySoftware.com
business are included in ShopNow marketplace and transaction processing revenues
in the accompanying consolidated statements of operations through June 1999, at
which point management ceased operations of BuySoftware.com.

Revenues from merchant services are generated principally through development
fees, hosting fees and sales and marketing services. Merchant services can be
purchased as a complete end-to-end suite of services or separately. The Company
recognizes revenues from development of custom applications and online stores
and marketing projects on a percentage of completion basis over the period of
development or the period of the marketing project. These projects generally
range from two to five months. Hosting contracts typically have a term of one
year, with fees charged on a monthly basis. The Company bears full credit risk
with respect to these sales. Anticipated losses on these contracts are recorded
when identified. To date, losses have not been significant. Contract costs
include all direct labor, material, subcontract and other direct project costs
and certain indirect costs related to contract performance. Changes in job
performance, job conditions and estimated profitability, including those arising
from contract penalty provisions and final contract settlements that may result
in revision to costs and income, are recognized in the period in which the
revisions are determined. Unbilled services typically represent amounts earned
under the Company's

F-16
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 2. Summary of Significant Accounting Policies: (Continued)

contracts not billed due to timing or contract terms, which usually consider
passage of time, achievement of certain milestones or completion of the project.
Where billings exceed revenues earned on contracts, the amounts are included in
the accompanying consolidated balance sheets as customer deposits, as the
amounts typically related to ancillary services, whereby the Company is acting
in an agency capacity. Fee revenue from ancillary services provided by the
merchant services division is recognized upon completion of the related job by
the applicable third party vendor. Deferred revenue consists primarily of
prepaid licensing fees which are being amortized over their contract life (see
Note 13).

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

SHORT-TERM INVESTMENTS AND MARKETABLE EQUITY SECURITIES

The Company classifies these securities as available for sale and are stated at
fair value in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." This statement specifies that available for sale
securities are reported at fair value with changes in unrealized gains and
losses recorded directly to shareholders' equity, which are reflected in
accumulated other comprehensive income in the accompanying consolidated balance
sheets. Fair value is based on quoted market prices. The Company's short-term
investments consist of corporate notes and bonds, commercial paper, municipal
notes and bonds, auction preferreds and US government securities and are stated
at cost, which approximates fair value. Marketable equity securities consist
solely of investments in the common stock of publicly-traded companies and are
recorded at fair value. Unrealized holding gains and losses, net of tax effect,
on available-for-sale securities are excluded from earnings and are reported as
a separate component of other comprehensive income until realized. Realized
gains and losses from the sale of available-for-sale securities are determined
on a specific identification basis. Dividend and interest income are recognized
as earned.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Assets purchased under capital leases
are recorded at cost (based on the present value of future minimum lease
payments discounted at the contractual interest rates). Depreciation is computed
using the straight-line method over the assets' estimated useful lives of two to
seven years, or in the case of leasehold improvements, three years or the life
of the lease, whichever is shorter. Betterments are capitalized. Repairs and
maintenance expenditures are expensed as incurred.

GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets consist primarily of acquired technology, proprietary
concepts, customer lists, domain names and goodwill related to acquisitions
accounted for under the purchase method of accounting. Amortization of these
purchased intangibles is provided on the straight-line basis over the respective
useful lives of the assets, primarily three years. The Company identifies and
records impairment losses on intangible and other assets when events and
circumstances indicate that such assets might be impaired. The Company considers
factors such as significant changes in the regulatory or business climate and
projected future cash flows from the respective asset. Impairment losses are
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset (see Note 3).

F-17
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 2. Summary of Significant Accounting Policies: (Continued)

COST-BASIS INVESTMENTS

The Company's cost-based equity investments, which consist primarily of
investments in the equity securities of certain early-stage technology
companies, were approximately $43,000 and $14.6 million at December 31, 1998 and
1999, respectively, and are classified as other assets, net in the accompanying
consolidated balance sheets. The Company monitors its cost-basis investments for
impairment. There can be no assurance that the Company's investments in these
early-stage technology companies will be realized.

ADVERTISING COSTS

The cost of advertising is expensed as incurred. For the years ended
December 31, 1997, 1998 and 1999, the Company incurred advertising and direct
marketing expenses of approximately $470,000, $5.7 million and $29.1 million,
respectively.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred and consist primarily of
salaries, supplies and contract services.

The Company's accounting policy is to capitalize eligible computer software
development costs upon the establishment of technological feasibility, which the
Company has defined as a completion of a working model. For the years ended
December 31, 1997, 1998 and 1999, the amount of eligible costs to be capitalized
has not been significant, and accordingly, the Company has charged all software
development costs to research and development in the accompanying consolidated
statements of operations.

STOCK COMPENSATION

The Company has adopted the disclosure-only provisions of the SFAS No. 123,
"Accounting for Stock-Based Compensation", and instead applies APB No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the market price of the Company's common stock over the stock option
exercise price at the date of grant. Options and warrants issued to
non-employees are accounted for using the fair value method of accounting as
prescribed by SFAS No. 123.

INCOME TAXES

The shareholders of the Company elected to be treated as an S Corporation under
the Internal Revenue Code until February 26, 1997. As a result, taxable income
until that date was included in the taxable income of the individual
shareholders, and no income tax provision was recorded. In addition, in
accordance with Staff Accounting Bulletin Topic 4B, the Company has reclassified
accumulated losses incurred prior to the date of conversion to C Corporation
status from retained earnings to common stock.

The Company terminated its S Corporation status on February 26, 1997
(Termination) and implemented SFAS No. 109, "Accounting for Income Taxes," upon
becoming a taxable entity. Under SFAS No. 109, deferred tax assets and
liabilities are determined based on the differences between financial reporting
and tax bases of assets and liabilities and are measured using the tax rates
that will be in effect when the differences are expected to reverse. Deferred
taxes were not recorded at Termination as the temporary differences between
recognition of income and expense for financial reporting and tax purposes were
not significant.

F-18
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 2. Summary of Significant Accounting Policies: (Continued)

NET LOSS PER SHARE

In accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
"Computation of Earnings Per Share," basic earnings per share is computed by
dividing net loss by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing net loss by the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares of common stock issuable upon the conversion of the
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of common stock options and warrants (using the treasury stock
method); common equivalent shares are excluded from the calculation if their
effect is antidilutive. The Company has not had any issuances or grants for
nominal consideration as defined under Staff Accounting Bulletin 98. Diluted net
loss per share for all periods shown does not include the effects of the
convertible preferred stock and shares issuable upon the exercise of stock
options and warrants as the effect of their inclusion is antidilutive during
each period.

STATEMENTS OF COMPREHENSIVE LOSS

There were no reclassification adjustments as defined in SFAS 130, "Reporting
Comprehensive Income" or income tax provision related to the unrealized gain on
investments during the year ended December 31, 1999.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The implementation of SOP 98-1 did not have a
material impact on the Company's financial position or results of operations.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The implementation of SOP 98-5
did not have a material impact on the company's financial position or results of
operations.

In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. The Company believes its revenue
recognition practices are in conformity with the guidelines prescribed in SAB
No. 101.

RECLASSIFICATIONS

Certain information reported in previous periods has been reclassified to
conform to the current period presentation.

Note 3. Acquisitions:

In January 1997, the Company formed a wholly owned subsidiary, TechWave
Acquisition, Inc. (TechWave Acquisition). In January 1997, Web Solutions, Inc.
(Web Solutions) and Intelligent Software Solutions, Inc. (Intelligent Software)

F-19
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 3. Acquisitions: (Continued)

merged with and into TechWave Acquisition in exchange for 600,000 shares of the
Company's common stock valued at approximately $90,000, a convertible note
payable for $250,000 ($226,000 in principal and $24,000 in interest), and
$25,000 in cash, aggregating a total purchase price of $341,000. The acquisition
was accounted for in accordance with the purchase method of accounting. The
excess purchase price was principally allocated to acquired technology, which is
amortized over a five-year life. In November 1997, the unpaid principal balance
of $89,000 was converted into 177,333 shares of common stock. Both Web Solutions
and Intelligent Software were software development companies with core
technologies that were incorporated into the Company's electronic software
distribution products. Additionally, the sole shareholder of Web Solutions and
Intelligent Software became an officer of the Company.

In June 1998, the Company acquired e-Warehouse, Inc. and CyberTrust, Inc.,
wholly owned subsidiaries of a publicly traded Canadian company. The sellers had
developed certain payment processing technologies that the Company had planned
to utilize in their e-commerce offerings. Consideration for these acquisitions
consisted of $4.0 million in cash and 422,710 shares of the Company's common
stock (valued at $3.30 per share), with a total value of approximately
$5.4 million. The acquisition was recorded using the purchase method of
accounting. The Company never fully utilized the acquired technology and had
determined that it had no alternative future use or value in the Company's
transaction processing systems, as the Company's existing technology platform
provided the enhanced functionality needed in the Company's business operations.
Due to the impairment of the acquired technology, the Company wrote off all of
the excess purchase price, except for value assigned to domain names, in the
accompanying 1998 consolidated statement of operations. As a result of the
impairment, the Company commenced legal proceedings in December 1998 against two
of the executives associated with the acquired companies. In January 1999, the
two executives filed a counterclaim against the Company. On August 10, 1999, all
legal proceedings were settled, resulting in an insignificant charge to the
Company.

In August 1998, the Company completed its acquisition of The Internet Mall,
which was doing business as ShopNow, Inc. (ShopNow). The Internet Mall, Inc.
operated a shopping aggregation Web site and provided the Company with
technology and merchant relationships to assist in the development of an online
shopping portal. In connection with this acquisition, the Company issued 719,915
shares of common stock, valued at $3.30 per share, and warrants to purchase
common stock for a total purchase price of approximately $2.6 million. The
acquisition was accounted for using the purchase method of accounting. Of the
total excess purchase price of $2.6 million, approximately $1.5 million was
allocated to customer lists and domain names, which are amortized over a
three-year life, with the remainder being allocated to acquired technology,
workforce and goodwill, which are amortized over three-year lives.

In September 1998, the Company entered into a purchase and merger agreement with
Media Assets, Inc. (doing business as The Haggin Group). The Haggin Group is a
creative design and direct marketing firm with offices in California. The
Company paid The Haggin Group consideration including $300,000 in cash, a
promissory note for $1.0 million, 600,000 shares of the Company's common stock,
valued at $3.30 per share, and options to acquire common stock for a total
purchase price of approximately $3.3 million. The terms of the promissory note
require payments, by the Company, of eight equal quarterly installments of
approximately $113,000 on the first day of each quarter commencing January 1,
1999 until fully paid on October 1, 2000. The acquisition was accounted for
using the purchase method of accounting. The excess purchase price of
approximately $1.7 million was allocated to customer lists and domain names and
is being amortized over a three-year life. In connection with this acquisition,
three employees were granted a total of 1.2 million options at exercise prices
between $2.00 and $3.00 per share to acquire the Company's common stock. The
vesting of these options was dependent upon the achievement of certain

F-20
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 3. Acquisitions: (Continued)

performance measures related to business unit revenue and customer growth as
defined in the stock option agreements. The performance measures initially
established were well beyond the historical financial results achieved during
prior periods. As such, during the period these options were outstanding, the
thresholds established to trigger vesting were not considered achievable and
were not achieved. As no measurement date for the options occurred and since the
price of the options was fixed, the number of shares to be ultimately issued was
not known. Since these thresholds were not considered achievable, these options
were cancelled in May of 1999. The three employees were granted fixed-price
options to purchase 405,000 shares of the Company's common stock with time
vesting provisions not dependent upon performance. These options had the same
strike prices and vesting terms as the original grants. As the grant of the new
options created a new measurement date, the Company recorded $1.9 million of
deferred compensation for the difference between the strike price and the
underlying fair market value of the common stock at May 1999, which was
determined to be $7.22 per share. The Company also recognized a compensation
charge of $831,000 for the immediately vested portion of these grants in the
accompanying consolidated December 31, 1999 financial statements.

In June 1999, the Company acquired GO Software, Inc. (GO). GO develops and
markets transaction processing software for personal computers that can function
on a stand-alone basis or can interface with core corporate accounting systems.
The Company paid GO $4.7 million in cash, issued a $1 million promissory note
bearing interest at 10%, and issued 1,123,751 shares of common stock, valued at
$8.54 per share, for a total purchase price of $15.4 million. The acquisition
was accounted for using the purchase method of accounting. Of the excess
purchase price of approximately $14.4 million, $13.8 million was allocated to
acquired technology and $556,000 was allocated to goodwill, which are both being
amortized over a three-year life. The note bore interest at 10% and was repaid
in full upon completion of the Company's IPO.

Also in June 1999, the Company acquired CardSecure, Inc. (CardSecure) for a
purchase price of approximately $3.5 million. CardSecure is a developer of
e-commerce enabled Web sites. The acquisition was accounted for using the
purchase method of accounting. The excess purchase price of approximately
$3.5 million was allocated to acquired technology and is being amortized over a
three-year life (see Note 3).

On November 12, 1999, the Company acquired SpeedyClick, Corp. (SpeedyClick), a
California corporation, for $55.6 million of cash, common stock and common stock
options. SpeedyClick, a privately held company, maintains an Internet web site
that focuses on entertainment and interactivity. Upon effectiveness of the
acquisition, a total of 3,799,237 shares of common stock valued at $13.31 per
share were issued to the owners of SpeedyClick. Options to purchase SpeedyClick
common stock were assumed by the Company and converted into 157,537 options to
purchase the Company's common stock. The Company also paid cash consideration of
$3.0 million to the owners of SpeedyClick. The Company accounted for this
transaction as a purchase. Of the $55.6 million in consideration paid,
approximately $27.9 was allocated to proprietary concepts, $14.7 million to
customer lists and $13.0 million to goodwill. These intangible assets are being
amortized over a three-year life.

On December 3, 1999, the Company acquired Cortix, Inc. (Cortix), an Arizona
corporation doing business as 20-20Consumer.com, for $14.4 million of cash and
common stock. Cortix, a privately held company, is an operator of comparison
shopping services including online reviews and ratings for commerce-oriented
businesses, merchants and products. Upon effectiveness of the acquisition,
711,435 shares of common stock valued at $18.81 per share were issued to the
owners of Cortix. The Company also paid cash consideration of $1.0 million to
the owners of Cortix. The Company accounted for this transaction as a purchase.
Of the $14.4 million in consideration paid, approximately $11.4 million was
allocated to acquired technology, $1.6 million to customer lists and
$1.3 million to goodwill. These intangible assets are being amortized over a
three-year life.

F-21
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 3. Acquisitions: (Continued)

On December 17, 1999, the Company acquired WebCentric Inc., (WebCentric) a
Kansas corporation doing business as bottomdollar.com, for $40.2 million of
common stock, common stock options and including approximately $1.4 million of
cash. WebCentric, a privately held company, develops e-commerce integration
technology and applications, including a comparison shopping engine that allows
consumers to search and compare the products and services of several leading
Internet merchants. Upon effectiveness of the acquisition, a total of 2,161,904
shares of common stock valued at $16.89 per share were issued to the owners of
WebCentric. In addition, the Company issued replacement stock options to
purchase an aggregate of 121,544 shares of the Company's common stock to certain
employees and owners of WebCentric. The Company accounted for this transaction
as a purchase. Of the $40.2 million in consideration paid, approximately
$31.8 million was allocated to acquired technology, $3.3 million to customer
lists and $4.6 million to goodwill. These intangible assets are being amortized
over a three-year life.

In January 2000, the Company entered into a definitive agreement to acquire
Ubarter.com, Inc. (Ubarter), for approximately $45 million of common stock,
common stock options and common stock warrants. Ubarter, a publicly traded
company, is an e-commerce company specializing in online business-to-business
barter exchange. The acquisition is expected to close in the second quarter of
2000 subject to the Company's effectiveness of a registration statement on
Form S-4 with the Securities and Exchange Commission and the approval of the
shareholders of Ubarter.

UNAUDITED PRO FORMA COMBINED RESULTS

The following summarizes the unaudited pro forma results of the Company's
operations for the years ended December 31, 1997, 1998 and 1999, assuming the
Media Assets, Inc., and The Internet Mall, Inc. transactions occurred as of
January 1, 1997 and the GO, CardSecure, SpeedyClick, Cortix and WebCentric
transactions occurred as of January 1, 1998. Pro forma information for the
e-Warehouse, Inc. and CyberTrust, Inc. transactions is not presented, as it is
not considered meaningful. The pro forma results are presented for the purposes
of additional analysis only and do not purport to present the results of
operations that would have occurred for the periods presented or that may occur
in the future.

<TABLE>
<CAPTION>
-------------------------------
Year Ended December 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
(in thousands, except
per share amounts)
<S> <C> <C> <C>
Revenues.................................................... $ 6,426 $ 14,202 $ 40,144
Net loss.................................................... $(4,917) $(61,542) $(114,209)
Net loss per share.......................................... $ (0.98) $ (4.88) $ (5.79)
</TABLE>

F-22
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 4. Short-Term Investments:

Short-term investments are summarized as follows (in thousands):

<TABLE>
<CAPTION>
-------------------
December 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Auction preferreds.......................................... $ -- $14,647
Municipal notes and bonds................................... -- 13,453
Commercial paper............................................ -- 11,452
Corporate notes and bonds................................... -- 6,298
U.S. government securities.................................. -- 6,172
Certificate of deposit...................................... 150 150
---- -------
Total short-term investments................................ $150 $52,172
==== =======
</TABLE>

Included in the U.S. government securities category is $2.6 million pledged as a
letter of credit for certain of the Company's office facilities.

Note 5. Property and Equipment:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
-------------------
December 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Equipment................................................... $ 3,313 $11,065
Software.................................................... 759 10,645
Furniture and fixtures...................................... 568 1,618
Leasehold improvements...................................... 548 817
------- -------
5,188 24,145
Less - Accumulated depreciation and amortization............ (1,003) (4,760)
------- -------
Property and equipment, net................................. $ 4,185 $19,385
======= =======
</TABLE>

Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $186,000, $816,000 and $3.6 million, respectively.

Property and equipment shown above include assets under capital leases of
approximately $2.2 million and $6.9 million at December 31, 1998 and 1999, with
corresponding accumulated amortization of approximately $270,000 and
$1.0 million at December 31, 1998 and 1999, respectively.

F-23
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 6. Other Intangible Assets:

Other intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
-------------------
December 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Acquired technology......................................... $ 840 $ 61,297
Proprietary concept......................................... -- 27,910
Customer lists.............................................. 1,978 22,297
Domain names................................................ 1,533 1,775
Other....................................................... 386 402
------ --------
4,737 113,681
Less - Accumulated amortization............................. (793) (8,968)
------ --------
$3,944 $104,713
====== ========
</TABLE>

Note 7. Investments in Marketable Equity Securities:

At December 31, 1999, the Company held 476,410 shares of 24/7 Media and 85,122
shares of FreeShop.com, Inc. (FreeShop), both of which are publicly traded
companies subject to the reporting requirements of the Securities and Exchange
Commission. During the fourth quarter of 1999, the Company sold 110,000 of its
original 195,122 shares of FreeShop for a recognized gain of $2.4 million. The
Company's cost basis in these investments was $200,000 and $23.4 million as of
December 31, 1998 and 1999, respectively, resulting in net unrealized holding
gains of zero and $7.5 million, for the years ended December 31, 1998 and 1999,
respectively.

Note 8. Accrued Liabilities:

Accrued liabilities consists of the following (in thousands):

<TABLE>
<CAPTION>
-------------------
December 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued compensation and benefits........................... $ 576 $4,422
Accrued marketing expenses.................................. -- 2,145
Other accrued liabilities................................... 556 2,211
------ ------
$1,132 $8,778
====== ======
</TABLE>

Note 9. Line of Credit:

The Company had a line of credit with a financial institution with a maximum
balance of $300,000. The line of credit bore interest at prime plus 2% (9.75% at
December 31, 1998), with interest payable monthly. The line of credit expired
and the principal balance was paid in February 1999. The line of credit was
secured by assets of the Company.

F-24
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 9. Line of Credit: (Continued)

In March 1999, the Company entered into a loan and security agreement
(agreement) with a financial institution for a term loan and line of credit. In
May 1999, the agreement was amended and restated allowing the Company to borrow
up to $8.5 million at any one time, consisting of a $3.5 million term loan (term
loan), a $4.0 million bridge loan (bridge loan) and a line of credit of up to
$2.5 million, initially capped at $1.0 million until the bridge loan was repaid.
The line of credit bears interest at the financial institution's base rate plus
2%, is secured by substantially all assets of the Company and was amended in
January 2000 to expire on March 31, 2001. The term loan bears interest at 12%,
is secured by substantially all assets of the Company and matures in
March 2002. The bridge loan bore interest at 12% and was repaid in October 1999
after the closing of the Company's initial public offering. In conjunction with
the agreement, the Company issued warrants to acquire 72,000 shares of common
stock at an exercise price of $6.25 per share. The warrants are exercisable
immediately and expire in March 2006. In May 1999 in connection with the
modification, the Company issued additional warrants to acquire 70,000 shares of
common stock at an exercise price of $7.00 per share. The warrants are
exercisable immediately and expire in June 2006.

Note 10. Notes and Leases Payable:

Notes and leases payable consist of the following (in thousands):

<TABLE>
<CAPTION>
-------------------
December 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Convertible note payable to shareholder, interest at
applicable short-term federal rate, quarterly principal
and interest payments totaling $113,000; final payment due
in October 2000. The note is convertible to common stock
at $8.00 per share........................................ $ 859 $ 437
Term note payable bearing interest at 12% per year,
principal and interest payments payable monthly, final
payment due in March 2002................................. -- 3,086
Capital lease obligations and other notes payable, interest,
and principal payable monthly, interest at rates from 6%
to 18% with maturity dates between 2000 and 2005.......... 2,111 10,451
------- -------
2,970 13,974
Less - current portion...................................... (1,133) (8,565)
------- -------
$ 1,837 $ 5,409
======= =======
</TABLE>

In September 1997, the Company issued 9% Subordinated Demand Notes totaling
$500,000 to each of two shareholders. In January 1998, the principal amount of
these Demand Notes was converted to 125,000 shares of Series D preferred stock
and interest of approximately $13,000 was paid in cash.

In November 1997, the Company completed a bridge financing with individual
investors and executed Promissory Notes with principal totaling $1.8 million.
The interest on this principal was 12% per year, increasing by 1% per year each
30 days to a maximum of 18% per year. In connection with the closing of the
Company's Series D equity placement in January 1998, the $1.8 million plus
interest of approximately $61,000 was paid in full. The placement agent and the
holders of the Promissory Notes also received warrants to purchase 177,500 and
62,125 shares of the Company's common stock, respectively, at $1.50 per share.
The warrants are exercisable immediately and expire in October 2000.

In October 1998, the Company completed a bridge financing with individual
investors and executed Promissory notes with principal totaling $3.7 million.
The interest on this principal was 13% per year. In connection with the

F-25
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 10. Notes and Leases Payable: (Continued)

Company's Series F equity placement in December 1998, the $3.7 million plus
interest of approximately $12,000 was paid in full. The placement agent and the
holders of the promissory notes also received 129,500 and 129,500 warrants,
respectively, to purchase a total of 259,000 shares of the Company's common
stock at $4.00 per share. The warrants are exercisable immediately and expire in
October 2001.

Notes and leases payable mature as follows for the periods ending December 31,
1999 (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 8,565
2001........................................................ 4,115
2002........................................................ 1,204
2003........................................................ 82
2004........................................................ 6
Thereafter.................................................. 2
-------
$13,974
=======
</TABLE>

Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair market value of long-term debt
approximates the carrying amount at December 31, 1999.

Note 11. Commitments:

The Company is obligated under capital and operating leases for various
equipment leases and its office facilities. The leases expire through 2011.
Future minimum lease payments under these leases are as follows for the period
ending December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
--------------------
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
2000........................................................ $ 7,498 $ 2,968
2001........................................................ 3,064 6,219
2002........................................................ 925 5,694
2003........................................................ 98 5,609
2004........................................................ 9 5,453
Thereafter.................................................. 2 32,785
------- -------
11,596 $58,728
=======
Less - Amounts representing interest........................ (1,200)
-------
Net present value of minimum lease payment.................. $10,396
=======
</TABLE>

In 1999, the Company issued 62,400 warrants to purchase common stock at $6.25
per share to two financial institutions in conjunction with certain leases
included above. The warrants are exercisable immediately and expire between
June 2004 and April 2006.

Rental expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $127,000, $225,000 and $1.3 million, respectively.

F-26
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 11. Commitments: (Continued)

The Company has commitments under various business agreements to purchase
advertising totaling approximately $6.0 million in 2000, decreasing to
$1.0 million in 2004.

Note 12. Income Taxes:

The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit for any of the periods presented
because it has experienced operating losses since inception, and has
historically provided full valuation allowances on deferred tax assets because
of uncertainty regarding their realizability. In December 1999, the Company's
valuation allowance was reduced to zero due to the increase in deferred tax
liabilities recognized from business acquisitions, which as of December 31,
1999, exceed the amount of deferred tax assets recognized by the Company.
Deferred tax assets consist primarily of net operating loss carryforwards,
stock-compensation expense not recognized for tax purposes and deferred revenue
recognized immediately for tax purposes during 1999. Deferred tax liabilities
consist primarily of intangible assets not recognized for tax purposes and
accelerated tax depreciation deductions exceeding the amounts recognized by the
Company in its consolidated financial statements.

The difference between the expected income tax rate of 38% (federal statutory
rate of 34% plus a blend of state income tax rates, net of the federal benefit)
and the tax provision of zero recorded by the Company is primarily due to the
Company's full valuation allowance against its deferred tax assets through the
end of 1999.

At December 31, 1999, the Company had net operating loss carryforwards of
approximately $76.4 million related to U.S. federal, foreign and state
jurisdictions. Utilization of net operating loss carryforwards are subject to
certain limitations under Section 382 of the Internal Revenue Code of 1986, as
amended. Our ability to use net operating losses incurred prior to July 1999 is
limited to an aggregate of approximately $14.3 million per year due to sales of
Series D and Series E convertible preferred stock to third parties in April 1998
and the sale of Series I convertible stock to Chase Manhattan Bank in July 1999,
which resulted in ownership changes. These carryforwards will begin to expire at
various times commencing in 2012.

F-27
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 12. Income Taxes: (Continued)

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

<TABLE>
<CAPTION>
-------------------
December 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 7,500 $ 29,021
Stock-based compensation.................................. 62 2,730
Deferred revenue.......................................... -- 1,889
Other..................................................... 138 311
Valuation allowance for deferred tax assets............... (6,400) --
------- --------
Total deferred assets....................................... 1,300 33,951
------- --------
Deferred tax liabilities:
Intangible assets......................................... (1,281) (38,398)
Property and equipment.................................... (19) (64)
------- --------
Total deferred liabilities.................................. (1,300) (38,462)
------- --------
Net deferred tax liabilities................................ $ -- $ (4,511)
======= ========
</TABLE>

Note 13. Shareholders' Equity:

CONVERTIBLE PREFERRED STOCK

At December 31, 1999, the Company had authorized 200,000,000 shares of common
stock and 5,000,000 shares of convertible preferred stock. Shares of convertible
preferred stock may be issued from time to time in one or more series, with
designations, preferences and limitations established by the Company's board of
directors. As of

F-28
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 13. Shareholders' Equity: (Continued)

December 31, 1999, the Company had designated nine series of convertible
preferred stock (designated Series A through I). Amounts outstanding were as
follows:

<TABLE>
<CAPTION>
-----------------------
December 31,
-----------------------
1998 1999
---------- ----------
(dollars in thousands)
<S> <C> <C>
Series A preferred stock: Issued 699,612 shares in 1997,
aggregate liquidation preference $350,000................. $ 350 $ --
Series B preferred stock: Issued 2,334,079 shares in 1997,
aggregate liquidation preference $1,800,000............... 1,800 --
Series C preferred stock: Issued 996,748 shares in 1997,
aggregate liquidation preference $1,473,000............... 1,253 --
Series D preferred stock: Issued 4,250,000 shares in 1998,
aggregate liquidation preference $17,000,000.............. 13,461 --
Series E preferred stock: Issued 2,125,000 shares in 1998,
aggregate liquidation preference $8,500,000............... 7,672 --
Series F preferred stock: Issued 2,056,000 shares in 1998
and 2,336,000 in 1999, aggregate liquidation preference
$12,850,000............................................... 10,534 --
--------- ---------
$ 35,070 $ --
========= =========
</TABLE>

Shareholders of convertible preferred stock have the right to one vote for each
share of common stock into which the preferred stock could be converted. In the
event of liquidation, preferred shareholders are entitled to a per-share
distribution in preference to common shareholders equal to the original issue
price. In the event the funds are insufficient to make a complete distribution
to the preferred shareholders, then all of the funds available shall be
distributed ratably based on their respective liquidation preferences among the
holders of preferred stock. All series of the Company's outstanding preferred
stock were converted into common stock on a one-for-one basis upon completion of
the Company's IPO during the fourth quarter of 1999.

During the period from January 23, 1998 through April 15, 1998, the Company
completed a $25.5 million private equity placement. The Company issued
4.25 million shares of Series D and 2.125 million shares of Series E preferred
stock each at $4.00 per share, for a total of 6.375 million shares. In
conjunction with this sale, the Company issued 637,500 warrants to purchase
common stock at $5.00 per share. The warrants are currently exercisable and
expire on their third anniversary. In addition, the Company issued to the
placement agent 625,000 warrants to purchase common stock at $4.40 per share.
The warrants are exercisable immediately and expire on their third anniversary.

During the fourth quarter of 1998 and the first quarter of 1999, the Company
completed a $14.6 million private equity placement. The Company issued 2,336,000
shares of Series F preferred stock at $6.25 per share. In conjunction with this
sale, the Company issued 233,600 warrants to purchase common stock at $7.50 per
share. The warrants are exercisable on the first anniversary of their issuance
and expire on their third anniversary. In addition, the Company issued to the
placement agent 233,600 warrants to purchase common stock at $6.25 per share.
The warrants are exercisable immediately and expire on their third anniversary.

As a condition to the commencement of the Series D private equity placement
described above, the holders of the Series A, Series B, and Series C stock
agreed to an amended and restated Articles of Incorporation that amended and

F-29
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 13. Shareholders' Equity: (Continued)

deleted certain rights of the Series A, Series B, and Series C stock, including
redemption and preferential dividend rights.

In March and April 1999, the Company completed a $5 million private equity
placement. The Company issued 714,286 shares of Series G preferred stock at
$7.00 per share and 35,715 warrants to purchase common stock at $7.50 per share.
The warrants are exercisable immediately and expire on their third anniversary.

In April 1999, the Company entered into a cross promotion agreement and equity
exchange agreement with 24/7 Media. As a part of the equity exchange agreement,
24/7 Media acquired 4.3 million shares of the Company's Series G preferred stock
at $7.00 per share and 860,000 warrants to acquire common stock at $7.00 per
share in exchange for consideration valued at $30.1 million. The warrants are
exercisable immediately and expire on their third anniversary. The purchase
price consists of three parts: $5.0 million in cash, 466,683 shares of
24/7 Media's common stock, and the right to acquire 24/7 Media's interest in
CardSecure. In June, 1999, the Company acquired 24/7 Media's interest in
CardSecure and also acquired the remaining minority interest from CardSecure's
founders and received 9,727 additional shares of 24/7 Media's common stock by
issuing 243,036 shares of the Company's common stock valued at $8.54 per share.

In May 1999, the Company completed a $3 million private equity placement. The
Company issued 333,334 shares of Series H preferred stock at $9.00 per share and
50,000 warrants to purchase common stock at $9.00 per share. The warrants are
exercisable immediately and expire on their third anniversary.

In July 1999 the Company closed an $18.9 million private equity placement with a
financial institution pursuant to the terms of a stock purchase agreement which
had been entered into on June 17, 1999. The Company issued 2,100,000 shares of
Series I preferred stock at $9.00 per share and 555,556 warrants to purchase
common stock at $9.00 per share. The warrants are exercisable immediately and
expire on their third anniversary. The Series I preferred stock contains
substantially the same rights and preferences as the previous series of
preferred stock. In conjunction with the Series I preferred stock, the Company
entered into an agreement with the financial institution and received
$6.1 million in cash, which represents prepaid licensing fees. These prepaid
fees are being recognized as revenue over a 27-month period on a straight-line
basis, which represents the term of the agreement.

STOCK OPTION PLANS

The Company adopted a combined incentive and nonqualified stock option plan (the
Plan) to provide incentive to employees, directors, consultants and advisors.
The Company originally reserved 5,000,000 shares of common stock for issuance
under the Plan. During 1999, the Company amended the Plan and increased the
shares reserved for issuance under the Plan to 8,000,000. The Company has
granted options to purchase 2,331,733 shares to Company executives outside the
Plan. In December 1999, the Company adopted a nonexecutive officer stock option
plan (the NOE Plan) to provide incentive to certain employees and consultants.
The Company reserved 1,000,000 shares of common stock for issuance under the NOE
Plan, which also allows for automatic increases in the number of shares issuable
based on certain events, up to a maximum number of 4,000,000 shares. In
December 1999, in connection with our acquisition of SpeedyClick, Corp., the
Company assumed the SpeedyClick 1999 Stock Incentive Plan (the SpeedyClick
Plan). The SpeedyClick Plan was designed to provide incentive to employees,
directors, consultants and advisors. The Company has reserved 157,537 shares of
common stock for issuance under the SpeedyClick Plan. There are 375,000 shares
of common stock reserved for issuance under the SpeedyClick Plan, however the
Company does not intend to make further grants of options under this Plan.

F-30
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 13. Shareholders' Equity: (Continued)

Options under the Plan, the NOE Plan, the SpeedyClick Plan and options granted
outside of the Plan (the Plans) generally expire 10 years from the date of
grant. The Board of Directors determines the terms and conditions of options
granted under the Plans, including the exercise price. Options are generally
granted at fair market value on the date of grant and generally vest ratably
over a three-year period from the date of grant.

Under APB No. 25, the Company records compensation expense over the vesting
period for the difference between the exercise price and the deemed fair market
value for financial reporting purposes of stock options granted. Prior to the
Company's IPO, the fair value of common stock had been based on factors
including, but not limited to, preferred stock sales, milestones achieved in the
development of the Company, comparisons to competitive public companies and
general market conditions. Subsequent to the IPO, fair value has been determined
using the Company's closing stock price as quoted in the public market. In
conjunction with grants made in 1997, 1998 and 1999, the Company recorded zero,
$182,000 and $6.6 million as stock compensation expense in the accompanying
December 31, 1997, 1998 and 1999 consolidated statements of operations,
respectively.

The Company has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation expense been recognized on stock options issued based on the fair
value of the options at the date of grant and recognized over the vesting
period, the Company's net loss would have been increased to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
------------------------------
December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported............................................... $(4,766) $(24,745) $(75,943)
Pro forma................................................. (4,766) (25,067) (83,443)
Basic and diluted net loss per share:
As reported............................................... $ (1.83) $ (7.01) $ (5.80)
Pro forma................................................. (1.83) (7.10) (6.37)
</TABLE>

The fair value of each option is estimated using the Black-Scholes option
pricing model that takes into account: (1) the fair value stock price at the
grant date, (2) the exercise price, (3) estimated lives ranging from two to
three years, (4) no dividends, (5) risk-free interest rates ranging from 5.3% to
6.5% and (6) volatility ranging from 0% through June 18, 1999, 72.0% subsequent
to June 18, 1999 through September 30, 1999, and 88.3% subsequent to
September 30, 1999. The initial impact on pro forma net loss may not be
representative of compensation expense in future years when the effect of the
amortization of multiple awards would be reflected in results from operations.

F-31
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 13. Shareholders' Equity: (Continued)

A summary of activity related to stock option grants under the Plans follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
1997 1998 1999
-------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period........ 145,500 $0.47 1,793,515 $0.54 4,333,566 $1.91
Granted................................. 1,813,482 0.55 3,087,379 2.60 7,409,430 6.83
Exercised............................... -- -- (27,499) 0.77 (672,004) 2.09
Canceled................................ (165,467) 0.60 (519,829) 2.28 (758,009) 4.06
--------- --------- ----------
Outstanding at end of period.............. 1,793,515 0.54 4,333,566 1.91 10,312,983 5.28
========= ========= ==========
Exercisable at the end of the period...... 436,653 0.68 1,681,026 1.06 3,231,952 2.17
========= ========= ==========
</TABLE>

The following information is provided for all stock options outstanding and
exercisable at December 31, 1999:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Outstanding Exercisable
------------------------------------------ --------------------------
Weighted
Average
Weighted Remaining Weighted
Number of Average Contractual Number of Average
Exercise Price Range Options Exercise Price Life (Years) Options Exercise Price
- -------------------- ---------- -------------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
$0.00 to $2.24...................... 2,993,280 $ 1.07 6.9 2,190,418 $ 0.97
$2.25 to $6.73...................... 2,513,008 3.81 8.8 826,637 3.79
$6.74 to $8.96...................... 1,159,460 7.00 9.3 144,733 7.00
$8.97 to $11.21..................... 2,292,946 9.58 9.6 54,678 9.04
$11.22 to $17.93.................... 1,078,289 12.97 9.8 10,236 13.41
$17.94 to $22.42.................... 276,000 21.25 10.0 5,250 21.25
---------- ------ ---- --------- ------
10,312,983 $ 6.08 8.6 3,231,952 $ 2.17
========== ====== ==== ========= ======
</TABLE>

During the fourth quarter of 1999, the contingent performance criteria relating
to a stock option grant made outside of the Plan for 310,000 shares of the
Company's common stock with an exercise price of $4.00 were satisfied.
Accordingly, a stock-based compensation charge of approximately $3.3 million was
recognized in the accompanying December 31, 1999 consolidated statement of
operations.

At December 31, 1999, 1,554,974 shares of common stock were available for future
grants under the Plans. Also, 11,867,957 shares of common stock were authorized
but unissued relating to outstanding and available stock option grants under the
Plans.

WARRANTS AND OPTIONS ISSUED TO BUSINESS PARTNERS

On April 29, 1999, pursuant to a distribution and marketing agreement with a
telecommunications company, the Company issued warrants to purchase 100,000
shares of the Company's common stock at $10 per share. The warrants are
exercisable immediately and expire in April 2002. Simultaneously, the Company
entered into a put

F-32
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 13. Shareholders' Equity: (Continued)

agreement, which allows the telecommunications company to put the shares back to
the Company for $25.00 per share during the period from June 2001 to
August 2001. The number of shares subject to the put warrant declines over time
as the Company generates revenue under the marketing and distribution agreement.
In accordance with EITF 96-13, the Company recorded the fair value of the put
warrant in the accompanying consolidated balance sheet as of December 31, 1999.

On May 19, 1999, the Company entered into a distribution agreement with a
software manufacturer. As part of this agreement, the Company issued warrants to
purchase 100,000 shares of common stock at $9.00 per share, options to purchase
300,000 shares of common stock at $4.80 per share and 200,000 shares of common
stock valued at $9.00 per share.

During the third and fourth quarters of 1999, the Company granted warrants to
purchase 183,782 shares of the Company's common stock to certain marketing
partners at exercise prices ranging from $9.50 to $18.94. These warrants were
immediately exercisable when granted and expire between 1 and 5 years from the
date of grant.

EMPLOYEE STOCK PURCHASE PLAN

During 1999, the Company's Board of Directors and shareholders approved and
adopted an employee stock purchase plan (the ESPP). A total of 2,000,000 shares
of common stock have been reserved for issuance under the ESPP, which allows for
future increases. During two six-month purchase periods each year, eligible
employees may withhold up to 10% of their salary, plus commissions, to purchase
common stock at a price equal to 85% of the lesser of the fair market value of
the Company's common stock on the first or the last day of the applicable six
month purchase period. The ESPP will continue for a term of 10 years, unless
terminated earlier by the Company's Board of Directors. As of December 31, 1999,
no shares had been sold to employees under the ESPP. The first sale of shares to
employees is scheduled to occur on April 30, 2000.

The following shares of common stock were reserved at December 31, 1999:

<TABLE>
<S> <C>
Convertible preferred stock................................. --
Stock options............................................... 11,867,957
Common stock warrants....................................... 3,806,281
Employee stock purchase plan................................ 2,000,000
----------
17,674,238
==========
</TABLE>

Note 14. Segment Information:

The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the first quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available, evaluated regularly by
the chief operating decision makers, or a decision making group, in deciding how
to allocate resources and in assessing performance. The Company's chief
operating decision making group is comprised of the chief executive officer and
various executive vice presidents and general managers of the Company. The
Company has identified three distinct reportable segments: merchant services,
the ShopNow

F-33
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 14. Segment Information: (Continued)

marketplace and transaction processing and retail product sales through the
BuySoftware.com Web site. While the decision making group evaluates results in a
number of different ways, the line of business management structure is the
primary basis for which it assesses financial performance and allocates
resources. The accounting policies of the line of business operating segments
are the same as those described in the summary of significant accounting
policies.

The following table represents the Company's segment information for the years
ended December 31, 1997, 1998 and 1999 (in thousands):

<TABLE>
<CAPTION>
------------------------------
December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
ShopNow marketplace and transaction processing (excluding
BuySoftware.com).......................................... $ 35 $ 280 $ 16,094
Merchant services (excluding BuySoftware.com)............... 500 2,416 10,938
BuySoftware.com............................................. 69 4,458 9,923
------- -------- --------
604 7,154 36,955
------- -------- --------
Cost of revenues:
ShopNow marketplace and transaction processing (excluding
BuySoftware.com).......................................... 35 142 9,016
Merchant services (excluding BuySoftware.com)............... 356 1,255 7,123
BuySoftware.com............................................. 124 4,452 11,190
------- -------- --------
515 5,849 27,329
------- -------- --------
Gross profit:
ShopNow marketplace and transaction processing (excluding
BuySoftware.com).......................................... -- 138 7,078
Merchant services (excluding BuySoftware.com)............... 144 1,161 3,815
BuySoftware.com............................................. (55) 6 (1,267)
------- -------- --------
$ 89 $ 1,305 $ 9,626
======= ======== ========
Profit reconciliation:
Gross profit for reportable segments........................ $ 89 $ 1,305 $ 9,626
Operating expenses.......................................... (4,691) (26,221) (88,320)
Nonoperating expenses, net.................................. (164) 171 2,751
------- -------- --------
Net loss.................................................... $(4,766) $(24,745) $(75,943)
======= ======== ========
</TABLE>

The Company does not track assets by operating segments. Consequently is it not
practicable to show assets by operating segments.

Note 15. Related Party Transactions:

During 1999, the Company purchased approximately $3.5 million in marketing and
advertising from 24/7 Media, a significant shareholder of the Company. Also
during 1999, the Company recognized approximately $539,000 in merchant services
revenues from Art Gallary Live (AGL), in which the Company also owns a minority
investment.

F-34
<PAGE>

ShopNow.com Inc.
Notes to Consolidated Financial Statements
December 31, 1999 (Continued)

Note 16. Subsequent Events:

On January 18, 2000, the Company acquired AXC Corporation, (AXC) a Washington
corporation, for $16.0 million of total consideration, including common stock,
common stock options, approximately $1.5 million of cash and $3.7 million in
deferred tax liabilities. AXC, a privately held company, provides e-commerce
consulting services to businesses. Upon effectiveness of the acquisition, a
total of 540,296 shares of common stock valued at $17.60 per share were issued
to the owners of AXC. In addition, the Company issued replacement stock options
to purchase an aggregate of 72,089 shares of the Company's common stock to
certain employees and owners of AXC. The Company accounted for this transaction
as a purchase. Of the $16.0 million in consideration paid, approximately
$7.2 million was allocated to assembled workforce, $4.9 million to customer
lists and $3.8 million to goodwill. These intangible assets are being amortized
over a three-year life.

On January 13, 2000, the Company, through its wholly owned subsidiary 3037952
Nova Scotia Company, a Nova Scotia Company, acquired Pronet Enterprises Ltd., a
Canadian company, for approximately $3.2 million in cash and $9.1 million in
common stock and common stock options. Pronet, a privately held company,
operates a business-to-business portal and marketplace that aggregates
businesses that seek to transact with one another. Upon effectiveness of the
acquisition, a total of 162,508 shares of common stock, valued at $17.60 per
share, were issued to the shareholders Pronet. In addition, the Company issued
options to purchase 351,666 shares of common stock to the two principals of
Pronet. The Company accounted for this transaction as a purchase. Allocations of
the excess purchase price of this acquisition has not yet been determined. All
intangible assets acquired in the purchase are expected to be amortized over a
three-year estimated useful life.

F-35
<PAGE>
Report of Independent Auditors

Board of Directors
GO Software, Inc.

We have audited the accompanying balance sheets of GO Software, Inc. (the
Company) as of December 31, 1997 and 1998, the related statements of operations,
shareholder's equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GO Software, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.

/s/ Ernst & Young LLP

Jacksonville, Florida
June 11, 1999

F-36
<PAGE>
GO Software, Inc.

Balance Sheets

(in thousands except share and per share amounts)

<TABLE>
<CAPTION>
------------------------------------------
December 31,
--------------------------- June 15,
1997 1998 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents................................ $ 1,047 $ 766 $ 640
Accounts receivable, net of allowance of $55 in 1997, $49
in 1998 and $62 in 1999 (unaudited).................... 56 137 236
Refundable income taxes.................................. -- 33 33
Inventory................................................ 5 11 9
Prepaid expenses and other current assets................ 13 36 19
------------ ------------ ------------
Total current assets....................................... 1,121 983 937
------------ ------------ ------------
Property and equipment, at cost:
Computer equipment....................................... 47 106 123
Office equipment......................................... 22 32 35
------------ ------------ ------------
69 138 158
Accumulated depreciation................................. (20) (50) (68)
------------ ------------ ------------
Net property and equipment................................. 49 88 90
------------ ------------ ------------
Capitalized software development costs..................... -- 28 28
Deferred income tax asset.................................. 2 7 20
------------ ------------ ------------
Total assets............................................... $ 1,172 $ 1,106 $ 1,075
============ ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Trade accounts payable and accrued expenses.............. $ 26 $ 66 $ 88
Income taxes payable..................................... 20 -- 3
Other taxes payable...................................... 5 2 --
Deferred revenue......................................... 9 21 128
------------ ------------ ------------
Total current liabilities.................................. 60 89 219
------------ ------------ ------------
Deferred income tax liability.............................. 17 24 24
Series A redeemable preferred stock, $1.39167 par value per
share, 700,597 and 664,671 shares authorized and
outstanding (liquidation value).......................... 1,043 1,194 1,293
Shareholders' equity (deficit):
Common stock, no par value, 10,000,000 shares authorized
and 1,000,000 shares outstanding....................... 10 10 10
Paid-in capital.......................................... 211 211 211
Retained earnings (deficit).............................. (169) (422) (682)
------------ ------------ ------------
Total shareholders' equity (deficit)....................... 52 (201) (461)
------------ ------------ ------------
Total liabilities and shareholders' equity................. $ 1,172 $ 1,106 $ 1,075
============ ============ ============
</TABLE>

See accompanying notes.

F-37
<PAGE>
GO Software, Inc.

Statements of Operations

(in thousands)

<TABLE>
<CAPTION>
----------------------------------------------
Years ended
December 31, January 1, 1999
--------------------------- to June 15,
1997 1998 1999
------------ ------------ ----------------
(Unaudited)
<S> <C> <C> <C>
Net revenues.......................................... $ 793 $ 1,346 $ 728
Cost of goods sold.................................... 21 55 45
------------ ------------ ------------
Gross profit.......................................... 772 1,291 683
Selling, general and administrative expenses.......... 410 1,149 686
Research and development.............................. 130 253 182
------------ ------------ ------------
Operating (loss) income............................... 232 (111) (185)
Interest income....................................... 17 41 12
------------ ------------ ------------
(Loss) income before income taxes..................... 249 (70) (173)
Benefit (provision) for income taxes.................. (34) 17 12
------------ ------------ ------------
Net (loss) income..................................... $ 215 $ (53) $ (161)
============ ============ ============
</TABLE>

See accompanying notes.

F-38
<PAGE>
GO Software, Inc.

Statements of Shareholder's Equity (Deficit)

(in thousands)

<TABLE>
<CAPTION>
---------------------------------------------------------
Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................ $ 10 $ -- $ 62 $ 72
Net income prior to conversion to C
Corporation............................... -- -- 141 141
Conversion from S Corporation to C
Corporation............................... -- 203 (203) --
Accretion of Series A redeemable preferred
stock dividends........................... -- -- (68) (68)
Distributions to shareholders............... -- -- (175) (175)
Issuance of options......................... -- 8 -- 8
Net income.................................. -- -- 74 74
------------ ------------ ------------ ------------

Balance at December 31, 1997................ 10 211 (169) 52
Net loss.................................... -- -- (53) (53)
Accretion of Series A redeemable preferred
stock dividends........................... -- -- (200) (200)
------------ ------------ ------------ ------------

Balance at December 31, 1998................ 10 211 (422) (201)
Net loss (unaudited)........................ -- -- (161) (161)
Accretion of Series A redeemable preferred
stock dividends (unaudited)............... -- -- (99) (99)
------------ ------------ ------------ ------------
Balance at June 15, 1999 (unaudited)........ $ 10 $ 211 $ (682) $ (461)
============ ============ ============ ============
</TABLE>

See accompanying notes.

F-39
<PAGE>
GO Software, Inc.

Statements of Cash Flows

(in thousands)

<TABLE>
<CAPTION>
----------------------------------------------
Years ended December 31 January 1, 1999
--------------------------- to June 15,
1997 1998 1999
------------ ------------ ----------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income..................................... $ 215 $ (53) $ (161)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization....................... 14 29 18
Issuance of options................................. 8 -- --
Changes in operating assets and liabilities:
Increase in accounts receivable, net.............. (38) (81) (99)
Increase in refundable income taxes............... -- (33) --
Increase (decrease) in inventory.................. (5) (6) 2
Increase (decrease) in prepaid expenses and other
current assets.................................. (13) (23) 17
Increase (decrease) in deferred income tax
liabilities, net................................ 15 2 (13)
Increase in deferred revenue...................... 6 12 107
Increase in accounts payable and accrued
expenses........................................ 23 17 22
Increase in income and other taxes payable........ 25 -- 1
------------ ------------ ------------
Net cash (used in) provided by operating activities... 250 (136) (106)
------------ ------------ ------------

Cash flows from investing activities
Additions to property and equipment................... (40) (67) (20)
Capitalized software development costs................ -- (28) --
------------ ------------ ------------
Net cash used in investing activities................. (40) (95) (20)
------------ ------------ ------------

Cash flows from financing activities
Distributions to shareholders......................... (175) -- --
Proceeds from issuance of Series A redeemable
preferred stock..................................... 1,000 -- --
Repurchase of preferred stock......................... (25) (50) --
------------ ------------ ------------
Net cash (used in) provided by financing activities... 800 (50) --
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents......................................... 1,010 (281) (126)
Cash and cash equivalents, beginning of year.......... 37 1,047 766
------------ ------------ ------------
Cash and cash equivalents, end of year................ $ 1,047 $ 766 $ 640
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during period for taxes................... $ -- $ 33 $ --
============ ============ ============
Noncash financing activities:
Accretion of Series A redeemable preferred stock.... $ 68 $ 200 $ 99
============ ============ ============
</TABLE>

See accompanying notes.

F-40
<PAGE>
GO Software, Inc.

Notes to Financial Statements

December 31, 1998

(in thousands except share and per share amounts)

Note 1. Organization and Nature of Business

GO Software, Inc. (the Company) was incorporated in Georgia in 1994. Initially,
the sole shareholder, in exchange for his knowledge in the fields of software
development and credit card processing, along with the rights to certain
software products, received 1,000,000 shares of common stock of the Company
after adjustment for the stock dividend (Note 3). The Company develops and
markets transaction processing software for personal computers that can function
on a stand-alone basis or can interface with core corporate accounting systems.
The Company currently sells its products to businesses in the United States and
Canada.

Note 2. Summary of Significant Accounting Policies

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 disclosures 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.

REVENUE RECOGNITION

The Company licenses software under license agreements that include multiple
elements including software and maintenance and support services. In accordance
with SOP 97-2, license agreement revenues are allocated to the various elements
based on "vendor-specific objective evidence of fair value." Revenues for the
software element are recognized when a license agreement has been signed,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. Revenues from maintenance agreements are recognized ratably over the
maintenance period.

The Company may bill resellers under which no shipment is made until sales are
made by the reseller to a third-party end user. Revenues from these arrangements
are deferred and recognized upon shipment to the third-party end user.

INVENTORY

Inventory, consisting of software media, manuals, and related packaging
materials, is stated at the lower of cost, determined on the first-in, first-out
basis, or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three years.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid short-term investments with maturities
of three months or less when purchased to be cash equivalents.

F-41
<PAGE>
GO Software, Inc.

Notes to Financial Statements (Continued)

December 31, 1998

(in thousands except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (Continued)
SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs in accordance with Statement
of Financial Accounting Standards (SFAS) No. 86. Costs incurred prior to
establishment of technological feasibility are expensed as incurred. Software
development costs of $0 and $28 were capitalized as of December 31, 1997 and
1998, respectively.

Amortization of capitalized software costs commences when the software is
available for general release to customers. Amortization is based on the
straight-line method over the estimated economic life of the product, which may
range from three to five years. No amortization was recorded in 1998 as none of
the products for which costs were capitalized were available for general release
by the end of the year.

DEFERRED REVENUE

Deferred revenue represents license fees and maintenance and support which have
been sold and payment received but not earned at year end.

During August 1997, the Company changed its income tax status from a Subchapter
S Corporation, which generally does not provide for income taxes at the
corporate level, to a C Corporation, which does provide for income taxes at the
corporate level. Accordingly, as of 1997, the accompanying financial statements
include a provision for income taxes.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires
income taxes to be recognized using the liability method. Specifically, deferred
tax assets and liabilities are determined based on estimated future tax effects
attributable to temporary differences between the amount of assets and
liabilities recognized for financial reporting and income tax purposes.

CREDIT RISK

The Company extends credit to certain customers, generally resellers. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.

ADVERTISING AND PROMOTION

All costs associated with advertising and promoting products are expensed when
incurred. Advertising expense was $69 in 1997 and $143 in 1998.

Note 3. Shareholder's Equity

Effective January 2, 1997, the Company amended its Articles of Incorporation to
increase the number of authorized shares of no par common stock from 10,000 to
10,000,000. In connection with the recapitalization, the Company issued a stock
dividend of 999 shares of common stock for every 1 share of common stock
outstanding.

F-42
<PAGE>
GO Software, Inc.

Notes to Financial Statements (Continued)

December 31, 1998

(in thousands except share and per share amounts)

Note 4. Series A Redeemable Preferred Stock

On August 22, 1997 (the Closing Date), the Company executed an agreement with
certain private investors (the Investors) to issue 718,563 shares of convertible
preferred stock (the Preferred Stock) to the Investors for cash consideration of
$1,000. During 1997 and 1998, the Company acquired and retired $25 and $50,
respectively, of the outstanding preferred stock at the initial purchase price
(par value) plus a 4% return. The Preferred Stock is convertible initially on a
one-to-one basis into shares of common stock. The Preferred Stock is
automatically convertible into common stock upon an initial public offering of
the Company's common stock meeting certain conditions. The Preferred Stock has
certain anti-dilution features, has voting rights for the number of common
shares into which it is convertible, and has certain demand registration rights.
The Investors may put the Preferred Stock back to the Company at the initial
purchase price plus a 20% rate of return, compounded annually and cumulatively
from the Closing Date, beginning one-third on June 30, 2001, one-third on
June 30, 2002, and one-third on June 30, 2003. The Preferred Stock has a
liquidation preference equal to the face value of the Preferred Stock plus a
return compounded annually and cumulatively at 20% per year for the first two
years and 40% per year thereafter to the earlier of June 30, 2003 or the date
the Company liquidates, dissolves, or winds up its affairs. As of December 31,
1997 and 1998, returns related to the defined redemption price, which are
included in preferred stock on the accompanying balance sheets were $68 and
$269, respectively.

Note 5. Employee Stock Option Plan

Effective January 2, 1997, the Company adopted the 1997 Stock Incentive Plan
(the Plan). Under the terms of the Plan, the Company may grant incentive stock
options, nonqualified stock options, and restricted stock grants to employees
and other key persons, as defined. The total number of shares of common stock
reserved under the Plan is 277,445. Options are exercisable for a maximum of 10
years from the date of grant and must be granted at an exercise price at least
equal to fair value. Options generally vest on a pro rata basis over four years
from the date of grant.

In accordance with APB 25, the Company records no compensation expense for its
stock options when the exercise price equals or exceeds the fair value of common
stock on the date of grant. Pro forma information regarding net income is
required by FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for the options
were estimated at the date of grant using the minimum value method with the
following weighted-average assumptions for 1998 and 1997: risk-free interest
rate of 5.60%; dividend yield of 0%; and a weighted-average expected life of the
options of 10 years.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The per share weighted
average fair value of options granted during the year ended

F-43
<PAGE>
GO Software, Inc.

Notes to Financial Statements (Continued)

December 31, 1998

(in thousands except share and per share amounts)

Note 5. Employee Stock Option Plan (Continued)
December 31, 1997 and 1998 was $.00 and $.61, respectively. The Company's 1997
and 1998 pro forma information follows:

<TABLE>
<CAPTION>
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
(Loss) income before pro forma effect of stock options...... $ 215 $ (53)
Pro forma compensation expense from stock options:
1997 grant................................................ -- --
1998 grants............................................... -- 19
------------ ------------

Pro forma net (loss) income................................. $ 215 $ (72)
============ ============
</TABLE>

Because options vest over several years and additional option grants are
expected, the effects of these pro forma calculations are not likely to be
representative of similar future calculations.

The following table summarizes option activity for the Company's stock option
plan for the years ended December 31, 1997 and 1998. During 1997, an employee
holding 199,601 options under the Plan resigned from the Company and forfeited
all options held, including vested and unvested options.

<TABLE>
<CAPTION>
----------------------------------------------
Weighted
Exercise Price Average
Shares per Share Exercise Price
------------ -------------- --------------
<S> <C> <C> <C>
Granted............................................... 208,801 $.26 to $3.00 $ .38
Exercised............................................. -- -- --
Canceled.............................................. 199,601 $.26 $ .26
------------

Balance, December 31, 1997............................ 9,200 $3.00 $ 3.00
Granted............................................... 215,581 $1.39 to $2.00 $ 1.41
Exercised............................................. -- -- --
Canceled.............................................. -- -- --
------------

Balance, December 31, 1998............................ 224,781 $1.39 to $3.00 $ 1.49
============
</TABLE>

No options are exercisable at December 31, 1998. Subsequent to December 31,
1998, 39,920 options granted in 1988 were canceled. The pro forma compensation
expense from these options is not included in the pro forma information above.

Note 6. Commitment

LEASE

The Company leases office space under a lease which expired in March 1999 and is
continuing on a month-to-month basis. The lease requires 60 days notice prior to
vacating the space. Future lease payments under this lease at December 31, 1998
are approximately $7. Lease expense for 1997 and 1998 was $12 and $22,
respectively.

F-44
<PAGE>
GO Software, Inc.

Notes to Financial Statements (Continued)

December 31, 1998

(in thousands except share and per share amounts)

Note 7. Income Taxes

The provision for income tax (expense) benefit consists of the following:

<TABLE>
<CAPTION>
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Current:
Federal................................................... $ (15) $ 15
State..................................................... (5) 5
------------ ------------
(20) 20
------------ ------------
Deferred:
Federal................................................... (12) (2)
State..................................................... (2) (1)
------------ ------------
(14) (3)
------------ ------------
$ (34) $ 17
============ ============
</TABLE>

<TABLE>
<CAPTION>
---------------------------
December 31
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $ 2 $ 3
NOL carryforward.......................................... -- 4
------------ ------------
Total deferred tax assets................................... 2 7
------------ ------------
Deferred tax liabilities:
Capitalized software development costs.................... -- 7
Accelerated depreciation.................................. 17 17
------------ ------------
Total deferred tax liabilities.............................. 17 24
------------ ------------
Net deferred tax liabilities................................ $ 15 $ 17
============ ============
</TABLE>

As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $16, which expire in 2013, if not utilized.

Utilization of the net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating loss before utilization.

Note 8. Sale of Business

On June 15, 1999, the Company was acquired by ShopNow.com Inc.

F-45
<PAGE>
Independent Auditor's Report

The Board of Directors
WebCentric, Inc.:

We have audited the accompanying balance sheet of WebCentric, Inc. as of
December 31, 1998 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the period August 15, 1997 (date of inception) to
December 31, 1997 and the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WebCentric, Inc. as of
December 31, 1998 and the results of their operations and their cash flows for
the period August 15, 1997 (date of inception) to December 31, 1997, the year
ended December 31, 1998, in conformity with generally accepted accounting
principles.

KPMG LLP

Omaha, Nebraska
November 5, 1999, except as
to Note 6 which is as
of February 2, 2000

F-46
<PAGE>

WebCentric, Inc.
Balance Sheets
December 31, 1998 and December 16, 1999 (unaudited)

<TABLE>
<CAPTION>
-----------------------------
December 31, December 16,
1998 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 46,795 $ 62,418
Trade accounts receivable, net of allowance of $8,500 and
$2,500 for 1998 and 1999, respectively.................. 94,460 665,477
Other current assets...................................... -- 2,494
Income taxes recoverable.................................. -- 150,796
------------ ------------
Total current assets.................................... 141,255 881,185
Certificate of deposit...................................... 30,000 31,469
Property and equipment, net................................. 26,828 363,324
------------ ------------
Total assets............................................ $ 198,083 $ 1,275,978
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable.................................... $ 49,680 $ 177,874
Accrued liabilities....................................... 12,394 48,795
Capital lease - current portion........................... 5,627 67,702
Long-term debt - current installments..................... 6,853 18,563
------------ ------------
Total current liabilities............................... 74,554 312,934
Capital lease, net of current portion....................... 18,150 108,850
Long-term debt, net of current installments................. 123,081 134,904
------------ ------------
Total liabilities....................................... 215,785 556,688
------------ ------------
Preferred stock............................................. -- 1,046,466

Stockholders' Deficit:
Common stock, $.01 par value; 1,000,000 shares authorized;
276,000 shares issued and outstanding as of
December 16, 1999 and December 31, 1998, respectively... 2,760 2,760
Additional paid-in capital................................ 110,028 --
Retained deficit:
Stockholders............................................ (130,490) --
Corporate............................................... -- (329,756)
------------ ------------
(17,702) (326,996)
Treasury stock............................................ -- (180)
------------ ------------
Total stockholders' deficit............................. (17,702) (327,176)
------------ ------------
Total liabilities and stockholders' deficit............. $ 198,083 $ 1,275,978
============ ============
</TABLE>

See accompanying notes to financial statements.

F-47
<PAGE>

WebCentric, Inc.
Statements of Operations
Period August 15, 1997 (date of inception) to December 31, 1997,
the year ended December 31, 1998 and the period
January 1, 1999 to December 16, 1999

<TABLE>
<CAPTION>
---------------------------------------------
December 31, December 31, December 16,
1997 1998 1999
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Revenues:
Retailer referral compensation............................ $ -- $ 288,882 $ 815,157
Advertising sales......................................... -- 98,467 735,517
International licensing/royalties......................... -- -- 100,000
Other..................................................... 248 1,654 10,432
------------ ------------ ------------
248 389,003 1,661,106
Costs of services........................................... -- 184,703 625,819
------------ ------------ ------------
Gross profit............................................ 248 204,300 1,035,287
------------ ------------ ------------

Operating Expenses:
Sales and marketing....................................... 12,985 44,499 512,237
General and administrative................................ 14,426 129,512 558,629
Research and development.................................. -- 83,698 405,301
------------ ------------ ------------
Total operating expenses................................ 27,411 257,709 1,476,167
------------ ------------ ------------
Operating loss.......................................... (27,163) (53,409) (440,880)
Net interest expense........................................ -- 6,775 9,965
------------ ------------ ------------
Loss before income taxes................................ (27,163) (60,184) (450,845)
Income tax benefit.......................................... -- -- 150,796
------------ ------------ ------------
Net loss................................................ $ (27,163) $ (60,184) $ (300,049)
============ ============ ============
</TABLE>

See accompanying notes to financial statements.

F-48
<PAGE>

WebCentric, Inc.
Statements of Stockholders' Equity (Deficit)
Period August 15, 1997 (date of inception) to December 31, 1997,
the year ended December 31, 1998 and the period January 1, 1999 to December 16,
1999 (unaudited)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Total
Additional Retained deficit stockholders'
Common paid-in ------------------------- Treasury equity
stock capital Stockholders Corporate stock (deficit)
-------- ---------- ------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 15, 1997 (date of
inception)............................ $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 20,000 shares of common
stock, $.01 par value................. 2,620 (620) -- -- -- 2,000
Additional capital contributed by
stockholders.......................... -- 30,000 -- -- -- 30,000
Net loss................................ -- -- (27,163) -- -- (27,163)
-------- --------- --------- --------- -------- ------------
Balance at December 31, 1997............ 2,620 29,380 (27,163) -- -- 4,837
Issuance of 1,053 shares of common
stock, $.01 par value................. 140 648 -- -- -- 788
Additional capital contributed by
stockholders.......................... -- 80,000 -- -- -- 80,000
Distributions to stockholders........... -- -- (43,143) -- -- (43,143)
Net loss................................ -- -- (60,184) -- -- (60,184)
-------- --------- --------- --------- -------- ------------
Balance at December 31, 1998............ 2,760 110,028 (130,490) -- -- (17,702)
Acquisition of treasury stock........... -- 180 -- -- (180) --
Officer's compensation expense.......... -- 50,000 -- -- -- 50,000
Distributions to stockholders........... -- -- (12,959) -- -- (12,959)
Elimination of stockholders' retained
deficit............................... -- (160,208) 177,427 (17,219) -- --
Accumulation of dividends for preferred
stock................................. -- -- -- (46,466) -- (46,466)
Net loss................................ -- -- (33,978) (266,071) -- (300,049)
-------- --------- --------- --------- -------- ------------
Balance at December 16, 1999
(unaudited)........................... $ 2,760 $ -- $ -- $(329,756) $ (180) $ (327,176)
======== ========= ========= ========= ======== ============
</TABLE>

See accompanying notes to financial statements.

F-49
<PAGE>

WebCentric, Inc.
Statements of Cash Flows
Period August 15, 1997 (date of inception) to December 31, 1997,
the year ended December 31, 1998 and the period January 1, 1999 to December 16,
1999

<TABLE>
<CAPTION>
---------------------------------------------
December 31, December 31, December 16,
1997 1998 1999
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (27,163) $ (60,184) $ (300,049)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 42 1,060 22,382
Officer's compensation expense.......................... -- -- 50,000
(Increase) decrease in:
Trade accounts receivable............................. (228) (94,232) (571,017)
Other current assets.................................. -- -- (2,494)
Income taxes recoverable.............................. -- -- (150,796)
(Increase) decrease in:
Trade accounts payable................................ -- 49,680 128,194
Accrued liabilities................................... 3,436 8,958 31,245
------------ ------------ ------------
Total adjustments..................................... 3,250 (34,534) (492,486)
------------ ------------ ------------
Net cash used in operating activities................. (23,913) (94,718) (792,535)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of equipment.................................. (1,000) (1,859) (189,024)
Certificate of deposit.................................... -- (30,000) (1,469)
------------ ------------ ------------
Net cash used in investing activities................. (1,000) (31,859) (190,493)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt.............................. -- 132,000 34,941
Payments on long-term debt and capital leases............. -- (3,360) (23,331)
Proceeds from issuance of capital......................... 32,000 80,788 1,000,000
S Corporation distributions............................... -- (43,143) (12,959)
------------ ------------ ------------
Net cash provided by financing activities............. 32,000 166,285 998,651
------------ ------------ ------------
Net increase in cash.................................. 7,087 39,708 15,623
Cash at beginning of period................................. -- 7,087 46,795
------------ ------------ ------------

Cash at end of period....................................... $ 7,087 $ 46,795 $ 62,418
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................. $ -- $ 8,426 $ 19,876
============ ============ ============
Capital lease obligations incurred........................ $ -- $ 25,071 $ 172,189
============ ============ ============
</TABLE>

See accompanying notes to financial statements.

F-50
<PAGE>
WebCentric, Inc.
Notes to Financial Statements

Note 1. Organization and Summary of Significant Accounting Policies

WebCentric, Inc. (the "Company") has developed proprietary data integration
technology and an application of that technology through its Bottom Dollar
shopping search engine capability. It is one of the first firms to deploy what
is known as "agent" or "bot" virtual search assistant technology. This
technology offers a comprehensive, easy to use and accessible way for consumers
to shop the Web, enabling them to quickly and easily compare key decision
factors, such as price and availability, on an extensive selection of products
from top Internet merchants. They access the Bottom Dollar shopping search
engine capability by the Company's web site at "http://www.bottomdollar.com" or
by visiting one of the 1,000+ partner sites that have implemented the Bottom
Dollar shopping search engine capabilities on their sites.

UNAUDITED FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
contain all adjustments, consisting of normal recurring adjustments, necessary
to fairly present the financial information included therein.

The Company suggests that this financial data be read in conjunction with the
audited financial statements and notes. Results for the interim period presented
are not necessarily indicative of results to be expected for the entire year.

PROPERTY AND EQUIPMENT

The Company's equipment is depreciated using primarily the straight-line method.
The Company has various items of equipment under capital lease that are more
specifically identified in note 4. The leased property under capital lease is
amortized over the expected useful life of the property.

REVENUE RECOGNITION

Retailer referral compensation revenue is earned over the terms of the contract,
which is generated on a "click-thru" or commission basis. Advertising sales
revenue is earned each time an advertisement is displayed on a web site.
International licensing/royalties revenues are recognized as earned under the
terms of the contract.

ADVERTISING COSTS

The Company expenses advertising costs as they are incurred. Advertising
expenses for the period August 15, 1997 (date of inception) to December 31, 1997
and year ended December 31, 1998 were $6,221 and $28,377, respectively.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to expense as incurred and amounted
to $0 for the period August 15, 1997 (date of inception) to December 31, 1997
and $83,698 for the year ended December 31, 1998.

INCOME TAXES

The Company had elected to be taxed as an "S Corporation" under Code Section
1362 of the Internal Revenue Code. Consequently, with limited exceptions, the
Company is not taxed at the corporate level. The Company does not anticipate any
of the limited exceptions to create a corporate-level tax and, therefore, no
income taxes have been accrued for the Company.

F-51
<PAGE>
WebCentric, Inc.
Notes to Financial Statements (Continued)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)
USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and reported amounts of
revenues and expenses to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.

Note 2. Equipment and Leased Property Under Capital Lease

Equipment and leased property under capital lease consist of the following at
December 31, 1998:

<TABLE>
<S> <C>
Furniture and fixtures...................................... $ 1,788
Equipment................................................... 1,071
Computer equipment.......................................... 25,071
----------
27,930
Accumulated depreciation and amortization................... (1,102)
----------
$ 26,828
==========
</TABLE>

Note 3. Debt

The Company's long-term debt consists of the following at December 31, 1998:

<TABLE>
<S> <C>
Variable notes payable carrying an interest rate of 2.25%
over prime (10.5% at September 30, 1999), interest only
payable monthly and is due in one lump sum payment of all
outstanding principal plus all accrued interest at
March 1, 2003............................................. $ 100,000
9.75% note payable, due in monthly installments of $312.96,
including interest, final payment plus interest due
August 2003............................................... 13,982
9.75% note payable, due in monthly installments of $328.25,
including interest, final payment plus interest due
August 2001............................................... 9,164
9.25% note payable, due in monthly installments of $145.60,
including interest, final payment plus interest due
October 2003.............................................. 6,788
----------
Total long-term debt...................................... 129,934
Less current installments of long-term debt................. 6,853
----------
Long-term debt, excluding current installments............ $ 123,081
==========
</TABLE>

The $100,000 note is secured by a real estate mortgage on property owned by two
of the Company's shareholders and a $30,000 certificate of deposit. This note is
insured by the Small Business Administration.

The remaining three notes, above, are secured by all inventory, chattel paper,
accounts, equipment, and general intangibles.

F-52
<PAGE>
WebCentric, Inc.
Notes to Financial Statements (Continued)

Note 3. Debt (Continued)
The following is a summary of principal maturities of long-term debt during the
next five years:

Note 4. Commitments

The Company leases computer equipment under a capital lease. The economic
substance of the lease is that the Company is financing the acquisition of the
asset through the lease, and accordingly, it is recorded in the Company's assets
and liabilities. The Company also leases facilities under operating lease
agreements. The following is a summary of future minimum lease payments under
capitalized leases and under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1998:

<TABLE>
<CAPTION>
---------------------------
Capitalized Operating
leases leases
------------ ------------
<S> <C> <C>
Year ending December 31:
1999...................................................... $ 7,379 $ 6,661
2000...................................................... 9,839 1,651
2001...................................................... 9,839 413
2002...................................................... 1,166 --
------------ ------------
Total minimum lease payments............................ 28,223 $ 8,725
============
Inputed interest, at rates ranging from 10.0% to 17.1%...... (4,446)
------------
Present value of minimum capitalized lease payments..... 23,777
Current portion............................................. 5,627
------------
Long-term capitalized lease obligations................. $ 18,150
============
</TABLE>

Assets recorded under capital leases are included in property and equipment at
December 31, 1998 are as follows:

<TABLE>
<S> <C>
Computer equipment.......................................... $ 25,071
Accumulated depreciation.................................... (835)
----------
$ 24,236
==========
</TABLE>

Rental expense for operating leases amounted to $0, and $7,176, for the period
August 15, 1997 (date of inception) to December 31, 1997 and year ended
December 31, 1998, respectively.

F-53
<PAGE>
WebCentric, Inc.
Notes to Financial Statements (Continued)

Note 5. Concentration of Credit Risk

The Company's customers, while concentrated in the United States, are spread
across diverse market sectors. For the year ended December 31, 1998, sales to
three customers accounted for 38% of sales, with accounts receivable balances
totaling $5,004 and no customers meeting the 10% threshold for the period
August 15, 1997 (date of inception) to December 31, 1997. The Company's accounts
receivable are unsecured and the Company is at risk to the extent such amounts
become uncollectible. The Company establishes its allowance for doubtful
accounts based upon the credit risk of specific customers, historical trends,
and other information.

Note 6. Subsequent Events

Effective May 1, 1999, the Company became a "C Corporation" in which the Company
uses the asset and liability method to account for income taxes.

On May 19, 1999, the Company effected a 13.12-to-1 stock split, which has been
given retroactive effect in the accompanying financial statements.

During May, 1999, 24,000 shares of preferred stock with a par value of $.01 were
authorized, issued, and outstanding. The cumulative preferred stock pays 8%
preferential dividends and is convertible to common stock at the holder's option
at a price of $41.66. The preferred stock is redeemable after five years at
either the holder's or Company's option. The holder can redeem the stock at a
price per share equal to the original cost plus all accumulated dividends plus a
default premium. The Company can redeem at the original cost plus all accrued
and unpaid dividends. Accumulated dividends are immediately due and payable upon
conversion into common stock or if the Company is sold.

During May 1999, the Company adopted a stock option plan (the "Plan"). A total
of 18,000 shares of common stock have been reserved for issuance pursuant to the
Plan. In September 1999, the Company's shareholders granted options to employees
of the Company with an exercise price of $1.00, which was below the fair value
of the common stock on the date of grant. The related compensation expense was
minimal and not recorded for these grants. Had compensation cost for the stock
option grants been determined using the fair value method, the Company's net
loss would have been unaffected.

During November, the Company arranged for the purchase of additional computer
equipment totaling approximately $128,200, with payments being made over a three
year period. The financing arrangement is guaranteed by two shareholders of the
Company.

Effective December 16, 1999, the Company was acquired in a stock purchase by
ShopNow.com, Inc.

F-54
<PAGE>
Report of Independent Public Accountants

To ShopNow.com Inc.:

We have audited the accompanying balance sheet of SpeedyClick, Corp. (a
California corporation) as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the period from
inception (September 1, 1998) to December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SpeedyClick, Corp. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (September 1, 1998) to December 31, 1998 in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Seattle, Washington,
November 24, 1999

F-55
<PAGE>
SpeedyClick, Corp.

Balance Sheets

<TABLE>
<CAPTION>
----------------------------
December 31, November 12,
1998 1999
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS

Current assets:
Cash...................................................... $ 4,272 $ 19,863
Accounts receivable, net of allowance of $0 and $13,900... -- 217,247
------------ ------------
Total current assets.................................... 4,272 237,110

Property and equipment, at cost, net of $0 and $27,137 of
accumulated depreciation.................................. -- 158,054

Other assets................................................ 2,477 18,714
------------ ------------
Total assets............................................ $ 6,749 $ 413,878
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable.......................................... $ -- $ 131,503
Accrued compensation and benefits......................... 10,558 94,631
Accrued expenses.......................................... -- 50,000
Deferred revenue.......................................... -- 29,404
Current portion of notes payable and other long-term
liabilities............................................. -- 36,858
------------ ------------
Total current liabilities............................... 10,558 342,396

Notes payable and other long-term liabilities, net of
current portion........................................... -- 19,782
------------ ------------
Total liabilities........................................... 10,558 362,178
------------ ------------
Stockholders' equity (deficit):
Preferred stock, no par value; 0 and 1,000,000 shares
authorized; 0 and 535,000 shares issued and outstanding;
preference in liquidation of $535,000 at November 12,
1999.................................................... -- 535,000
Common stock and paid-in capital, $0.01 par value;
10,000,000 and 7,000,000 shares authorized; 4,999,995
and 5,378,020 issued and outstanding, respectively...... 31,000 413,803
Accumulated deficit......................................... (34,809) (897,103)
------------ ------------
Total stockholders' equity (deficit)........................ (3,809) 51,700
------------ ------------

Total liabilities and stockholders' deficit................. $ 6,749 $ 413,878
============ ============
</TABLE>

The accompanying notes are an integral part of these sheets.

F-56
<PAGE>
SpeedyClick, Corp.

Statements of Operations

<TABLE>
<CAPTION>
----------------------------------------
Period From
Inception
(September 1, 1998) January 1, 1999
to to
December 31, 1998 November 12, 1999
-------------------- -----------------
(unaudited)
<S> <C> <C>
Revenues.................................................... $ -- $ 646,870
-------------------- -----------------
Operating expenses:
Sales and marketing....................................... 4,188 913,849
General and administrative................................ 2,490 405,231
Research and development.................................. 28,131 186,722
-------------------- -----------------
Total operating expenses................................ 34,809 1,505,802
-------------------- -----------------
Loss from operations........................................ (34,809) (858,932)

Interest expense, net....................................... -- (3,362)
-------------------- -----------------
Net loss.................................................... $ (34,809) $ (862,294)
==================== =================
</TABLE>

The accompanying notes are an integral part of these statements.

F-57
<PAGE>
SpeedyClick, Corp.

Statements of Cash Flows

<TABLE>
<CAPTION>
-----------------------------------------
Period from Inception January 1, 1999
(September 1, 1998) to
to December 31, 1998 November 12, 1999
--------------------- -----------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (34,809) $ (862,294)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation.............................................. -- 27,137
Changes in operating assets and liabilities:..............
Accounts receivable....................................... -- (217,247)
Other assets.............................................. (2,477) (16,237)
Accounts payable.......................................... -- 131,503
Accrued compensation, benefits and expenses............... 10,558 134,073
Deferred revenue.......................................... -- 29,404
-------------------- -----------------
Net cash used in operating activities..................... (26,728) (773,661)
-------------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment....................... -- (114,258)
-------------------- -----------------
Net cash used in investing activities..................... -- (114,258)
-------------------- -----------------
Cash flows from financing activities:
Sales of common stock..................................... 9,000 114,500
Sales of Series A preferred stock......................... -- 435,000
Exercise of common stock options.......................... -- 8,303
Capital contributions by founders......................... 22,000 60,000
Borrowings on notes payable............................... -- 300,000
Repayments of notes payable............................... -- (14,293)
-------------------- -----------------
Net cash provided by financing activities................. 31,000 903,510
-------------------- -----------------
Net increase in cash........................................ 4,272 15,591

Cash, beginning of period................................... -- 4,272
-------------------- -----------------
Cash, end of period......................................... $ 4,272 $ 19,863
==================== =================
Supplemental disclosure of cash flow information and noncash
activities:
Cash paid for interest.................................... $ -- $ 3,362
Conversion of notes payable into Series A preferred
stock................................................... $ -- $ 100,000
Conversion of notes payable into common stock............. $ -- $ 200,000
Property and equipment acquired under notes payable....... $ -- $ 70,933
</TABLE>

The accompanying notes are an integral part of these statements.

F-58
<PAGE>
SpeedyClick, Corp.

Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Series A Preferred
Common Stock Stock Total
----------------------- --------------------- Accumulated Stockholders'
Shares Amount Shares Amount Deficit Equity (Deficit)
---------- ---------- -------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at inception............... -- $ -- -- $ -- $ -- $ --
Issuance of founders stock in
exchange for cash and services
rendered........................ 4,999,995 31,000 -- -- -- 31,000
Net loss.......................... -- -- -- -- (34,809) (34,809)
--------- -------- ------- -------- ----------- --------------
Balances, December 31, 1998......... 4,999,995 31,000 -- -- (34,809) (3,809)
Additional founders capital
contribution.................... -- 60,000 -- -- -- 60,000
Sales of preferred stock.......... -- -- 435,000 435,000 -- 435,000
Sales of common stock............. 195,000 114,500 -- -- -- 114,500
Exercise of common stock options.. 83,025 8,303 -- -- -- 8,303
Conversion of notes payable....... 100,000 200,000 100,000 100,000 -- 300,000
Net loss.......................... -- -- -- -- (862,294) (862,294)
--------- -------- ------- -------- ----------- --------------
Balances, November 12, 1999
(unaudited)....................... 5,378,020 $413,803 535,000 $535,000 $ (897,103) $ 51,700
========= ======== ======= ======== =========== ==============
</TABLE>

The accompanying notes are an integral part of these statements.

F-59
<PAGE>
SpeedyClick, Corp.
Notes to Financial Statements

December 31, 1998
(Information as of and for the Period Ended November 12, 1999 Is Unaudited.)

Note 1. Organization and Nature of Operations:

SpeedyClick, Corp., a California corporation, (the Company) was founded in
September 1998 in Glendale, California. The Company operates a website offering
various games and entertainment targeted toward women. The website went live in
January 1999.

Note 2. Significant Accounting Policies:

UNAUDITED INTERIM FINANCIAL DATA

The unaudited interim financial statements as of September 30, 1999 and for the
nine-month period then ended have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial information set forth therein, in accordance with generally
accepted accounting principles.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the 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.

REVENUE RECOGNITION

Revenues are generated primarily from click-through payments, interactive game
sponsorships and e-mailings. The Company uses outside advertising agencies to
obtain a significant portion of its advertising revenues. Revenues are
recognized net of commissions paid to advertising agencies ratably over the term
of the advertising contract or over the course of the sponsorship.

CASH

Cash consists of deposits in checking and savings accounts. The Company has no
cash equivalents.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and accounts receivable.

To date, accounts receivable have been derived from revenues earned from
customers located in the United States. Historically, credit losses have been
minor and within management's expectations.

PROPERTY AND EQUIPMENT

Property and equipment consists primarily of computer equipment and furniture
and is stated at cost. Depreciation is computed using the straight-line method
over estimated useful lives, which are estimated to be three years.

F-60
<PAGE>
SpeedyClick, Corp.
Notes to Financial Statements (Continued)

December 31, 1998
(Information as of and for the Period Ended November 12, 1999 Is Unaudited.)

Note 2. Significant Accounting Policies: (Continued)
SOFTWARE DEVELOPMENT

Under the criteria set forth in Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," capitalization of software development costs
begins upon the establishment of technological feasibility of the product, which
the Company has defined as the completion of beta testing of a working product.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic life and changes in software
and hardware technology. Amounts that could have been capitalized under this
statement after consideration of the above factors were immaterial and,
therefore, no software development costs have been capitalized by the Company to
date.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred and consist primarily of
salaries, travel, materials, supplies and contract services.

STOCK COMPENSATION

The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Company applies
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its employee stock
benefits.

Note 3. Income Taxes:

At December 31, 1998, a valuation allowance was recognized to offset the related
deferred tax asset of approximately $10,200 due to the uncertainty of realizing
the benefit of the Company's net operating loss carryforward. The need for this
valuation allowance is subject to periodic review. If it is determined in a
future period that it is more likely than not that the tax benefit of the
carryforward will be realized, the reduction of the valuation allowance will be
recorded as a reduction of the Company's income tax expense.

At December 31, 1998, the Company had a net operating loss carryforward of
approximately $27,000, which expires in 2012. Under current tax law, net
operating loss carryforwards available in any given year may be limited upon the
occurrence of certain events, including significant changes in ownership
interests.

Note 4. Commitments:

The Company operated in space provided to it by a related party for the period
from inception to December 31, 1998, and accordingly, no rent expense was
recorded in the accompanying financial statements. Had such expense been
recorded, the effects on the accompanying financial statements would have been
immaterial.

F-61
<PAGE>
SpeedyClick, Corp.
Notes to Financial Statements (Continued)

December 31, 1998
(Information as of and for the Period Ended November 12, 1999 Is Unaudited.)

Note 5. Related Party Transactions:

Since formation, the founders did not receive salaries. Accordingly, no
compensation expense was recorded by the Company. Additionally, certain
operating expenses of the Company were paid on its behalf by the founders and
certain related parties. No amounts funded by related parties have been recorded
in the accompanying financial statements. The amounts funded related to
operating expenses are not estimable and will not be repaid by the Company to
the funding parties.

Note 6. Subsequent Events:

AMENDMENT OF ARTICLES OF INCORPORATION

On April 19, 1999, the Company restated its articles of incorporation approving,
among other things:

- STOCK SPLIT - a 5.55555 for one stock split, which has been reflected in
the accompanying financial statements as if it had occurred at inception.

- STOCK INCENTIVE PLAN - the SpeedyClick, Corp. 1999 Stock Incentive Plan
(Plan) was approved and a number of awards of stock options were granted
to vest retroactive to the original hiring date of the employee. 375,000
shares are reserved for issuance under the Plan.

- AUTHORIZED STOCK - The Company was authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Company was authorized to
issue is 7,000,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock.

BRIDGE LOAN FINANCING

On April 2, 1999, the Company issued a $100,000 convertible promissory note to
an outside investor. The note accrued interest at the rate of five percent per
year until the note was converted into 100,000 shares of Series A preferred
stock on May 10, 1999.

SALE OF SERIES A PREFERRED STOCK

On May 10, 1999, the Company issued 535,000 shares of Series A Preferred Stock,
of which 100,000 shares were issued upon conversion of a bridge loan, while the
remaining were sold for cash. Dividends are payable at a rate of $.08 per share
when declared and are non-cumulative. The holders of these shares were entitled
to receive a preference in liquidation equal to the original issuance price plus
any declared but unpaid dividends.

SALE OF COMMON STOCK

On May 10, 1999, the Company issued 145,000 shares of common stock to investors
at $0.10 per share. These shares have the same rights and preferences as the
previously issued common shares granted at inception.

NOTES PAYABLE

The Company obtained a $200,000 loan from an outside investor and a $100,000
loan from one of the founders during August and September 1999. The $200,000
loan was subsequently converted into 100,000 shares of common

F-62
<PAGE>
SpeedyClick, Corp.
Notes to Financial Statements (Continued)

December 31, 1998
(Information as of and for the Period Ended November 12, 1999 Is Unaudited.)

Note 6. Subsequent Events: (Continued)
stock prior to the acquisition by ShopNow.com Inc. (ShopNow) on November 12,
1999 as discussed below. The $100,000 loan was repaid by ShopNow in conjunction
with the acquisition.

CAPITAL LEASES

Subsequent to year-end, the Company obtained a number of computers under capital
leases. As of September 30, 1999, the Company's other long-term liabilities
consist of capital lease obligations. Total capital lease commitments of the
Company as of December 31, 1998 including interest were as follows:

<TABLE>
<S> <C>
2000........................................................ $ 52,800
2001........................................................ 14,000
2002........................................................ 8,000
2003 and thereafter......................................... --
---------
$ 74,800
=========
</TABLE>

ACQUISITION BY SHOPNOW.COM

On November 12, 1999, the Company was acquired by ShopNow.

F-63
<PAGE>
Independent Auditor's Report

To the Stockholders and Board of Directors
of Ubarter.com Inc.

We have audited the consolidated balance sheet of Ubarter.com Inc. and
subsidiary as of March 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. 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 audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ubarter.com Inc.
and subsidiary as of March 31, 1999, and the results of their operations and
their cash flows for the year then ended, in accordance with generally accepted
accounting principles.

/s/ Moss Adams LLP

Seattle, Washington
June 16, 1999

F-64
<PAGE>

Ubarter.com Inc.
Consolidated Balance Sheet
March 31, 1999 and December 31, 1999

<TABLE>
<CAPTION>
---------------------------
March 31, December 31,
1999 1999
------------ ------------
(Audited) (Unaudited)
<S> <C> <C>
ASSETS

Current assets
Cash and cash equivalents................................. $ 442,700 $1,846,400
Accounts receivable, net.................................. 305,700 321,200
Inventory................................................. 310,400 347,700
Other current assets...................................... 9,200 273,200
------------ ----------
Total current assets.................................... 1,068,000 2,788,500
------------ ----------
Equipment and leaseholds, net............................... 383,600 406,200
------------ ----------
Other assets
Goodwill.................................................. 2,750,900 2,150,000
Prepaid advertising....................................... 135,000 135,000
Notes receivable.......................................... 23,500 22,700
Other assets.............................................. 28,700 1,000
------------ ----------
2,938,100 2,308,700
------------ ----------
$ 4,389,700 $5,503,400
============ ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
Accounts Payable.......................................... $ 111,400 $ 92,800
Accrued liabilities....................................... 28,200 349,300
Unearned revenue.......................................... 186,300 --
Trade dollars issued in excess of earned.................. 2,147,900 2,221,400
Note payable to shareholder............................... 66,200 302,800
Current portion of long-term obligations.................. 35,400 2,188,900
------------ ----------
Total current liabilities............................... 2,575,400 5,155,200
------------ ----------
Long-term obligations....................................... 81,600 771,100
------------ ----------
Commitments (Note 9)

Stockholders' equity (deficit)
Common Stock.............................................. 5,900 6,100
Additional paid-in capital................................ 2,649,300 3,477,600
Accumulated deficit....................................... (909,500) (3,922,700)
Treasury stock............................................ (13,000) (1,200)
Accumulated other comprehensive income.................... -- 17,300
------------ ----------
1,732,700 (422,900)
------------ ----------
$ 4,389,700 $5,503,400
============ ==========
</TABLE>

F-65
<PAGE>

Ubarter.com Inc.
Consolidated Statement of Operations
Year Ended March 31, 1999 and Nine Months Ended December 31, 1999

<TABLE>
<CAPTION>
---------------------------
March 31, December 31,
1999 1999
------------ ------------
(Audited) (Unaudited)
<S> <C> <C>
Revenue
Trade exchange revenue.................................... $ 460,600 $2,015,200
Corporate trading revenue................................. 43,900 655,600
------------ ----------
504,500 2,670,800
------------ ----------
Costs and operating expenses
Cost of corporate trading revenue......................... 43,900 475,300
Sales and marketing....................................... 94,700 298,400
Product development....................................... 216,300 598,600
General and administrative................................ 990,600 4,116,900
------------ ----------
1,345,500 5,489,200
------------ ----------
Loss from oeprations........................................ (841,000) (2,818,400)
------------ ----------
Other income (Expense)
Interest income........................................... 45,700 (203,500)
Interest expense.......................................... (2,700) 8,700
------------ ----------
43,000 (194,800)
------------ ----------
Net loss.................................................... $ (798,000) $(3,013,200)
============ ==========
Average common and equivalent shares
Basic..................................................... 5,521,583 6,013,526
============ ==========
Diluted................................................... 5,521,583 6,013,526
============ ==========
Net loss per common share
Basic..................................................... $ (0.14) $ (0.50)
============ ==========
Diluted................................................... $ (0.14) $ (0.50)
============ ==========
</TABLE>

F-66
<PAGE>

Ubarter.com Inc.
Consolidated Statement of Stockholders' Equity
Year Ended March 31, 1999 and Nine Months Ended December 31, 1999

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Accumulated
Common Stock Additional Other
-------------------- Paid-In Subscribed Comprehensive Accumulated
Shares Amount Capital Stock Income Deficit
--------- -------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998............ 3,832,900 $3,800 $ 540,700 $ 37,500 $ -- $ (111,500)

Issuance of subscribed stock..... 100,000 100 37,400 (37,500) -- --
Exercise of "B" warrants......... 563,500 500 278,000 -- -- --
Exercise of "C" and "D"
warrants....................... 480,000 500 228,300 -- -- --
Issuance of stock................ 800,000 800 999,200 -- -- --
Issuance of stock in connection
with acquisition............... 150,000 200 374,800 -- -- --
Stock options granted............ -- -- 190,900 -- -- --
Treasury stock required.......... -- -- -- -- -- --
Net loss......................... -- -- -- -- -- (798,000)
--------- ------ ---------- ---------- ------------- -----------
Balance, March 31, 1999
(Audited)........................ 5,926,400 5,900 2,649,300 -- -- (909,500)

Exercise of "E" warrants......... 96,500 100 214,200 -- -- --
Issuance of warrants in
connection with note payable... 451,700
Foreign currency translation..... -- -- -- -- 17,300 --
Issuance of stock as partial
payment for equity ownership of
BBE Windsor.................... 20,000 -- 46,200 -- -- --
Issuance of treasury stock for
services....................... -- -- 16,300 -- -- --
Issuance of stock for services... 33,333 100 99,900 -- -- --
Net loss......................... -- -- -- -- -- (3,013,200)
--------- ------ ---------- ---------- ------------- -----------
Balance, December 31, 1999
(Unaudited)...................... 6,076,233 $6,100 $3,477,600 $ -- $ 17,300 $(3,922,700)
========= ====== ========== ========== ============= ===========

<CAPTION>
---------------------------------

Treasury Stock
-------------------
Shares Amount Total
-------- -------- -----------
<S> <C> <C> <C>
Balance, March 31, 1998............ -- $ -- $ 470,500
Issuance of subscribed stock..... -- -- --
Exercise of "B" warrants......... -- -- 278,500
Exercise of "C" and "D"
warrants....................... -- -- 228,800
Issuance of stock................ -- -- 1,000,000
Issuance of stock in connection
with acquisition............... -- -- 375,000
Stock options granted............ -- -- 190,900
Treasury stock required.......... 10,980 (13,000) (13,000)
Net loss......................... (798,000)
------- -------- -----------
Balance, March 31, 1999
(Audited)........................ 10,980 (13,000) 1,732,700
Exercise of "E" warrants......... -- -- 214,300
Issuance of warrants in
connection with note payable... 451,700
Foreign currency translation..... -- -- 17,300
Issuance of stock as partial
payment for equity ownership of
BBE Windsor.................... -- -- 46,200
Issuance of treasury stock for
services....................... (10,000) 11,800 28,100
Issuance of stock for services... -- -- 100,000
Net loss......................... -- -- (3,013,200)
------- -------- -----------
Balance, December 31, 1999
(Unaudited)...................... 980 $ (1,200) $ (422,900)
======= ======== ===========
</TABLE>

F-67
<PAGE>

Ubarter.com Inc.
Consolidated Statement of Cash Flows
Year Ended March 31, 1999 and Nine Months Ended December 31, 1999

<TABLE>
<CAPTION>
---------------------------
March 31, December 31,
1999 1999
------------ ------------
(Audited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (798,000) $(3,013,200)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation............................................ 18,400 1,433,400
Write-off of bad debts.................................. -- 1,500
Non-cash charges related to stock option grants......... 172,800 56,200
Non-cash charges related to stock issuance.............. 28,100
Foreign currency loss................................... -- 17,300
Net trade dollars expended/(earned)..................... (3,700) (29,400)
Accrued interest on notes receivable.................... (2,400) --
Change in operating assets and liabilities
Accounts receivable..................................... 38,700 (17,000)
Prepaid advertising and other assets.................... (133,100) (136,300)
Accounts payable and other liabilities.................. 7,300 116,200
------------ ----------
(700,000) (1,543,200)
------------ ----------
Cash from investing activities
Acquisition of equipment and leaseholds................... (84,800) (272,200)
Purchase of Barter Business Exchange Inc. stock........... (647,300) --
Notes receivable collections.............................. 11,700 800
------------ ----------
(720,400) (271,400)
------------ ----------
Cash from financing activities
Proceeds from issuance of common stock.................... 1,507,300 124,300
Proceeds from notes payable............................... -- 3,327,900
Treasury stock acquired................................... (13,000) --
Repayment of notes payable................................ (13,800) (233,900)
------------ ----------
1,480,500 3,218,300
------------ ----------
Net change in cash and cash equivalents..................... 60,100 1,403,700

Cash and cash equivalents
Beginning of Period....................................... 382,600 442,700
------------ ----------
End of Period............................................. $ 442,700 $1,846,400
============ ==========
Supplemental cash flow information
Cash paid during the year for:
Interest................................................ $ 2,700 $ --
============ ==========
</TABLE>

F-68
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements

March 31, 1999 and December 31, 1999

Note 1 - Description of Business and Organization

Ubarter.com Inc., formerly International Barter Corp., was incorporated on
September 18, 1996, in the State of Nevada. Ubarter.com Inc. ("the Company")
operates a trade exchange offering bartering services for retail, professional,
media and corporate clients. Operations are primarily transacted in the State of
Washington. Operations of the Company's subsidiary, Barter Business Exchange
Inc. (see Note 3), are primarily transacted in the Canadian provinces of Ontario
and British Columbia. The Company acts as a third-party record-keeper of
clients' transactions and balances, which are denominated in Trade Dollars. A
Trade Dollar is an accounting unit used to record the value of trades as
determined by the buying and selling parties in barter transactions. Trade
Dollars denote the right to receive goods or services available from other
clients or the obligation to provide goods or services to other clients. Trade
Dollars may not be redeemed for cash. Trade Dollars are not legal tender,
securities, or commodities. Clients pay cash and Trade Dollar fees and
commissions to the Company. The Company typically receives a cash commission on
all transactions, charging both the buyer and seller 5% on the purchase and
sale.

Note 2 - Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and,
effective March 31, 1999, the balance sheet of its wholly-owned subsidiary,
Barter Business Exchange Inc. (BBE). The Company's fiscal year end is March 31.
BBE's fiscal year end is February 28. For purposes of consolidation the
difference in fiscal year-ends is not significant. All significant intercompany
accounts and transactions have been eliminated.

UNAUDITED INTERIM FINANCIAL INFORMATION

The interim financial statements of the Company for the nine months ended
December 31, 1999, included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations
relating to interim financial statements. In the opinion of management, the
accompanying unaudited interim financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company at December 31, 1999, the results of
operations and its cash flows for the nine months ended December 31, 1999.

STOCK SPLIT

On July 9, 1998 the Board of Directors authorized a 2-for-1 split of its common
stock to be distributed to stockholders of record at the close of business on
July 24, 1998. All per-share and shares outstanding data in the accompanying
consolidated financial statements have been restated to reflect the stock split.

FOREIGN CURRENCY TRANSLATION

Financial statements of the Company's Canadian subsidiary, BBE, are translated
into U.S. dollars using the exchange rate at the balance sheet date for assets
and liabilities. The functional currency of BBE is the local currency, the
Canadian dollar. Translation adjustments, if necessary, are recorded as a
separate component of Stockholders' Equity. There were no translation
adjustments required as of March 31, 1999.

F-69
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 2 - Summary of Significant Accounting Policies (Continued)
COMPREHENSIVE INCOME

In 1999, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "REPORTING COMPREHENSIVE INCOME". This statement establishes
rules for the reporting of comprehensive income and its components. The adoption
of SFAS No. 130 had no impact on total stockholders' equity as of March 31,
1999.

REVENUE RECOGNITION

The Company recognizes revenue equal to the cash to be received from the
commission earned when the buyer has made an unconditional commitment to pay and
the earnings process has been completed by the finalization of a trade
transaction. Revenue is recognized for monthly dues after the fees have been
earned. Initiation and annual renewal fees are nonrefundable, are deferred and
included in income over a twelve month period.

PRODUCT DEVELOPMENT COSTS

Product development costs include expenses incurred by the Company to develop,
enhance, monitor and operate the Company's website. Product development costs
are expensed as incurred.

TRADE DOLLAR TRANSACTIONS

The Company uses the ratio of one Trade Dollar to one local currency dollar
(United States or Canadian) in measuring and accounting for purchases and sales.
This one-for-one ratio is the pervasive standard with the Company and throughout
the barter industry. The Company does not recognize any accounting implications
if differences are observed between Trade Dollar and the applicable local
currency dollar prices are within reasonable ranges existing between prices of
similar U.S. dollar or Canadian dollar transactions.

The negative Trade Dollar balance of the Company is shown as a liability in the
balance sheet. This occurs as a result of the Company "borrowing" trade dollars
through the issuance of Trade Dollars in excess of the amounts earned by the
Company.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.

INVENTORY

At times, the Company acquires inventory for resale from clients of the barter
exchange. Inventory is stated at lower of cost (first-in, first-out basis) or
market.

ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

The Company provides an allowance for accounts receivable doubtful of
collection. The allowance is based upon management's periodic analysis of
receivables, evaluation of current economic conditions, and other pertinent
factors. Ultimate losses may vary from the current estimates and, as additions
to the allowance become necessary, are charged against earnings in the period in
which they become known. Losses are charged and recoveries are credited to the
allowance. At March 31, 1999, the allowance for doubtful accounts was $129,400.

F-70
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 2 - Summary of Significant Accounting Policies (Continued)
DEPRECIATION AND AMORTIZATION

Equipment and leaseholds are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets, generally
five to seven years. Leasehold improvements are amortized on a straight-line
basis over the shorter of the estimated useful lives or the term of the lease.

GOODWILL

Goodwill resulting from the acquisition of BBE was estimated by management to be
primarily associated with the acquired workforce, infrastructure and
technological expertise. As a result of the rapid technological changes
occurring in the Internet industry and the intense competition for qualified
professionals, goodwill is amortized on a straight-line basis over the estimated
life of the benefit of 24 months (see Note 3).

INCOME TAXES

Income taxes are computed using the asset and liability method. Under this
method, deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws.
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, requires a valuation allowance against deferred tax assets if, based on
the weight of available evidence, it is more likely than not that some or all of
its deferred tax assets will not be realized.

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average number
of shares outstanding during the period. Diluted net income (loss) per share is
computed using the weighted average number of common shares and common
equivalent shares outstanding during the period. Common equivalent shares
consist of shares issuable upon the exercise of stock options and stock
warrants.

USE OF ESTIMATES

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash and accounts receivable.
Cash is deposited with high credit, quality financial institutions. Accounts
receivable are typically unsecured and are derived from revenues earned from
customers primarily located in the Pacific Northwest and the Canadian provinces
of Ontario and British Columbia. The Company performs ongoing credit evaluations
of its customers and maintains reserves for potential credit losses;
historically, such losses have been within management's expectations. At
March 31, 1999, no one customer accounted for 10% or more of the accounts
receivable balance.

F-71
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 2 - Summary of Significant Accounting Policies (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments, including cash, accounts receivable,
accounts payable, notes payable and long-term obligations are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments.

ADVERTISING

The Company recognizes advertising expenses in accordance with Statement of
Position 93-7, "REPORTING ON ADVERTISING COSTS". As such, the Company expenses
the cost of communicating advertising in the period in which the advertising
space or airtime is used. Advertising expenses amounted to $51,700 for the year
ended March 31, 1999.

STOCK-BASED EMPLOYEE COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion (APB) No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", and complies with the disclosure
provisions of SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION". Under APB
25, compensation cost is recognized over the vesting period based on the
difference, if any, on the date of grant between the fair value of the Company's
stock and the amount an employee must pay to acquire the stock.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates the recoverability of long-lived assets in accordance with
"SFAS" No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE
DISPOSED OF". SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE". This standard requires
companies to capitalize qualifying computer software costs that are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company does not expect that the adoption of SOP 98-1
will have a material impact on its consolidated financial statements.

In April 1998, the American Institute of Certified Public Accountants issued SOP
98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES." SOP 98-5 is effective for
the Company's fiscal year ending March 31, 2000. SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. Adoption
is not expected to have a material effect on the Company's consolidated
financial statements.

In June 1998, the FASB issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company does
not expect that the

F-72
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 2 - Summary of Significant Accounting Policies (Continued)
adoption of SFAS No. 133 will have a material impact on its consolidated
financial statements because the Company does not currently hold any derivative
instruments.

RECLASSIFICATIONS

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

Note 3 - Acquisition

ACQUISITION OF BARTER BUSINESS EXCHANGE, INC.

On March 2, 1999, the Company entered into a stock purchase agreement to acquire
all of the outstanding capital stock of Barter Business Exchange Inc. (BBE), a
privately-held Canadian corporation which presently operates a trade exchange in
the Canadian Provinces of Ontario and British Columbia. The total purchase price
of approximately $1,270,200 is comprised of cash in the amount of $663,300; a
promissory note in the principal amount of $66,200 (Note 7); Ubarter.com Trade
dollars in the amount of $165,700; the issuance of 150,000 shares of Ubarter.com
common stock, which had a value of $375,000 at the acquisition date. In
addition, the purchase agreement provides for contingent consideration. The
terms of the note payable provide for additional payments of up to $500,000
dependent upon attainment of certain operating results. Additionally, if 10% of
the cash revenues, as defined in the agreement, exceed $500,000, the Company
will be required to pay the amount exceeding $500,000 in common shares of the
Company.

The purchase has been accounted for under the purchase method of accounting.
Under the purchase method of accounting, the purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair values at
the date of the acquisition. The excess purchase price over the estimated fair
value of the assets acquired and liabilities assumed has been allocated to
goodwill. The Company estimated the economic useful life of the goodwill to be
two years.

The consolidated financial statements combine the Company's balance sheet as of
March 31, 1999 with the balance sheet of BBE as of February 28, 1999. The
consolidated statement of operations presents the results of operations of the
Company and excludes the results of operations of BBE. Results of operations of
BBE will be consolidated with the Company from the date of purchase, March 1,
1999. However, due to the differing year-ends, the results of operations of BBE
for the fiscal year from March 1, 1999 through February 28, 2000 will be
consolidated with the Company's results of operations for the fiscal year ended
March 31, 2000.

STATEMENT OF CASH FLOWS

The acquisition of BBE resulted in a non-cash transactions which increased
assets in the amount of $3,069,700 and liabilities in the amount of $2,610,400.
Non-cash consideration included 150,000 shares of the Company's common stock,
trade dollars, and a note payable (Note 7).

F-73
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 3 - Acquisition (Continued)
UNAUDITED PRO FORMA DISCLOSURES OF SIGNIFICANT ACQUISITION

The following unaudited pro forma consolidated results of operations give effect
to the acquisition of BBE as if it had occurred as of the beginning of the
period.

<TABLE>
<CAPTION>
------------
Year Ended
March 31,
1999
------------
<S> <C>
Revenue..................................................... $ 3,289,900
Net Loss.................................................... $ (2,682,100)
Net Loss per share - basic.................................. $ (0.49)
Net Loss per share - diluted................................ $ (0.49)
Shares used in per share calculation - basic and diluted.... 5,521,583
</TABLE>

Note 4 - Notes Receivable

At March 31, 1999, the Company had notes receivable amounting to $23,500 which
bear interest ranging from 10% to 10.75%. Although the Company periodically
receives payments, the notes are currently in default. The notes are
collateralized by real estate.

Note 5 - Equipment and Leaseholds

At March 31, 1999, equipment and leaseholds consisted of the following:

<TABLE>
<CAPTION>
------------
March 31
------------
<S> <C>
Computer equipment.......................................... $ 183,100
Equipment................................................... 121,800
Furniture and fixtures...................................... 141,500
Leasehold improvements...................................... 57,100
Automobile.................................................. 25,600
------------
529,100
Less: accumulated depreciation.............................. (145,500)
------------
$ 383,600
============
</TABLE>

Note 6 - Excess of Trade Dollars Issued Over Trade Dollars Earned

In accordance with the guidelines established by the International Reciprocal
Trade Association, the Company has the right to borrow from the exchange and
spend within the exchange systems. Such a practice is used by barter exchanges,
worldwide, to cover inventory purchases, capital purchases, operating expenses
and to control the supply of trade dollars in the exchange economy. The Company
is obligated to provide goods and services to clients to offset any amounts of
Trade Dollars issued in excess of earned. At March 31, 1999, the Company had
expended $2,147,900 Trade Dollars, in excess of the amount of Trade Dollars
earned by the Company.

F-74
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 7 - Notes Payable

The Company has a $67,000 revolving note payable with a Canadian bank. The note
payable is subject to annual renewal. There were no borrowings outstanding as of
March 31, 1999. Borrowings on the line of credit are secured by cash and cash
equivalents on deposit with the bank.

In connection with the acquisition of BBE (Note 3), the Company has a $66,200
note payable to a shareholder. The non-interest bearing note is due on March 1,
2000.

Note 8 - Long-Term Obligations

At March 31, 1999, long-term obligations consisted of the following:

<TABLE>
<CAPTION>
------------
March 31
------------
<S> <C>
Note payable to Financial Services, Inc. at $800 per month,
including interest at 10% per annum (collateralized by
real estate), due 2002.................................... $ 18,400
Note payable to bank, interest at prime plus 2 1/2%, payable
in monthly installments of $1,400 plus interest, maturing
July 2004, partially guaranteed by a stockholder and
collateralized by equipment............................... 73,800
Capital lease for leasehold improvements, due in monthly
installments of $900, including imputed interest of 19%,
due December 2001......................................... 21,800
Note payable to bank, paid in full in 1999.................. --
Other....................................................... 3,000
------------
117,000
Less current portion........................................ (35,400)
------------
$ 81,600
============
</TABLE>

Maturities of long-term obligations for future years ending March 31 are as
follows:

<TABLE>
<CAPTION>
-------------------------------------------
Principal Capital Lease
Payments Obligation Total
------------ ------------- ------------
<S> <C> <C> <C>
2000.................................................... $ 28,400 $ 10,800 $ 39,200
2001.................................................... 25,400 10,800 36,200
2002.................................................... 17,800 7,600 25,400
2003.................................................... 16,700 -- 16,700
2004.................................................... 6,900 -- 6,900
------------ ------------ ------------
95,200 29,200 124,400
Amount representing interest............................ -- (7,400) (7,400)
------------ ------------ ------------
$ 95,200 $ 21,800 $ 117,000
============ ============ ============
</TABLE>

F-75
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 9 - Commitments

The Company leases office space under non-cancelable operating leases expiring
in May 2003. Future minimum lease payments under the leases are as follows for
the years ending March 31:

Rent expense amounted to $23,500 for the year ended March 31, 1999.

Note 10 - Stockholders' Equity

The Company is authorized to issue 25,000,000 shares of $.001 par value common
stock. As of March 31, 1999, the Company has 6,040,400 shares of common stock
outstanding.

During fiscal 1997, the Company completed a private placement (Offering) of its
common stock pursuant to which 600,000 shares were subscribed for $150,000.
Under the terms of the Offering, one "A" warrant and one "B" warrant were issued
with each issued share of common stock issued. During fiscal 1998, "A" and "B"
warrants were exercised for 492,900 shares of common stock for $226,800. During
the fiscal year 1999, the remaining outstanding "B" warrants were exercised for
563,500 shares of common stock with proceeds totaling $278,500.

During fiscal 1998, the Company completed a private placement (Placement) of its
common stock pursuant to which 240,000 shares of common stock were issued for
$72,000. Under the terms of the Placement, one "C" warrant and one "D" warrant
was issued with each one share of common stock issued. During fiscal 1999, all
outstanding "C" and "D" warrants were exercised for 480,000 shares of common
stock with proceeds totaling $228,800.

During fiscal 1999, the Company received cash for common stock and warrants
through a private placement whereby, 800,000 units were sold at $1.25 per unit.
Each unit consists of one share of common stock and one "E" warrant exercisable
at $1.50 per share. The warrants expire June 20, 2000. At March 31, 1999, there
were 800,000 "E" warrants issued and outstanding.

During fiscal 1999, a brokerage account was opened and funded for the sole
purpose of repurchasing up to 250,000 shares of the Company's common stock in
the open market. In October of 1998, 10,980 shares were repurchased for
approximately $13,000 and classified as treasury stock.

Note 11 - Stock Options

The Company adopted a Stock Option Plan ("the Plan") effective June 1, 1998
whereby, non-qualified and incentive stock options for up to 1,155,040 shares of
common stock may be granted to Directors, Officers, Employees and Consultants.
Options granted under the Plan are not to have a life in excess of five years
from the date of grant and vest 50% after 12 months, 75% after 18 months, 100%
after 24 months from the date of grant. The provisions of the Plan allow the
administrators to determine the vesting period of options granted.

F-76
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 11 - Stock Options (Continued)
In June 1998, the Company granted options under the Plan to purchase 55,000
shares of common stock at an exercise price of $0.82 per share to the Company's
non-employee Director and to certain consultants. The options granted to the
non-employee Director vest 100% in November 1999, and the options granted to the
consultants are fully vested. The options expire five years from the date of
grant and were valued at $11,400, which was recognized as expense in 1999.

In October 1998, the Company granted options to purchase 630,000 shares of
common stock to a consultant. The options are fully vested and expire five years
from the date of grant. The exercise prices of the options range from $4.00 to
$14.00 per share and have a weighted average exercise price of $11.11 per share.
The options were valued at $243,800. The Company is recognizing consulting
expense related to these options granted over the consultant's contractual
period of 39 months. In 1999, the Company recognized consulting expense of
$37,500 related to the stock options. The consulting agreement also contains an
anti-dilutive provision whereby the consultant will be granted additional
options from time to time so that the options will equal approximately 10.4% of
common stock outstanding on a fully diluted basis.

In November 1998, the Company granted options under the Plan to purchase 25,000
shares of common stock at $2.00 per share to other service providers. The
options vest over one year and expire five years from the date of grant. The
options were valued at $11,400, which was recognized as consulting expense
during 1999.

The following table summarizes the Company's stock option activity:

<TABLE>
<CAPTION>
----------------------------------
Number of Weighted-Average
Shares Exercise Price
--------------- ----------------
<S> <C> <C>
Balance, April 1, 1998...................................... -- $ --
Options granted........................................... 1,069,000 7.80
Options forfeited......................................... (1,000) 2.75
Options exercised......................................... -- --
--------------- ---------------
Balance, March 31, 1999..................................... 1,068,000 $ 7.17
=============== ===============
</TABLE>

The following table summarizes information about options outstanding and
exercisable at March 31, 1999:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted-Average
Number Remaining Weighted-Average Number Weighted-Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ----------------------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.8125-$2.75...................... 438,000 4.5 years $ 1.49 90,000 $ 0.81
$4.00-$6.00........................ 90,000 4.5 years 4.89 90,000 4.89
$8.00-$10.00....................... 140,000 4.5 years 9.14 140,000 9.14
$12.00-$14.00...................... 400,000 4.5 years 13.20 400,000 13.20
--------- --------------- --------------- ---------- ---------------
1,068,000 4.5 years $ 7.17 720,000 $ 9.82
========= ==========
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25 (APB No. 25) in
accounting for stock options. Accordingly, no compensation cost is recognized
from options issued under the Company stock option plan if the

F-77
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 11 - Stock Options (Continued)
exercise price equals the fair value at the date of grant. During 1999, 40,000
options were granted to one employee that were fully vested and had an exercise
price less than the fair value of the common stock on the date of grant. Using
the intrinsic value method required by APB No. 25 the Company has recorded
compensation expense in the amount of $112,500 in 1999.

An alternative method of accounting for stock options is SFAS No. 123 (Note 2).
Under SFAS No. 123, employee stock options are valued at grant date using the
Black-Scholes option-pricing model and compensation cost is recognized ratably
over the vesting period. Had compensation cost for the Company's stock option
plan been determined based on the Black-Scholes value at the grant dates for
awards as prescribed by SFAS No. 123, pro forma statement of operations for
fiscal 1999 would have been as follows:

<TABLE>
<CAPTION>
---------------
Year Ended
March 31, 1999
---------------
<S> <C>
Net Less
As Reported............................................... $ (798,000)
Pro forma................................................. $ (836,800)
Net Loss per common share
As Reported............................................... $ (0.14)
Pro forma................................................. $ (0.15)
</TABLE>

The effects of applying SFAS No. 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings and earnings per
share in future years. In addition, valuations are based on highly subjective
assumptions about the future, including stock price volatility and exercise
patterns.

The weighted average fair market value of an option granted during 1999 was
$1.69 using the Black-Scholes option-pricing model. The following assumptions
were applied in determining the pro forma compensation cost:

<TABLE>
<CAPTION>
---------------
Year Ended
March 31, 1999
---------------
<S> <C>
Interest rate............................................... 6.0%
Dividend yield.............................................. 0.0%
Expected volatility......................................... 122.8%
Expected useful life in years............................... 5
</TABLE>

Note 12 - Income Taxes

The components of the provision for income taxes at March 31, 1999 are as
follows:

<TABLE>
<S> <C>
Current - Federal........................................... $ --
Deferred - Federal.......................................... --
------------
Income tax provision........................................ $ --
============
</TABLE>

F-78
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 12 - Income Taxes (Continued)
A reconciliation of the consolidated income tax provision to the amount expected
using the U.S. Federal statutory rate for the year ended March 31, 1999 follows:

<TABLE>
<CAPTION>
------------
1999
------------
<S> <C>
Expected amount using U.S. Federal statutory rate........... --
Non-deductible expenses..................................... --
Depreciation and bad debts allowance........................ --
------------
Effective tax............................................... $ --
============
</TABLE>

Deferred tax assets (liabilities) consisted of the following at March 31, 1999:

<TABLE>
<S> <C>
Deferred tax assets
Bad debt allowance........................................ $ 11,900
Stock Options............................................. 58,800
Net operating loss carryforwards.......................... 746,100
------------
816,800
Deferred tax liability
Property and equipment.................................... (500)
------------
816,300
Valuation allowance......................................... (816,300)
------------
$ --
============
</TABLE>

As of March 31, 1999, the Company has domestic net operating loss carryforwards
of approximately $646,000 and Canadian net operating loss carryforwards of
approximately $1,212,200. The domestic carryforwards begin to expire in fiscal
year 2012. The Canadian carryforwards begin to expire in fiscal year 2000.
Deferred tax assets have been reduced by a valuation allowance because of
uncertainties as to future recognition of taxable income to assure realization.

F-79
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 13 - Income (Loss) Per Share

Following is a reconciliation of the numerators of the basic and diluted income
(loss) per share for the year ended March 31, 1999:

<TABLE>
<S> <C>
Net income (loss) available to common stockholders.......... $ (798,000)
============
Weighted average shares..................................... 5,521,583
Effect of dilutive securities:
Options................................................... --
Warrants.................................................. --
------------
5,521,583
============
Basic income (loss) per share (based on weighted average
shares)................................................... $ (.14)
============
</TABLE>

1,028,000 options and 800,000 warrants to purchase shares of common stock were
excluded from the computation in 1999 because their effect would be
anti-dilutive.

Note 14 - Geographic Segment Information

<TABLE>
<CAPTION>
------------
1999
------------
<S> <C>
Assets
U.S. operations........................................... $ 700,700
Canadian subsidiary....................................... 3,689,000
------------
$ 4,389,700
============
</TABLE>

Note 15 - Revenue

The following table summarizes the cash and trade dollars components of revenue
for the year ended March 31, 1999:

<TABLE>
<CAPTION>
------------
March 31
------------
<S> <C>
Trade....................................................... $ 263,900
Cash........................................................ 240,600
------------
$ 504,500
============
</TABLE>

Note 16 - Events Subsequent to the Date of the Auditors' Report (Unaudited)

PREFERRED STOCK

The Board of Directors authorized the Company to issue up to 10,000,000 shares
of preferred stock.

F-80
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 16 - Events Subsequent to the Date of the Auditors' Report (Unaudited)
(Continued)

NOTE PAYABLE

In August 1999, funds totaling $1,000,000 ("the Note") were loaned to the
Company by Alpine Capital Group, LLC. The Note is payable on September 1, 2002,
with interest accruing at the rate of 5 1/2% per annum on the unpaid principal
amount. If the Company closes a financing or financings in the aggregate amount
of at least $2,500,000 through public or private sale of its debt or equity
securities on or before June 1, 2000, the Company must repay any unpaid
principal and interest within 5 business days of such closing. If, on June 1,
2000, there remains unpaid principal on the Note, the Payee shall have the
option exercisable at any time thereafter, but not later than September 1, 2002,
to convert such unpaid principal into 1,333,333 shares of common stock at the
rate of $.75 per share. After June 1, 2000, the holder of the note may exercise
the conversion option any time prior to the maturity date of the note. Alpine
Capital Group, Inc. also received 183,333 warrants to purchase common shares at
$2.00 per share. Accordingly, the Company has allocated $451,700 of the proceeds
to the warrants and is amortizing this amount of interest expense from the
period of issuance to June 1, 2000. The effective rate of the note payable is
20.5%. The warrants may be exercised from September 1, 1999 through
September 1, 2004.

CONVERTIBLE NOTES PAYABLE

In December 1999, the Company issued a $100,000 8% convertible promissory note
which matures March 1, 2000. The holder of the note has the right to convert the
note into a future round of financing that the Company completes prior to
repayment or conversion of the note, upon the same terms and conditions as other
investors participating in such future financings. If the Note is not repaid by
March 1, 2000, the holder of the note shall have the option to convert the note
into shares of common stock of the Company equal to the lower of $1.50 per share
or 50% of the average closing price of the common stock through the OTC Bulletin
Board on the 10 days prior to March 1, 2000. If the note is not paid or
converted by March 1, 2000, the note will remain outstanding and bear interest
at 16% per annum until paid in full.

In December 1999, the Company issued a $2,000,000 8.5% convertible promissory
note to ShopNow.com Inc. which matures June 22, 2000. Upon the occurrence of
certain events, the note will automatically be converted into common stock of
the Company. The note may be converted at $2.15 per share or $3.58 per share,
depending upon the event causing the conversion. In addition, warrants to
purchase up to 1,200,000 common shares of the Company will be issued upon
conversion. The warrants shall have a term of 7 years and an exercise price
equal to the conversion price.

AXC AGREEMENT

In December 1999, the Company entered into an agreement with AXC Corporation
("AXC") to retain future services with the firm to provide Internet related
software-consulting. The Company paid AXC $250,000 ($100,000 in stock and
$150,000 in cash) as a retainer against future invoices. The Company issued
33,333 shares of its common stock at $3.00 per share; such shares having
"piggyback" registration rights that AXC may exercise in the event of a
subsequent public offering of Company shares. The Company further agreed that in
the event the price of Company shares at the close of market shall be less than
$2.50 per share on the earlier of two events following (i) the one year
anniversary of the transfer of these shares to AXC or (ii) the day immediately
prior to a subsequent public offering of the Company shares; then the Company
shall transfer to AXC sufficient additional shares of its common stock to
compensate for the difference between $3.00 per share and the closing price on
the dates mentioned in (i) and (ii).

F-81
<PAGE>
Ubarter.com Inc.
Notes to Consolidated Financial Statements (Continued)

March 31, 1999 and December 31, 1999

Note 16 - Events Subsequent to the Date of the Auditors' Report (Unaudited)
(Continued)

LEGAL MATTER

In December 1999, the Company received a letter from a party with whom the
Company had previously worked in connection with certain financing alternatives
considered by the Company. No such financings were ever concluded. The letter
demands reimbursement for out-of-pocket expenses (not to exceed $125,000)
incurred by the third party, the issuance of 300,000 shares of the Company's
common stock, and the right to act as exclusive financial advisor in connection
with the proposed acquisition of the Company by ShopNow.com as a result of the
Company's termination of the relationship. The Company believes the allegations
made against it are without merit. The Company intends to vigorously defend
itself against the allegations being made. The parties have agreed to submit the
matter to non-binding mediation in February 2000.

PROPOSED MERGER AGREEMENT

In January 2000, the Company entered into a merger agreement with ShopNow.com
Inc. The agreement provides for ShopNow.com to acquire all of the Company's
equity for $45 million in ShopNow.com common stock, options and warrants. The
purchase price will be reduced by the certain adjustments including an
adjustment for the Company's debt at the date of merger. The ShopNow.com stock
is to be exchanged at the lower of $20 per share or the average closing price as
reported on the Nasdaq national market for the 10 days prior to closing the
merger.

F-82
<PAGE>
[Inside Back Cover]

[b2bNow.com and ShopNow.com web page superimposed on retail background with the
following text: "ShopNow provides one stop e-commerce enabling services and
solutions to millions of businesses, merchants and shoppers."]

[LOGO]
<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, payable by the registrant in connection with the sale
of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq additional listing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 56,831
NASD filing fee............................................. 22,026
Nasdaq National Market additional listing fee............... 17,500
Printing and engraving costs................................ 200,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 200,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous............................................... 18,643
--------
Total................................................... $925,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 23B.08.500 through 23B.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"). Section 5 of the registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provides for indemnification of the registrant's directors,
officers, employees and agents to the maximum extent permitted by Washington
law. 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 omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, 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 10 of the registrant's Amended and Restated Articles of
Incorporation (Exhibit 3.1 hereto) contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the registrant has issued and sold unregistered
securities as set forth below.

1. On February 26, 1997, the registrant issued 699,612 shares of Series A
convertible preferred stock at $0.50 per share, which were converted into
699,612 shares of common stock upon the initial public offering, to Dwayne
Walker in exchange for the cancellation of certain promissory notes issued by
the Registrant to Mr. Walker. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D
thereunder.

2. On February 26, 1997 and April 30, 1997, the registrant issued 2,334,079
shares of Series B convertible preferred stock, which were converted into
2,334,079 shares of common stock upon the initial public offering, to four
accredited investors at $0.77 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.

II-1
<PAGE>
3. During the period from May 15, 1997 through July 15, 1997, the registrant
issued promissory notes in the aggregate principal amount of $1,220,000, each of
which accrued interest at an annual rate of 8% (the "1997 Notes"). These
securities have been issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.

4. During the period from October 21, 1997 through November 12, 1997, the
registrant issued promissory notes in the aggregate principal amount of
$1,775,000. In connection with this transaction, the registrant issued to the
investors warrants to purchase an aggregate of 62,125 shares of common stock at
an exercise price of $1.50 per share. Additionally, the registrant issued to the
placement agent, Madison Securities, Inc., warrants to purchase 177,500 shares
of common stock at an exercise price of $1.50 per share. These securities have
been issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.

5. On October 31, 1997, the registrant issued 835,205 shares of Series C
convertible preferred stock, which were converted into 835,205 shares of common
stock upon the initial public offering, to 14 investors at $1.50 per share in
exchange for the cancellation of the 1997 Notes. In connection with this
transaction, the registrant issued to the investors warrants to purchase an
aggregate of 167,047 shares of Series C convertible preferred stock at an
exercise price of $1.50 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.

6. On November 11, 1997, the registrant issued 177,333 shares of common stock
to Ganapathy and Kalyani Krishnan at $0.50 per share. These securities have been
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

7. During the period from January 23, 1998 through April 15, 1998, in a private
placement the registrant issued, to 163 investors, an aggregate of 4,250,000
shares of Series D convertible preferred stock, which were converted into
4,250,000 shares of common stock upon the initial public offering, and warrants
to purchase an aggregate of 425,000 shares of common stock at an exercise price
of $5.00 per share and issued, to 111 investors, an aggregate of 2,125,000
shares of Series E convertible preferred stock, which were converted into
2,125,000 shares of common stock upon the initial public offering, and warrants
to purchase an aggregate of 212,500 shares of common stock at a exercise price
of $5.00 per share. In connection with this transaction, the registrant issued
to the placement agent, Madison Securities, Inc., warrants to purchase 625,000
shares of common stock at an exercise price of $4.40 per share. These securities
have been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D thereunder.

8. On January 29, 1998, the registrant entered into a Stock Purchase Agreement
with Trucost, Inc., pursuant to which the registrant issued to Trucost, Inc. a
warrant to purchase 10,000 shares of common stock at an exercise price of $5.00.
These securities have been issued in a transaction exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

9. On February 23, 1998, in connection with the Series C financing, the
registrant issued warrants to purchase 8,000 and 2,000 shares of common stock to
Tolmi and TZM Investment Fund, respectively, at $3.00 per share. These
securities have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance on Section 4(2) of the Securities Act of
1933.

10. On March 23, 1998, pursuant to a development and license agreement between
the registrant and InstallShield Software Corporation, the registrant issued
62,327 shares of common stock to InstallShield Software. These securities have
been issued in a transaction exempt from registration under the Securities Act
of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

11. On June 8, 1998, pursuant to an Acquisition Agreement among the registrant
and Saturn Solutions, Inc., the registrant issued 422,710 shares of common stock
to Saturn Solutions, Inc. and 649 shares of common stock to Robert Gagnon, in
each case, valued at $3.30 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

II-2
<PAGE>
12. On July 8, 1998, in connection with the purchase of services, the registrant
issued to The Culligan Group a warrant to purchase 5,000 shares of common stock
at an exercise price of $1.00 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

13. On August 6, 1998, pursuant to a Merger Agreement among the registrant and
The Internet Mall, Inc., the Registrant issued to the shareholders of The
Internet Mall, Inc. 666,667 shares of common stock, valued at $6.00 per share.
In connection with this agreement, the registrant assumed an outstanding
promissory note in the principal amount of $300,000 issued to the NVCC Fund, and
following such transaction the NVCC Fund converted the note plus accrued
interest into 52,915 shares of common stock and warrants to purchase 10,583
shares of common stock at an exercise price of $4.00 per share. These securities
have been issued in transactions exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

14. On September 8, 1998, pursuant to a lease agreement between LINC Capital,
Inc. and the registrant, the registrant issued warrants to purchase 12,500
shares of common stock to LINC Capital, Inc. at $5.00 per share. On November 9,
1999, LINC Capital, Inc. exercised these warrants under their cashless exercise
terms for 7,494 shares of common stock. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) of the Securities Act of 1933.

15. On September 15, 1998, the registrant issued warrants to purchase
40,000 shares of common stock to Merrill Place L.L.C. at $2.00 per share
pursuant to a lease agreement between the registrant and Merrill Place L.L.C.
These securities have been issued in a transaction exempt from registration
under the Securities Act of 1933 in reliance on Section 4(2) of the Securities
Act of 1933.

16. On September 15, 1998, the registrant issued warrants to purchase
20,000 shares of common stock to Raifman & Edwards at $1.25 per share as partial
consideration for legal services rendered. These securities have been issued in
a transaction exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) of the Securities Act of 1933.

17. On September 17, 1998, pursuant to an Agreement and Plan of Merger between
the registrant and Media Assets, Inc., the registrant issued to the sole
shareholder of Media Assets, Inc., Jeff Haggin, 600,000 shares of common stock,
a convertible promissory note in the principal amount of $1,050,000 and options
to purchase an aggregate of 1,120,000 shares of common stock at an exercise
price of $2.00 per share. In May 1999, Mr. Haggin exchanged performance-based
options to purchase 900,000 shares of common stock for an option to purchase
300,000 shares of common stock. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

18. In October 1998, the registrant completed a Bridge Financing whereby it
issued promissory notes in the aggregate principal amount of $3,700,000 and
warrants to purchase 129,500 shares of common stock at $4.00 per share. In
connection therewith, the registrant issued to the placement agent, Madison
Securities, Inc., warrants to purchase 129,500 shares of common stock at $4.00
per share. These securities have been issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2) of
the Securities Act of 1933.

19. On October 21, 1998, in connection with the financing of a fixed asset
acquisition, the registrant issued to Cornerstone Equipment Finance a warrant to
purchase 6,795 shares of common stock at an exercise price of $6.00 per share.
These securities have been issued in a transaction exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933.

20. During the period from November 24, 1998 through January 19, 1999, the
registrant issued an aggregate of 2,336,000 shares of Series F convertible
preferred stock, which were converted into 2,336,000 shares of common stock upon
the initial public offering, to 130 investors at $6.25 per share. In connection
with this transaction, the registrant issued to the investors warrants to
purchase 233,600 shares of common stock at an exercise price of $7.50 per share.
In connection with this transaction, the registrant issued to the placement
agent, Madison Securities, Inc., warrants to purchase 233,600 shares of common
stock, at an exercise price of $6.25 per share. These securities have

II-3
<PAGE>
been issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

21. On November 30, 1998, the registrant issued 10,000 shares of common stock to
Jim Tweeten at $5.00 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

22. On December 15, 1998, the registrant issued 5,000 shares of common stock to
Steve McClure at $.50 per share pursuant an option exercise. These securities
have been issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

23. On January 10, 1999, in connection with the purchase of services, the
registrant issued to The Culligan Group a warrant to purchase 3,400 shares of
common stock at an exercise price of $1.00 per share. These securities have been
issued in a transaction exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

24. On February 3, 1999, pursuant to a licensing agreement between the
registrant and Interworld Corporation, the registrant issued to Interworld
Corporation a warrant to purchase 16,000 shares of common stock at an exercise
price of $6.25 per share. These securities have been issued in a transaction
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

25. On February 17, 1999, in connection with the purchase of services, the
registrant issued to Star Telecommunications, Inc. a warrant to purchase 20,000
shares of common stock at an exercise price of $4.68 per share. These securities
have been issued in a transaction exempt from registration under the Securities
Act of 1933 in reliance upon Section 4(2) of the Securities Act of 1933.

26. On March 1, 1999, in connection with the purchase of services, the
registrant issued to Jim Tweeten a warrant to purchase 15,000 shares of common
stock at an exercise price of $6.25 per share. These securities have been issued
in a transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

27. On March 4, 1999, pursuant to a Loan and Security Agreement between the
registrant and Transamerica Business Credit Corporation, the registrant issued
to Transamerica Business Credit Corporation a warrant to purchase 72,000 shares
of common stock at $6.25 per share. These securities have been issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

28. On March 10, 1999, the registrant issued 1,000 shares of common stock to
Howard Barokas and Andrew Cullen as a bonus for consulting services previously
rendered to the registrant. These securities have been issued in transactions
exempt from registration under the Securities Act of 1933 in because no sale
occurred for purposes of the Securities Act of 1933.

29. During March and April 1999, the registrant issued to the ZERON Group in
exchange for $5,000,000 in cash 714,288 shares of Series G convertible preferred
stock, which converted into 714,288 shares of common stock upon the initial
public offering and warrants to purchase 35,715 shares of common stock at an
exercise price of $7.50 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

30. In April 1999, the registrant issued 4,300,000 shares of Series G
convertible preferred stock to 24/7 Media at $7.00 per share, which converted
into 4,300,000 shares of common stock upon the initial public offering, in
exchange for $30.1 million in consideration, consisting of cash, shares of
24/7 Media, Inc. common stock and 24/7 Media, Inc.'s majority interest in
CardSecure, Inc. A portion of the shares of Series G convertible preferred stock
and of the warrants was placed in escrow pending consummation of our acquisition
of CardSecure, Inc., which occurred on June 15, 1999. 24/7 Media, Inc. also
received warrants to purchase 860,000 shares of common stock at $7.00 per share.
These securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.

II-4
<PAGE>
31. On April 12, 1999, Merrimac Capital Company, LLC and Leasing
Technologies, Inc., made a loan commitment to the registrant pursuant to which
the registrant agreed to issue to Merrimac Capital Company, LLC a warrant to
purchase 6,400 shares of common stock at an exercise price of $6.25 per share
and to Leasing Technologies Inc. a warrant to purchase 22,400 shares of common
stock at an exercise price of $6.25 per share. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

32. On April 15, 1999, pursuant to an Asset Purchase Agreement between the
registrant and Discountjewelry.com, Inc., the registrant issued 8,000 shares of
common stock, valued at $6.25 per share, to Mike Kmet, Discountjewelry.com,
Inc.'s sole proprietor. In connection with the Asset Purchase Agreement, the
registrant also issued an aggregate of 8,000 additional shares of common stock
over the next eight months. These securities have been issued in transactions
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

33. On April 16, 1999, pursuant to a Master Lease Agreement between the
registrant and Silicon Valley Bank, the registrant issued to Silicon Valley Bank
warrants to purchase 40,000 shares of common stock at $6.25 per share. These
securities have been issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.

34. On April 20, 1999, in exchange for the cancellation of the registrant's
obligation to pay a lease brokerage fee to Matt Christian and Tim O'Keefe, the
registrant agreed to issue to Matt Christian a warrant to purchase 13,182 shares
of common stock at an exercise price of $9.00 per share and to Tim O'Keefe a
warrant to purchase 3,600 shares of common stock at an exercise price of $9.00
per share. These securities have been issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2) of
the Securities Act of 1933.

35. On April 29, 1999, pursuant to a Distributor/Marketing Agreement between the
registrant and Qwest Communications Corporation, the registrant issued to Qwest
Communications Corporation warrants to purchase 100,000 shares of common stock
at $10.00 per share. These securities have been issued in a transaction exempt
from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

36. On May 18, 1999, the registrant issued 333,334 shares of Series H preferred
stock to HNC Software, Inc. at $9.00 per share, which converted into 333,334
shares of common stock upon the inital public offering. In connection with this
transaction, the registrant issued to HNC Software, Inc. warrants to purchase
50,000 shares of common stock at an exercise price of $9.00 per share. These
securities have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.

37. On May 19, 1999, pursuant to a Distribution Agreement between the registrant
and Corel Corporation, the registrant issued to Corel Corporation warrants to
purchase 100,000 shares of common stock at an exercise price of $9.00 and
options to purchase 300,000 and 200,000 shares of common stock at $4.80 and
$9.00, respectively. These securities have been issued in a transaction exempt
from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

38. In May 1999, pursuant to the First Amendment to Loan and Security Agreement
between the registrant and Transamerica Business Credit Corporation, the
registrant issued to each of Transamerica Business Credit Corporation and Sand
Hill Capital LLC a warrant to purchase 35,000 shares of common stock at an
exercise price of $7.00 per share. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

39. On June 8, 1999, in connection with the acquisition of CardSecure, Inc., the
registrant issued, to 3 shareholders of the acquired company, an aggregate of
243,036 shares of common stock valued at $7.00 per share. These securities have
been issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

40. On June 15, 1999, pursuant to an Acquisition Agreement between the
registrant and GO Software, Inc., the registrant issued to the shareholders of
GO Software, Inc., 1,123,751 shares of common stock and to one of these
shareholders a promissory note in the principal amount of $1,000,000,
convertible at the shareholder's option for

II-5
<PAGE>
common stock at a conversion price equal to the initial public offering price.
These securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933.

41. On June 17, 1999, the registrant entered into the Stock Purchase Agreement
among the Registrant and CB Capital Investors, L.P., to sell 2,100,000 shares of
Series I convertible preferred stock, which were converted into 2,100,000 shares
of common stock upon the initial public offering, and a warrant to purchase
555,556 shares of common stock at an exercise price of $9.00 per share to CB
Capital Investors, L.P. The transaction closed on July 17, 1999. These
securities have been issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.

42. On June 22, 1999, the registrant issued warrants to purchase 26,500 shares
of common stock to Wayne Gilpin at $1.50 per share in partial payment of fees
and commissions for Series D, E and F and an earlier bridge financing. These
securities have been issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance on Section 4(2) of the Securities Act of
1933.

43. On August 18, 1999, in exchange for advertising services, the registrant
issued warrants to purchase 10,000 shares of common stock to eBay, Inc. at
$9.00 per share. These securities have been issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2) of the
Securities Act of 1933.

44. On October 1, 1999, in connection with the provision of consulting services,
the registrant issued warrants to purchase 30,000 shares of common stock at
$7.50 to Woodstock Group International, LLC. These securities have been issued
in transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

45. On October 5, 1999, in connection with the provision of professional
services, the registrant issued warrants to purchase 10,000 shares of common
stock at $10.00 to StairMaster Corp. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Section 4(2) of the Securities Act of 1933.

46. On October 9, 1999, in connection with a prior private placement of the
registrant, the registrant issued warrants to purchase 7,000 shares of common
stock at $4.00 to Jim Saunders Wood Specialties. These securities have been
issued in transactions exempt from registration under the Securities Act of 1933
in reliance upon Section 4(2) of the Securities Act of 1933.

47. On October 28, 1999, in connection with a prior private placement of the
registrant, the registrant issued warrants to purchase 7,000 shares of common
stock at $4.00 to Jason Bank. These securities have been issued in transactions
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

48. On October 28, 1999, pursuant to a Stock Purchase Agreement between the
registrant and escrow.com, Inc., the registrant issued 208,334 shares of common
stock at $12.00 per share to escrow.com in exchange for 50% of (i) 500,000
shares of escrow.com's common stock at purchase price of $0.25 per share and
(ii) 2,000,000 shares of Series A Preferred Stock at a purchase price of $2.44
per share. These securities have been issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2) of
the Securities Act of 1933 and Rule 506 of Regulation D thereunder.

49. On November 11, 1999, the registrant issued warrants to purchase 129,500 and
35,050 shares of common stock at $4.00 and $6.25, respectively, to 20 investors
pursuant to a private placement between December 1997 and January 1999. These
securities have been issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.

50. On November 11, 1999, the registrant issued warrants to purchase 2,000 and
1,000 shares of common stock at $4.00 and $6.25, respectively, to Brian Staubus
pursuant to a private placement between December 1997 and January 1999.
Mr. Staubus exercised these warrants in full on November 16, 1999, under the
cashless exercise terms, for net 1,440 and 563 shares, respectively. These
securities have been issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.

II-6
<PAGE>

51. On November 12, 1999, pursuant to an Agreement and Plan of Merger between
the registrant, Racer Acquisition, Inc. and SpeedyClick, Corp., the registrant
issued 3,799,237 shares of common stock at $12.31 per share to shareholders of
SpeedyClick, Corp. in exchange for all equity securities of SpeedyClick, Corp.
These securities have been issued in transactions exempt from registration under
the Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act
of 1933 and Rule 506 of Regulation D thereunder.

52. On December 6, 1999, pursuant to an Agreement and Plan of Merger between the
registrant, Cardinals Acquisition, Inc. and Cortix, Inc., the registrant issued
711,435 shares of common stock at $16.85 per share to shareholders of Cortix,
Inc. in exchange for all equity securities of Cortix, Inc. These securities have
been issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.

53. On December 8, 1999, in connection with the provision of services, the
registrant issued warrants to purchase 7,500 and 2,500 shares of common stock at
$12.00 to Intec Inc. and e-solutions Inc., respectively. These securities have
been issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

54. On December 14, 1999, the registrant issued 17,730 shares of common stock to
GiftSpot.com in exchange for 174,825 shares of Series A Preferred Stock at $1.43
per share.

55. On December 17, 1999, pursuant to an Agreement and Plan of Merger between
the registrant, Chiefs Acquisition, Inc. and WebCentric, Inc., the registrant
issued 2,161,904 shares of common stock at $21.61 per share to WebCentric in
exchange for all equity securities of WebCentric, Inc. These securities have
been issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.

56. On December 22, 1999, the registrant issued 264,199 shares of common stock
at $18.93 per share to PrivaSeek, Inc. in exchange for 1,262,626 shares of the
Series C Preferred Stock of PrivaSeek at $3.96 per share. These securities have
been issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.

57. Through December 31, 1999, the registrant granted, pursuant to its stock
option plan and outside of its stock option plan, options to purchase an
aggregate of 12,450,520. The options granted under the stock option plan were
issued to the registrant's officers, employees and consultants at exercise
prices ranging from $0.50 to $21.25. The options granted outside of the stock
option plan were granted to its employees and officers at prices ranging from
$0.14 to $12.00. A significant portion of these options were issued pursuant to
the registrant's stock option plan. These securities have been issued in
transactions exempt from registration under the Securities Act of 1933 in
reliance upon Rule 701 promulgated under the Securities Act of 1933. Where
Rule 701 has not been available, the securities have been issued in transactions
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) of the Securities Act of 1933.

58. On January 13, 2000, pursuant to a Share Sale and Purchase Agreement among
the Registrant, 3037952 Nova Scotia Company, and the shareholders Pronet
Enterprises Ltd., namely Finn A. Knutsen, Kevin T. Dennehy, Nicole Arens and
Candis Heath, the Registrant issued 162,508 shares of common stock at $17.2725
per share to the shareholders of Pronet in exchange for all equity securities of
Pronet. These securities have been issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Section 4(2) of
the Securities Act of 1933.

59. On January 18, 2000, pursuant to an Agreement and Plan of Merger, dated as
of December 23, 1999, among the registrant, SN Acquisition, Inc., AXC
Corporation, and Michael Axtman, Karl Reeves, Seth Weissman, Kevin Harris,
Robert Harbison, David Henn, and Paul VanDerVelde, the Registrant issued 540,296
shares of common stock at $18.325 per share to the shareholders of AXC
Corporation in exchange for all equity securities of AXC Corporation. These
securities have been issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act of
1933.

No underwriters were engaged in connection with these issuances and sales.

II-7
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS

<TABLE>
- ---------------------------------------------------------------------------------
Number Description
- ---------------------------------------------------------------------------------
<C> <S>
1.1 * Form of Underwriting Agreement.

3.1 ++ Amended and Restated Articles of Incorporation of the
registrant.

3.2 ++ Amended and Restated Bylaws of the registrant.

4.1 ++ Second Amended and Restated Registration Rights Agreement
dated as of November 30, 1998

4.2 ++ Amendment No. 1 to Second Amended and Restated Registration
Rights Agreement dated as of June 15, 1999.

4.3 ++ Amendment No. 2 to Second Amended and Restated Registration
Rights Agreement dated as of June 16, 1999.

5.1 *** Opinion of Perkins Coie LLP as to the legality of the
shares.

10.1 ++ Amended and Restated 1999 Employee Stock Purchase Plan and
form of agreement thereunder.

10.2 ++ Amended and Restated 1996 Combined Incentive and
Nonqualified Stock Option Plan and form of agreements
thereunder.

10.3 *# Amended and Restated 1999 Nonofficer Employee Stock Option
Plan.

10.4 + ++ Electronic Distributor Agreement dated as of May 19, 1999,
between Corel Corporation and the registrant.

10.5 + ++ Addendum No. 1 Project Agreement to Strategic Alliance
Agreement between HNC Software and the registrant, dated
May 4, 1999.

10.6 + ++ Distributor/Marketing Agreement dated as of April 29, 1999,
between Qwest Communications Corporation and the registrant.

10.7 ++ Strategic Alliance Agreement dated as of May 4, 1999,
between HNC Software Inc. and the registrant.

10.8 ++ Consortium Membership Agreement dated as of May 4, 1999,
between HNC Software and the registrant.

10.9 ++ Cross Promotion Agreement dated April 5, 1999, between
24/7 Media, Inc. and the registrant.

10.10 ++ Loan and Security Agreement dated as of March 4, 1999,
between Transamerica Business Credit Corporation and the
registrant.

10.11 ++ Letter of Intent Agreement dated March 24, 1999, between the
ZERON Group and the registrant.

10.12 ++ Employment Agreement effective as of July 1, 1999, between
Dwayne M. Walker and the registrant.

10.13 ++ Corporate Master Agreement effective as of February 10,
1999, between Vignette Corporation and the registrant.

10.14 + ++ Agreement dated July 7, 1999, between About.com, Inc. and
the registrant.

10.15 + ++ Agreement effective as of July 12, 1999, between Chase
Manhattan Capital, L.P. and the registrant.

10.16 # Agreement and Plan of Merger dated as of November 10, 1999,
among Racer Acquisition, Inc., SpeedyClick, Corp., the
Principal Shareholders of SpeedyClick, Corp. and the
registrant.

10.17 # Employment Agreement, dated as of November 12, 1999, between
Farid Tabibzadeh and the registrant.
</TABLE>

II-8
<PAGE>

10.20 ## Agreement and Plan of Merger dated as of December 16, 1999,
among Chiefs Acquisition, Inc., WebCentric, Inc., the
Stockholders of WebCentric, Inc. and the registrant.

10.21 ### Letter of Intent, dated December 20, 1999, between
Ubarter.com Inc., Steven White, New Horizons L.P. and the
registrant.

10.22 #### Office Building Lease, dated September 21, 1999, between CEP
Investors XII LLC and the registrant.

10.23 *** Office Lease, dated December 13, 1999, between Benaroya
Capital Company, LLC and the registrant.

10.24 *** Promissory Note, dated September 28, 1999, from Alan Koslow
to the registrant.

10.25 *# Agreement and Plan of Merger dated January 20, 2000 among
Ubarter.com Inc., Shamu Acquisition, Inc. and the
registrant.

21.1 *# List of Subsidiaries

23.1 * Consent of Ernst & Young LLP, Independent Accountants.

23.2 * Consent of Arthur Andersen LLP, Independent Accountants.

23.3 * Consent of KPMG LLP, Independent Accountants

23.4 * Consent of Moss Adams LLP, Independent Accountants

23.5 *** Consent of Perkins Coie LLP (contained in the opinion filed
as Exhibit 5.1).

24.1 *** Power of Attorney (contained on signature page).

27.1 * Financial Data Schedule.
</TABLE>

* Filed herewith

*** Filed previously

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

++ Incorporated by reference to the Registration Statement on Form S-1
(No. 333-80981) filed by the registrant on September 28, 1999, as
amended.

# Incorporated by reference to the Current Report on Form 8-K (File
No. 000-26707) filed by the registrant on November 24, 1999, as amended.

## Incorporated by reference to the Current Report on Form 8-K (File
No. 000-26707) filed by the registrant on December 29, 1999, as amended.

### Incorporated by reference to the Current Report on Form 8-K (File
No. 000-26707) filed by the registrant on December 30, 1999.

#### Incorporated by reference to Quarterly Report on Form 10-Q (File
No. 000-26707) filed by the registrant on November 9, 1999.

##### Incorporated by reference to Registration Statement on Form S-8 (File
No. 333-92533) filed by the registrant on December 10, 1999.

*# Incorporated by reference to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, filed by the registrant on
February 10, 2000.

II-9
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated 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.

Insofar as indemnification by the registrant for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the registrant 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 the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the registrant 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, 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,
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 that time shall be deemed to be the
initial bona fide offering thereof.

II-10
<PAGE>
Signatures

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 9th day of February, 2000.

<TABLE>
<S> <C> <C>
SHOPNOW.COM INC.

By: /s/ DWAYNE M. WALKER
-----------------------------------------
Dwayne M. Walker, Chief Executive Officer
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 9th day of February, 2000.

<TABLE>
<C> <S>
/s/ DWAYNE M. WALKER
------------------------------------------- Chief Executive Officer and Chairman of the
Dwayne M. Walker Board (Principal Executive Officer)

/s/ ALAN KOSLOW Executive Vice President, Chief Financial
------------------------------------------- Officer, General Counsel and Secretary
Alan D. Koslow (Principal Financial and Accounting Officer)

/s/ JACOB I. FRIESEL
------------------------------------------- Director
*Jacob I. Friesel

/s/ DAVID M. LONSDALE
------------------------------------------- Director
*David M. Lonsdale

/s/ BRET R. MAXWELL
------------------------------------------- Director
*Bret R. Maxwell

/s/ MARK C. MCCLURE
------------------------------------------- Director
*Mark C. McClure

/s/ JOHN R. SNEDEGAR
------------------------------------------- Director
*John R. Snedegar

/s/ MARK H. TERBEEK
------------------------------------------- Director
*Mark H. Terbeek
</TABLE>

II-11
<PAGE>
<TABLE>
<C> <S>
/s/ EYTAN J. LOMBROSO
------------------------------------------- Director
*Eytan Lombroso
</TABLE>

<TABLE>
<S> <C> <C>
*By: /s/ ALAN D. KOSLOW
-------------------------------------- Attorney-in-fact
Alan D. Koslow
</TABLE>

II-12
<PAGE>
ShopNow.com Inc.

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)

<TABLE>
<CAPTION>
Balance at Charged to costs Balance at
Description beginning of period and expenses Deductions(1) end of period
----------- ------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999.................... $ 230 $ 678 $ (617) $ 291
================= =============== ============= ============
Year ended December 31, 1998.................... $ 23 $ 591 $ (384) $ 230
================= =============== ============= ============
Year ended December 31, 1997.................... $ 3 $ 20 $ -- $ 23
================= =============== ============= ============
</TABLE>

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

(1) Write-offs, net of bad debt recovery.
<PAGE>
INDEX TO EXHIBITS