SKYMALL INC, S-1/A, 1996-12-09

SKYMALL INC
S-1/A, 1996-12-09
CATALOG & MAIL-ORDER HOUSES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1996.

REGISTRATION NO. 333-14539
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 4

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SKYMALL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
NEVADA 5961 86-0651100
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>

1520 EAST PIMA STREET
PHOENIX, ARIZONA 85034
(602) 254-9777
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
ROBERT M. WORSLEY
PRESIDENT
SKYMALL, INC.
1520 EAST PIMA STREET
PHOENIX, ARIZONA 85034
(602) 254-9777
(Name, address, including zip code, and telephone number, including zip code, of
agent for service)
------------------------
Copies to:

<TABLE>
<S> <C>
CHRISTOPHER D. JOHNSON, ESQ. RUBI FINKELSTEIN, ESQ.
SQUIRE, SANDERS & DEMPSEY L.L.P. ORRICK, HERRINGTON & SUTCLIFFE LLP
40 NORTH CENTRAL AVENUE 666 FIFTH AVENUE
PHOENIX, ARIZONA 85004 NEW YORK, NEW YORK 10103
(602) 528-4000 (212) 506-5000
</TABLE>

------------------------
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
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. [X]
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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.001 par value)...................... 2,300,000(2) $9.00 $20,700,000 $6,273
Representative's Warrants........................... 200,000(3) $.001 $200 $1
Common Stock Underlying Representative's Warrants... 200,000(4) $10.80 $2,160,000 $655
Common Stock........................................ 540,000(5) $9.00 $4,860,000 $1,473
Common Stock........................................ 180,000(6) $9.00 $1,620,000 $491
- ----------------------------------------------------------------------------------------------------------------------
TOTAL....................................................................................... $8,893
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- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(2) Includes 300,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(3) To be issued to Josephthal Lyon & Ross Incorporated (a "Representative").
(4) Includes up to 200,000 shares of Common Stock issuable upon exercise of
warrants being issued to a Representative of the Underwriters. Pursuant to
Rule 416, there is also being registered hereunder a presently
undeterminable number of shares of Common Stock that may be issued pursuant
to the anti-dilution provisions of the Representative's Warrants.
(5) Represents shares of Common Stock issuable to certain shareholders of the
Registrant upon conversion of certain Preferred Stock upon completion of the
Registrant's underwritten public offering. Pursuant to Rule 416, there is
also being registered hereunder a presently undeterminable number of shares
of Common Stock that may be issued upon conversion of such Preferred Stock
in payment of accrued dividends.
(6) Represents shares of Common Stock issuable upon the exercise of certain
warrants issued by the Company in connection with a private placement.
Pursuant to Rule 416, there is also being registered hereunder a presently
undeterminable number of shares of Common Stock that may be issued pursuant
to the anti-dilution provisions of such warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

EXPLANATORY NOTE

This registration statement (the "Registration Statement") contains two
prospectuses. The first prospectus relates to the underwritten public offering
of 2,000,000 shares of Common Stock by SkyMall, Inc. (the "Company") and 300,000
shares of Common Stock offered by certain selling shareholders (the "Selling
Shareholders") to cover over-allotments, if any (the "Prospectus"). The form of
Prospectus in the exact form in which it is to be used after the effective date
will be filed with the Securities and Exchange Commission pursuant to Rule
424(b) of the General Rules and Regulations under the Securities Act of 1933, as
amended. The second prospectus (the "Selling Securityholder Prospectus") relates
to the offering of 540,000 shares of Common Stock, which upon consummation of
this Offering, will be issued to certain shareholders of the Company (the
"Selling Securityholders") upon conversion of certain shares of Preferred Stock
held by such Selling Securityholders and 180,000 shares of Common Stock, which
may be acquired upon the exercise of certain warrants held by such Selling
Securityholders. This Common Stock may be offered by the Selling Securityholders
from time to time following the Company's underwritten public offering.
Following the Prospectus are certain substitute pages of the Selling
Securityholder Prospectus, including alternate front outside and back outside
cover pages, an alternate "The Offering" section of the "Prospectus Summary" and
sections entitled "Concurrent Offering," "Selling Securityholders" and "Plan of
Distribution." Each of the alternate pages for the Selling Securityholder
Prospectus included herein is labeled "Alternate Page for Selling Securityholder
Prospectus." All other sections of the Prospectus, other than "Underwriting" and
"Concurrent Offering," are to be used in the Selling Securityholder Prospectus.
In addition, cross-references in the Prospectus will be adjusted in the Selling
Securityholder Prospectus to refer to the appropriate sections.
<PAGE> 3

SKYMALL, INC.

CROSS REFERENCE SHEET BETWEEN ITEMS OF FORM S-1 AND
PROSPECTUS PURSUANT TO ITEM 501(b) OF REGULATION S-K

<TABLE>
<CAPTION>
FORM S-1
ITEM NO. ITEM CAPTION CAPTION OR LOCATION IN PROSPECTUS
- -------- -------------------------------------------------- --------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors; not
applicable as to Ratio of Earnings to
Fixed Charges
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations
5. Determination of Offering Price................... Outside Front Cover Page;
Underwriting*
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Principal Shareholders*
8. Plan of Distribution.............................. Outside Front Cover Page; Inside Front
Cover Page; Underwriting*
9. Description of Securities to be Registered........ Outside Front Cover Page; Prospectus
Summary; Description of Capital Stock;
Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel............ Not Applicable
11. Information with Respect to the Registrant........ Outside and Inside Front Cover Page;
Prospectus Summary; The Company; Risk
Factors; Dividend Policy; Dilution;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Shareholders; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Management
</TABLE>

- ---------------
* Will appear under caption "Plan of Distribution" in the Selling Securityholder
Prospectus.
<PAGE> 4

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED DECEMBER 9, 1996

PROSPECTUS

2,000,000 SHARES

LOGO

COMMON STOCK

SkyMall, Inc. ("SkyMall" or the "Company") hereby offers 2,000,000 shares
of common stock, $.001 par value per share (the "Common Stock"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
and there can be no assurance that such a market will develop after the
completion of this Offering or, if developed, that it will be sustained. It is
anticipated that the initial public offering price will be between $8.00 and
$9.00 per share. For information regarding the factors considered in determining
the initial public offering price, see "Underwriting." The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "SKYM."
Concurrently, 720,000 shares of Common Stock are being registered at the
Company's expense for sale by certain selling securityholders (the "Selling
Securityholders") pursuant to a separate prospectus (the "Selling Securityholder
Prospectus"). See "Concurrent Offering."

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," BEGINNING ON
PAGE 7 HEREOF, AND "DILUTION."
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share............................. $ $ $
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Total................................. $ $ $
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</TABLE>

(1) Excludes the value of warrants to purchase up to 200,000 shares of Common
Stock (the "Representative's Warrants") granted to Josephthal Lyon & Ross
Incorporated ("Josephthal"), which together with Cruttenden Roth
Incorporated are the representatives of the several Underwriters (the
"Representatives"). The Company has agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), in connection with this Offering. See
"Underwriting."

(2) Before deducting estimated expenses of $810,000 payable by the Company,
including the non-accountable expense allowance payable to the
Representatives. See "Underwriting."

(3) Certain shareholders of the Company (the "Selling Shareholders") have
granted to the Underwriters an option (the "Over-Allotment Option"),
exercisable for 45 days after the date of this Prospectus, to purchase up to
300,000 additional shares of Common Stock, upon the same terms and
conditions set forth above, solely to cover over-allotments, if any. The
Company will not receive any of the proceeds from the sale of the Common
Stock by the Selling Shareholders. See "Principal Shareholders" and
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively.
------------------------

The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and,
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering without notice and to reject any order in whole or in part.
It is expected that delivery of the Common Stock offered hereby will be made
against payment therefor at the offices of Josephthal Lyon & Ross Incorporated,
New York, New York, on or about , 1996.
------------------------

<TABLE>
<S> <C>
JOSEPHTHAL LYON & ROSS CRUTTENDEN ROTH
INCORPORATED INCORPORATED
</TABLE>

, 1996
<PAGE> 5

[This page includes a photograph of covers of seven SkyMall catalogs.
Depicted on the various covers are Mickey Mouse, Minnie Mouse, a sailboat, a
sweatshirt, a gothic clock and glassware. Below the SkyMall catalog covers are
the names and logos of United Airlines, Delta Air Lines, America West Airlines,
TWA, Continental Airlines and Southwest Airlines.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent public accountants and
quarterly reports for the first three quarters of each year containing unaudited
summary financial information.

2
<PAGE> 6

PROSPECTUS SUMMARY

The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, contained elsewhere in this Prospectus. Unless otherwise
indicated, all information contained herein (i) assumes no exercise of the
Over-Allotment Option granted to the Underwriters, the Representative's Warrants
or any other stock options or warrants issued by the Company; (ii) reflects the
conversion of shareholder notes in the aggregate principal amount of $5.0
million into 5,000 shares of Convertible Preferred Stock and the conversion of
such shares and 3,000 additional shares of Convertible Preferred Stock issued in
the Private Placement into 1,440,000 shares of Common Stock on the closing date
of this Offering; and (iii) reflects the receipt of $4.0 million in proceeds
from a loan that was used by the Company to repay $4.0 million in debt and
accrued interest of certain shareholders (the conversion of the shareholder
notes, the consummation of the Private Placement, the conversion of the
Convertible Preferred Stock, and the receipt and application of the loan are
hereinafter collectively referred to as the "Recapitalization Transactions").
See "The Company -- Private Placement", "Concurrent Offering," "Management --
Stock Option Plans," "Certain Transactions" and "Underwriting." Investors should
carefully consider the information set forth under the heading "Risk Factors."

THE COMPANY

SkyMall(R) is the largest in-flight catalog company in the United States
that makes high-quality products and services available to more than 350.0
million airline passengers per year. The Company markets and sells a broad
selection of premium merchandise provided by participating merchants, including
major catalog companies and specialty retailers, such as Disney, Hammacher
Schlemmer and The Sharper Image(R). The merchandise of each participating
merchant is presented in a separate section of the SkyMall catalog to allow
browsing from "store to store," providing the convenience and variety of an
upscale shopping mall environment. Substantially all of the merchandise sold by
the Company is shipped directly to customers by participating merchants, thus
avoiding significant inventory risk. The Company has exclusive agreements to
place its catalogs in aircraft seat pockets on 15 airlines, which carried
approximately 70% of all domestic passengers in 1995, including Delta, United,
USAir, Continental, TWA, America West and Southwest. As a result, the Company
believes that the SkyMall catalog is available to over 960,000 domestic airline
passengers each day. SkyMall has experienced substantial growth since the
Company began operations in 1990. Total revenues have increased from
approximately $5.4 million in fiscal 1991 to approximately $43.1 million in
fiscal 1995, for a compound annual growth rate of 68%. The Company's revenue per
passenger enplanement on flights carrying the SkyMall catalog has increased from
approximately $0.038 in 1991 to approximately $0.084 for the year ended December
31, 1995, for a compound annual growth rate of 22%.

Business Strategy. The Company's foundation is built on its relationships
with its customers, airline partners and participating merchants. The Company's
customers enjoy the convenience of being able to shop for a wide variety of
innovative products while traveling. The Company offers a fair price guarantee
under which the Company will refund the price difference if the customer finds
the same item advertised elsewhere at a lower price. In order to enhance the
ongoing appeal of its product offerings, the Company produces four new catalogs
per year. The Company maintains a toll-free 24-hour telephone ordering service
(from air and ground phones) and an in-house staff of customer service
representatives who are trained to provide exemplary service in order to build
strong customer loyalty and increase revenue from repeat and referral business.

In exchange for placement of its catalogs in aircraft seat pockets, the
Company pays each airline partner a monthly commission based on net merchandise
revenues generated by the Company from sales to that airline's passengers. Some
of the Company's airline agreements also require payment of minimum monthly
fees. The Company's airline partners benefit from this additional revenue and
from being able to enhance the in-flight experience of their passengers by
providing the Company's catalog as an additional amenity.

3
<PAGE> 7

Company earns percentages of revenues generated by the Company's sales,
placement fees for inclusion of the merchants' products in the SkyMall catalog,
or a combination thereof. Among the more than 60 merchants currently included in
the SkyMall catalog are: Brookstone(R), Compaq Computer, The Disney Catalog,
Frontgate(R), Hammacher Schlemmer, The Safety Zone, Hello Direct(R), Johnston &
Murphy, Mattel(R), The Metropolitan Museum of Art, Norm Thompson Solutions(R),
Pepperidge Farm(R), SelfCare(R), The Sharper Image(R), Successories(R),
SyberVision(R), Thomas Cook and The Wine Enthusiast(R).

Growth Strategy. The Company's growth strategies are to increase its
revenue per passenger enplanement and to increase circulation of the SkyMall
catalog. The Company plans to increase its revenue per passenger enplanement
through innovative marketing programs, some of which are modeled after
successful "duty-free" in-flight sales programs offered on international
flights. The Company also plans to expand its distribution to travelers and
other potential customers by securing agreements from additional airlines to
carry the Company's catalogs, including both domestic and foreign airlines. The
Company also plans to implement additional distribution channels outside of its
airline franchise, including direct marketing "mail-to-home" programs, magazine
inserts and catalog placement in hotels, railways, rental cars and other
locations where travelers may be reached. SkyMall recently entered into an
agreement with its first foreign airline, Japan-based JAL, to test market the
SkyMall concept. In addition, in 1994, Amtrak began carrying the Company's
catalog on selected routes. The Company is currently employing advanced database
management techniques to utilize its rapidly growing customer database of over
one million names for the development of direct targeted marketing programs and
to generate additional revenues from database list rentals.

The Company's principal executive offices are located at and its mailing
address is 1520 East Pima Street, Phoenix, Arizona 85034. The telephone number
of the Company is (602) 254-9777.

4
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered............................... 2,000,000 shares
Common Stock outstanding prior to this Offering.... 6,590,000 shares of Common Stock(1)
Common Stock to be outstanding after the completion
of this Offering................................. 8,590,000 shares of Common Stock(1)
Use of proceeds.................................... For implementing marketing and promotional
programs, developing additional circulation
media, capital expenditures and working
capital requirements. See "Use of Proceeds."
Risk factors....................................... The Common Stock offered hereby involves a
high degree of risk and immediate and
substantial dilution. See "Risk Factors" and
"Dilution."
Nasdaq National Market Symbol...................... "SKYM"
</TABLE>

- ---------------
(1) Does not include (i) 438,080 shares of Common Stock issuable upon exercise
of stock options issued pursuant to the Company's stock option plans, which
have a weighted average exercise price of $6.13 per share, and an additional
311,920 shares of Common Stock reserved for issuance thereunder, including
20,000 shares reserved for issuance to non-employee directors upon
completion of this Offering, (ii) 180,000 shares of Common Stock issuable
upon the exercise of Warrants issued by the Company in connection with the
Private Placement, which are exercisable at the initial public offering
price, and (iii) 58,824 shares of Common Stock issuable by the Company upon
the exercise of a warrant issued to a vendor, which is exercisable at the
initial public offering price. See "The Company -- Private Placement" and
"Management -- Stock Option Plans."

5
<PAGE> 9

SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OPERATING DATA)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,(1)
------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Merchandise sales, net........ $5,422 $15,875 $24,507 $22,062 $26,883 $18,379 $18,906
Placement fees and other...... 13 178 2,560 8,241 16,198 11,904 8,631
------- ------- ------- -------- ------- ------- -------
Total revenues................ 5,435 16,053 27,067 30,303 43,081 30,283 27,537
------- ------- ------- -------- ------- ------- -------
Costs of goods sold........... 3,370 10,364 13,691 16,266 24,564 17,100 14,725
Total operating expenses...... 6,776 14,589 18,855 25,535 17,009 12,479 11,171
Interest expense and other
income (expense) net........ (364) (740) (287) (688) (750) (588) (550)
------- ------- ------- -------- ------- ------- -------
Net income (loss)............. $(5,075) $(9,640) $(5,766) $(12,186) $758 $116 $1,091
------- ------- ------- -------- ------- ------- -------
------- ------- ------- -------- ------- ------- -------
Net income (loss) per common
share....................... $(1.09) $(2.03) $(1.68) $(3.42) $.14 $.02 $.20
Weighted average shares
outstanding................. 4,670,347 4,739,815 3,423,508 3,568,222 5,441,772 5,441,772 5,441,772
Pro forma net income (loss)
per common share............ $.20 $.27
Pro forma weighted average
shares outstanding.......... 5,753,537 5,753,537
OPERATING DATA:
Number of domestic
enplanements(2)............. 417,867,000 436,310,000 448,647,000 481,755,000 498,611,000 373,047,000 397,709,000
Domestic enplanement
percentage(3)............... 34% 74% 76% 72% 64% 65% 61%
Revenue per passenger
enplanement(4).............. $0.038 $0.049 $0.072 $0.064 $0.084 $0.076 $0.078
Number of airlines at end of
period(5)................... 10 11 15 21 20 20 15
Number of catalogs
produced(6)................. 4,513,000 11,915,000 15,661,000 15,747,000 17,162,000 12,838,000 11,421,000
Average number of pages per
catalog(7).................. 60 80 102 133 137 134 141
Revenue per catalog
produced(8)................. $1.20 $1.33 $1.56 $1.40 $1.57 $1.43 $1.66
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996(1)
----------------------------------
DECEMBER 31, PRO FORMA
------------------------------------------------------ PRO AS
1991 1992 1993 1994 1995 ACTUAL FORMA(9) ADJUSTED(10)
----------- ------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents,
including escrow accounts.... $ 560 $ 1,797 $ 171 $ 896 $ 775 $ 1,013 $ 1,013 $ 16,013
Working capital (deficit)...... (264) (1,506) (3,580) (7,540) (4,734) (5,485) (2,885 ) 12,115
Total assets................... 5,902 8,757 10,394 5,913 4,726 5,590 5,590 20,590
Long-term debt................. 6,701 40 2,978 8,082 10,818 9,943 4,943 4,943
Shareholders' equity
(deficit).................... $(3,946) $ 1,941 $ (3,603) $(15,791) $(15,033) $(13,942) $(6,342 ) $ 8,658
</TABLE>

- ---------------
(1) The audited financial statements of the Company as of and for the six month
period ended June 30, 1996 are contained in the Financial Statements
included elsewhere herein.
(2) Represents the number of revenue passengers flown on scheduled domestic
airlines in the given period.
(3) Represents the passenger enplanements on domestic airlines that carried the
SkyMall catalog during the period as a percentage of total domestic
passenger enplanements in the period by all scheduled domestic airlines.
(4) Revenue per passenger enplanement is net merchandise sales for the period
divided by the number of domestic enplanements during the period on all
scheduled domestic airlines that carried the SkyMall catalog.
(5) Represents the number of airlines at end of period with which the Company
had an agreement to carry the SkyMall catalog. During the nine month period
ended September 30, 1996, the Company eliminated unprofitable circulation
of the SkyMall catalog by eliminating routes on certain airlines and
terminating agreements with certain smaller regional airlines. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(6) Represents the number of catalogs produced by the Company during the period
for distribution to airlines.
(7) Represents the average number of pages in the SkyMall catalog during the
period.
(8) Represents net merchandise sales for the period divided by the number of
catalogs produced by the Company during the period.
(9) Pro forma to give effect to the Recapitalization Transactions. See
"Prospectus Summary," "The Company -- Private Placement," "Concurrent
Offering" and "Certain Transactions."
(10) Pro forma as adjusted to give effect to the Recapitalization Transactions
and to reflect the sale of 2,000,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $8.50 per share) and the
initial application of the net proceeds therefrom. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Use of Proceeds" and "Underwriting."

6
<PAGE> 10

RISK FACTORS

An investment in the securities offered hereby involves a high degree of
risk. Prospective investors, prior to making an investment in the securities,
should carefully consider the following risk factors, among others, relating to
the Company and this Offering.

LIMITED HISTORY OF PROFITABLE OPERATIONS; NO ASSURANCE OF CONTINUED
PROFITABILITY

The Company commenced operations in late 1990. Except for fiscal 1995 and
the first nine months of fiscal 1996, the Company has incurred substantial
losses, resulting in an accumulated deficit of approximately $32.4 million at
September 30, 1996. There can be no assurance that the Company's operations will
remain profitable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

NO ASSURANCE OF CONTINUED GROWTH

Since its inception, SkyMall has rapidly expanded its operations, growing
from total revenues of $200,000 in fiscal 1990 to total revenues of $43.1
million in fiscal 1995. The Company's continued growth will depend to a
significant degree on its ability to increase revenue per passenger, broaden its
customer base by entering into relationships with new domestic and foreign
airlines and implement other programs that increase the circulation of the
SkyMall catalog. The Company's ability to implement its growth strategy will
also depend on a number of other factors, many of which are or may be beyond the
Company's control, including: (i) the ability of the Company to select products
for its catalog that appeal to its customer base; (ii) sustained or increased
levels of airline travel, particularly in domestic airline markets; (iii) the
continued perception by participating merchants that the Company offers an
effective marketing channel for their products and services; (iv) the Company's
ability to attract, train and retain qualified employees and management; and (v)
the continued profitability of existing operations. There can be no assurance
that the Company will be able to successfully implement its growth strategy or
that its planned expansion will be profitable. See "Business -- Growth
Strategy."

DEPENDENCE ON AIRLINE RELATIONSHIPS

The Company's business depends significantly on its relationships with
airlines and its ability to have its catalogs placed on a substantial portion of
domestic airline flights. The Company's agreements with its airline partners
typically have one-year terms, but generally permit the airline to terminate the
relationship on 60 to 180 days' advance notice. In 1993, one major airline
declined to renew its contract with the Company. There can be no assurance that
the Company's airline partners will continue their relationships with the
Company and the loss of one or more of the Company's significant airline
partners could have a material adverse affect on the Company's financial
condition and results of operations. See "Business -- Airline Relationships" and
Note 11 of the Financial Statements included elsewhere in this Prospectus.

INCREASES IN PAPER COSTS AND AIRLINE FUEL PRICES

The cost of paper used to print the Company's catalogs and the fees paid to
airlines to reimburse them for the increased fuel costs associated with carrying
the Company's catalogs are significant expenses of the Company's operations.
Historically, paper and airline fuel prices have fluctuated significantly from
time to time. In 1995 and the first six months of 1996, the Company experienced
a significant increase in paper costs, and although paper prices have declined
during the third and fourth quarters of 1996, prices in the paper market remain
volatile. Any significant increases in paper or airline fuel costs reimbursable
by the Company could have a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition."

CREDIT RISK

Some participating merchants agree to pay a placement fee to the Company
for inclusion of their merchandise in the SkyMall catalog. The Company records
an account receivable from the merchant for the placement fee ratably for each
month of the catalog issue. In some cases, the Company collects the placement
fee either from the merchant or by withholding it from amounts due to the
merchant for merchandise sold. To

7
<PAGE> 11

the extent that the placement fee receivable exceeds the sales of the merchant's
products and the merchant is unable or unwilling to pay the difference to the
Company, the Company may experience credit losses which could have a material
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition."

COMPETITION

The Company faces competition for customers from airport-based retailers,
duty-free retailers, specialty stores, department stores and specialty and
general merchandise catalogs, many of which have greater financial and marketing
resources than the Company. In addition, the Company competes for customers with
other in-flight marketing media, such as airline-sponsored in-flight magazines,
airline video programming, and, to a lesser extent, seatback video shopping
services. All of the products and services offered by the Company can also be
found in other retail stores and catalogs. See "Business -- Competition."

RELIANCE ON INFORMATION AND TELECOMMUNICATIONS SYSTEMS

The Company processes a large volume of relatively small orders.
Consequently, the Company's success depends to a significant degree on the
effective operation of its information and telecommunications systems. Any
extended failure of the Company's information and telecommunications systems
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business -- Business Operations."

SEASONALITY

The Company's business is seasonal in nature, with its sales peak typically
occurring during the holiday selling season of the fourth quarter. During fiscal
1995, approximately 33% of the Company's product sales were generated in the
fourth quarter. Any substantial decrease in sales for the fourth quarter could
have a material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."

PRODUCT LIABILITY

The Company's catalog typically features over 1,000 products and services
from more than 60 participating merchants. Generally, the Company's agreements
with its participating merchants require the merchants to indemnify the Company
for any losses arising from product liability claims made by customers,
including the costs of defending any such claims, and to carry product liability
insurance that names SkyMall as an additional insured. In addition, the Company
maintains product liability insurance in the aggregate amount of $2.0 million
and $1.0 million per occurrence. To the extent that a merchant was unable or
unwilling to indemnify the Company as required, and any such losses exceeded the
Company's insurance coverage or were not covered by the Company's insurer, the
Company's financial condition and results of operations could be materially
adversely affected. See "Business -- Business Operations."

RELIANCE ON KEY PERSONNEL

The Company is dependent on the services of Robert M. Worsley, its
Chairman, President and Chief Executive Officer, and on the services of certain
other executive officers. The loss of Mr. Worsley's services or of the services
of certain other executive officers would have a material adverse effect on the
Company. See "Management."

CONTROL BY SHAREHOLDER

Immediately upon completion of this Offering, Mr. Worsley and his wife (the
"Worsleys") will directly own approximately 26.4% of the Company's outstanding
Common Stock. In addition, following this Offering, the Worsleys will have
certain options to purchase an additional 37.2% of the Company's Common Stock
(33.7% if the Over-Allotment Option is exercised in full) from two of the
Company's existing shareholders. The Worsleys will also have an irrevocable
proxy to vote the shares of Common Stock subject to one of these

8
<PAGE> 12

options for the 12 month period following this Offering. Accordingly, upon the
closing of this Offering, the Worsleys will beneficially own 63.7% of the
Company's Common Stock (60.2% if the Over-Allotment Option is exercised in full)
and will have the ability to control the affairs of the Company and matters
requiring a shareholder vote, including the election of the Company's directors,
the amendment of the Company's charter documents, the merger or dissolution of
the Company and the sale of all or substantially all of the Company's assets.
The voting power of the Worsleys may also discourage or prevent any proposed
takeover of the Company pursuant to a tender offer. See "Principal Shareholders"
and "Certain Transactions."

NO PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; VOLATILITY OF
PRICE

Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or, if developed, be sustained after this Offering, or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock has been
arbitrarily determined by negotiation between the Company and the
Representatives, does not necessarily bear any relationship to the Company's
assets, book value, revenues or other established criteria of value, and should
not be considered indicative of the actual value of the Common Stock.

The trading prices of the Common Stock could be subject to wide
fluctuations in response to variations in the Company's operating results,
announcements by the Company or others, developments affecting the Company or
its competitors and other events and factors. In addition, the stock market has
experienced extreme price and volume fluctuations in recent years. These
fluctuations have had a substantial effect on the market prices for many
companies, often unrelated to their performance, and may adversely affect the
market price for the Common Stock. See "Underwriting."

REPRESENTATIVES' POTENTIAL INFLUENCE ON THE MARKET

A significant number of shares of Common Stock offered hereby may be sold
to customers of the Representatives. Such customers subsequently may engage in
transactions for the sale or purchase of shares of Common Stock through or with
the Representatives. Although they have no obligation to do so, the
Representatives intend to make a market in the Common Stock and may otherwise
effect transactions in the Common Stock. If they participate in such market, the
Representatives may influence the market, if one develops, for the Common Stock.
Such market-making activity may be discontinued at any time. Moreover, if
Josephthal sells the securities issuable upon exercise of the Representative's
Warrants, it may be required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to temporarily suspend its market-making
activities. The prices and liquidity of the Common Stock may be significantly
affected by the degree, if any, of the Representatives' participation in such
market. See "Underwriting."

IMMEDIATE SUBSTANTIAL DILUTION

Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in pro forma net tangible book value of $7.51 (88%) per
share of Common Stock from the initial public offering price. See "Dilution."

BROAD DISCRETION IN APPLICATION OF PROCEEDS

All of the estimated net proceeds from this Offering have been allocated to
the funding of the Company's growth strategy and working capital requirements.
Accordingly, the Company will have broad discretion as to the application of the
proceeds of this Offering. See "Use of Proceeds."

NO DIVIDENDS

The Company has not paid dividends on its Common Stock since its inception
and does not expect to pay cash or stock dividends on its Common Stock in the
foreseeable future. See "Dividend Policy."

9
<PAGE> 13

ISSUANCE OF PREFERRED STOCK; BARRIERS TO TAKEOVER

The Board of Directors may issue one or more series of Preferred Stock,
without any action on the part of the shareholders of the Company, the terms of
which may adversely affect the rights of holders of Common Stock. Further, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the shareholders. Issuance of Preferred Stock,
which may be accomplished through a public offering or a private placement to
parties favorable to current management, may dilute the voting power of holders
of Common Stock (such as by issuing Preferred Stock with super-voting rights)
and may render more difficult the removal of current management, even if such
removal may be in the shareholders' best interests. Any such issuance of
Preferred Stock could prevent the holders of Common Stock from realizing a
premium on their shares. See "Description of Securities -- Preferred Stock." The
Company's Articles of Incorporation and Bylaws also contain a certain number of
provisions which could deter takeover attempts. See "Certain Charter and Bylaw
Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of the Company's securities in the public
market after this Offering or the perception that such sales may occur could
materially adversely affect the market price of the Common Stock. Of the
8,590,000 shares of Common Stock to be outstanding upon completion of this
Offering, the 2,000,000 shares of Common Stock offered hereby will be
immediately freely transferable without restriction under the Securities Act of
1933, as amended (the "Securities Act") except for any shares of Common Stock
purchased by an "affiliate" of the Company (as that term is defined under the
rules and regulations of the Securities Act), which will be subject to certain
of the resale limitations of Rule 144 under the Securities Act. Eight thousand
shares of Preferred Stock will convert into 1,440,000 shares of Common Stock
upon the closing of this Offering, of which 540,000 shares of Common Stock and
180,000 shares of Common Stock that may be acquired upon the exercise of the
Warrants will be freely tradeable. However, the holders of these securities have
executed agreements pursuant to which they have agreed not to sell, transfer,
assign, pledge or otherwise dispose of their securities for a 12-month period
from the effective date of this Prospectus.

The remaining 6,050,000 shares of Common Stock outstanding prior to
consummation of this Offering, including 900,000 shares of Common Stock issuable
on conversion of certain shares of Preferred Stock, are "restricted" securities
within the meaning of Rule 144 under the Securities Act. The holders of all
these "restricted" shares, including each officer, director and principal
shareholder of the Company, have executed agreements pursuant to which they have
agreed not to sell, transfer, assign, pledge or otherwise dispose of their
shares for a 12 month period from the date of this Prospectus without the prior
consent of Josephthal. Taking into consideration the restrictions of Rule 144
and the lock-up agreements, commencing 12 months after the date of this
Prospectus, 5,150,000 shares of Common Stock held by existing shareholders will
become eligible for sale under Rule 144, subject to compliance with the volume
limitations and other requirements of Rule 144. The remaining 900,000 shares of
Common Stock held by existing shareholders will become eligible for sale under
Rule 144 in October 1998, subject to compliance with the volume limitations and
other requirements of Rule 144. The sale or availability for sale of significant
quantities of Common Stock could materially adversely affect the market price of
the Common Stock and could impair the ability of the Company to raise capital in
the future through an offering of its equity securities. See "Shares Eligible
for Future Sale."

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK

This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
statements regarding, among other items, the Company's growth strategy and
anticipated trends in the Company's business. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the Company's control.
Actual results could differ materially from these forward-looking statements as
a result of the factors described herein, including, among others, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire or prove to be accurate.

10
<PAGE> 14

THE COMPANY

SkyMall was incorporated in Arizona in 1989. The Company began its
operations in late 1990 and, in 1991, the Company acquired the operations of its
principal competitor, GiftMaster, Inc. ("GiftMaster"). The Company was
reincorporated in Nevada in 1996. Except as otherwise specified, all references
in this Prospectus to the "Company" or "SkyMall" refer to SkyMall, Inc., which
has no subsidiaries. The Company's principal executive offices are located at
and its mailing address is 1520 East Pima Street, Phoenix, Arizona 85034. The
telephone number of the Company is (602) 254-9777.

PRIVATE PLACEMENT

On October 20, 1996, the Company completed a private placement (the
"Private Placement") pursuant to which it sold 3,000 shares of 6% Dividend
Paying Convertible Redeemable Preferred Stock (the "Convertible Preferred
Stock") to certain investors including certain affiliates of the Company. In
connection with the Private Placement, the Company issued warrants (the
"Warrants") to acquire up to 180,000 shares of Common Stock to investors in the
Private Placement. The Warrants are exercisable for three years following this
Offering at an exercise price equal to the initial public offering price at
which shares of Common Stock are offered hereby. The net proceeds from the
Private Placement were approximately $2.6 million (after commissions and
expenses). The Company used the net proceeds of the Private Placement to pay
certain indebtedness and to meet working capital requirements. Simultaneously
with the closing of the Private Placement, certain shareholders of the Company
converted an aggregate of $5.0 million of indebtedness of the Company into 5,000
shares of Convertible Preferred Stock. See "Certain Transactions."

The terms of the Convertible Preferred Stock provide that each share of
Convertible Preferred Stock will automatically be converted into Common Stock
upon the closing of this Offering. The rate at which the Convertible Preferred
Stock converts into Common Stock is the greater of (i) 180 shares of Common
Stock per share of Convertible Preferred Stock, or (ii) 1,000 divided by
(66 2/3% multiplied by the initial public offering price per share of Common
Stock). Assuming an initial public offering price of $8.50 per share, the 8,000
shares of Convertible Preferred Stock issued in the Private Placement and upon
the conversion of certain shareholder debt will convert into 1,440,000 shares of
Common Stock upon the closing of this Offering.

CONCURRENT OFFERING

The Company agreed to register the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock sold in the Private Placement and
the shares of Common Stock underlying the Warrants upon the Company's initial
public offering. Accordingly, the registration statement of which this
Prospectus forms a part also includes a prospectus (the "Selling Securityholder
Prospectus") with respect to an offering of 540,000 shares of Common Stock that
are issuable upon such conversion and 180,000 shares of Common Stock underlying
the Warrants (the "Concurrent Offering"), all of which may be sold in the open
market, in privately negotiated transactions or otherwise, directly by the
holders thereof. These shareholders have agreed with Josephthal, not to sell or
otherwise transfer any of such securities for 12 months from the date of this
Prospectus. The Company will not receive any proceeds from the sale of such
Common Stock. Expenses of the Concurrent Offering, other than fees and expenses
of counsel to these shareholders and selling commissions, will be paid by the
Company. Sales of such shares of Common Stock by the holders thereof or the
potential for such sales may have an adverse effect on the market price of the
shares offered hereby. See "Risk Factors -- Shares Eligible for Future Sale."

11
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $8.50
per share, and after deducting underwriting discounts and commissions and the
estimated offering expenses, are estimated to be approximately $15.0 million.
The Company intends to apply such net proceeds as follows:

<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT APPROXIMATE
OF PERCENTAGE OF
NET PROCEEDS(1) NET PROCEEDS
------------------ -------------
<S> <C> <C>
Marketing and Promotional Programs(2)................. $ 5.0 33.3%
Development of Additional Circulation Media(3)........ 5.0 33.3%
Capital Expenditures.................................. 1.0 6.7%
Working Capital....................................... 4.0 26.7%
----- -----
Total....................................... $ 15.0 100.0%
===== =====
</TABLE>

- ---------------
(1) In millions.

(2) To increase its revenue per passenger, the Company plans to implement or
expand a number of marketing and promotional programs, including offering
various incentives to participating airlines and flight attendants,
conducting various gate, jetway, in-flight and frequent flier promotions and
expanding in-flight video shopping services. See "Business -- Growth
Strategy."

(3) To increase circulation of the SkyMall catalog, the Company plans to develop
or expand new marketing channels, including developing new airline
partnerships with both foreign and domestic airlines, implementing a
mail-to-home program, placing the SkyMall catalog in hotels, railways and
rental cars and developing magazine inserts for in-flight magazines
sponsored by various airlines. See "Business -- Growth Strategy."

The allocation of the use of net proceeds represents management's estimates
based upon current business and economic conditions. Although the Company does
not contemplate material changes in the proposed allocation of the use of
proceeds, to the extent the Company finds that adjustment is required by reason
of existing business conditions, the amounts shown may be reallocated among the
uses indicated above or put to new uses. The Company believes that the net
proceeds of this Offering and cash generated from operations will be sufficient
for the Company to implement its growth strategy and otherwise conduct its
operations for at least the 12 month period following this Offering. The net
proceeds of this Offering that are not expended immediately will be deposited in
interest bearing accounts, or invested in government obligations, certificates
of deposit or similar short-term, low risk investments. See "Risk
Factors -- Broad Discretion in Application of Proceeds."

The Company will not receive any of the proceeds from the exercise of the
Over-Allotment Option and the sale of any of the securities being offered by the
certain shareholders in the Concurrent Offering. See "Principal Shareholders"
and "The Company -- Private Placement" and "Concurrent Offering."

DIVIDEND POLICY

The Company has never paid a dividend on its Common Stock and does not
anticipate paying dividends on its Common Stock in the foreseeable future. It is
the current policy of the Company's Board of Directors to retain any earnings to
finance operations and expansion of the Company's business. The payment of
future dividends is within the discretion of the Board of Directors and will
depend upon the Company's future earnings, if any, its capital requirements,
financial condition and other relevant factors.

12
<PAGE> 16

DILUTION

The pro forma net tangible book value (deficit) of the Company's Common
Stock at September 30, 1996, was approximately $(6.5 million), or $(0.99) per
share. Pro forma net tangible book value per common share represents the book
value of the Company's tangible assets less total liabilities divided by the
number of shares of Common Stock outstanding, after giving effect on a pro forma
basis to the Recapitalization Transactions. Dilution per share to new investors
represents the difference between the amount per share paid by purchasers of
Common Stock of the Company pursuant to this Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
this Offering. After giving effect to the sale of the 2,000,000 shares of Common
Stock offered hereby (at an assumed initial public offering price of $8.50 per
share) and the application of the net proceeds therefrom, the as adjusted pro
forma net tangible book value of the Common Stock at September 30, 1996, would
have been $8.5 million, or $0.99 per share. This represents an immediate
increase in pro forma net tangible book value of $1.98 per share of Common Stock
to existing shareholders and an immediate dilution of $7.51 (88%) per share of
Common Stock to new investors purchasing Common Stock pursuant to this Offering.
The following table illustrates the per share effect of this dilution on an
investor's purchase of shares:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock..... $8.50
Pro forma net tangible book value per share of Common Stock
before this Offering........................................... $(0.99)
Increase in pro forma net tangible book value per share of
Common Stock attributable to new investors..................... $1.98
-----
As adjusted pro forma net tangible book value per share of Common Stock
after this Offering........................................................ $0.99
Dilution per share of Common Stock to new investors.......................... $7.51
====
</TABLE>

The following table summarizes, as of September 30, 1996, the difference
between the number of shares of Common Stock purchased from the Company, the
total consideration paid, and the average price per share paid by existing
shareholders and by new investors purchasing shares of Common Stock pursuant to
this Offering, after giving effect on a pro forma basis to the Recapitalization
Transactions.

<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED PAID AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).............. 6,590,000 76.7% $26,843,000 61.2% $4.07
New investors......................... 2,000,000 23.3% $17,000,000 38.8% $8.50
--------- ----- ----------- ----- -----
Total....................... 8,590,000 100.0% $43,843,000 100.0%
========= ===== =========== =====
</TABLE>

13
<PAGE> 17

CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1996 (i) on an actual basis, (ii) on a pro forma basis after
giving effect to the Recapitalization Transactions and (iii) on a pro forma as
adjusted basis to give effect to the Recapitalization Transactions and the sale
of 2,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $8.50 per share and the initial application of the estimated
net proceeds therefrom. This table should be read in conjunction with, and is
qualified by, the Financial Statements and notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Long-term notes payable and capital lease obligations
excluding current portion............................... $ 9,943 $ 4,943 $ 4,943
======== ======== ========
Shareholders' Equity:
Preferred Stock $.001 par value, 10,000,000 shares
authorized; no shares issued and outstanding......... -- -- --
Common Stock $.001 par value, 50,000,000 shares
authorized; 5,150,000 shares issued and outstanding
actual; 6,590,000 shares issued and outstanding pro
forma; and 8,590,000 shares issued and outstanding
pro forma as adjusted(1)............................. 5 7 9
Additional paid-in capital.............................. 18,438 (6,349) 8,649
Retained earnings (deficit)(2).......................... (32,385) -- --
-------- -------- --------
Total shareholders' equity (deficit)................. (13,942) (6,342) 8,658
======== ======== ========
Total capitalization (deficiency).................... $ (3,999) $ (1,399) $ 13,601
======== ======== ========
</TABLE>

- ---------------
(1) Does not (i) include 438,080 shares of Common Stock issuable upon exercise
of stock options issued pursuant to the Company's stock option plans, which
have a weighted average exercise price of $6.13 per share, and an additional
311,920 shares of Common Stock reserved for issuance thereunder, including
20,000 shares reserved for issuance to non-employee directors upon
completion of this Offering, (ii) 180,000 shares of Common Stock issuable
upon the exercise of Warrants issued by the Company in connection with the
Private Placement, which are exercisable at the initial public offering
price, and (iii) 58,824 shares of Common Stock issuable by the Company upon
the exercise of a warrant issued to a vendor, which is exercisable at the
initial public offering price. See "The Company -- Private Placement" and
"Management -- Stock Option Plans."

(2) The Company's accumulated deficit, which was $32.4 million at September 30,
1996, was reclassified into additional paid-in capital in the Pro Forma
amounts upon the termination of the Company's S corporation status. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

14
<PAGE> 18

SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OPERATING DATA)
The selected financial data as of and for the years ended December 31,
1991, 1992, 1993, 1994 and 1995 are derived from the Financial Statements of the
Company which have been audited by Arthur Andersen LLP, independent public
accountants, and should be read in conjunction with the Financial Statements
included elsewhere in this prospectus and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected financial data as of and for the nine months ended
September 30, 1995 and 1996 have been derived from unaudited financial
statements, which in the opinion of management, have been prepared on a basis
consistent with the audited information and include all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the
information set forth therein. Results of operations for the nine month periods
ended September 30, 1995 and 1996 may not necessarily be indicative of the
results to be expected for the full fiscal year or any other period.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,(1)
------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Merchandise sales, net.......... $5,422 $15,875 $24,507 $ 22,062 $26,883 $18,379 $18,906
Placement fees and other........ 13 178 2,560 8,241 16,198 11,904 8,631
------- ------- ------- -------- ------- ------- -------
Total revenues.................. 5,435 16,053 27,067 30,303 43,081 30,283 27,537
Cost of goods sold.............. 3,370 10,364 13,691 16,266 24,564 17,100 14,725
------- ------- ------- -------- ------- ------- -------
Gross margin.................... 2,065 5,689 13,376 14,037 18,517 13,183 12,812
Catalog expenses................ 2,445 4,071 6,890 9,644 9,532 7,043 5,705
Selling expenses................ 773 2,116 2,921 2,754 2,229 1,594 1,665
Customer service and fulfillment
expenses...................... 1,266 3,618 4,514 2,919 2,136 1,534 1,511
General and administrative
expenses...................... 2,292 4,784 4,530 5,886 3,112 2,308 2,290
Restructure charges............. -- -- -- 4,332 -- -- --
------- ------- ------- -------- ------- ------- -------
Total operating expenses........ 6,776 14,589 18,855 25,535 17,009 12,479 11,171
------- ------- ------- -------- ------- ------- -------
Interest expense and other
income (expense), net......... (364) (740) (287) (688) (750) (588) (550)
------- ------- ------- -------- ------- ------- -------
Net income (loss)............... $(5,075) $(9,640) $(5,766) $(12,186) $ 758 $ 116 $ 1,091
------- ------- ------- -------- ------- ------- -------
------- ------- ------- -------- ------- ------- -------
Net income (loss) per common
share......................... $(1.09) $(2.03) $(1.68) $(3.42) $.14 $.02 $.20
Weighted average shares
outstanding................... 4,670,347 4,739,815 3,423,508 3,568,222 5,441,772 5,441,772 5,441,772
Pro forma net income (loss) per
common share.................. $.20 $.27
Pro forma weighted average
shares outstanding............ 5,753,537 5,753,537
SELECTED OPERATING DATA:
Number of domestic
enplanements(2)............... 417,867,000 436,310,000 448,647,000 481,755,000 498,611,000 373,047,000 397,709,000
Domestic enplanement
percentage(3)................. 34% 74% 76% 72% 64% 65% 61%
Revenue per passenger
enplanement(4)................ $0.038 $0.049 $0.072 $0.064 $0.084 $0.076 $0.078
Number of airlines at end of
period(5)..................... 10 11 15 21 20 20 15
Number of catalogs
produced(6)................... 4,513,000 11,915,000 15,661,000 15,747,000 17,162,000 12,838,000 11,421,000
Average number of pages per
catalog(7).................... 60 80 102 133 137 134 141
Revenue per catalog
produced(8)................... $1.20 $1.33 $1.56 $1.40 $1.57 $1.43 $1.66
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996(1)
---------------------------------
PRO
DECEMBER 31, FORMA
----------------------------------------------------- PRO AS
1991 1992 1993 1994 1995 ACTUAL FORMA(9) ADJUSTED(10)
----------- ------- ------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents, including
escrow accounts..................... $ 560 $ 1,797 $ 171 $ 896 $ 775 $ 1,013 $ 1,013 $16,013
Working capital (deficit)............. (264) (1,506) (3,580) (7,540) (4,734) (5,485) (2,885 ) 12,115
Total assets.......................... 5,902 8,757 10,394 5,913 4,726 5,590 5,590 20,590
Long-term debt........................ 6,701 40 2,978 8,082 10,818 9,943 4,943 4,943
Shareholders' equity (deficit)........ $(3,946) $ 1,941 $(3,603) $(15,791) $(15,033) $(13,942) $(6,342 ) $ 8,658
</TABLE>

(footnotes on following page)

15
<PAGE> 19

SELECTED FINANCIAL AND OPERATING DATA -- CONTINUED

- ---------------
(1) The audited financial statements of the Company as of and for the six month
period ended June 30, 1996 are contained in the Financial Statements
included elsewhere herein.

(2) Represents the number of revenue passengers flown on scheduled domestic
airlines in the given period.

(3) Represents the passenger enplanements on domestic airlines that carried the
SkyMall catalog during the period as a percentage of total domestic
passenger enplanements in the period by all scheduled domestic airlines.

(4) Revenue per passenger enplanement is net merchandise sales for the period
divided by the number of domestic enplanements during the period on all
scheduled domestic airlines that carried the SkyMall catalog.

(5) Represents the number of airlines at end of period with which the Company
had an agreement to carry the SkyMall catalog. During the nine month period
ended September 30, 1996, the Company eliminated unprofitable circulation
of the SkyMall Catalog by eliminating routes on certain airlines and
terminating agreements with certain smaller regional airlines. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(6) Represents the number of catalogs produced by the Company during the period
for distribution to airlines.

(7) Represents the average number of pages in the SkyMall catalog during the
period.

(8) Represents net merchandise sales for the period divided by the number of
catalogs produced by the Company during the period.

(9) Pro forma to give effect to the Recapitalization Transactions. See
"Prospectus Summary," "The Company -- Private Placement," "Concurrent
Offering" and "Certain Transactions."

(10) Pro forma as adjusted to give effect to the Recapitalization Transactions
and to reflect the sale of 2,000,000 shares of Common Stock offered hereby
(assuming an initial offering price of $8.50 per share) and the initial
application of the net proceeds therefrom. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Use of
Proceeds" and "Underwriting."

16
<PAGE> 20

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

The following discussion and analysis provides information regarding the
Company's financial condition as of December 31, 1994 and 1995 and September 30,
1996, and its results of operations for the years ended December 31, 1993, 1994
and 1995 and the nine-month periods ended September 30, 1995 and 1996. This
discussion should be read in conjunction with the preceding "Selected Financial
and Operating Data" and the Company's Financial Statements and related Notes
thereto and other financial data appearing elsewhere in this Prospectus. For
information relating to factors that could affect future operating results, see
"Risk Factors." Any forward-looking statements included in this Prospectus
should be considered in light of such factors, as well as the information set
forth below.

GENERAL

The Company commenced operations in late 1990 with an initial business
strategy of establishing exclusive relationships with major United States
airlines, delivering merchandise ordered by passengers at the airport upon
landing and offering concierge services. In 1991, the Company acquired its only
major competitor, which resulted in the addition of five new airline partners
for the Company. Since its first full year of operations in 1991, the Company
has experienced rapid growth. From 1991 to 1994, the Company devoted its
resources to increasing revenue per passenger enplanement and expanding
circulation of the SkyMall catalog. During this period, the Company gained
market share by acquiring exclusive contracts with airline partners, developing
relationships with participating merchants and gaining knowledge about its
consumer market. Total revenue increased from $5.4 million in 1991 to $30.3
million in 1994 and revenue per passenger enplanement grew from $0.038 to $0.064
in the same period.

In late 1994, management focused its emphasis on translating the Company's
growth into profitability. Beginning in late 1994, the Company implemented
increases in placement fees charged to participating merchants for inclusion of
their merchandise in the SkyMall catalog. As a result of these increases,
placement fees and other revenues increased from $2.6 million in fiscal 1993 to
$16.2 million in fiscal 1995. During late 1994, the Company also simplified its
business strategy by outsourcing its merchandise fulfillment operations to
participating merchants. Through its market research and experience, the Company
determined that while customers valued the convenience of in-flight shopping,
most passengers preferred delivery at home rather than at the airport. Although
airport delivery and concierge services were essential in attracting new airline
partners to the program, they were no longer necessary to maintain the Company's
airline relationships. Accordingly, the Company discontinued its airport
delivery service and began its current practice of forwarding merchandise orders
to participating merchants for fulfillment. Thus, the Company no longer
maintains any significant inventory and has eliminated from its business
operations the costs and risks associated with managing inventory and a complex
airport delivery system. The Company also began significantly reducing its
operating expenses in late 1994, including outsourcing its concierge operation,
reducing its work force, requiring merchants to provide their own creative
catalog materials and eliminating unprofitable circulation. These actions
substantially reduced the Company's operating costs, from $25.5 million in
fiscal 1994 (including a $4.3 million restructure charge) to $17.0 million in
fiscal 1995. As a result of these changes in placement fees and operating
expenses, the Company's results of operations improved from a net loss of $12.2
million in fiscal 1994 to $0.8 million net income in fiscal 1995.

In the nine-month period ended September 30, 1996, the Company's principal
sources of revenues were merchandise sales (69% of total revenues) and placement
fees from participating merchants (29% of total revenues). The Company also
rented its customer database to direct marketing companies (2% of total
revenues), which was included in placement fees and other revenues in the
Company's statement of operations. Merchandise sales represent the Company's
total fulfilled sales at retail sales prices, net of returns and allowances,
from products displayed in the Company's catalog. Placement fees are charged to
participating merchants for inclusion of their merchandise in the SkyMall
catalog. These fees are designed to cover catalog expenses and to stabilize the
Company's revenues by reducing the impact of fluctuations in merchandise sales.
In exchange for placement fees, the Company offers the participating merchants'
products in the Company's catalogs and performs order taking and processing
services. The placement fees are

17
<PAGE> 21

recognized ratably over the life of the catalog (currently quarterly). Order
taking and processing service expenses are recognized in the period incurred.

Customers place their order by telephone, mail or facsimile to the
Company's call center. The Company forwards customers' order information to
participating merchants who then ship products directly to the Company's
customers. Upon notification from a participating merchant of the shipment of
goods, the Company recognizes the merchandise sale and the related cost of goods
sold, and establishes a reserve for anticipated returns. The cost of goods sold
represents the amount paid by the Company to participating merchants in
connection with the sale of merchandise included in the SkyMall catalog. The
percentage of sales which the Company pays to participating merchants varies
from agreement to agreement; generally, the higher the placement fee paid by a
participating merchant, the higher percentage of sales paid by the Company to
the merchant, and vice versa. The Company believes that a combination of
placement fees with a variable percentage of sales component, together with the
payment of sales commissions to its airline partners, creates a situation in
which SkyMall, participating merchants and the airlines all benefit from and
have incentives to promote growth in merchandise sales.

The Company's major costs include costs of goods sold; catalog expenses,
which include paper, printing and catalog production costs; selling expenses,
which are primarily sales commissions to airlines and airline fuel reimbursement
costs; customer service and fulfillment costs, which include a full-service call
center and a drop-ship and order-processing coordination center; and general and
administrative expenses, which include corporate salaries, employee benefits,
facilities, legal and accounting expenses.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationships that certain items bear in relation to total revenues of the
Company.

<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
PERIOD
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
------------------ -----------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net merchandise sales.................................... 91% 73% 62% 61% 69%
Placement fees and other................................. 9% 27% 38% 39% 31%
---- ---- ---- ---- ----
Total revenues........................................... 100% 100% 100% 100% 100%
---- ---- ---- ---- ----
Gross margin............................................. 49% 46% 43% 44% 47%
---- ---- ---- ---- ----
Catalog expenses......................................... 25% 32% 22% 23% 21%
Selling expenses......................................... 11% 9% 5% 5% 6%
Customer service and fulfillment expenses................ 17% 10% 5% 5% 5%
General and administrative expenses...................... 17% 19% 7% 8% 8%
</TABLE>

NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 1995 (UNAUDITED)

Revenue and Gross Margin. Net merchandise sales increased slightly from
$18.4 million for the nine-month period ended September 30, 1995 to $18.9
million for the nine-month period ended September 30, 1996, or 3%. Placement
fees and other revenues decreased from $11.9 million for the nine-month period
ended September 30, 1995 to $8.6 million for the nine-month period ended
September 30, 1996, or 28%. Beginning in the first quarter of fiscal 1996, the
Company began changing the mix of agreements with participating merchants to
reduce placement fees and to increase the percentages of sales revenues retained
by the Company in order to position the Company to benefit from anticipated
sales increases in the fourth quarter. In addition, a significant participating
merchant, which had previously paid only placement fees to the Company,
decreased its number of pages in the SkyMall catalog. SkyMall replaced the
merchant on these pages with new participating merchants, most of which had
arrangements with lower placement fees and a significantly

18
<PAGE> 22

higher percentage of sales retained by the Company. As a result, due to the
decrease in total revenues, gross margin as a percentage of total revenues
increased from 44% for the nine-month period ended September 30, 1995, to 47%
for the nine-month period ended September 30, 1996.

Operating Expenses. Total operating expenses decreased from $12.5 million
for the nine-month period ended September 30, 1995 to $11.2 million for the
nine-month period ended September 30, 1996, or 10%, due primarily to a $1.3
million reduction in catalog expenses. This reduction resulted from elimination
of unprofitable circulation of the SkyMall catalog by eliminating routes on
certain airlines and terminating agreements with certain regional airlines and
lower pricing on the Company's printing contract. These reductions were
partially offset by $0.4 million higher paper costs in the first three quarters
of fiscal 1996 compared to the same period of fiscal 1995 due to the Company's
average cost of paper increasing to $61.41 per hundred weight (cwt) for the
nine-month period ended September 30, 1996 compared to $55.15 (cwt) for the
period ended September 30, 1995. As a result of the elimination of unprofitable
circulation, revenue per catalog increased from $1.43 for the nine-month period
ended September 30, 1995 to $1.66 for the nine-month period ended September 30,
1996, or 16%.

Net Income from Operations. Net income from operations increased from $0.7
million at September 30, 1995 to $1.6 million at September 30, 1996, primarily
due to the $1.3 million reduction in the Company's total operating expenses,
which was partially offset by a slight decrease in gross margin.

FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994

Revenue and Gross Margin. Net merchandise sales increased from $22.1
million in 1994 to $26.9 million in fiscal 1995, or 22%, due primarily to better
fulfillment of orders in 1995. Due to a lack of working capital in 1994 and
certain order fulfillment problems due to a computer conversion, the Company was
unable to purchase adequate inventory to fulfill many orders. With restructured
operations in place in 1995, order fulfillment percentages returned to normal
levels, which are approximately 90% of all orders received by the Company.
Placement fees and other revenues also increased from $8.2 million in fiscal
1994 to $16.2 million in fiscal 1995, or 98%, due primarily to the Company's
decision in late 1994, effective for the fourth quarter 1994 catalog, to change
its revenue mix to emphasize placement fees, which provide a more stable revenue
base. Gross margin as a percentage of total revenues decreased from 46% to 43%
due to higher total revenues which were the result of the shift to higher
placement fees and a higher cost of sales under its agreements with
participating merchants.

Operating Expenses. Total operating expenses, exclusive of the Company's
one-time restructure charge, decreased from $21.2 million in fiscal 1994 to
$17.0 million in fiscal 1995, or 20%. This decrease was due principally to the
Company's implementation of cost containment initiatives beginning in the fourth
quarter of fiscal 1994. Catalog costs decreased 1% from $9.6 million in fiscal
1994 to $9.5 million in fiscal 1995. Despite a 48% increase in average paper
prices and a 12% increase in pages printed, the Company realized offsetting cost
reductions from requiring participating merchants to provide their own creative
materials, lower printing prices and the elimination of fees that had been paid
by the Company to some merchants to participate in the program. Although net
merchandise sales increased substantially, selling expenses decreased by 21%
from $2.8 million in fiscal 1994 to $2.2 million in fiscal 1995 because SkyMall
began to require merchants to reimburse SkyMall for credit card processing
expenses. Likewise, customer service and fulfillment expenses decreased by 28%
from $2.9 million in fiscal 1994 to $2.1 million in fiscal 1995 due to the
Company's decision in the fourth quarter of 1994 to require participating
merchants to drop ship merchandise to the Company's customers rather than
maintain its own inventory. General and administrative expenses decreased by 47%
from $5.9 million in fiscal 1994 to $3.1 million in fiscal 1995. In connection
with the Company's 1994 restructuring, personnel in merchandise fulfillment
operations, merchandising, purchasing and concierges services were eliminated,
saving the Company nearly $1.0 million in payroll expenses. The Company closed
its fulfillment operations in seven cities which resulted in savings of $0.4
million in facilities expenses. Administrative expenses decreased by $0.8
million from fiscal 1994 to fiscal 1995 due to simplification of the business
and a reduction in professional fees.

19
<PAGE> 23

Restructure Charge. In 1994, the Company incurred a one-time charge of
$4.3 million relating to the restructure of the business. The costs associated
with the restructure included:

(i) Losses on a long-term major vendor contract ($3.6 million). In
September 1994, the Company entered into a series of contracts with a
participating merchant. The contractual arrangements provided the working
capital which allowed the Company to continue operations, but is estimated
to cost the Company approximately $3.6 million between September 1994 and
mid-1997 when this contract is expected to expire.

(ii) Abandoned facilities and equipment ($1.0 million). The Company
abandoned leasehold improvements and equipment in its merchandise
fulfillment operations requiring the Company to write-off assets that would
no longer be used in the business. The Company also had long-term lease
commitments for two warehouse facilities which the Company continued to pay
in fiscal 1995 and fiscal 1996 for which the associated loss was recorded
in fiscal 1994.

(iii) Uncollectible accounts receivable ($0.8 million). Many
receivables from pre-restructure placement fees, which would have been
offset against inventory purchases, became uncollectible after the
restructure.

(iv) Severance and outsourcing expenses ($0.2 million). The Company
incurred severance costs as part of the reductions in its workforce. The
Company also paid a one-time fee to outsource its concierges services.

The foregoing costs were partially offset by a benefit of $1.3 million in
debt forgiveness from participating merchants and vendors.

Net Income (Loss) From Operations. The Company earned income from
operations of $1.5 million in fiscal 1995 compared to a loss from operations of
$11.5 million in fiscal 1994. This improvement was due primarily to the positive
impact in 1995 of the 1994 restructure, the effect of implementation of cost
containment measures in late 1994 and the recognition of the restructure charge
in fiscal 1994.

FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1993

Revenue and Gross Margin. Net merchandise sales decreased from $24.5
million in fiscal 1993 to $22.1 million in fiscal 1994, or 10%. This decrease
was due to a lack of working capital to finance the Company's inventory
requirements and certain order fulfillment problems due to a computer
conversion, which caused the Company's order fulfillment rate to drop to as low
as 40% in October 1994. In addition, the Company and a major airline carrier
mutually decided not to renew their contract because the Company could no longer
provide this carrier with a custom catalog on a profitable basis. The major
carrier accounted for nearly 20% of the Company's net merchandise sales in 1993.

In 1993, SkyMall began charging participating merchants placements fees for
inclusion of their products in the SkyMall catalog in order to help stabilize
the Company's revenues. As a result, placement fees increased from $2.6 million
in fiscal 1993 to $8.2 million in 1994.

Gross margin as a percentage of total revenues decreased from 49% in fiscal
1993 to 46% in fiscal 1994. As management implemented placement fee arrangements
with participating merchants, the percentage of sales retained by the Company
decreased. Management believes that receiving higher fixed placement fees and
reducing reliance upon revenues from percentages of sales was a less risky
profit strategy during the post-restructure stabilization period.

Operating Expenses. Total operating expenses increased from $18.9 million
in fiscal 1993 to $25.5 million in fiscal 1994, or 35%. Catalog expenses
increased by 39% from $6.9 million in fiscal 1993 to $9.6 million in fiscal
1994, primarily because the Company produced six catalogs in 1994 compared to
three in 1993, added circulation in order to maximize placement fees and printed
31% more pages in 1994 than in 1993. Selling expenses declined slightly in 1994
compared to 1993 due to the termination of an agreement with a major airline in
April 1994 and declines in net merchandise sales and corresponding airline sales
commissions in 1994. Customer service and fulfillment expenses decreased in 1994
due to the restructure plan

20
<PAGE> 24

implemented in the fourth quarter of 1994 when the Company outsourced its
fulfillment operations. General and administrative costs increased by 31% from
$4.5 million in 1993 to $5.9 million in 1994, primarily due to costs associated
with certain unsuccessful financing efforts in 1994.

Net Income (Loss) From Operations. The Company incurred a net loss from
operations in fiscal 1994 of $11.5 million as compared to a net loss from
operations of $5.5 million in fiscal 1993. The increase in the net loss from
fiscal 1993 to fiscal 1994 was due primarily to the restructure charge.

LIQUIDITY AND CAPITAL RESOURCES

While the Company was developing and executing its original inventory-based
business plan from start-up to late 1994, the Company had a significant need for
capital to fund investment in facilities and equipment, inventory, working
capital and start-up operating losses. At December 31, 1994, the Company had an
accumulated deficit of $34.2 million and a working capital deficit of $7.5
million. During this period, the Company's primary sources of cash included debt
and equity financing from shareholders, a bank loan guaranteed by a shareholder,
credit from suppliers and cash flow from operations. The Company also financed
its operations through the restructure and deferral of accounts payable in
connection with the Company's 1994 restructure.

In fiscal 1995 and three quarters of 1996, the Company's principal
requirements for cash were to fund working capital needs and to pay debt
obligations to vendors. The Company no longer needed significant capital to fund
inventory and warehouse facilities. The Company's primary sources of cash during
this period were cash flow from operations, vendor credit supported by
shareholder guarantees and loans from shareholders. Cash flow from operations
was sufficient to fund operating expenses, but was not adequate to also fund
debt service to vendors relating to the 1994 restructure. The Company made its
debt payments to vendors in 1995 but became delinquent in 1996. As of September
30, 1996, the Company had a current ratio of .40:1 and negative working capital
of $5.5 million.

In order to finance its working capital shortfalls, subsequent to September
30, 1996, management and certain shareholders took steps to strengthen the
Company's financial condition and improve the Company's liquidity. These steps
included (i) issuing approximately $2.6 million of Convertible Preferred Stock,
net of offering expenses, the proceeds of which were used to pay past due debts
and notes payable to vendors and (ii) converting notes and other obligations to
shareholders of $5.0 million to 5,000 shares of Convertible Preferred Stock
(which will be converted into 900,000 shares of Common Stock upon closing of the
Offering).

The Company believes it will generate sufficient cash flow from operations
to adequately fund its operations over the next twelve months and liquidate its
remaining notes payable to vendors and other liabilities as they come due.
Additionally, management believes that the working capital provided by this
Offering will allow the Company to further reduce its operating costs by taking
advantage of trade discounts.

Cash provided by operating activities was $1.1 million for the nine months
ended September 30, 1996 compared to $0.5 million for the same period in 1995.
Cash provided by (used for) operating activities was ($5.3) million, ($2.2)
million and $1.1 million in fiscal 1993, 1994 and 1995, respectively. The
improvement in fiscal 1994 compared to fiscal 1993 was largely due to reductions
in inventory in connection with the 1994 restructure. The improvements in fiscal
1995 compared to fiscal 1994 was due primarily to higher placement fees and
lower operating costs resulting from the 1994 restructure and continuing cost
reduction activities thereafter.

Cash used for investing activities was $0.2 million for the nine months
ended September 30, 1996 compared to $0.1 million for the nine months ended
September 30, 1995. The 1996 increase was primarily due to the Company's
investment in software and computer equipment upgrades for the Company's call
center. Cash used for investing activities was $0.2 million, $0.4 million, and
$0.2 million in fiscal 1993, 1994 and 1995, respectively. These investments were
primarily for computer equipment and furniture and fixtures.

21
<PAGE> 25

Cash used for financing activities was $0.7 million for the nine months
ended September 30, 1996 compared to $0.1 million for the nine months ended
September 30, 1995. In the nine month period ended September 30, 1995, the
Company received a $0.9 million loan from a shareholder and paid $1.0 million on
notes payable to vendors. In the nine month period ended September 30, 1996, the
Company paid $1.3 million on notes payable to vendors and accrued $0.6 million
of interest on loans from shareholders. Cash provided by (used for) financing
activities was $3.9 million, $3.3 million, and ($1.0) million in fiscal years
1993, 1994 and 1995, respectively. Cash provided of $3.9 million in 1993 was
primarily from a $4.0 million bank loan which was guaranteed by a shareholder.
Cash provided of $3.3 million in 1994 was primarily from $3.0 million in loans
from shareholders. Cash used for financing activities of $1.0 million for fiscal
1995 resulted from approximately $2.2 million in payments on notes payable to
vendors which was partially offset by loans and accrued interest of $1.2 million
provided by shareholders.

FLUCTUATIONS IN QUARTERLY RESULTS

The Company's operating results may fluctuate from period to period as a
result of the seasonal nature of the retail industry. The Company recognizes its
highest sales levels during the fourth quarter holiday season, and the fourth
quarter typically accounts for approximately 33% of the Company's annual
merchandise sales.

The following table sets forth certain unaudited information about the
Company's revenue and results of operations on a quarterly basis for 1994, 1995
and the nine months ended September 30, 1996.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------------------------- ------------------------------------- ---------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Merchandise sales,
net............... $5,635 $5,270 $3,731 $7,426 $6,299 $5,956 $6,123 $8,504 $5,882 $6,550 $6,474
Placement fees and
other............. 1,230 1,351 1,184 4,476 4,466 3,829 3,609 4,294 3,073 2,720 2,838
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues...... 6,865 6,621 4,915 11,902 10,765 9,785 9,732 12,798 8,955 9,270 9,312
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin........ (1 ) (1 ) (1 ) (1 ) 4,958 3,982 4,242 5,334 4,259 4,414 4,139
------ ------ ------ ------ ------ ------ ------
Catalog expenses.... (1 ) (1 ) (1 ) (1 ) 2,336 2,397 2,310 2,489 2,151 1,828 1,726
Selling expenses.... (1 ) (1 ) (1 ) (1 ) 514 534 546 635 514 620 531
Customer service and
fulfillment....... (1 ) (1 ) (1 ) (1 ) 526 495 513 602 457 515 539
General and
administrative.... (1 ) (1 ) (1 ) (1 ) 887 702 718 804 753 695 842
------ ------ ------ ------ ------ ------ ------
Total operating
expenses.......... (1 ) (1 ) (1 ) (1 ) 4,263 4,128 4,087 4,530 3,875 3,658 3,638
====== ====== ====== ====== ====== ====== ======
</TABLE>

- ---------------
(1) Figures for this period are not presented because the Company's
restructuring in fiscal 1994 significantly changed the Company's business
operations and thus are not meaningful for comparison.

NET OPERATING LOSSES IN SUB S CORPORATION -- CONVERSION TO C CORPORATION FOR TAX
PURPOSES

Prior to October 1, 1996, the Company had elected to be taxed under
Subchapter S of the Internal Revenue Code and corresponding provisions of
Arizona tax laws. As a result of the election, federal and state income taxes on
the net income of the Company were payable personally by the shareholders.
Accordingly, the statements of income for all prior years do not include a
provision for federal and state income taxes. Had the Company been a C
corporation for these periods, no federal or state income taxes would have been
due as a result of net operating loss carry-forwards from the earlier years. In
the fourth quarter of fiscal 1996 and thereafter, the Company will become
subject to federal and state income taxes as a result of its conversion from an
S corporation to a C corporation and no net operating losses incurred while the
Company was an S corporation will be available to the Company to offset future
earnings.

22
<PAGE> 26

INFLATION

Management does not believe that inflation has had a material effect on the
Company's operations during the past several years with the exception of
unusually significant increases in paper prices in 1995 and the first six months
of 1996 and a subsequent significant decrease in the third and fourth quarters
of 1996. The Company's average paper price increased 48% from fiscal 1994 to
fiscal 1995 from $38.91 cwt to $57.61 cwt, costing the Company an additional
$1.7 million in 1995 compared to costs at 1994 prices. The average paper price
increased to $61.41 for the nine-month period ended September 30, 1996, 58%
higher than the 1994 average price, costing the Company an additional $1.4
million compared to costs at the 1994 level. The Company's cost for paper which
has been purchased for the three-month period ended December 31, 1996 decreased
to $42.13 cwt, which is only 8% higher than the 1994 level. The Company's paper
costs are expected to be approximately $40.00 cwt in the first quarter of 1997.
Increases in labor, aircraft fuel, paper, printing, shipping, or merchandise
costs could adversely affect the Company's operations. See "Risk Factors." In
the past, except for paper price increases, the Company has been able to modify
its operating procedures or increase its prices to substantially offset
increases in its costs.

23
<PAGE> 27

BUSINESS

GENERAL

SkyMall is the largest in-flight catalog company in the United States that
makes high-quality products and services available to more than 350.0 million
airline passengers per year. The Company markets and sells a broad selection of
premium merchandise provided by participating merchants, including major catalog
companies and specialty retailers, such as Disney, Hammacher Schlemmer and The
Sharper Image. The merchandise of each participating merchant is presented in a
separate section of the SkyMall catalog to allow browsing from "store to store,"
providing the convenience and variety of an upscale shopping mall environment.
Substantially all of the merchandise sold by the Company is shipped directly to
customers by participating merchants, thus avoiding significant inventory risk.
The Company has exclusive agreements to place its catalogs in aircraft seat
pockets on 15 airlines, which carried approximately 70% of all domestic
passengers in 1995, including Delta, United, USAir, Continental, TWA, America
West and Southwest. As a result, the Company believes that the SkyMall catalog
is available to over 960,000 domestic airline passengers each day. SkyMall has
experienced substantial growth since the Company began operations in 1990. Total
revenues have increased from approximately $5.4 million in fiscal 1991 to
approximately $43.1 million in fiscal 1995, for a compound annual growth rate of
68%. The Company's revenue per passenger enplanement on flights carrying the
SkyMall catalog has increased from approximately $0.038 in 1991 to approximately
$0.084 for the year ended December 31, 1995, for a compound annual growth rate
of 22%.

Business Strategy. The Company's foundation is built on its relationships
with its customers, airline partners and participating merchants. The Company's
customers enjoy the convenience of being able to shop for a wide variety of
innovative products while traveling. The Company offers a fair price guarantee
under which the Company will refund the price difference if the customer finds
the same item advertised elsewhere at a lower price. In order to enhance the
ongoing appeal of its product offerings, the Company produces four new catalogs
per year. The Company maintains a toll free 24-hour telephone ordering service
(from air and ground phones) and an in-house staff of customer service
representatives who are trained to provide exemplary service in order to build
strong customer loyalty and increase revenue from repeat and referral business.

In exchange for placement of its catalogs in aircraft seat pockets, the
Company pays each airline partner a monthly commission based on net merchandise
revenues generated by the Company from sales to that airline's passengers. Some
of the Company's airline agreements also require payment of minimum monthly
fees. The Company's airline partners benefit from additional revenue and from
being able to enhance the in-flight experience of their passengers by providing
the Company's catalog as an additional amenity.

Participating merchants obtain exposure for their products and services to
a demographically diverse group of potential customers with strong economic
profiles, generate additional revenues and acquire new customers to add to their
own proprietary mailing lists. Under contracts with participating merchants, the
Company earns percentages of revenues generated by the Company's sales,
placement fees for inclusion of the merchants' products in the SkyMall catalog,
or a combination thereof. Among the more than 60 merchants currently included in
the SkyMall catalog are: Brookstone(@), Compaq Computer, The Disney Catalog,
Frontgate(R), Hammacher Schlemmer, The Safety Zone, Hello Direct(R), Johnston &
Murphy, Mattel(R), The Metropolitan Museum of Art, Norm Thompson Solutions(R),
Pepperidge Farm(R), SelfCare(R), The Sharper Image(R), Successories(R),
SyberVision(R), Thomas Cook and The Wine Enthusiast(R).

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<PAGE> 28

travelers may be reached. SkyMall recently entered into an agreement with its
first foreign airline, Japan-based JAL, to test market the SkyMall concept. In
addition, in 1994, Amtrak began carrying the Company's catalog on selected
routes. The Company is currently employing advanced database management
techniques to utilize its rapidly growing customer database of over one million
names for the development of direct targeted marketing programs and to generate
additional revenues from database list rentals.

MARKET OVERVIEW

A broad spectrum of companies market their goods and services to airline
passengers. Persons with household incomes in excess of $40,000 per year
comprise over 55% of domestic airline passengers, while only 23% of people with
household incomes of $40,000 or less travel on airlines. A significant portion
of in-flight marketing consists of "direct-response" marketing, where the
merchant seeks to entice the passenger to take immediate action in response to
viewing the advertisement or marketing materials, such as placing a telephone
call to obtain the goods or services offered. By contrast, "image" marketing,
which is also conducted in-flight, seeks to build brand awareness and foster a
favorable image of products or services and the company offering them. Although
the primary goal of the SkyMall catalog is to elicit a direct-response from
passengers, merchants that offer goods and services in the SkyMall catalog also
build their brand awareness and image.

Although many products and services are offered to passengers while
in-flight through a number of media, the SkyMall catalog is unique in the
airline marketing industry because it is the only publication available to
passengers on major domestic airlines that is exclusively devoted to catalog
shopping. Most airlines provide their passengers with airline-sponsored
"in-flight" magazines, which are placed in airline seatpockets along with the
SkyMall catalog, as well as other magazines and periodicals. Many of the
in-flight magazines contain pages devoted exclusively to marketing products and
services. None of these in-flight magazines, however, is devoted solely to
shopping.

Video marketing is also conducted while passengers are in-flight in the
form of video promotions played on monitors located at the front of or
interspersed throughout passenger cabins and on seatback video displays. Video
marketing on the monitors frequently consists of various in-flight programming
that is prepared by the airline and sponsored by companies that are targeting
the favorable economic profiles of airline passengers. Much of the video
advertising included in this programming consists of image marketing; however,
some airlines, particularly on longer flights, make video shopping services
available to their passengers while in-flight. Seatback video screens that are
available to passengers on certain airlines offer movies, information,
entertainment and in-flight shopping. The Company believes that the current
quality of most seatback video screens does not make them the most effective
method of marketing products and services; however, as the quality of seatback
video screens improves, more shopping services will likely become available.
Pursuant to various nonexclusive agreements with certain of its airline
partners, the Company offers video shopping services on both video monitors and
seatback video displays on selected flights. Although video shopping has not
historically been a significant source of revenue for the Company, the Company
plans to take advantage of new opportunities in this market when appropriate,
including opportunities resulting from enhancements in the quality of video
monitors and systems. See "-- Growth Strategy."

On many international flights, airlines offer passengers duty-free products
while in-flight through their flight attendants who deliver the merchandise to
passengers at the time of purchase. Because airlines carry the merchandise on
the plane, the product selections are somewhat limited, consisting principally
of spirits, tobacco, liquor, perfume and gift items.

Of the various media employed by merchants to market goods and services to
airline passengers, the Company believes that the SkyMall catalog is among the
most effective, due in part to the increasing popularity of catalog shopping in
general. Over the past 15 years, consumers have increasingly relied on catalogs
and direct mail to purchase goods and services. According to the Direct
Marketing Association, 52.5% of the adult population in the United States
ordered merchandise by mail or phone in 1994 (compared to 36.2% in 1983)
generating approximately $78.0 billion in sales. If current trends continue, the
Company

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<PAGE> 29

believes in-flight catalog shopping will gain increasing acceptance by airline
passengers, particularly those who appreciate the time-saving convenience of
catalog shopping.

CUSTOMER RELATIONSHIPS

The Company's primary target customers are frequent business travelers with
medium-to-high incomes. The Company's targeted customer spends approximately
$1,200 annually for merchandise while traveling. According to the Company's
market research, passengers who shop from the SkyMall catalog while traveling do
so because they have limited time to shop and the SkyMall catalog offers a
convenient alternative to shopping in retail stores. In addition, the Company's
research indicates that many customer purchases are "impulse" purchases, as well
as purchases for gifts. The key elements of the Company's strategy to cater to
the needs of its targeted customers are:

Offer Premium Merchandise. The Company offers high-quality
merchandise from leading catalog and retail suppliers at competitive
prices. The Company maintains close working relationships with
participating merchants and carefully studies the buying patterns of its
customers to ensure that catalog space is devoted to products and services
that have proven appeal to the Company's customers. In order to enhance the
ongoing appeal of its product offerings, the Company produces four new
catalogs per year.

Offer Competitive Pricing and a Fair Price Guarantee. SkyMall offers
its customers the convenience of in-flight shopping at prices that are
competitive with those of merchants offering the same or similar products.
To emphasize its competitive pricing strategy, SkyMall offers its customers
a fair price guarantee under which the Company will refund the price
difference to the customer if the customer finds the same item advertised
elsewhere at a lower price. SkyMall usually obtains reimbursement from
participating merchants for expenses incurred in connection with the fair
price guarantee.

Appeal to a Broad Consumer Base. Airline travelers represent a
diverse cross-section of the public. Accordingly, the Company's catalogs
are designed to have a much broader appeal than most catalogs. The Company
offers a wide variety of products, including health and beauty aids,
children's toys, executive gifts, educational foreign language tapes,
gourmet cooking aids, exercise equipment, luggage, travel aids and stylish
home accessories. Many of the Company's products are luxury items,
therefore, they are particularly well-suited to the diverse demographics of
airline passengers who have higher than average disposable incomes.

Provide Customers with a Convenient One-Stop Shopping
Service. SkyMall is a "one-stop" shopping source for customers who may
purchase a variety of merchandise offered by many participating merchants
with a single phone call. Although most of the merchandise offered in the
SkyMall catalog is available from other catalog and retail companies, each
of these companies typically has its own policies with respect to shipping
and handling charges, merchandise returns, sales taxes and price
guarantees, and each company generally also has different customer service
hours and credit and payment policies. In addition, few of these companies
offer frequent flier credit for purchases. By compiling the merchandise of
its various participating merchants into a single catalog, the Company
affords its customers access to more than 1,000 products offered by more
than 60 participating merchants and the convenience of uniform customer
service policies.

Provide Outstanding Customer Service and Toll-Free Ordering. The
Company maintains an in-house staff of customer service representatives who
are trained to solve customer problems and who are friendly and helpful
with customers and knowledgeable about the products sold by the Company.
The Company's customer service representatives encourage customers to
purchase additional products with each order to increase the Company's
average revenue per order. The Company believes that the customer goodwill
developed by its customer service representatives builds strong customer
loyalty and increases revenue from repeat and referral business. The
Company also offers services designed to maximize convenience to the
traveler, including 24-hour telephone and facsimile ordering, toll-free
ordering from airline seatphones and a 60-day "no questions asked" return
or exchange policy.

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<PAGE> 30

AIRLINE RELATIONSHIPS

SkyMall has exclusive relationships with its airline partners, which are a
vital component of the Company's business strategy. The SkyMall program offers
airlines a low-risk means of incrementally increasing their earnings. Since
commencing operations in 1991, the Company has grown from a single airline
partner to 15 airline partners, including most of the major domestic airlines.
In exchange for placement of its catalogs in aircraft seat pockets, the Company
pays each airline partner a monthly commission based on net merchandise revenues
generated by the Company from sales to that airline's passengers. Some
agreements also require payment of a minimum monthly commission or a boarding
cost that reimburses the airline for the increased fuel costs attributable to
the weight of the catalogs. In addition to increasing airline earnings, the
Company's airline partners also benefit from being able to enhance the in-flight
experience of their passengers by providing the Company's catalog as an
additional amenity. SkyMall's agreements with its airline partners generally
have a term of at least one year and thereafter are automatically renewable on
an annual basis subject to termination on 60 to 180 days' advance notice by
either SkyMall or the airline. SkyMall believes its relations with each of its
airline partners are good.

The SkyMall catalog is currently available on all domestic and selected
international flights of the following air carriers:

<TABLE>
<CAPTION>
1995 DOMESTIC
ENPLANEMENTS INITIAL
CARRIERS(1) (IN MILLIONS)(2) CATALOG(3)
------------------------------------------------- ---------------- ----------
<S> <C> <C>
Delta............................................ 80.7 July 1991
United........................................... 68.4 June 1992
USAir............................................ 56.7 July 1991
Southwest........................................ 44.8 July 1996
Continental...................................... 35.0 April 1991
TWA.............................................. 21.6 Feb 1991
America West..................................... 16.8 Feb 1994
Alaska........................................... 10.1 July 1991
Hawaiian......................................... 4.8 Feb 1994
Horizon.......................................... 3.8 July 1991
Atlantic Southeast............................... 3.1 July 1991
Sun Country...................................... 2.6 Jan 1995
SkyWest.......................................... 2.2 July 1991
Midway........................................... 1.8 June 1994
Jet Train........................................ .3 Nov 1995
-----
Total.................................. 352.7
=====
</TABLE>

- ---------------
(1) The Company's catalog carries the SkyMall name on all participating airlines
except United, where the Company's catalog carries the name "High Street
Emporium."

(2) Source: United States Department of Transportation and Air Transport World
magazine.

(3) The Company's catalog has been available on these airlines continuously from
the date that the initial catalog was placed on the airline, except for
USAir which suspended carrying the SkyMall catalog on July 1, 1996 but
resumed carrying the SkyMall catalog effective November 1, 1996.

MERCHANT RELATIONSHIPS

Merchant Agreements. The Company enters into agreements with merchants who
supply the products and services offered in the Company's catalog. Under its
contracts with participating merchants, the Company earns percentages of
revenues generated by the Company's sales or placement fees for inclusion of the
merchants' products in the SkyMall catalog or a combination thereof. In
addition, most participating merchants are required to reimburse the Company for
certain paper, printing and distribution costs to the

27
<PAGE> 31
extent they exceed certain budgeted amounts. Participating merchants agree to
maintain sufficient levels of inventory to satisfy customer demand and to ship
all orders within 72 hours unless the merchandise is out of stock. Generally,
the Company's agreements with participating merchants provide that the prices of
products included in the SkyMall catalog will be honored by the merchant for as
long as SkyMall receives orders from that edition of the catalog. The agreements
typically have an initial term consisting of a single quarterly catalog and
thereafter automatically renew for successive catalog editions unless either the
Company or the merchant gives 60 days' advance notice of termination. The
merchants typically agree to indemnify the Company for any losses associated
with injuries caused to customers from the use of such merchant's product, to
carry product liability insurance that names SkyMall as an additional insured,
and to indemnify the Company against claims that their products infringe on the
intellectual property rights of third parties.

Name Brand Stores in the SkyMall Catalog. SkyMall's catalogs assemble
premium, name brand merchandise and are formatted to allow the traveling
customer to browse from "store-to-store," providing the convenience and variety
of an upscale shopping mall environment. Its largest "stores" are generally
well-known catalog and retail companies that have chosen to participate in the
SkyMall program in order to generate an additional source of revenue, build name
recognition and brand awareness and acquire new customers to add to their own
proprietary mailing lists. The major catalog and retail companies currently
featured in the SkyMall catalog and those who have participated in recent
editions of the catalog include:
Brookstone(R)
Chef's Catalog(R)
Compaq Computer
Competitive Edge Golf(R)
Frontgate(R)
Hammacher Schlemmer
Health Rider(R)
Hello Direct(R)
Huntington Clothiers(R)
Johnston & Murphy
Mattel(R)
Neiman Marcus' Trifles
Nightingale Conant
Norm Thompson Solutions(R)
Orvis(R)
Official Airline Guide
Paul Frederick MenStyle(TM)
Pepperidge Farm(R)
SelfCare(R)
Successories(R)
Syber Vision(R)
The Disney Catalog
The Metropolitan Museum of Art
The Safety Zone
The Sharper Image(R)
The Wine Enthusiast(R)
Thomas Cook
Merchandise Selection. The Company responds to inquiries from
approximately 50 merchants each week who inquire about showcasing their products
or services in the SkyMall catalog. As a result, the Company has been able to
identify and offer to its customers the unique products they desire at
competitive prices. Products are selected for each catalog by the Company's
merchandising staff with the help of each of the major participating merchants.
Approximately one-third of the products in each new edition of the SkyMall
catalog have not been previously featured in the SkyMall catalog.

Products Offered. The Company typically offers more than 1,000 products in
each of its catalogs, which consist of approximately 140 pages. In order to
enhance the ongoing appeal of its product offerings, the Company produces four
new catalogs per year and regularly replaces the products in its catalogs. The
Company seeks out new and unique items that may not be available in ordinary
retail stores, with an emphasis on upscale merchandise selling for $29.95 or
more. During fiscal 1995, the Company's more popular product categories included
household items, electronics, personal care items, clothing, luggage, multimedia
items, and telephones.

GROWTH STRATEGY
Increase Revenue Per Passenger. One of the Company's primary growth
strategies is to increase its revenue per passenger enplanement. The Company's
revenue per passenger enplanement on flights carrying the SkyMall catalog has
increased from $0.038 in 1991 to approximately $0.084 for the year ended
December 31, 1995, for a compound annual growth rate of 22%. To increase revenue
per passenger enplanement, the Company recently has implemented or plans to
implement the following programs:
Marketing and Promotional Programs. The Company has developed several
innovative marketing and promotional programs, some of which will be
facilitated through the unique relationships between the Company and its
airline partners. Some of these programs are modeled after successful
"duty-free" in-
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<PAGE> 32

flight sales programs offered on international flights, which have been
reported by some airlines to have generated revenues of more than $5.00 per
passenger enplanement. Although the Company does not plan to offer
duty-free merchandise to airline passengers, it believes it can emulate
several of the marketing aspects of duty-free shopping to increase sales of
merchandise offered in the SkyMall catalog. The Company believes that
duty-free merchandising is successful for many reasons, including: (i)
there is a high level of awareness of duty-free shopping among airline
passengers, (ii) customers who purchase duty-free merchandise perceive they
are purchasing such merchandise at a discount, (iii) the duty-free
merchandise is offered to passengers only while the plane is in flight and
passengers must therefore purchase merchandise while in flight to take
advantage of the perceived discount, (iv) flight attendants are paid
commissions on sales of merchandise and (v) duty-free shopping markets an
optimal mix of products, some of which encourage "impulse purchases" by
passengers. Among the plans under consideration or recently implemented by
the Company to increase the use of SkyMall catalogs are: (i) enhancing
promotion of the Company's shopping services through on-board flight
attendant announcements supported by videotape and audio programming; (ii)
awarding airline passengers frequent flier miles for purchases and
permitting customers to redeem frequent flier miles as payment for product
purchases; (iii) mailing inserts in frequent flyer statements in order to
promote awareness of the Company's products and services; (iv) offering
airlines and flight attendants incentives for promoting the use of the
Company's catalogs among airline passengers; (v) establishing an in-flight
"video shopping channel" and advertisements for the Company's products and
services on in-flight videos; (vi) conducting in-flight, gate and jetway
promotions, such as gift certificates, discount certificates and special
offers to passengers who order while in-flight; (vii) making the Company's
catalogs available in airport gate areas and lounges; and (viii)
continually upgrading and analyzing the appropriate mix of products for
inclusion in the SkyMall catalog to encourage passengers to make purchases.
The Company believes the foregoing programs will increase revenue per
passenger enplanement and will also increase the awareness of the SkyMall
catalog generally so that airline passengers will be more likely to make
purchases from the SkyMall catalog. However, there can be no assurance that
the Company will be able to successfully implement the foregoing marketing
programs, including those modeled after successful duty-free programs and
there can be no assurance that the successful implementation of the
foregoing programs will result in an increase in the Company's revenue per
passenger enplanement.

Video Shopping and Other New Technologies. Although video shopping is
available on some airlines, including video shopping offered by the
Company, several companies have recently begun making interactive video
systems available to the airline industry that have greater capabilities
than those currently available. As more sophisticated interactive video
systems become available, the Company plans to explore opportunities to
provide shopping services on these systems and has developed a prototype,
multi-media catalog offering SkyMall products on interactive video. In
order to become proficient in this new medium, in January of 1996, the
Company began offering its products and services on the Internet at
http://www.skymall.com.

Increase Catalog Circulation. To expand its catalog circulation and
thereby increase its customer base, the Company has implemented or plans to
implement a number of programs designed to increase the circulation of the
SkyMall catalog and reach new customers, including the following:

Expanding Domestic Airline Partnerships. The Company will seek to
expand its catalog circulation by securing agreements from additional
domestic airlines to carry the SkyMall catalog. In addition, the Company
plans to pursue opportunities to include a small selection of its products
and services in in-flight magazine inserts to give new airlines the
opportunity to test the Company's services and to make the Company's
products and services available on smaller airlines where a full-length
catalog is not cost effective. The in-flight magazine of Northwest
Airlines, which is not presently an airline partner of the Company, will
contain an eight page SkyMall insert in its November and December 1996
editions to test the SkyMall program.

Developing International Airline Partnerships. According to the Air
Transport Association, in 1995, there were over 780 million international
airline passenger enplanements (excluding the U.S.), including 373.9
million in Europe, 306.4 million in Asia and 71.5 million airline passenger
enplanements in North and South America. Although some duty-free
merchandise is available on international flights,

29
<PAGE> 33

the Company believes that this market is substantially underserved. The
Company believes that controlled and carefully planned expansion into the
larger international markets through cooperative ventures with potential
foreign partners offers a significant growth opportunity. The Company is in
the process of evaluating potential foreign markets and developing catalogs
in foreign languages with products and services designed to appeal to
targeted international travelers. Consistent with its growth strategy,
SkyMall entered into an agreement in August 1996 with its first foreign
airline, Japan-based JAL, to test certain merchandise from the SkyMall
catalog on a trial basis.

Direct Marketing Program. Through its data management system, the
Company maintains a database of customer information, including customer
names, addresses and product purchases. From this database, the Company
obtains information about customer buying patterns and preferences. The
Company strives to develop customer loyalty, and repeat customer purchases
have been an increasing source of revenue for the Company. In 1995, 29% of
the Company's customers had placed at least one additional order with the
Company within the preceding 24 months. To increase the number of repeat
customer purchases, the Company plans to implement a direct marketing
"mail-to-home" program to its customers, particularly those who make
several purchases during the year. Using information from its customer
database, the Company initiated its first direct marketing "mail-to-home"
program in August 1996. The Company plans to expand its direct marketing
efforts to selected customer groups and to tailor the marketing materials
to the preferences of those groups as demonstrated by their prior
purchasing history.

Expanding Into Other Travel Related Markets. The Company believes
that its shopping services will appeal to travelers in locations other than
airlines, such as in hotels and rental cars and while traveling by rail.
There are over three million hotel rooms in the United States, providing a
market that the Company believes could be larger than its current airline
market. In addition, rail passengers in both in the United States and
abroad may present a significant market for the Company's services. In
furtherance of this strategy, the Company entered into an agreement with
Amtrak in 1994 under which Amtrak began carrying the Company's catalogs
under the TravelMall name on selected routes, which serve approximately two
million passengers annually. The Company is considering a program to make
its catalogs available to travel agents to distribute to their customers
when delivering travel documents. The Company is evaluating other
opportunities to reach travelers, and plans to implement additional non-
airline based travel programs when appropriate.

BUSINESS OPERATIONS

Customer Service Center; Order Processing and Fulfillment. The Company
maintains a well-trained, in-house staff of customer service representatives and
outsources "overflow" calls to an independent call center. The Company recently
entered into an agreement with a major hotel chain under which the hotel chain's
call processing center will accept the Company's overflow calls during the peak
holiday ordering season, which is typically a slower season for the hotel
industry. The Company believes this arrangement will result in more cost
effective processing of its overflow calls during the holiday peak. The Company
monitors the quality of its customer service operations closely and regularly
implements improvements in its customer service operations.

The Company's customer service representatives are located in its customer
service center in Phoenix, Arizona, where the Company accepts orders 24 hours
per day. The Company's telephone equipment distributes calls to the sales
representatives and provides detailed call reporting and analysis, which assists
the Company with its order processing and marketing efforts. The Company
maintains no significant inventory. Therefore, once the Company receives a
customer order, it is transmitted to the appropriate merchant who ships the
merchandise directly to the Company's customers. Most orders are delivered to
customers within seven to ten days. The Company's average order size was $85,
$90 and $96, respectively, per customer in fiscal 1993, 1994 and 1995. The
Company's customer service representatives are given incentives for outstanding
service. At August 31, 1996, the Company employed more than 96 customer service
representatives.

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<PAGE> 34

Over 85% of the Company's daily orders are received on "toll-free" numbers,
including 5% from toll-free seatphones. Airline seatphones offer customers a
convenient way to order goods and services from the Company while in-flight.
Some airline passengers who have access to seatphones may place orders with the
Company while in-flight by using a "speed dial" number programmed into the
seatphone. When SkyMall began operations in 1990, seatphones were available to
less than 5% of all domestic airline passengers. Today, the Company estimates
that seatphones are available to approximately 86% of all domestic airline
passengers. The Company believes that airlines will continue to equip their
planes with seatphones and that passengers will be more accustomed to using them
as they are made more available and the quality of service continues to improve.

Credit Sales. Of the more than 353,000 customer orders received by the
Company during fiscal 1995, approximately 92% of them were billed to customer
credit cards. The remaining customers generally paid for their purchases by
personal check. To minimize credit losses, the Company obtains approval from the
customer's credit card company prior to processing each order. In addition, when
the customer requests that his or her merchandise be shipped to an address that
is different than the customer's billing address, the Company typically verifies
the charge authorization directly with the credit card holder at his or her
billing address. The Company verifies personal bank checks received from
customers with an independent service bureau prior to processing the customer's
order. Although the Company's credit losses are generally immaterial, under its
agreements with participating merchants, the Company has the right to obtain
reimbursement from the merchants for any reasonable credit losses it incurs.

Information Systems. The Company maintains an information system that is
used primarily to capture and process customer orders. The Company typically
receives approximately 2,000 calls per day in off-peak seasons and approximately
6,000 calls per day during the peak of the holiday season. The Company's
information system is designed to process in excess of 10,000 calls per day,
which the Company believes will provide sufficient capacity for the foreseeable
future.

Once the Company processes an order in its information system, the order is
forwarded to a merchant to be filled. Currently, the Company transmits
approximately half of all orders to merchants electronically through various
electronic data transmission systems maintained by the merchants, and the
remaining orders are sent by facsimile or overnight delivery. The Company is in
the process of establishing a uniform electronic transmission system that will
allow the Company to transmit all customer orders to merchants electronically,
which the Company believes will reduce delivery times to the Company's
customers. Under a contract that begins in January of 1997, once the Company
receives an order through its information system, the order data will be
forwarded to a third party, the LitleNet Direct Commerce Network(SM) (the
"Network"), for further processing. The Network will deliver order information
to the merchants, manage order information relationships and enable shipment
confirmation according to individual merchant capabilities. The Company will
contract for access to the Network on a per transaction basis, permitting the
Company to expand its information systems without additional infrastructure
development, maintenance and upgrade expense. See "Certain Transactions."

Catalog Production and Distribution. Catalog design and layout for each
section of SkyMall's catalog is generally provided directly by the participating
merchant but must be within SkyMall's design guidelines. After the catalog is
designed, the Company submits its catalog to each of its airline partners for
approval. The cover and some of the pages of the airline catalogs are customized
to achieve a look and feel unique to that airline, although the products
featured and the balance of the basic content are common to all of the Company's
catalogs. After the catalogs are printed, the Company ships the catalogs to its
airline partners who distribute the catalogs to the cities in which they operate
and place the catalogs on their aircraft. Each catalog has a source code that
permits the Company to track catalog distribution and sales attributable to
catalogs carried by its airline's partners.

HOUSE FILE

The Company maintains a customer database or "house file" that contains a
variety of information about the more than one million customers who have
purchased merchandise or services from the Company. In

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<PAGE> 35

addition to the customer's name and address, the Company's house file also
contains a detailed history of all purchases made by SkyMall's customer with
SkyMall. This information serves as a useful tool for the Company in evaluating
the effectiveness of its marketing efforts and in identifying its best
customers. Like other catalog companies, the Company "rents" its house file to
other catalog, retail and direct marketing companies for a fee. By renting its
house file, the Company is able to generate additional incremental revenues
without incurring significant costs. The Company updates its house file on a
daily basis as orders are received, which increases the value of the house file.
In addition, in connection with its growth strategy, the Company plans to
implement a direct marketing "mail-to-home" program to certain targeted
customers and will use its house files as the primary source of information for
implementing the mail-to-home program.

Direct marketing, credit card and other companies that have large databases
containing customer information have begun sharing database information in order
to obtain more detailed information about customers. Enhancements in computer
technology have made storing large amounts of data more feasible and cost
effective, and have permitted such companies to accumulate more information
about customer buying patterns and preferences. This information has become
increasingly important to companies that seek to cost effectively target
customers and improve customer response rates. The Company plans to explore
opportunities to combine its house files with the files of other companies when
appropriate to improve its direct marketing efforts and increase the value of
its customer database.

COMPETITION

In-Flight Shopping. SkyMall believes that its long standing relationships
with its airline partners and participating merchants and its customer service
standards create substantial barriers to entry into the in-flight catalog
shopping business. Although several companies have attempted to enter the
in-flight catalog shopping market, none has been successful. Nevertheless,
competitors, some of which may have greater financial, marketing and other
resources than the Company, may seek to enter the in-flight catalog shopping
market in competition with the Company.

In-Flight Marketing. The Company competes with other companies who market
products and services to passengers while in-flight, including those who
advertise in in-flight magazines and other periodicals, sponsor airline video
and audio programming and offer in-flight video shopping services. Several
companies have announced plans to develop seatback interactive video shopping
services, each of which has greater resources than the Company. As seatback
interactive video shopping services become more available to airline passengers,
competition in the in-flight marketing business may increase.

General Catalog and Retail Sales. The catalog sales and retail markets are
both highly fragmented and highly competitive. The Company competes for
customers to some degree with all retailers and catalog companies, including
airport retailers, duty-free retailers, specialty stores, department stores,
specialty catalog companies and general merchandise catalog companies, many of
which have significantly greater financial, marketing and other resources than
the Company. However, because many of the Company's competitors target people
with strong economic profiles, a number of the Company's competitors are also
participants in the SkyMall catalog program.

REGULATION

The Company's operations are subject to various federal, state and local
laws and regulations, including state sales tax laws and various Federal Trade
Commission regulations governing the sale of merchandise by mail. The Company
collects applicable sales taxes from its customers on all merchandise sales and
remits the sales taxes to state taxing authorities. The Federal Trade Commission
regulations applicable to the Company's operations impose various requirements
on the processing of customer orders, including shipping deadlines, delay
notices, order cancellations and refunds. The Company believes that these
regulations do not have a material impact on its business operations.

FACILITIES

The Company's executive offices are located in Phoenix, Arizona, where the
Company leases approximately seven acres of land under long-term leases expiring
in 2012, with an option to extend to 2062. Aggregate annual rental expense on
this land is approximately $37,000 per year. The improvements to this

32
<PAGE> 36

land include offices, warehouses and storage facilities aggregating
approximately 50,000 square feet, which are owned by the Company.

EMPLOYEES

At August 31, 1996, the Company had 132 employees, including 8 employed in
its executive offices, 3 in management positions, 12 in sales and marketing, 9
in accounting and administrative positions, 4 in information management and 96
in customer service capacities. Approximately 90% of the Company's employees are
full-time employees. The Company makes significant use of temporary and
part-time employees to process orders during the holiday season. The Company
believes its has good relations with its employees.

TRADEMARKS AND TRADE NAMES

SkyMall is a registered trademark of the Company. The loss of the SkyMall
trademark could have a material adverse effect on the Company. In addition, the
Company uses a number of other trademarks and trade names in its business, none
of which the Company believes are material to its overall operations.

LEGAL PROCEEDINGS

The Company is not party to any pending or threatened legal proceedings
that it believes will have a material impact on the Company's business.

33
<PAGE> 37

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Information concerning the Company's current director and executive
officers, and persons nominated to become directors upon the closing of this
Offering, is set forth below.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------------
<S> <C> <C>
Robert M. Worsley............. 40 Chairman of the Board, President and Chief Executive Officer
Jonathan T. Davis............. 42 Vice President of Marketing -- Customers
Andrea Fox.................... 51 Vice President of Marketing -- Airlines
John H. Hurley................ 32 Vice President of Operations
Martin F. Smith............... 39 Vice President of Marketing -- Merchants
David A. Wirthlin............. 35 Vice President of Finance, Chief Financial Officer, Treasurer
and Secretary
Alan C. Ashton................ 52 Director-Nominee
Lyle R. Knight................ 50 Director-Nominee
Thomas J. Litle............... 56 Director-Nominee
Randy Petersen................ 42 Director-Nominee
</TABLE>

ROBERT M. WORSLEY has been the Chairman of the Board, President and Chief
Executive Officer of the Company since it was founded in 1989. Mr. Worsley is a
co-founder of the Company and has been a director and the Chief Executive
Officer of the Company since the Company's incorporation in 1989. From 1985 to
1989, Mr. Worsley was a principal of ExecuShare, Inc., an executive services
firm that provided time-shared financial executives for small companies. From
1980 to 1985, Mr. Worsley was an accountant with Price Waterhouse, a public
accounting firm, where he most recently held the position of Audit Manager. Mr.
Worsley received a bachelor's degree in accounting from Brigham Young University
in 1980. Mr. Worsley is a Certified Public Accountant.

JONATHAN T. DAVIS has served as SkyMall's Vice President of
Marketing -- Customers since August 1996. Prior to joining the Company in 1996,
Mr. Davis served as the Vice President of Marketing for Merchants Square, Inc.,
a television home shopping network for catalog companies, from 1995 until 1996.
Mr. Davis has also served as Director of Marketing for a children's merchandise
catalog company, The Right Start, Inc., from 1992 until 1995, and as Customer
Marketing Manager for L.L. Bean, an outdoor clothing and equipment catalog
retailer, from 1989 until 1991. Mr. Davis was the Mail Order Manager for
Brookstone, a specialty goods retailer, from 1984 until 1989. Mr. Davis received
a bachelor's degree from Amherst College in 1975 and an M.B.A. from Columbia
University Graduate School of Business in 1980.

ANDREA FOX has served as SkyMall's Vice President of Marketing -- Airlines
since August 1996. Prior to joining the Company, Ms. Fox served as President of
A. Fox Communications, a marketing company, from March 1995 until August 1996.
Ms. Fox was Director of Communications and Public Affairs for the American Heart
Association from 1993 until 1995, and Ms. Fox was the owner and President of Fox
& Associates, a marketing and creative development services provider in Illinois
from 1989 until 1993. Ms. Fox was the Director of Direct Response Marketing for
Callaghan & Company, a publisher of legal and tax materials, from 1987 until
1988. Ms. Fox was an Assistant Vice President of Citicorp Diners Club, a credit
card company, from 1984 until 1987 where she worked with various divisions,
including cardmember services, creative development and cardmember acquisitions.
Ms. Fox received a bachelor's degree from Barat College in 1975.

JOHN H. HURLEY has served as the Vice President of Operations since June
1996. Mr. Hurley joined the Company in December 1991 as a Call Center Sales
Agent and was promoted to various positions, including Call Center Sales Manager
and Call Center Sales Director, before becoming SkyMall's Vice President of
Direct Marketing in December 1995. Before joining the Company, Mr. Hurley held
positions in customer relations and sales at Cellular One from 1984 until 1991.

34
<PAGE> 38

MARTIN F. SMITH has served as SkyMall's Vice President of
Marketing -- Merchants since November 1994. Prior to joining the Company, Mr.
Smith served as Director of Sales, Marketing and Advertising for Fulton Homes
from 1992 until 1994 and for Tradewinds Homes, from 1985 until 1990, both of
which are new home construction firms. Mr. Smith also was employed as District
Sales Manager for a chemical company, Huntsman Chemical Corp., from 1990 until
1992.

DAVID A. WIRTHLIN has served as the Chief Financial Officer of the Company
since 1994. Mr. Wirthlin is also the Company's Secretary and Treasurer. From
1989 until 1994, he was employed by Arthur Andersen LLP in operational
consulting, where he most recently held the position of Audit Manager. From 1987
until 1989, Mr. Wirthlin was a student at the University of Chicago Graduate
School of Business, where he received an MBA. Prior to attending business
school, Mr. Wirthlin was employed by Arthur Andersen LLP from 1985 to 1987. Mr.
Wirthlin received a bachelor of arts in accounting from the University of Utah
in 1985. Mr. Wirthlin is a Certified Public Accountant.

ALAN C. ASHTON, who was a co-founder of SkyMall, has agreed to become a
director of the Company upon the closing of this Offering. Dr. Ashton was a
co-founder of WordPerfect Corporation and, from its inception in 1978 until
December 31, 1993, served as its President. Dr. Ashton graduated magna cum laude
in mathematics from the University of Utah in 1966 and received a Ph.D. in
computer science from the same university in 1970. Dr. Ashton was professor of
computer science at Brigham Young University for 14 years from 1977 until 1991.
Dr. Ashton serves on the Board of Directors of Novell, Inc. and on the Board of
Directors of Fonix Corporation.

LYLE R. KNIGHT has agreed to become a director of the Company upon the
closing of this Offering. In 1992, Mr. Knight became President and Chief
Executive Officer of Caliber Bank, an affiliate of BankAmerica Corporation. From
1993 until 1995, Mr. Knight served as President of Caliber Bank, a wholly owned
subsidiary of Independent Banks of Arizona, which has subsequently merged with
Norwest Corporation, and Mr. Knight is currently Senior Vice President of
Norwest Banks Arizona. From 1989 and 1992, Mr. Knight was President and Chief
Executive Officer of Security Pacific Bank, Nevada. Mr. Knight graduated from
the University of Utah in 1968 with a bachelor of science degree in Banking and
Finance and, in 1982, graduated with honors from Pacific Coast Banking School.

THOMAS J. LITLE has agreed to become a director of the Company upon the
closing of this Offering. In 1985, Mr. Litle founded Litle & Company, Inc.,
which provides information sharing, payment processing and electronic network
services for the direct marketing industry. Mr. Litle was Chairman of Litle &
Company's Board of Directors and its Chief Executive Officer until 1995, when
the business was sold to First USA. In connection with the sale to First USA,
Mr. Litle retained the networking and non-payment processing part of the
business and formed LitleNet LLC, of which he is the Chairman, which also
provides direct commerce connection and information sharing services to the
direct marketing industry. Mr. Litle received an M.B.A. from Harvard Graduate
School of Business Administration in 1964 after graduating from California
Institute of Technology with a bachelor of science degree in 1962. Mr. Litle
also serves on the Board of Directors of the Direct Marketing Association, the
New York University Center for Direct Marketing, the Direct Marketing
Information Exchange, Foster & Gallagher, Kearsarge Capital Corp., Tessera, the
Catalog Systems Management Network and the National Catalog Operations Forum.

RANDY PETERSEN has agreed to become a director of the Company upon the
closing of this Offering. In 1986, Mr. Petersen founded and is currently the
President and Chairman of the Board of Frequent Flyer Services. Frequent Flyer
Services publishes a monthly frequent flyer magazine and an annual frequent
flyer guidebook, produces frequent traveler oriented merchandise and provides
various travel related services. Mr. Petersen is also a member of the
Association of Corporate Travel Executives and serves on the Advisory Board of
the International Airline Passenger Association. Mr. Petersen serves on the
Board of Directors of FlightPlan, Inc., TeleMiles, Inc. and Travel & Calling
Card, Inc.

35
<PAGE> 39

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding annual and
long-term compensation for services rendered to the Company during the fiscal
year ended December 31, 1995 by Robert M. Worsley, the Chief Executive Officer
of the Company. No other executive officers of the Company had a total salary
and bonus in fiscal 1995 that exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
------------------------------------------- ------ -------- ------ ------------
<S> <C> <C> <C> <C>
Robert M. Worsley.......................... 1995 $138,295 $7,500 $4,749(1)
Chairman of the Board and President
</TABLE>

- ---------------
(1) Includes a pro rata portion of premiums paid on a life insurance policy on
the life of Mr. Worsley for which a portion of the benefits payable under
the policy are payable to beneficiaries other than the Company.

STOCK OPTION PLANS

1994 Stock Option Plan. The Company has adopted the SkyMall 1994 Stock
Option Plan (the "Option Plan") pursuant to which incentive and nonqualified
stock options may be granted from time to time to directors, officers and other
key employees of the Company at an exercise price of not less than fair market
value on the date of grant, provided that for the one-year period following this
Offering no options may be granted at an exercise price less than the initial
public offering price of the Common Stock offered hereby. The recipients of
options, length of options, exercise price and other terms are determined by the
Board of Directors upon recommendation of the Compensation Committee. The
maximum number of shares of Common Stock subject to options that may be
outstanding at any time under the Option Plan is 650,000, subject to a
proportionate increase or decrease in the event of a stock split, reverse stock
split, stock dividend, or other adjustment to the Company's total number of
outstanding shares of Common Stock. The Company has granted options to employees
of the Company to purchase a total of 438,080 shares.

Non-Employee Plan. The Company has also adopted the SkyMall Non-Employee
Director Stock Option Plan (the "Non-Employee Plan"), which authorizes the Board
of Directors to grant options to non-employee directors of the Company to
purchase shares of Common Stock of the Company. Non-Employee directors of the
Company receive an automatic grant of options to purchase 5,000 shares of Common
Stock on appointment to the Board of Directors and thereafter receive an
automatic grant of options to purchase 3,000 shares annually. In general,
options granted under the Non-Employee Plan are not transferable and expire ten
years after the date of the grant. The per share exercise price of a stock
option granted under the Non-Employee Plan may not be less than the fair market
value of the Common Stock on the date of the grant. The maximum number of shares
of Common Stock that may be outstanding at any time under the Non-Employee Plan
is 100,000, subject to a proportionate increase or decrease in the event of a
stock split, reverse stock split, stock dividend, or other adjustment to the
Company's total number of outstanding shares of Common Stock. As of the date of
this Prospectus, no options to purchase shares of Common Stock have been granted
under the Non-Employee Plan; however, options to acquire an aggregate of 20,000
shares of Common Stock will be issued to the Company's non-employee directors on
the closing of this Offering.

401(K) PLAN

Under the Company's 401(k) plan, adopted in 1992, eligible employees may
direct that a portion of their compensation, up to a legally established
maximum, be withheld by the Company and contributed to their account. All 401(k)
plan contributions are placed in a trust fund to be invested by the 401(k)
plan's trustee, except that the 401(k) plan may permit participants to direct
the investment of their account balances among mutual or investment funds
available under the plan. The 401(k) plan provides a matching contribution of
25% of a participant's contributions up to a maximum of four percent of the
participant's annual salary.

36
<PAGE> 40

Amounts contributed to participant accounts under the 401(k) plan and any
earnings or interest accrued on the participant accounts are generally not
subject to federal income tax until distributed to the participant and may not
be withdrawn until death, retirement, or termination of employment.

EMPLOYMENT AGREEMENT

On September 30, 1996, the Company's Board of Directors approved an
employment agreement with Robert M. Worsley for services as Chairman of the
Board, Chief Executive Officer and President. This agreement requires Mr.
Worsley to devote his full time to the Company during normal business hours in
exchange for a base annual salary of $190,000, subject to annual increases at
the discretion of the Board of Directors. In addition, Mr. Worsley is entitled
to receive bonuses at the discretion of the Board of Directors in accordance
with the Company's bonus plans in effect from time to time, and the Company will
pay certain life and disability insurance premiums on behalf of Mr. Worsley. The
agreement has an initial three-year term and is automatically extended for
successive two-year renewal periods without any action of the Company or Mr.
Worsley unless the Company or Mr. Worsley provides written notice of termination
to the other party no less than 30 days prior to the expiration of the initial
term of the agreement or of any successive renewal period. Pursuant to the
agreement, Mr. Worsley may not compete with the Company anywhere in the United
States on the termination of Mr. Worsley's employment for a period of two years.

COMMITTEES OF THE BOARD OF DIRECTORS

Effective upon closing of this Offering, the Company will establish an
Audit Committee which will be comprised of non-employee directors. The Audit
Committee will be responsible for reviewing and making recommendations regarding
the Company's employment of independent auditors, the annual audit of the
Company's financial statements and the Company's internal accounting controls,
practices and policies. Additionally, the Company will establish a Compensation
Committee which will be comprised of a majority of non-employee directors. It
will be responsible for making recommendations to the Board of Directors
regarding compensation arrangements for executive officers of the Company,
including annual bonus compensation, and will consult with management of the
Company regarding compensation policies and practices. The Compensation
Committee will also make recommendations concerning the adoption of any
compensation plans in which management is eligible to participate, including the
granting of stock options or other benefits under such plans.

DIRECTORS' AND OFFICERS' TERMS AND DIRECTORS' FEES

Effective upon the closing of this Offering, the Company's Board of
Directors will be comprised of five members. Each director is elected for a
period of one year at the Company's annual meeting of shareholders and serves
until his or her successor is duly elected and qualified. Directors who are not
employees of the Company will receive a quarterly retainer of $2,500, an option
to purchase 5,000 shares of the Company's Common Stock at its fair market value
on the date of grant upon appointment to the Board of Directors, and an annual
option to purchase 3,000 shares of the Company's Common Stock at its fair market
value on the date of grant provided they have attended a required minimum number
of board and committee meetings during the year. All directors will be
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors or committees thereof. Directors who are also officers of
the Company will not be compensated for their services as director.

With the exception of Robert M. Worsley, who has an employment agreement
with the Company as set forth above, each of the executive officers serves at
the pleasure of the Company's Board of Directors.

37
<PAGE> 41

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as of October 31, 1996,
concerning the beneficial ownership of the Company's Common Stock by (i) each
beneficial owner of more than 5% of the Company's Common Stock, (ii) each
director and director-nominee of the Company, (iii) each Named Executive Officer
of the Company and (iv) all directors, director-nominees and executive officers
of the Company as a group. To the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares, except
to the extent that authority is shared by their respective spouses under
applicable law.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED AFTER
OFFERING(1) THE OFFERING(1)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(2) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Robert M. and Christi M. Worsley(3)................ 5,470,895 83.0% 5,470,895 63.7%
Alan C. and Karen Ashton(4)(5)(6).................. 2,530,398 38.4 2,530,398 29.4
Bert A. Getz(4)(7)................................. 1,195,996 18.1 1,195,996 13.9
David A. Wirthlin(8)............................... 68,562 1.0 68,562 *
Martin F. Smith(9)................................. 48,108 * 48,108 *
Andrea Fox(10)..................................... 22,854 * 22,854 *
Jonathan T. Davis(11).............................. 21,654 * 21,654 *
John H. Hurley(12)................................. 2,000 * 2,000 *
Thomas J. Litle(6)(13)............................. 29,000 * 29,000 *
Lyle R. Knight(6)(13).............................. 29,000 * 29,000 *
Randy Petersen(6).................................. 5,000 * 5,000 *
All directors, director-nominees and executive
officers of the Company as a group (10
persons)......................................... 5,702,073 84.1% 5,702,073 65.0%
</TABLE>

- ---------------
* Less than 1%

(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant or right. Shares of Common Stock subject to options,
warrants or rights that are currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage of the person
holding such options, warrants or rights, but are not deemed outstanding
for computing the percentage of any other person. The amounts and
percentages are based upon 6,590,000 shares of Common Stock outstanding as
of September 30, 1996, after giving pro forma effect to the issuance of
1,440,000 shares of Common Stock in connection with the Recapitalization
Transactions, and 8,590,000 shares of Common Stock outstanding as of the
close of this Offering.

(2) The business address for all directors, director-nominees (except Alan
Ashton) and officers of the Company is c/o the Company, 1520 E. Pima
Street, Phoenix, Arizona 85034.

(3) Includes (i) 2,525,398 shares of Common Stock that the Worsleys have the
right to acquire during the two-year period commencing on the closing of
this Offering from Alan C. and Karen Ashton (the "Ashtons"); (ii) 672,999
shares of Common Stock that the Worsleys have the right to acquire during
the eighteen-month period commencing on the closing of this Offering from
Bert A. Getz; (iii) 2,700 shares of Common Stock issuable upon the
conversion of 15 shares of Preferred Stock purchased in the Private
Placement; and (iv) 900 shares of Common Stock issuable upon exercise of
the Warrant acquired in the Private Placement. See "Certain Transactions."

(4) The Ashtons and Bert Getz have granted an Over-Allotment Option to the
underwriters to purchase up to 150,000 of each of their shares of Common
Stock solely to cover over-allotments, if any, which is exercisable up to
45 days following this Offering at the initial public offering price, less
underwriting discounts. This table assumes that the Over-Allotment Option
will not be exercised by the Underwriters. See "Underwriting."

38
<PAGE> 42

(5) The address for the Ashtons is c/o Ralph Rasmussen, Esq., 261 E. 1200
South, Orem, Utah 84058.

(6) Includes 5,000 shares issuable upon exercise of certain stock options to be
granted upon the closing of this Offering pursuant to the Company's
Non-Employee Director Stock Option Plan.

(7) The address for Mr. Getz is c/o Globe Corporation, 3634 Civic Center Blvd.,
Scottsdale, Arizona 85251.

(8) Includes (i) 64,962 shares issuable upon exercise of stock options granted
to Mr. Wirthlin pursuant to the Option Plan; (ii) 2,700 shares of Common
Stock issuable upon the conversion of 15 shares of Preferred Stock
purchased in the Private Placement; and (iii) 900 shares of Common Stock
issuable upon exercise of the Warrant acquired in the Private Placement.

(9) Includes (i) 43,308 shares issuable upon exercise of stock options granted
to Mr. Smith pursuant to the Option Plan; (ii) 3,600 shares of Common Stock
issuable upon the conversion of 20 shares of Preferred Stock purchased in
the Private Placement; and (iii) 1,200 shares of Common Stock issuable upon
exercise of the Warrant acquired in the Private Placement.

(10) Includes (i) 21,654 shares issuable upon exercise of stock options granted
to Ms. Fox pursuant to the Option Plan; (ii) 900 shares of Common Stock
issuable upon the conversion of 5 shares of Preferred Stock purchased in
the Private Placement; and (iii) 300 shares of Common Stock issuable upon
exercise of the Warrant acquired in the Private Placment.

(11) Includes 21,654 shares issuable upon exercise of stock options granted to
Mr. Davis pursuant to the Option Plan.

(12) Includes 2,000 shares issuable upon exercise of stock options granted to
Mr. Hurley pursuant to the Option Plan.

(13) Includes (i) 18,000 shares of Common Stock issuable upon the conversion of
100 shares of Preferred Stock purchased in the Private Placement; and (ii)
6,000 shares of Common Stock issuable upon exercise of the warrant acquired
in the Private Placement.

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<PAGE> 43

CERTAIN TRANSACTIONS

To fund the Company's working capital requirements, on March 17, 1994, the
Company obtained loans (the "Working Capital Loans") of $2.0 million from the
Ashtons and $1.0 million from Globe Corporation, an affiliate of Bert Getz
(Globe Corporation and Bert Getz are collectively referred to as "Getz"). These
loans paid interest monthly at a rate of 8.5% and originally matured on July 15,
1994, which date was extended to January 1, 1996 pursuant to a loan modification
and pledge agreement by and between the Company, the Ashtons, the Worsleys and
Getz.

On June 30, 1995, the Ashtons loaned an additional $850,000 to the Company
pursuant to a loan and security agreement (the "Ashton Note"). The Note was due
on December 31, 1995 and carried an interest rate of prime plus 2%.

On March 10, 1995, the Company owed $4.0 million to Bank One Arizona, NA
pursuant to the terms of a Loan Agreement dated April 30, 1993 (the "Bank One
Loan"). The Bank One Loan had an interest rate of prime plus 1 1/2% and matured
on April 15, 1995. On March 11, 1995, Getz paid all principal due on the Bank
One Loan, which totalled $4.0 million, and the Company entered into a Loan and
Security Agreement with Getz pursuant to which it agreed to pay Getz $4.0
million (the "Getz Note"). The Getz Note was due on March 11, 1996 and carried
an interest rate of prime plus 1 1/2%.

On October 15, 1996, the Worsleys the Ashtons, Getz and the Company entered
into agreements (collectively, the "Shareholder Agreements") pursuant to which
the Ashtons and Getz agreed to convert shareholder loans of $1.425 million and
$3.575 million, respectively, into 1,425 and 3,575 shares of Preferred Stock,
respectively, effective upon the closing of the Private Placement. In addition,
under the Shareholder Agreements, effective on the closing date of this
Offering, the Worsleys will have an option (the "Ashton Option") to acquire all
of the Common Stock of the Company held by the Ashtons during the two-year
period following this Offering (exclusive of shares acquired by them in the open
market). The Worsleys have agreed to use their best efforts to obtain financing,
including pledging their shares of the Company's Common Stock, if necessary,
from a third party to permit them to exercise the Ashton Option in full as soon
as reasonably practicable following the expiration of their lock-up agreement
with Josephthal. In addition, the Worsleys will have an option (the "Getz
Option") to acquire one-half of all of the Common Stock of the Company held by
Getz during the 18-month period following this Offering (exclusive of shares
acquired by him in the open market). The exercise prices of the Ashton Option
and the Getz Option are $6.96 per share and $6.69 per share, respectively,
subject to adjustment in certain circumstances. If the Ashton Option is not
exercised during its two-year term, then following such term, the Worsleys will
have a right of first refusal to purchase all of the Common Stock held by the
Ashtons during the following five years. For twelve months following the
effective date of this Offering, the Ashtons have granted an irrevocable proxy
to the Worsleys to vote all shares of Common Stock owned by them. If the Getz
Option is not exercised during its 18-month term, then following such term, the
Worsleys will have a right of first refusal to purchase one-half of the shares
of Common Stock owned by Getz during the following 18 months. To the extent the
underwriters elect not to exercise the Over-Allotment Option, the Ashtons and
Getz have agreed to grant to the Worsleys options to acquire any shares of
Common Stock the underwriters fail to acquire at an exercise price equal to the
initial public offering price (less underwriting discounts and commissions) of
the Common Stock offered hereby. The terms of such options run concurrently with
the terms of the Ashton Option and the Getz Option, respectively.

In order to refinance $2.0 million of notes payable (and interest accrued
thereon) to each of the Ashtons and Getz, the Company entered into a loan
agreement for a $4.0 million line of credit with Merrill Lynch Business
Financial Services Inc. ("MLBFS") dated October 11, 1996. The loan, which
matures on December 31, 1998, bears interest at a variable annual rate of 2.6
percent plus the 30-Day Commercial Paper Rate as quoted in The Wall Street
Journal. Ashton and Getz have executed Financial Assets Security Agreements with
MLBFS, granting MLBFS a security interest in Merrill Lynch securities accounts
of at least $2.0 million each owned by Ashton and Getz, respectively.

In April 1993, the Company redeemed 2,268,898 shares of Common Stock held
by the Ashtons in exchange for certain intellectual property, including the
Company's principal trademarks and tradenames. The Company secured an exclusive
license to use the intellectual property acquired by the Ashtons in return for a

40
<PAGE> 44

1% royalty on the Company's sales commencing January 1, 1994. On October 1,
1994, the Ashtons exercised an option granted to them as part of the license,
terminated the Company's obligation to pay the royalty, transferred the
intellectual property back to the Company and were issued 2,268,898 shares of
Common Stock by the Company. At the time such option was exercised, the Company
owed the Ashtons approximately $180,000 pursuant to the license. The Ashtons
forgave approximately $72,000 of such amount and agreed to a payment schedule
for the remainder, of which amount approximately $70,000 is currently
outstanding.

In December 1995, Bert Getz executed a guarantee of certain indebtedness of
the Company in favor of Quad/Graphics, Inc., the Company's catalog printer and
paper supplier. The guarantee originally included obligations of the Company
incurred between December 1, 1995 and June 30, 1996, but was subsequently
extended by Quad/Graphics, Inc. and Mr. Getz until December 31, 1996. As of
September 30, 1996, the balance owed by the Company to Quad/Graphics, Inc. was
approximately $1.2 million.

On April 19, 1996, the Company entered into an agreement with LitleNet LLC,
a company in which Thomas Litle, a director-nominee of the Company, has a
controlling ownership interest, pursuant to which LitleNet LLC provides the
Company with credit card transaction management services. Under this agreement,
the Company pays LitleNet LLC fees of up to $20,700 per month. After the initial
12 month term of the agreement, the agreement is automatically renewed for an
additional 12 months unless terminated by either party.

On October 20, 1996, two of the Company's director-nominees, Lyle Knight
and Thomas Litle, each purchased 100 shares of Convertible Preferred Stock and
Warrants to purchase 6,000 shares of Common Stock in the Private Placement for
$100,000. Upon the closing of this Offering, the shares of Convertible Preferred
Stock of each of Mr. Knight and Mr. Litle will convert into 18,000 shares of
Common Stock. In addition, Robert Worsley, Martin Smith, David Wirthlin and
Andrea Fox purchased 15, 20, 15 and 5 shares of Convertible Preferred Stock,
respectively, and warrants to purchase 900, 1,200, 900, and 300 shares of Common
Stock, respectively, in the Private Placement for $15,000, $20,000, $15,000 and
$5,000, respectively. Upon closing of this Offering, the shares of Preferred
Stock of Mr. Worsley, Mr. Smith, Mr. Wirthlin and Ms. Fox will convert into
2,700, 3,600, 2,700 and 900 shares of Common Stock, respectively.

TAX INDEMNIFICATION

Since its inception, the Company has elected to be treated as an S
Corporation for federal tax purposes. Upon the closing of the Private Placement,
the Company terminated its S Corporation status and became become subject to
federal taxation as a C Corporation. In connection with the termination of its S
Corporation status, the Company and certain of its present shareholders have
entered into a Tax Indemnification Agreement (the "Tax Agreement"). Although the
Company became subject to corporate income taxation after the date on which it
ceased to be an S Corporation (the "Termination Date"), under applicable tax
laws, the existing shareholders will continue to be liable for any tax
deficiencies attributable to the Company's operations prior to the Termination
Date. Accordingly, the Tax Agreement generally provides that the existing
shareholders will be indemnified by the Company with respect to federal and
state taxes (plus interest and penalties, as well as any costs incurred in
contesting any dispute with a taxing authority) resulting from any adjustment to
S Corporation income for any taxable year that was taxed directly to the
existing shareholders. The right to indemnification is absolute and is not
conditioned upon realization by the Company of an offsetting adjustment to the
Company's tax liability in a year in which it is not an S Corporation. Any
payment made by the Company to the existing shareholders pursuant to the Tax
Agreement may be deemed by the Internal Revenue Service or state taxing
authorities to be nondeductible by the Company for income tax purposes.
Additionally, if a payment made under the Tax Agreement is determined to be
taxable to the existing shareholders, then the Company is further obligated to
make additional payments to the existing shareholders in amounts sufficient to
place the shareholders in the same net after-tax position that the shareholders
would have been in if the original indemnification had not been included in
income.

41
<PAGE> 45

DESCRIPTION OF CAPITAL STOCK

The Company is a Nevada corporation and its affairs are governed by its
Articles of Incorporation and Bylaws and the Nevada General Corporation Law. The
following description of the Company's capital stock, which is complete in all
material respects, is qualified in its entirety by reference to the provisions
of the Company's Articles of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). As of the date hereof,
there were 6,590,000 shares of Common Stock issued and outstanding, after giving
pro forma effect to the Recapitalization Transactions, which were held of record
by 64 shareholders. No shares of Preferred Stock will be issued and outstanding
upon consummation of this Offering.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and do not have cumulative voting rights.
Subject to the rights of holders of outstanding shares of Preferred Stock, if
any, the holders of Common Stock are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of liquidation,
dissolution, or winding up of the Company, subject to the right of outstanding
Preferred Stock, if any, the holders of Common Stock are entitled to share
ratably in all assets available for distribution to the shareholders after
payment of the Company's liabilities. The Common Stock has no preemptive or
other subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be upon completion of this Offering, fully paid and nonassessable.

PREFERRED STOCK

Shares of Preferred Stock may be issued in one or more series and the Board
of Directors of the Company has the power to fix for each such series such
voting powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as the Board of Directors shall deem
appropriate, without any further vote or action by the shareholders of the
Company. Preferred Stock could be issued by the Board of Directors with voting
and conversion rights that could adversely affect the voting power of the
holders of the Common Stock. In addition, because the terms of the Preferred
Stock may be fixed by the Board of Directors of the Company without shareholder
action, the Preferred Stock could be issued quickly with terms calculated to
defeat or delay a proposed takeover of the Company, or to make the removal of
the management of the Company more difficult. Under certain circumstances, this
would have the effect of decreasing the market price of the Common Stock.

The Company's Articles of Incorporation designates a series of Convertible
Preferred Stock. The series consists of 8,000 shares, $.001 par value per share,
3,000 of which were issued by the Company in the Private Placement and 5,000 of
which were issued upon the conversion of an aggregate of $5.0 million of
indebtedness of the Company upon the closing of the Private Placement. Each
share of Convertible Preferred Stock will be converted into Common Stock upon
the closing of this Offering. See "The Company -- Private Placement" and
"Concurrent Offering."

OTHER SECURITIES

Upon the closing of this Offering, the Company will issue warrants to
Josephthal to purchase up to 200,000 shares of Common Stock at an exercise price
equal to 120% of the initial public offering price. See "Underwriting." In
addition, the Company has granted Warrants to purchase 180,000 shares of Common
Stock to investors in the Private Placement and warrants to a vendor to purchase
58,824 shares of Common Stock, all of which have an exercise price equal to the
initial public offering price of the Common Stock

42
<PAGE> 46

offered hereby. See "The Company -- Private Placement." Options to purchase
438,080 shares of Common Stock have been granted under the Company's Option
Plan. See "Management -- Stock Option Plans."

TRANSFER AGENT AND REGISTRAR

Continental Stock Transfer & Trust Company, located at 2 Broadway, New
York, New York 10004, has been appointed as the transfer agent and registrar for
the Common Stock.

CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Articles of Incorporation and Bylaws contain a number of
provisions relating to corporate governance and the rights of shareholders.
These provisions require the consent of the Board of Directors or the
"disinterested" members thereof and/or the affirmative vote of two-thirds of the
Company's voting stock, excluding stock owned by interested shareholders, to
effect certain business combinations with interested shareholders. An interested
shareholder for purposes of this provision means a person who, together with
affiliates or associates, beneficially owns, or beneficially owned within the
preceding two-year period, 10% or more of the Company's combined voting power.
The provisions included in the Company's Articles of Incorporation and certain
provisions in the Bylaws may not be amended or repealed without the affirmative
vote of two-thirds of the Company's voting stock, excluding, with respect to the
business combination provision, stock owned by interested shareholders. These
provisions could have the effect of deterring unsolicited takeovers or delaying
or preventing changes in control or management of the Company, including
transactions in which shareholders might otherwise receive a premium for their
shares over then-current market prices. In addition, these provisions may limit
the ability of shareholders to approve transactions that they may deem to be in
their best interest.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
8,590,000 shares of Common Stock. Of these shares, the 2,000,000 shares of
Common Stock sold in the Offering (2,300,000 if the Underwriter's Over-Allotment
Option is exercised in full), will be freely tradable without restriction under
the Securities Act. See "Capitalization." Eight thousand shares of Preferred
Stock will convert into 1,440,000 shares of Common Stock upon the closing of
this Offering, of which 540,000 shares of Common Stock and 180,000 shares of
Common Stock underlying the Warrants issued in the Private Placement will be
freely tradeable. However, the holders of these securities have executed
agreements pursuant to which they have agreed not to sell, transfer, assign,
pledge or otherwise dispose of their securities for a 12 month period from the
effective date of this Prospectus.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted" shares for
at least two years, including persons who may be deemed "affiliates" of the
Company, as the term is defined in Rule 144, would be entitled to sell (in
accordance with the provisions specified in the rule) within any three month
period a number of shares that does not exceed the greater of one percent of the
then outstanding shares of the Company's Common Stock (approximately 85,900

43
<PAGE> 47

shares immediately following the Offering) or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission. An
"affiliate" of the Company or of a business it has acquired within two years by
merger or share exchange may sell securities that are not "restricted" without
regard to the period of beneficial ownership but subject to the volume
limitations described above and other conditions of Rule 144. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company (and has not been at any time during the three months immediately
preceding the sale), and who has beneficially owned his or her shares for at
least three years, would be entitled to sell such shares under Rule 144 without
regard to the volume limitations described above, manner of sale provisions,
notice requirements, or availability of public information. As defined in Rule
144, an "affiliate" of an issuer is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer.

Prior to the Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market conditions and could impair the Company's future ability to
raise capital through the sale of its equity securities. The Common Stock has
been approved for quotation on the Nasdaq National Market under the symbol
"SKYM."

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Josephthal Lyon
& Ross Incorporated and Cruttenden Roth Incorporated are acting as the
Representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of shares of
Common Stock set forth opposite their names:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
---------------------------------------------------------- ---------
<S> <C>
Josephthal Lyon & Ross Incorporated.......................
Cruttenden Roth Incorporated..............................
---------
Total........................................... 2,000,000
=========
</TABLE>

The Underwriters are committed to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.

The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose initially to offer the Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less concessions of
not in excess of $ per share of Common Stock. Such dealers may re-allow
a concession not in excess of $ per share of Common Stock to other
dealers. After the commencement of this Offering, the public offering price,
concession and reallowance may be changed by the Representatives.

The Representatives have advised the Company that they do not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the total number of shares of Common Stock offered hereby.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. The Company has also agreed to pay to the Representatives an
expense allowance on a non-accountable basis in the amount of $75,000 upon the
closing of this Offering.

The Underwriters have been granted an option by the Selling Shareholders,
exercisable within 45 days after the date of this Prospectus, to purchase up to
an additional 300,000 shares of Common Stock at the initial public offering
price per share of Common Stock offered hereby, less underwriting discounts.
Such option may be exercised only for the purpose of covering over-allotments,
if any, incurred in the sale of the

44
<PAGE> 48

shares offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment.

Holders of 6,590,000 shares of the Company's Common Stock, including each
officer, director and principal shareholder of the Company, have executed
agreements with Josephthal pursuant to which they have agreed not to sell,
transfer, assign, pledge or otherwise dispose of their shares for a 12 month
period from the date of this Prospectus, provided that holders of 6,050,000
shares may sell, transfer, assign, pledge or otherwise dispose of their shares
with the prior consent of Josephthal. An appropriate legend shall be marked on
the face of the certificates representing all of such securities.

The Company has agreed that, for five years after the effective date of
this Prospectus, Josephthal shall have the right to designate one person for
election to the Company's Board of Directors. If Josephthal does not designate a
person for election to the Company's Board of Directors, Josephthal may
designate one person to attend meetings of the Company's Board of Directors.
Such individual may be a director, officer, employee or affiliate of Josephthal.

In connection with this Offering, the Company has agreed to sell to
Josephthal, for nominal consideration, the Representative's Warrants to purchase
from the Company 200,000 shares of Common Stock. The Representative's Warrants
are initially exercisable at a price per share equal to 120% of the initial
public offering price for a period of four years commencing one year after the
date of this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of Josephthal. The Representative's Warrants also provide for
adjustment in the number of shares of Common Stock issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Common
Stock. The Representative's Warrants grant to the holders thereof certain rights
of registration for the securities issuable upon exercise of the
Representative's Warrants.

In connection with the Private Placement, the Company paid Josephthal, as
placement agent, $265,500 in cash as commissions and a non-accountable expense
allowance of $15,000. Prior to this Offering, there has been no public market
for the Common Stock. Consequently, the initial public offering price for the
Common Stock has been determined by negotiations between the Company and the
Representatives and is not necessarily related to the Company's asset value, net
worth or other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital structure
and certain other factors as were deemed relevant.

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be compete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement. See "Additional Information."

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Squire, Sanders & Dempsey L.L.P., Phoenix, Arizona. Orrick,
Herrington & Sutcliffe LLP, New York, New York has acted as legal counsel for
the Underwriters.

EXPERTS

The financial statements of the Company as of December 31, 1994 and 1995
and June 30, 1996 and for each of the years in the three-year period ended
December 31, 1995 and for the six-month period ended June 30, 1996 included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen 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 accounting and auditing.

45
<PAGE> 49

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus constitutes a part of the Registration Statement and
does not contain all of the information set forth therein and in the exhibits
thereto. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to such Registration Statement
and exhibits. Statements contained in this Prospectus as to the contents of any
document are not necessarily complete and in each instance are qualified in
their entirety by reference to the copy of the appropriate document filed with
the Commission. The Registration Statement, including the exhibits thereto, may
be examined without charge at the Commission's public reference facility at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, copies of any or all part of the Registration Statement, including
such exhibits thereto, may be obtained from the Commission at its principal
office in Washington, D.C., upon payment of the fees prescribed by the
Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy, and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.

The Registration Statement and the reports and other information to be
filed by the Company following the offering in accordance with the Securities
and Exchange Act of 1934, as amended, can be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, New York, NY 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60601. Copies of
such material may be obtained from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission.

46
<PAGE> 50

SKYMALL, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1994 and 1995, June 30, 1996 and September 30, 1996
(Unaudited)......................................................................... F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for
the Six Months Ended June 30, 1995 (Unaudited) and 1996 and for the Nine Months
Ended September 30, 1995 (Unaudited) and 1996 (Unaudited)........................... F-4
Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1993,
1994 and 1995 and for the Six Months Ended June 30, 1996 and for the Nine Months
Ended September 30, 1996 (Unaudited)................................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for
the Six Months Ended June 30, 1995 (Unaudited) and 1996 and for the Nine Months
Ended September 30, 1995 (Unaudited) and 1996 (Unaudited)........................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 51

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of SkyMall, Inc.:

We have audited the accompanying balance sheets of SkyMall, Inc. (a Nevada
corporation), as of December 31, 1994 and 1995 and June 30, 1996, and the
related statements of operations, shareholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1995 and the six
months ended June 30, 1996. 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 SkyMall, Inc. as of December
31, 1994 and 1995 and June 30, 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 and
the six months ended June 30, 1996, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Phoenix, Arizona,
October 21, 1996.

F-2
<PAGE> 52

SKYMALL, INC.

BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PAR VALUE)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including escrow
accounts................................... $ 896 $ 775 $ 455 $ 1,013
Accounts receivable, net...................... 1,066 892 963 1,232
Merchandise inventory, net.................... 204 22 21 4
Prepaid catalog costs......................... 1,672 1,242 1,806 1,360
-------- -------- -------- -------
Total current assets....................... 3,838 2,931 3,245 3,609
PROPERTY AND EQUIPMENT, net..................... 1,839 1,581 1,813 1,806
OTHER ASSETS, net............................... 236 214 182 175
-------- -------- -------- -------
Total assets.......................... $ 5,913 $ 4,726 $ 5,240 $ 5,590
======== ======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.............................. $ 4,354 $ 4,695 $ 5,390 $ 5,860
Accrued liabilities........................... 612 329 340 247
Current portion of notes payable and capital
leases..................................... 4,072 77 112 112
Current portion of notes payable to vendors... 2,340 2,564 2,973 2,875
-------- -------- -------- -------
Total current liabilities............. 11,378 7,665 8,815 9,094
RESERVE FOR RESTRUCTURE CHARGES................. 2,244 1,276 661 495
NOTES PAYABLE AND CAPITAL LEASES, net of current
portion....................................... 77 -- 129 119
NOTES PAYABLE TO VENDORS, net of current
portion....................................... 4,713 2,326 1,004 709
NOTES PAYABLE TO SHAREHOLDERS, including
interest...................................... 3,292 8,492 8,894 9,115
-------- -------- -------- -------
Total liabilities..................... 21,704 19,759 19,503 19,532
-------- -------- -------- -------
COMMITMENTS AND CONTINGENCIES
(Note 9)
SHAREHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock (Notes 1 and
12)........................................ -- -- -- --
Common stock, $0.001 par value; 50,000,000
shares authorized; 5,150,000 shares issued
and outstanding each period................ 5 5 5 5
Additional paid-in capital.................... 18,438 18,438 18,438 18,438
Accumulated deficit........................... (34,234) (33,476) (32,706) (32,385)
-------- -------- -------- -------
Total shareholders' equity
(deficit)........................... (15,791) (15,033) (14,263) (13,942)
-------- -------- -------- -------
Total liabilities and shareholders'
equity (deficit).................... $ 5,913 $ 4,726 $ 5,240 $ 5,590
======== ======== ======== =======
</TABLE>

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

F-3
<PAGE> 53

SKYMALL, INC.

STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE)

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

F-4
<PAGE> 54

SKYMALL, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(AMOUNTS IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993............ 4,657,211 $ 5 $ 18,340 $ (16,282) $ 2,063
Redemption of shares pursuant to
Stock Redemption and Royalty
Agreement...................... (2,268,898) (2) -- -- (2)
Issuance of shares for guarantee
of debt........................ 265,899 -- 100 -- 100
Net loss.......................... -- -- -- (5,766) (5,766)
---------- --- ------- -------- --------
BALANCE, December 31, 1993.......... 2,654,212 3 18,440 (22,048) (3,605)
Reissuance of shares pursuant to
Stock Redemption and Royalty
Agreement...................... 2,268,898 2 (2) -- --
Issuance of shares for guarantee
of debt........................ 226,890 -- -- -- --
Net loss.......................... -- -- -- (12,186) (12,186)
---------- --- ------- -------- --------
BALANCE, December 31, 1994.......... 5,150,000 5 18,438 (34,234) (15,791)
Net income........................ -- -- -- 758 758
---------- --- ------- -------- --------
BALANCE, December 31, 1995.......... 5,150,000 5 18,438 (33,476) (15,033)
Net income........................ -- -- -- 770 770
---------- --- ------- -------- --------
BALANCE, June 30, 1996.............. 5,150,000 5 18,438 (32,706) (14,263)
Net income........................ -- -- -- 321 321
---------- --- ------- -------- --------
BALANCE, September 30, 1996
(unaudited)....................... 5,150,000 $ 5 $ 18,438 $ (32,385) $(13,942)
========== === ======= ======== ========
</TABLE>

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

F-5
<PAGE> 55

SKYMALL, INC.

STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE NINE
FOR THE YEAR ENDED ENDED MONTHS ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
---------------------------- ------------------- ----------------
1993 1994 1995 1996 1995 1996
------- -------- ------- 1995 ----- ------ -------
-----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $(5,766) $(12,186) $ 758 $ 165 $ 770 $ 116 $ 1,091
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operating activities-
Depreciation and amortization........ 822 197 244 120 141 183 212
Loss on abandonment of equipment and
other assets....................... 148 1,011 -- -- -- -- --
Reserve for restructure charge....... -- 3,321 -- -- -- -- --
Provision for merchandise
inventory.......................... -- 75 -- -- -- -- --
(Increase) decrease in:
Accounts receivable................ (806) (28) 174 364 (71) 169 (361)
Merchandise inventory.............. (2,779) 4,659 182 159 1 171 18
Prepaid catalog costs.............. (210) (380) 430 167 (564) 902 (118)
Other assets....................... -- 204 -- -- -- 4 (2)
(Decrease) increase in:
Accounts payable................... 1,497 2,902 341 146 696 (72) 1,165
Reserve for restructure............ -- (1,386) (768) (335) (616) (592) (781)
Accrued liabilities................ 1,749 (556) (283) (313) 11 (393) (82)
------- -------- ------- ------- ----- ------ -------
Net cash provided by (used for)
operating activities.......... (5,345) (2,167) 1,078 473 368 488 1,142
------- -------- ------- ------- ----- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..... (216) (400) (164) (82) (175) (134) (210)
------- -------- ------- ------- ----- ------ -------
Net cash used for investing
activities.................... (216) (400) (164) (82) (175) (134) (210)
------- -------- ------- ------- ----- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of obligations under capital
leases............................... (52) -- -- -- (2) -- (11)
Notes payable to vendors............... -- -- (2,235) (1,059) (913) (1,058) (1,306)
Proceeds from notes payable............ 4,000 -- -- -- -- -- --
Proceeds from notes payable to
shareholders......................... -- 3,292 1,200 76 402 913 623
Payments of notes payable.............. (13) -- -- -- -- -- --
------- -------- ------- ------- ----- ------ -------
Net cash provided by (used for)
financing activities.......... 3,935 3,292 (1,035) (983) (513) (145) (694)
------- -------- ------- ------- ----- ------ -------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (1,626) 725 (121) (592) (320) 209 238
CASH AND CASH EQUIVALENTS, beginning of
period................................. 1,797 171 896 896 775 896 775
------- -------- ------- ------- ----- ------ -------
CASH AND CASH EQUIVALENTS, end of
period................................. $ 171 $ 896 $ 775 $ 304 $ 455 $1,105 $ 1,013
======= ======== ======= ======= ===== ====== =======
Income taxes paid...................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ======= ======= ===== ====== =======
Total interest paid.................... $ 206 $ 378 $ 356 $ 177 $ 6 $ 177 $ 8
======= ======== ======= ======= ===== ====== =======
Interest paid to shareholders.......... $ -- $ 25 $ 272 $ -- $ -- $ -- $ --
======= ======== ======= ======= ===== ====== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITY:
Conversion of accounts payable to notes
payable to vendors................... $ -- $ 5,564 $ -- $ -- $ -- $ -- $ --
======= ======== ======= ======= ===== ====== =======
Notes payable converted to notes
payable to shareholders.............. $ -- $ -- $ 4,000 $ 4,000 $ -- $4,000 $ --
======= ======== ======= ======= ===== ====== =======
Capital leases incurred................ $ -- $ -- $ -- $ -- $ 166 $ -- $ 166
======= ======== ======= ======= ===== ====== =======
</TABLE>

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

F-6
<PAGE> 56

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTHS ENDED JUNE 30, 1995
AND AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

(1) THE COMPANY:

Nature of Organization

SkyMall, Inc. ("Company") was incorporated in 1989 as an Arizona
corporation (and reincorporated in Nevada in October 1996). The Company
commenced operations in 1990 after signing an agreement with a major airline to
provide retail merchandise service through inflight catalogs. In 1991, the
Company purchased the assets of GiftMaster, Inc., which included contracts with
three major airlines and two regional airlines. The Company operates on a
calendar year end of December 31. The Company's interim financial statements as
of and for the six months ended June 30, 1996 have also been audited. At June
30, 1996, the Company had agreements with 15 airlines to place its catalogs in
the aircraft seat pockets.

Management's Plans

As reflected in the accompanying financial statements, the Company has
incurred substantial operating losses from inception through 1994 as a result of
its start up and market development. Additionally, the accompanying balance
sheets as of June 30, 1996 and September 30, 1996, reflect a shareholder deficit
of approximately $14.3 and $13.9 million, respectively, and a working capital
deficiency of approximately $5.6 and $5.5 million, respectively.

Subsequent to September 30, 1996, the Company sold and issued approximately
$2.6 million of convertible preferred stock, net of offering expenses, and, in
addition, as discussed further in Note 12, management and certain shareholders
have taken steps to strengthen the Company's financial condition and improve the
Company's liquidity. These steps include: (1) obtaining a $4 million loan,
guaranteed by two principal shareholders, payable in 1998, (2) converting notes
to shareholders of $5 million to 5,000 shares of convertible preferred stock
(convertible into 900,000 additional shares of common stock upon the closing of
an initial public offering), and (3) using the net proceeds of $2.6 million from
the issuance of new preferred stock to pay past due debt and notes payable to
vendors, with which the Company was not in compliance at June 30, 1996.

In addition to the changes discussed above, the Company's projection of
operations and cash flows for the balance of calendar year 1996 and 1997, and
the terms to pay certain significant current payables over 60-90 days, indicate
the Company will generate sufficient profitability and cash flow to liquidate
its remaining liabilities in the ordinary course of its operations. However,
there can be no assurance that the Company will be able to generate sufficient
revenues to achieve or sustain profitability.

Also, as discussed further in Notes 2 and 10, upon the conversion of the
Company from an S corporation to a C corporation, for tax purposes, the
accumulated deficit ($32.7 million at June 30, 1996; $32.4 million at September
30, 1996) will be reclassified to paid-in capital.

F-7
<PAGE> 57

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The pro forma application of the net proceeds from the transactions
discussed above as applied to the historical balances are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Total current assets........................................... $ 3,609 $ 3,609
======== =======
Accounts payable and accrued liabilities....................... $ 6,107 $ 4,507
Current portion of notes payable to vendors.................... 2,987 1,987
-------- -------
Total current liabilities............................ 9,094 6,494
-------- -------
Long-term portion of notes payable to vendors.................. 709 709
Notes payable to shareholders, including interest.............. 9,115 115
Commercial loan................................................ -- 4,000
Reserve for restructure charges................................ 495 495
Notes payable and capital leases, net of current portion....... 119 119
Preferred stock................................................ -- --
Common stock................................................... 5 5
Additional paid-in capital..................................... 18,438 (6,347)
Accumulated deficit............................................ (32,385) --
-------- -------
Total liabilities and shareholders' equity........... 5,590 5,590
======== =======
</TABLE>

Initial Public Offering

The Company is contemplating an initial public offering (IPO) of 2 million
shares of common stock at an estimated price of $8 to $9 per share (Note 12).

Reincorporation and Restatement of Shares

In October, 1996, the Company reincorporated in the State of Nevada. In
connection with the reincorporation, the Company completed a 1,592 to 1 share
exchange, including treasury shares, resulting in 5,150,000 shares of common
stock outstanding, on a retroactive basis, at June 30, 1996 and September 30,
1996. The accompanying financial statements and footnotes have been restated for
the change in the number of shares of common stock outstanding for all periods
presented.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates in 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,
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. In
management's opinion, methodologies used to determine estimates are adequate and
consistent with prior periods.

Revenue Recognition

Merchandise sales represent the Company's total fulfilled sales at retail
sales prices, net of returns and allowances, from products displayed in the
Company's catalog. The Company's agreements with participating vendors provide
that the vendor ship the products directly to the Company's customer upon
notification of the order to the vendor. Upon notification from the
participating vendors of the shipment of the goods, the

F-8
<PAGE> 58

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company recognizes the merchandise sale and related cost of goods sold at the
agreed upon product cost, and establishes a reserve for anticipated returns.

In addition, under contracts with some of its participating vendors, the
Company earns revenues generated by placement fees for inclusion of the
merchants' products in the SkyMall catalog. Placement fees are designed to cover
catalog expenses and to stabilize the Company's revenue by reducing the impact
of fluctuations in merchandise sales. Catalogs are issued four times a year. The
Company offers the participating vendor's products in the Company's catalogs and
performs order taking and processing services. The placement fees are recognized
ratably over the life of the catalog. Order taking and processing service
expenses are recognized in the period incurred.

The cost of goods sold represents the amount payable by the Company to
vendors in connection with sales of merchandise included in the Company's
catalog. The percentage of sales which the Company pays to the vendor varies
from agreement to agreement; generally, the higher the placement fee paid by a
participating merchant, the higher percentage of sales paid by the Company to
the merchant, and vice versa.

In addition, the Company generates revenue from the rental of its customer
list. List revenue is included in placement fees and other revenue in the
accompanying statements of operations.

Shipping and Handling Charges

The Company charges its retail customers standard fees for shipping and
handling costs. The fees collected are offset against the amounts charged to the
Company by its vendors for these fulfillment services provided by the vendors.
Any net amount remaining is included in Placement fees and other revenue in the
accompanying financial statements and was not material for any of the periods
presented.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets, including
equipment and leasehold improvements and purchased contracts by determining
whether the assets can be recovered from undiscounted future cash flows. The
amount of impairment, if any, is measured based on projected future cash flows
using a discount rate reflecting the Company's average costs of funds.

Recoverability of long-lived assets is dependent upon, among other things,
the Company's ability to continue to achieve profitability, so as to be able to
meet its obligations when they become due. In the opinion of management, based
upon current information and projections, long-lived assets will be recovered
over the period of benefit.

Cash and Cash Equivalents

Cash equivalents include investments purchased with an original maturity of
three months or less. As a result of the Company's restructure in 1994, the
Company is required to pay some vendors through escrow accounts. The escrow
accounts serve as security for these vendors and are funded through cash
receipts of placement fees and sales of merchandise in the ordinary course of
business. Total cash balances in such escrow accounts as of December 31, 1994
and 1995, June 30, 1996, and September 30, 1996 were approximately $539,000,
$618,000, $12,000 and $230,000 respectively. These amounts are included in cash
and cash equivalents in the accompanying financial statements.

Accounts Receivable

Accounts receivable at June 30, 1996, includes amounts due from credit card
companies and receivables from vendors for placement fees. The allowance for
doubtful accounts as of December 31, 1994 and 1995, June 30, 1996 and September
30, 1996 was $175,000 for each period.

F-9
<PAGE> 59

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Inventory

Inventory consists of finished goods purchased from vendors which are held
for sale and included in the Company's catalogs to consumers. Subsequent to
December 31, 1994, such inventory consists mainly of logo merchandise which
cannot be delivered via drop ship by vendors. Inventory is stated at the lower
of cost (first-in, first-out) or market. The Company typically has arrangements
whereby inventory items may be returned to vendors if not sold. The Company has
established a reserve of approximately $598,000, $8,000, $9,000 and $10,000 at
December 31, 1994 and 1995, June 30, 1996 and September 30, 1996, respectively,
for damaged, obsolete or discontinued merchandise that cannot be returned to
vendors.

Prepaid Catalog Costs

Prepaid catalog costs include primarily catalog production costs, which are
deferred and amortized on a straight-line basis over the period each catalog
issue is in use, currently three months.

Income Taxes

The Company since inception has been an S corporation and thus, is not
directly subject to income taxes. Accordingly, there is no provision or benefit
for income taxes reflected in the accompanying financial statements, as items of
taxable income and losses are reported in the individual returns of
shareholders.

Effective October 1996, the S status of the Company has terminated as a
result of the issuance of convertible preferred stock (Note 1). Subsequent to
the termination, the Company will be taxed as a C corporation. Net operating
losses (NOLs) calculated on a tax basis prior to the termination accrued to the
individual stockholders. Accordingly, such losses are not available to reduce
taxes payable by the Company as a C corporation.

Upon the termination of the S status, the Company is required to implement
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS No. 109), which requires the calculation of existing temporary
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Management does not expect such
implementation to have a significant impact on the Company.

Had the Company been a C corporation prior to October, 1996, no federal or
state income taxes would have been provided as a result of the NOLs discussed
above. Accordingly, no pro forma provision for federal or state income taxes is
presented as if the Company were taxed as a C corporation for the entirety of
all periods presented. Additionally, the accumulated deficit at the time of the
S election termination, will be reclassified to additional paid-in capital.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist of accounts receivable and accounts
payable and notes payable to shareholders, which were subsequently converted to
preferred stock.

Concentrations of credit risk with respect to accounts receivable and
accounts payable may be limited due to the large number of participating vendors
comprising the balances and the fact that certain receivable and payable
balances may be offset. The Company performs ongoing credit evaluations of its
merchants, but does not require collateral to support receivables. In addition,
the Company has a right of offset using the proceeds from future merchandise
sales. The Company has established an allowance for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical trends,
and other information.

F-10
<PAGE> 60

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Pro Forma Net Income (Loss) Per Common Share

Pro forma net income (loss) per share is based on the weighted average
number of common shares outstanding during the periods, as restated for the
share exchange referred to in Note 1 and, as applicable, the dilutive effect of
options outstanding under the Company's stock option plan.

Pursuant to the rules of the Securities and Exchange Commission, certain
changes in common and common equivalent shares during the 12 months immediately
preceding the anticipated date of the Company's initial public offering (IPO)
have been included in the calculation of pro forma common and common equivalent
shares as if they were outstanding for all periods presented, including loss
years where the impact of incremental shares is otherwise antidilutive.

The convertible preferred stock, issued subsequent to June 30, 1996, is
automatically convertible into approximately 1,440,000 common shares upon the
closing of an IPO, representing a discount of one-third from the estimated IPO
price. The dilutive impact of these shares for each period presented was 498,824
shares.

Interest related to notes payable to shareholders for the portion that was
converted into preferred stock was added back to the determination of net income
(loss) in the Pro Forma earnings per share computation.

In addition, the dilutive impact of stock options outstanding at September
30, 1996 under the Officer and Employee plan were 104,713 additional shares for
each period presented.

Financial Instruments

The Company's financial instruments include cash, accounts receivable and
accounts payable. Due to the short-term nature of these instruments, the fair
value of these instruments approximates their recorded value. The Company does
not have material financial instruments with off-balance sheet risk.

The Company has notes payable to shareholders at varying terms which, based
upon the subsequent replacement by the new bank loan of $4 million and
conversion of $5 million to convertible preferred stock, the Company believes
are stated at their estimated fair market value.

Unaudited Interim Financial Statements

In the opinion of the Company's management, the June 30, 1995 and September
30, 1995 and 1996 unaudited interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.

The accompanying interim financial statements 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 omitted pursuant to such rules and regulations.
The accompanying interim financial statements should be read in conjunction with
the Company's historical financial statements and related notes thereto.

F-11
<PAGE> 61

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) PROPERTY AND EQUIPMENT:

Property and equipment are stated at historical cost. Depreciation of
property and equipment is provided over the estimated useful lives of the
respective assets using the straight-line method. Leasehold improvements are
amortized on a straight-line basis over their estimated useful lives or the
terms of the respective leases, whichever is shorter. The following is a summary
of property and equipment:

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, JUNE
USEFUL ------------------- 30, SEPT. 30,
LIFE (YEARS) 1994 1995 1996 1996
------------ ------- ------- ------- -----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Equipment.................... 3-10 $ 1,873 $ 1,717 $ 2,031 $ 2,121
Buildings and leasehold
improvements............... 15-31 1,294 1,297 1,293 1,293
Furniture, fixtures and
other...................... 3-7 283 269 273 273
------- ------- ------- ------
3,450 3,283 3,597 3,687
Less -- Accumulated
depreciation............... (1,611) (1,702) (1,784) (1,881)
------- ------- ------- ------
$ 1,839 $ 1,581 $ 1,813 $ 1,806
======= ======= ======= ======
</TABLE>

(4) OTHER ASSETS:

Other assets include intangibles acquired in 1991 from the purchase of
GiftMaster, Inc., which are amortized using the straight-line method over their
estimated useful lives. The following is a summary of other assets:

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL --------------- JUNE 30, SEPTEMBER 30,
LIFE (YEARS) 1994 1995 1996 1996
------------ ----- ----- -------- -------------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Purchased airline contracts.... 10 $ 326 $ 326 $ 326 $ 326
Other, primarily deposits...... 21 19 21 21
----- ----- ----- -----
347 345 347 347
Less -- Accumulated
amortization................. (111) (131) (165) (172)
----- ----- ----- -----
$ 236 $ 214 $ 182 $ 175
===== ===== ===== =====
</TABLE>

F-12
<PAGE> 62

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(5) NOTES PAYABLE AND CAPITAL LEASES:

Notes payable consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
------- ---- -------- -------------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Line of credit of $4 million, interest at
prime plus 1.5%, interest due monthly,
principal due April 1995, secured by all
assets of the Company and guarantee of a
shareholder............................... $ 4,000 $ -- $ -- $ --
Note payable, interest at 8%, due in monthly
installments (including interest) of
approximately $4,700 through June 1997,
secured by equipment and rents............ 149 77 77 76
Capital leases, interest at varying rates of
18% to 23%, due in monthly installments
(including interest) of approximately
$4,900 through May 2001, secured by
equipment................................. -- -- 164 155
------- ---- ----- -----
4,149 77 241 231
Less: current portion....................... (4,072) (77) (112) (112)
------- ---- ----- -----
$ 77 $ -- $ 129 $ 119
======= ==== ===== =====
</TABLE>

At June 30, 1996, aggregate annual maturities of notes payable and capital
leases were as follows:

<TABLE>
<CAPTION>
(AMOUNTS IN
THOUSANDS)
<S> <C>
1997...................................................... $ 112
1998...................................................... 39
1999...................................................... 39
2000...................................................... 25
2001...................................................... 26
----
$ 241
====
</TABLE>

On April 30, 1993, the Company entered into an agreement with a bank for a
$4 million line of credit. During 1993, 1994 and 1995, the maximum outstanding
on the line of credit was $4 million, the average balance outstanding was $2.7
million, $4 million and $.8 million, respectively, and the average interest rate
was 7.5%, 8.6% and 10.0%, respectively. The line of credit was guaranteed by a
shareholder who received 265,899 shares of the Company's common stock in
exchange for the guarantee. In 1993, the Company recorded a deferred asset of
$100,000 based on the estimated fair value of such shares at the time of
issuance related to the guarantee provided by the shareholder. This amount was
amortized over the term of the line of credit. In 1994, the shareholder received
an additional 226,890 shares related to antidilution provisions between the then
existing shareholders. The additional shares were valued at par, which is
consistent with the value assigned to the shares giving rise to this issuance.
In 1995, the shareholder paid the line of credit on behalf of the Company and
the Company issued a promissory note payable to the shareholder for $4 million
(Note 6).

F-13
<PAGE> 63

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) NOTES PAYABLE TO SHAREHOLDERS:

Notes payable to shareholders consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30, SEPT 30,
1994 1995 1996 1996
------ ------ -------- -----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Note payable dated March 11, 1995, interest at prime
plus 1.5% (9.75% at June 30, 1996), secured by all
assets of the Company.............................. $ -- $4,000 $4,000 $ 4,000
Note payable dated March 17, 1994, interest at 8.5%,
interest due monthly, principal due upon completion
of an initial public offering of the Company's
common stock, secured by all assets of the
Company............................................ 2,000 2,000 2,000 2,000
Note payable dated March 17, 1994, interest at 8.5%,
interest due monthly, principal due upon completion
of an initial public offering of the Company's
common stock, unsecured............................ 1,000 1,000 1,000 1,000
Note payable dated June 30, 1995, interest at prime
plus 2%, interest due monthly, principal due at the
earlier of (i) sale of the Company's building in
Phoenix, Arizona, (ii) completion of an initial
public offering of the Company's common stock or
(iii) March 31, 1997............................... -- 850 850 850
Note payable for royalties (Note 8).................. 108 70 70 70
Accrued interest..................................... 184 572 974 1,195
------ ------ ------ ------
$3,292 $8,492 $8,894 $ 9,115
====== ====== ====== ======
</TABLE>

As of June 30, 1996 and September 30, 1996, the Company was in default of
principal and interest payments on all notes payable to shareholders. Subsequent
to September 30, 1996, the Company converted $5 million of notes payable to
shareholders to preferred stock (see Note 12) and obtained a bank loan for $4
million to pay accrued interest due under shareholders' notes and the remaining
principal balance due on notes payable to shareholders. The bank loan is due in
1998, bears interest at the 30 day commercial paper rate plus 2.6 percent and is
guaranteed by the shareholders whose notes and interest were paid from the
proceeds. As a result, all notes payable to shareholders and the related accrued
interest are classified as long-term in the accompanying balance sheets.

Shareholder Guarantees

A shareholder of the Company has guaranteed the payment of certain catalog
costs. In addition the shareholder has made other guarantees to other creditors
of the Company.

(7) RESTRUCTURE AND RECAPITALIZATION:

Financial and Operational Restructure

In the fourth quarter of 1994, the Company completed a major restructuring
of its business operations and relationships with its participating vendors. The
Company discontinued carrying inventory by outsourcing order fulfillment to its
vendors. Vendors currently drop ship directly to customers. The Company also
outsourced or discontinued its noncore, nonessential business activities, such
as concierge services and airport delivery of products. The Company focused on
its business of providing catalogs in airline seat pockets, producing a high
quality catalog, selecting quality merchandise for inclusion in its catalog, and
conducting customer order taking and processing services. Also, the Company
disposed of substantially all of its remaining inventory, closed its warehouses,
received concessions of amounts due to vendors, deferred the payment of its
other vendor payables, and significantly reduced the size of its workforce. In
addition, the Company entered

F-14
<PAGE> 64

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

into agreements with one of its major participating vendors to provide the
Company with working capital, $1.0 million in cash and to provide services for
computer processing, catalog production, database management and other services
in exchange for inventory, trade names, the use of the Company's customer list
and placement fees at rates below cost for a substantial number of pages in its
catalogs.

All of these activities resulted in a restructure charge of approximately
$4.3 million in 1994, which included the following (amounts in millions):

<TABLE>
<S> <C>
Loss on long-term major vendor contract discussed above.............. $ 3.6
Losses on fixed asset abandonment and disposal of unneeded equipment
and facilities..................................................... 1.0
Employee termination, severance costs and other...................... .2
Uncollectible accounts receivable.................................... .8
Restructure of and reduction in accounts payable..................... (1.3)
-----
$ 4.3
=====
</TABLE>

Notes Payable to Vendors

In connection with the Company's restructuring, the Company negotiated
extended payment terms with its major vendors. In addition to agreeing to the
extended payment terms, certain vendors agreed to settlements of approximately
60% of the original balance owed at the time of the agreement. These amounts
were converted to notes payable, generally with payment terms of 36 months,
beginning January 1, 1995 and include interest at 8%. At June 30, 1996 and
September 30, 1996, the Company was in default on such notes. Subsequent to
September 30, 1996, the Company negotiated an agreement with one of the vendors
whereby the Company agreed to cure its default and issued to the vendor warrants
to purchase 58,824 shares of the Company's common stock at the IPO price or the
fair market value of the Company's common stock if the IPO is not completed as
of March 31, 1997. The proceeds received from the private placement were used to
cure this and other defaults. Thus, accounts due subsequent to June 30, 1997,
are classified as long-term. Other vendors were paid 50% of the balance owed to
them as full settlement by December 31, 1994. As of June 30, 1996, future
payments related to these notes are as follows (amounts in thousands):

(8) STOCK REDEMPTION AND ROYALTY AGREEMENT:

In April 1993, the Company redeemed 2,268,898 shares of common stock held
by a shareholder in exchange for certain intellectual property, including the
Company's principal trademarks and tradenames. The Company secured an exclusive
license to use the intellectual property acquired by the shareholder in return
for a 1% royalty on the Company's sales commencing January 1, 1994.

On October 1, 1994, the shareholder exercised an option to terminate the
Company's obligation to pay the royalty, transferred the intellectual property
back to the Company and was issued 2,268,898 shares of common stock by the
Company. At the time such option was exercised, the Company owed the shareholder
approximately $180,000 pursuant to the license. The shareholder forgave
approximately $72,000 of such amount and agreed to a payment schedule for the
remainder, of which amount $70,000 is outstanding as of June 30, 1996 and
September 30, 1996, and is included as notes payable to shareholders (Note 6).

F-15
<PAGE> 65

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(9) COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is from time-to-time subject to complaints and claims arising
in the ordinary course of business, including claims concerning infringement on
patent and trademark rights of others. In each instance, the Company's suppliers
had warranted that the products were not infringing and indemnified the Company
against any loss in connection with such claim. The Company believes that its
actions with respect to products offered for sale in its catalogs are reasonable
and in compliance with applicable contractual provisions. The Company further
believes that none of the claims and complaints of which it is currently aware
will materially affects its business, financial position or future operating
results, although no assurance can be given with respect to the ultimate outcome
of any such claims or with respect to the occurrence of any future claims.

Leases

The Company has entered into several operating leases for equipment and
facilities. As of June 30, 1996, the future minimum payments under these leases
are as follows (amounts in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
--------------------------------------------------------------------
<S> <C>
1997................................................................ $ 84
1998................................................................ 80
1999................................................................ 64
2000................................................................ 37
2001................................................................ 37
Thereafter.......................................................... 738
------
$1,040
======
</TABLE>

Other equipment and property are leased on a monthly basis. Total lease
expense for the years ended December 31, 1993, 1994 and 1995, six months ended
June 30, 1995 and 1996, and the nine months ended September 30, 1995 and 1996
was approximately $174,000, $264,000, $193,000, $95,000, $99,000, $151,000 and
$132,000 respectively.

Lease Revenue

The Company leases certain of its facilities to others under noncancelable
leases and month to month agreements. Lease revenue of $79,000, $103,000,
$110,000, $52,000, $57,000, $82,000 and $94,000 for the years ended December 31,
1993, 1994 and 1995, the six months ended June 30, 1995 and 1996, and the nine
months ended September 30, 1995 and 1996, respectively, is included in other
income (expense) in the accompanying financial statements. As of June 30, 1996
future minimum lease payments to be received under noncancelable leases are as
follows (amounts in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
----------------------------------------------------------------------
<S> <C>
1997.................................................................. $107
1998.................................................................. 79
1999.................................................................. 69
2000.................................................................. 68
2001.................................................................. 68
Thereafter............................................................ 56
----
$447
====
</TABLE>

F-16
<PAGE> 66

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

401(k) Plan

Under the Company's 401(k) plan (the 401(k) Plan), adopted in 1992,
eligible employees may direct that a portion of their compensation, up to a
legally established maximum, be withheld by the Company and contributed to their
account. All contributions are placed in a trust fund which is invested by the
401(k) Plan's trustee. The 401(k) Plan permits participants to direct the
investment of their account balances among mutual or investment funds and the
Company provides a matching contribution of 25% of a participant's
contributions.

The total contributions made by the Company during the years ended December
31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996, and the
nine months ended September 30, 1995 and 1996, were not significant.

Stock Options

The Company has an incentive and nonqualified stock option plan, which
allows the Company to grant to officers and key employees, (the Officer and
Employee Plan) options covering up to 650,000 shares of common stock at an
exercise price of not less than fair market value at the date of grant.

The Company accounts for the stock options under APB Opinion No. 25, under
which no compensation cost has been recognized.

Under the Officer and Employee Plan, the option exercise price equals the
stock's fair market value on date of grant. The Plan options vest 40% upon
grant, and an additional 20% upon completion of each year of employment; options
expire ten years after the date of grant or three months after grantee's
employment termination.

A summary of the status of the Company's Plan at December 31, 1994 and 1995
and June 30, 1996, and changes during the years ended December 31, 1994 and
1995, the six months ended June 30, 1996, and three months ended September 30,
1996 is presented in the table below:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 JUNE 30, 1996 SEPTEMBER 30, 1996
----------------- ----------------- ----------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISED SHARES EXERCISED SHARES EXERCISED SHARES EXERCISED
(000) PRICE (000) PRICE (000) PRICE (000) PRICE
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period..................... 162 $ 7.39 271 $ 7.39 271 $ 7.39 271 $ 7.39
Granted...................... 433 7.39 -- -- -- -- 167 5.56
Exercised.................... -- -- -- -- -- -- -- --
Cancel shares repriced....... -- -- -- -- -- -- (135) 7.39
Shares repriced.............. -- -- -- -- -- -- 135 5.56
Forfeited.................... (324) 7.39 -- -- -- -- -- --
Expired...................... -- -- -- -- -- -- -- --
---- ----- --- ----- --- ----- ---- ------
Outstanding at end of
period..................... 271 $ 7.39 271 $ 7.39 271 $ 7.39 438 $ 6.13
==== ===== === ===== === ===== ==== ======
</TABLE>

(10) INCOME TAXES:

Concurrently with the change in tax status as discussed in Note 2, the
Company will adopt the provisions of SFAS No. 109. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates applied to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on

F-17
<PAGE> 67

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.

Management believes that the following estimated deferred tax assets and
liabilities would exist at June 30, 1996, if the date of tax status change was
effective on June 30, 1996. The Company would provide a valuation reserve for
the deferred tax asset because the Company has not sustained past taxable net
income at sufficient levels to assure realization:

<TABLE>
<S> <C>
Deferred tax assets --
Nondeductible reserves for bad debts and sales returns............. $ 250
Restructuring reserve.............................................. 265
Valuation reserve.................................................. (515)
-----
$ --
=====
</TABLE>

(11) MAJOR VENDORS:

The following table sets forth net merchandise sales, placement fees and
cost of sales as a percentage of the total of each category for the Company's
largest participating vendor:

<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
------------- ------------- -------------
1994 1995 1995 1996 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net merchandise sales............. 21% 49% 48% 25% 57% 24%
Placement fees.................... 34% 44% 47% 13% 44% 12%
Cost of goods sold................ 25% 54% 50% 33% 61% 31%
== == == == == ==
</TABLE>

No other vendors accounted for greater than 10% of any category listed
above. The information for 1993 is not presented above due to the change in the
Company's business from 1993 to 1994.

Also, net merchandise sales of the Company's products on the five largest
airlines represent approximately 87%, 80%, 79%, 83%, 88% and 89% of total net
merchandise sales for the years ended December 31, 1994 and 1995, the six months
ended June 30, 1995 and 1996 and the nine months ended September 30, 1995 and
1996, respectively.

(12) EVENTS SUBSEQUENT TO JUNE 30, 1996 (UNAUDITED):

Initial Public Offering

The Company intends to file an S-1 registration statement offering 2
million shares of common stock at an estimated price of $8 to $9 per share in an
IPO. Also, the Company intends to issue to the IPO's underwriter warrants which
enable the underwriter to acquire 200,000 shares of the Company's common stock
for 120% of the IPO price.

Sale of Convertible Preferred Stock

In October 1996, the Company received additional financing through the sale
and issuance of 3,000 shares of convertible preferred stock for approximately
$2.6 million, net of offering costs. The convertible preferred stock is
automatically convertible into common stock upon the completion of an IPO. Each
preferred share included a three-year warrant to purchase 60 shares of common
stock at the IPO price. The total common shares available for the purchase under
these warrants is 180,000.

The convertible preferred stock converts at the greater of (i) 180 shares
of common stock per share of convertible preferred stock or (ii) $1,000 divided
by two-thirds of the IPO price of the common stock.

F-18
<PAGE> 68

SKYMALL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Notes Payable to Shareholders Converted to Preferred Stock

In October 1996, two shareholders agreed to convert $5.0 million of their
notes payable to shareholders into preferred stock upon the closing of the
private placement discussed above. The preferred shares will automatically
convert into common stock of the Company upon an IPO. The conversion rate is
equal to that of the convertible preferred stock discussed above and will result
in the issuance of approximately 900,000 shares of common stock.

Loan

In October 1996, the Company received a $4.0 million loan, guaranteed by
two shareholders, with interest payable monthly and principal due December 1998.
Proceeds of the loan were used to pay interest accrued on notes payable to
shareholders ($1 million) with the balance paying principal on notes payable to
shareholders.

Employment Contract

In September 1996, the Company entered into an employment agreement with
Robert Worsley, its president and chief executive officer, which expires
September 30, 1999, at an annual compensation level of $190,000 and bonuses as
the Board of Directors may specify. The contract may be renewed for a two-year
period upon its initial expiration. The contract may be terminated earlier under
terms and circumstances described in the agreement. Under certain circumstances,
Mr. Worsley may receive up to two years of base salary upon termination.

Stock Options

Effective October 1996, the Company approved a Non-Employee Director Stock
Option Plan (the Director Plan), which allows the Company to grant nonemployee
directors options covering up to 100,000 shares of common stock at an exercise
price of not less than fair market value of the common stock at the date of
grant.

Under the Director Plan, each nonemployee Board member is granted an option
to purchase 5,000 common shares upon appointment to the Board and an option to
purchase 3,000 shares annually, subject to certain limitations. Options are 100%
vested upon grant and expire ten years after the date of issuance.

In September 1996, under the Officer and Employee Plan, the Company issued
options to purchase 167,405 shares of common stock at a price of $5.56 per share
to certain officers and employees of the Company. Also, 135,338 options
previously issued to certain employees of the Company were repriced in September
1996 from $7.39 per share to $5.56 per share. The Company repriced those stock
options at their fair value. The Company's fair value determination was based
upon the estimated price per common share (after conversion) of the 6% Preferred
sold in the Private Placement, which, in turn, was the result of the price
determined by the Company after consultation with its investment bankers and the
actual price paid by investors in arms' length third party transactions. The
Company determined $5.56 per share to be a fair price due to several factors,
including the initial minority position of the option shares in a closely held
enterprise, the initial illiquidity of the option shares and the continued
deficit in shareholders' equity at the time of issuance and repricing.

F-19
<PAGE> 69

THE FOLLOWING PAGES CONTAIN A REPRODUCTION OF SELECTED PAGES OF THE
COMPANY'S HOLIDAY GIFT 1996 CATALOG. THESE PAGES ARE INTENDED TO PROVIDE A
REPRESENTATIVE SAMPLE OF THE COMPANY'S CATALOGS GENERALLY AND THE STATEMENTS
THEREIN SHOULD NOT BE RELIED ON BY POTENTIAL INVESTORS IN MAKING AN INVESTMENT
DECISION.
<PAGE> 70

[THIS IS THE OUTSIDE FRONT COVER PAGE OF THE SKYMALL CATALOG] P. 1

[The outside front cover page of the SkyMall Catalog contains a photograph of
two easels with paintings which are located in the center of the page. There is
a Christmas Tree ornament in the lower right corner of the page. Following is
the text that appears on this page.]

Holiday Gift 1996
Free Take Home Copy

Over 1000 Great Holiday Gifts!

SkyMall(R)
Easy Shopping From Your Favorite Catalogs(TM)

The Best Gifts from . . .
Successories
HealthRider
Magellan's
Frontgate(R)
Brookstone(R)
Hello Direct
The Orvis Company
Hammacher Schlemmer
The Metropolitan Museum of Art
SelfCare(R) Catalog
The Sharper Image
Solutions(R)
. . . and many more!

For Cover Items, see page 2
Unbeatable Prices Guaranteed!
Order by Dec 20th for Christmas Delivery
See Page 2

This Complimentary SkyMall(R) Catalog Is Yours To Keep
<PAGE> 71

[THIS IS THE SECOND PAGE OF THE SKYMALL CATALOG WHICH IS AN INDEX TO THE
CATALOG.] P. 2

SKYMALL HOLIDAY PROSPECTUS SAMPLER
1996

DIRECTORY
LesConcierges
HealthRider(R)
Hammacher Schlemmer
The Sharper Image(R)
Frontgate(R)
Compaq Computer Corp.
The Disney Catalog
Mattel
Pepperidge Farm
The Wine Enthusiast(R)
The Metropolitan Museum of Art
Red Rose Collections
Successories(R)
SyberVision
Brookstone(R)
DataCal(TM) Direct
Hello Direct(R)
Solutions(TM)
The American Historic Society
Johnston & Murphy
Huntington Clothiers
Travel Tools
The Orvis Company
Cellular Works
The Safety Zone
Improvements
Competitive Edge Golf(R)
British Links
Mach 1
Magellan's
Nightingale Conant
InteliQuest(TM)
SelfCare(R) Catalog
Personal Creations
The Cigar Enthusiast
ORDER FORM
<PAGE> 72

[SECOND PAGE OF SKYMALL CATALOG -- CONTINUED.] P. 2

MERCHANDISING INFORMATION
SkyMall is published by SkyMall, Inc., and is printed four times a year. SkyMall
distributes approximately 1,273,000 copies per month, reaching over 966,000
passengers each day. There are full page and partial page programs available to
merchants. For more information please call (602) 254-9777.

SKYMALL
Copyright 1996 SkyMall, Inc. All rights reserved. SkyMall and the SkyMall
diamond mark are registered trademarks of SkyMall, Inc., registered in the U.S.
Patent and Trademark office. SkyMall is not responsible for typographical
errors.

[In the upper left corner there is a photo of a wine bottle opener, two bottles
of wine, and wine glasses. Under the photo is the caption "THE WINE
ENTHUSIAST(@)." In the middle of the left side of the page there is a photo of
three shoes on a pillow. Under the photo is the caption "JOHNSTON & MURPHY." In
the lower left corner of the page there is a photo of a Winnie the Pooh toy bear
with a scarf and stocking. Under the photo is the caption "THE DISNEY CATALOG."
In the upper right corner of the page there is a photo of a child typing on a
computer keyboard in front of a monitor. Under the photo is the caption "FISHER
PRICE & COMPAQ." In the middle of the right side of the page there is a photo of
a tie and dress shirt. Under the photo is the caption "HUNTINGTON CLOTHIERS." In
the lower right corner of the page there is a photo of candlesticks, boxes of
candy and other food items. Under the photo is the caption "PEPPERIDGE FARM."]
<PAGE> 73

[THIS IS THE THIRD PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE] P. 3

SKYMALL PRESENTS
HAMMACHER SCHLEMMER

WEATHER-RESISTANT BOOM BOX. When closed this portable stereo's waterproof
exterior resembles a tool box with a handle and Jeep(R) logo. Open the top and
inside there is a compact disc player with an LCD that shows track number and
time elapsed on the song, a cassette deck that tapes from CD player and radio,
and an AM/FM radio designed to resemble a Jeep's speedometer. Its three built-in
pockets carry your CDs. Ear and microphone jacks are included. Runs on eight D
batteries (included) or plugs into household outlet with AC adaptor (included).
Licensed by Jeep(R). 18" L x 7 1/2" W x 11" H. (10 lbs.) 63109 $169.95

GOLF CLUB DRINK DISPENSER. This unique cooler will keep up to 48 ounces of your
favorite beverage cold without the inconvenience of carrying bottles and cans.
With a dispensing head that resembles a three wood, this 33-inch long cooler
slips easily into your golf bag just like any of your clubs. To pour, just move
the pump lever back and forth. Spout folds back into the club head when you are
finished pouring. Comes with cleaning brush. 44" L. 64206 $39.95

ENCYCLOPAEDIA BRITANNICA CD(TM). This is the compact disc version of the
world's oldest (in continuous publication since 1868) and largest
English-language general encyclopedia. It contains all 32 volumes of the current
edition and includes text articles on over 65,000 subjects (more that 44 million
words) along with 2,500 graphics, including photographs, drawings, maps and
flag. In addition it includes the Tenth Edition of the Merriam-Webster
Collegiate(R) Dictionary and it has an index with over 400,000 references. To
use, simply type in a word or a question as it comes to mind, and its powerful
search engine searches and quickly finds all related articles (its "how to" and
"help" buttons also aid in your searches). Comes with a 96-page instructional
owner's manual. Available in PC and Macintosh versions. 63615 $295.95. This
Britannica CD offer is specially priced for Hammacher Schlemmer customers and is
for home use only.

BALL-SHOOTING "BURP" GUN. This classic toy is made using the same patented
design that kept children amused in the 1950s. It uses air-powered pump action
(instead of batteries) to safely fire up to 15 ping-pong balls (one at a time or
in multi-short bursts). Accurate up to 20 feet, each ball makes the famous
"burp" sound when shot. For adults and children over three years of age. Made of
ABS plastic. Includes 15 balls. 22" L. 46883 $19.95

Set of Ten Extra Balls 54577 $4.95

The Perfect Time to GIFT SHOP is NOW!

1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255

[Next to the description of the Weather-Resistant Boom Box, there are two
pictures of the portable radio and compact disc player, one open and one closed.
The word "JEEP" is molded on one side of the unit. Above the description of the
Ball-Shooting "Burp" Gun is a photo of a toy gun with a transparent barrel and
ping-pong balls inside. In the top right corner of the page is a photo of golf
clubs in a golf bag. One of the woods shown in the picture has a nozzle, from
which water is flowing into a glass held by a person's hand. In the lower right
corner of the page is a photo of the carrying case for the Encyclopaedia
Britannica CD, a compact disc labelled "BRITANNICA CD," and a child with an open
encyclopedia and ten bound volumes of Encyclopaedia Britannica.]
<PAGE> 74

[THIS IS THE FOURTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 4

SKYMALL PRESENTS
FRONTGATE(R)

From light opera and ballet to popular tunes, this Swiss Music Box plays the
music you love best. A collector's masterpiece, this Music Box is a replica of
an antique disc player. The 40 note Swiss movement made by the renowned artisans
at Reuge produces a sweet lyric sound. The domed box is finished with an
exquisitely crafted veneer of burled walnut, rosewood, and ebony inlaid with an
intricate musical motif. Lara's Theme, Edelweiss, and the Magic Flute by Mozart
accompany each Music Box. Included below is a representative sampling of
additional discs that may be special ordered and kept in the six remaining
storage slots. 10 lbs. 12 1/2" L x 8" H x 8 1/2" D. Y2162 Swiss Disc Player
Music Box $995.00 Y2118 All I Ask of You from Phantom of the Opera (Webber)
$14.95 Y2167 Silent Night (Gruber) $14.95 Y2174 Swan Lake (Tchaikovsky)
$14.95

Bask in the warm glow of a crackling campfire right in your own backyard. Build
a blazing bonfire in our Outdoor Fireplace or warm your toes on the foot rail
next to smoldering embers. The ventilated bottom centerpiece ensures sufficient
airflow for easy lighting, and the deep-dish design radiates tremendous heat.
Built from 3/16 inch pressed steel, the Fireplace includes a heavy cooking grate
for open-pit barbecuing, a full dome spark screen, and a stoker. Available in a
generous 24 inch diameter and an impressive 30" diameter (shown) for larger
gatherings. USA. Y2520 Outdoor Fireplace (24", 70 lbs.)
$360.00 Y5970 Large Outdoor Fireplace (30", 120 lbs.) $495.00

Solid brass Stocking Hangers strong enough to hold Santa himself. Rather than
hammering nails in the mantel or draping Christmas stockings over the
firescreen, start a new holiday tradition with these decorative brass Stocking
Hangers. Cast from one pound of solid brass and hand polished to a lustrous
finish, each Hanger can support a stocking filled to the brim with Christmas
surprises. 4" deep with 4 1/2" overhang. Y2055 Angel Stocking Hanger
$21.95, Y2062 Snowman Stocking Hanger $21.95, Y2069 Santa Stocking
Hanger $21.95, Y2076 Tree Stocking Hanger $21.95 Set of any four Hangers
$79.95

1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255

GUARANTEED UNBEATABLE PRICES!

[In the upper left corner of the page is a photo of an open music box that rests
on a table in front of a sofa. One music disc is under the music reader and two
discs are held upright in storage spaces. In the lower left corner of the page
is a photo of a man and woman sitting on a bench on a patio watching a fire burn
in a round container. There are trees and a lantern in the background. In the
lower right corner of the page is a photo of a stocking hanger with an
angel-shaped top. Just above the stocking hanger are four more stocking hangers
positioned on the edge of a mantle. From left to right, these stocking hangers
are topped by a snowman figure, a Santa figure, an angel figure and a Christmas
tree figure. Other Christmas decorations are contained in the background.]
<PAGE> 75

[THIS IS THE FIFTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 5

SKYMALL PRESENTS

GUARANTEED UNBEATABLE PRICES!

ORVIS TRAVEL

ORVIS(R)

Grundig Traveler II Shortwave Clock/Radio Tunes in to the World.
Hear the BBC news wherever you are. Small and lightweight, the Grundig provides
amazing reception. Features seven bands (captures all shortwave broadcasts
5.8-12.05 MHz) and AM/FM tuning, an LCD digital alarm clock, and a world-time
select switch. Built-in two-inch speaker and stereo headphones. Includes
Shortwave Frequency Guide. Three AAA batteries included. One-year warranty.
3 1/2" x 5 1/2" x 1 1/4" ( 3/4 lb.) CX761G $99.95

EASY FITTING TRAVELER'S VEST
With squared armholes, concealed buttons, quilted detail with trapunto-like
accents. All cotton, fully lined. In 18-sage, 10-black. Sizes XS (6-8), S (10),
M (12), L(14), XL (16-18). Washable. Imported CX2725 $79

- - Two inner pockets for your passport and tickets

- - Pleated front pockets with flaps and zippers

USE THIS GOKEY(R) LEATHER BRIEFCASE FOR THE REST OF YOUR CAREER . . .THEN PASS
IT ON TO YOUR KIDS
Our best-selling brief. It's made of our exclusive Gokey 1850s Series waxed
cowhide that takes on a wonderful patina with age. Full-envelope pocket inside
with additional built-in pockets for calculator, glasses, pens, business cards.
Outside flap has secure two-buckle closure with new speed-release turnbuckle for
fast access. Even holds legal-size papers comfortably. Leather luggage tag
included. Leather shoulder strap sold separately. 18" x 10" x 5". USA.
CX4032-01 Leather Briefcase $205
CX096K-00 Leather Shoulder Strap $29

- - Features six inner pockets for pen, calculator and address book

- - Large, divided leather compartment to keep important papers separate

PERFECT ALL-LEATHER PACK
Handsome enough to use as a carryall or a business briefcase. Five zippered
compartments hold everything needed for day or even overnight trips. Durable yet
buttery soft tan cowhide. Sturdy carrying handle and removable shoulder strap
included. 1" x 10" x 7". Imported
CX0467 $125

1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
<PAGE> 76

[FIFTH PAGE OF SKYMALL CATALOG -- CONTINUED.] P. 5

[In the upper left corner of the page is a photo of the Grundig radio.
Below the description of the Traveler's Vest is photo of a woman wearing a vest
holding a camera ready to take a photograph. A depiction of the inside of the
Traveler's Vest is in the lower left corner of the page. Above the description
of the Gokey briefcase is a photo of a briefcase on a rug. A carrying strap lies
in front of the briefcase and a small close-up of a fastener. A drawing of the
interior of the briefcase is located in the center of the page. In the lower
middle portion of the page is a photo of a carrying pack with two zippered
containers and a hand strap and shoulder strap. A checkbook and pen lie next to
the pack. A closeup of one pocket of the pack with cards labelled "ORVIS" and
two pens is in the lower right corner.]
<PAGE> 77

[THIS IS THE SIXTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 6

SKYMALL PRESENTS

GUARANTEED UNBEATABLE PRICES! THE DISNEY CATALOG
A GIFT FOR EVERY WISH - - -

DISNEY GOLF POCKET WATCH SET

These three timepieces, will suite both the avid golfer and Disney fan to a tee.
They feature scenes from classic Disney animation shorts devoted to golf:
Donald's Golf Game (1938), Canine Caddie (1941) starring Mickey, and How to Play
Golf (1944) starring Goofy. Each 2" diameter watch is elegantly cased in plated
silver or gold, comes with its own sturdy 14" chain fob, and is embossed with
our Par Excellence golf logo. The set is packaged in a logo collector's
leatherette box with a Certificate of Authenticity. Quartz movement, 2-year
warranty. Limited edition of 2,500. Catalog Exclusive. #14067MJ Set of Three
$250

TIGGER HOODED JACKET

Irrepressible outerwear in waterproof nylon taffeta, fully lined in heathered
polyester/cotton fleece. Heavy-duty zipper front with wind flap for weather
protection. Two zippered slant pockets. Shirred elastic cuffs and waistband.
Oversized cut and deep armholes for easy layering, easy moving. Machine
washable. Imported. Adult's S, M, L, XL, XXL #37297MJ $78

AVIATOR PLUSH

Our aeronautical trio in true aviator attire are the perfect companions to fly
with or to add to your collection. Poseable and free standing 12" high. Aviator
Mickey #13861MJ $20. Flight Attendant Minnie #13862MJ $20. Captain Mickey
#13863MJ $20

EXPRESSION SWEATSHIRT

Gift of thoughtfulness and triple delight! Disney heavyweight cotton, polyester
fleece with embroidered four-pose Mickey art. Crew Neck. Imported. White, red
and ash. Adult's S, M, XL, XXL #72050MJ $48

Receive a Complimentary Disney Catalog with Your Order

1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255

DISNEY EMBROIDERED TEE

Our Magnificent Seven Dwarfs line up on 100% cotton. Embroidered characters.
Short sleeves. Crew Neck. USA. Adult's M, L, XL, XXL #71921MJ $28
<PAGE> 78

[SIXTH PAGE OF SKYMALL CATALOG -- CONTINUED.] P.6

[In the upper left corner of the page is a photo of three pocket watches
with pictures of Mickey Mouse, Goofy and Donald Duck, respectively. In the lower
left corner of the page is a photo of a sweatshirt with four Mickey Mouses
embroidered on its front. To the immediate right of the sweatshirt is a photo of
the cover of the Disney Catalog, depicting Mickey and Minnie Mouse, Goofy and
Donald Duck in front of a snow-covered house. In the lower right corner of the
page is a photo of a shirt with the label "MAGNIFICENT SEVEN," pictures of the
Seven Dwarfs, and each Dwarf's name embroidered on the front. In the middle of
the right side of the page is a photo of three stuffed toys; Mickey Mouse with
aviator goggles, Minnie Mouse with a flight attendant uniform and Mickey Mouse
with a captain's hat, from left to right, respectively. In the upper right
corner of the page is a photo of a woman wearing a hat and a jacket with the
Tigger emblem and name on the front. To the left of that picture is the
posterior of the jacket with the word "TIGGER."]
<PAGE> 79

[THIS IS THE SEVENTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 7

SKYMALL PRESENTS

MATTEL(R)

Barbie COLLECTIBLES(TM)

BARBIE(R) AS SCARLETT IN GONE WITH THE WIND(TM)
It's Barbie as the legendary Scarlett O'Hara(TM), wearing the scandalous
burgundy velvet gown that Scarlett wore in shame to Ashley's birthday party. The
striking gown is trimmed with marabou feathers and adorned with 25 shimmering
faux garnets. Authentically replicated from the movie, every detail is fabulous.
Doll stand included. #12815 $75.00

1996 HAPPY HOLIDAYS(R) BARBIE(R)
Make your holidays sparkle with this Special Edition Barbie. She wears a velvet
gown, trimmed in gold and white. From snowy muff to golden snowflake adorning
her hat, she perfectly captures the holiday spirit. Doll stand included.

<TABLE>
<S> <C> <C>
#15816 white doll $34.99
#15647 black doll $34.99
</TABLE>

GODDESS OF THE SUN(TM) BARBIE(R)
Hollywood designer, Bob Mackie pays tribute to the sun with this dazzling
design. Her shimmering golden gown is covered with over 11,000 hand-sewn sequins
and beads to capture every ray of light. A Limited Edition, she arrives with a
doll stand and a copy of Mackie's original fashion illustration.

GUARANTEED UNBEATABLE PRICES!

AUTUMN GLORY(TM) BARBIE(R)
A stunning tribute to the colors of fall. Barbie doll shimmers in hues of copper
and burgundy. Adorned with fall leaves and accented with hints of purple and
gold, her gown flows around her like an autumn breeze. Auburn hair and dark wine
hat add the final touch to this autumn portrait. Doll stand included.

SODA FOUNTAIN SWEETHEART(TM) BARBIE(R)
They're two American icons, together for the first time. It's Barbie as the
Coca-Cola lady from years ago. Every detail is lovingly recreated from a 1907
advertisement for Coca-Cola. Even her nostalgic Coca-Cola glass is authentic to
the times. Doll Stand included.

1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
<PAGE> 80

[SEVENTH PAGE OF SKYMALL CATALOG -- CONTINUED.] P. 7

[In the upper left corner of the page is a photo of a Barbie Doll standing at
the end of a staircase. She is wearing a "Scarlett O'Hara" dress. In the lower
left corner of the page is a photo of a Barbie Doll in a velvet gown and white
hat. A picture of Barbie's face appears in a circle immediately below. A photo
of a Barbie Doll in a gold sequined gown occupies the center of this page. This
doll has a hat and sun rays behind it. In the lower right corner of the page is
a photo of a Barbie Doll in a white dress with polka dots holding an umbrella.
In the upper right corner of the page is a photo of a Barbie Doll wearing a
copper and burgundy colored dress and a large, plumed hat. The Coca Cola(R) logo
appears at the bottom of the page.]
<PAGE> 81

[THIS IS THE EIGHTH PAGE OF THE SKYMALL CATALOG, WHICH DEPICTS SEVERAL PRODUCTS
OFFERED BY SKYMALL. FOLLOWING IS THE TEXT THAT APPEARS ON THIS PAGE.] P. 8

SKYMALL PRESENTS

THE SHARPER IMAGE

THE IDEAL BINOCULARS FOR THOSE ON A POWER TRIP.
Seeking ultimate power? Now you can buy it. Because with a push of the thumb
lever, these powerful compact 25mm binoculars zoom from a broad 8x to a
telescopic 27x -- and any power in between. You can see anything, peer almost
any distance -- the world is quite literally your oyster. Particulars: Equipped
with precise center-wheel focusing, diopter adjustment to your individual
vision, rubber eyecups that fold down for use with glasses, and durable rubber
armor to protect against jolts and impact. Only 4 1/2"L and an easy-to-carry
12oz. Come with lens caps, lens cleaning cloth, neck strap, carrying pouch, and
limited lifetime warranty.

Don't let these go to your head. They work much better on your eyes.
8-27x25 Compact Zoom Binoculars
$180 #YX701

TALK ABOUT TAILORING YOUR ENVIRONMENT TO SUIT YOU.
It appears that you'll have to attempt sleep to the sound of your neighbor's
stereo. But with the press of a button, you're transported to a tropical cruise.
Press another button to hear rain falling in a lush forest full of exotic birds.
Other buttons allow you to lose yourself in rhythmic ocean waves and surf,
neutral white noise, a soothing heartbeat sound, and more. Quite literally, you
can create almost any sort of ambiance you require. Think of our exclusive Ultra
Heart and Sound Soother(TM) relaxation system as your own personal sound
environment.

Particulars: Ten built-in sounds, including Heartbeat, Rain, Brook, White
Noise, Summer Night, and Ocean. Plus four new nature sounds: North Woods,
California Coast, Rain Forest, and Tropical Cruise. An easy-to-use built-in
timer lets you select a sound (White Noise, for example) to lull you
continuously, or that will switch off automatically after 45 minutes. The
powerful 4" wide-range speaker, with adjustable volume, projects sound in all
directions, enveloping you in a relaxing soundscape. The handsome Burltech(TM)
finish has the look of polished natural burl. Powered by included AC adapter.
For portable use, runs on 6 AA alkaline batteries (not included). Weighs just
14oz., measures 3 3/4"H x 5 1/2" diameter. One-year warranty. Even though you
can't escape from reality, you can escape from its sounds. Ultra Heart and Sound
Soother(TM) with timer -- Burltech(TM) Finish
$139.95 #S1429

GUARANTEED UNBEATABLE PRICES!
<PAGE> 82

[EIGHTH PAGE OF SKYMALL CATALOG CONTINUED.] P. 8

C.
THE CREDIT CARD THAT CAN CLEAN A FISH -- OR OPEN A LETTER.
You may never go fly fishing in Wyoming. But you want to be sure of the exact
measurements of your paperclip sculpture. Handy for home, office, and travel,
Tool Logic Card offers the practical benefits of a multi-tool knife -- and
more -- all integrated compactly into an incredibly slim and lightweight 3 1/4"
x 1/4" card. Carry it in your wallet and you won't even know it's there.
Particulars: razor-sharp 2" blade, toothpick, tweezer, awl, can and bottle
opener, screwdriver, 8 power lens, compass, handy lanyard hole, and measuring
rulers. Each high-quality tool is precision crafted from Zytel(TM) and
mirror-polished stainless steel. Too bad it doesn't pay the bills.
Tool Logic Card $25 #OX300

1-800-SKYMALL
CALL TOLL FREE 1-800-759-6255
SOURCE CODE 6JGP

[At the top center of the page is a photo of a top view of a pair of binoculars.
A photo of a round device labelled "Ultra Heart and Sound Soother" is in the
center of the page. The top of this device has a volume knob and ten labelled
buttons arranged in a semicircle. In the bottom center of the page is a photo of
a rectangular device labelled "The Credit Card Companion: TOOL LOGIC." The
device is pictured with two of its components removed. One, a bottle opener,
rests above the device. The other, a jagged edged knife, is below the device. A
compass is pictured in the upper right corner of the device.]
<PAGE> 83
======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 11
Concurrent Offering................... 11
Use of Proceeds....................... 12
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Financial and Operating
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 24
Management............................ 34
Principal Shareholders................ 38
Certain Transactions.................. 40
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 43
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 46
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================

======================================================

LOGO
2,000,000 SHARES
COMMON STOCK
-----------------
PROSPECTUS
-----------------
JOSEPHTHAL LYON & ROSS
INCORPORATED

CRUTTENDEN ROTH
INCORPORATED
, 1996
======================================================
<PAGE> 84

[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]
PROSPECTUS

720,000 SHARES

SKYMALL, INC.
COMMON STOCK

This Prospectus relates to 720,000 shares of common stock, $.001 par value
per share (the "Common Stock"), of SkyMall, Inc. ("SkyMall" or the "Company"),
which are held by certain shareholders of the Company (the "Selling
Securityholders"). The Company issued 540,000 shares of the Common Stock to the
Selling Securityholders upon conversion of a series of 6% Dividend Paying
Convertible Redeemable Preferred Stock (the "Convertible Preferred Stock")
issued by the Company in October, 1996 and converted upon effectiveness of the
Company's initial underwritten public offering. The remaining 180,000 shares of
Common Stock are issuable upon the exercise of certain warrants (the "Warrants")
issued by the Company in October, 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "The Company -- Private Placement." The Common Stock
offered by this Prospectus may be sold from time to time by the Selling
Securityholders, provided a current registration statement with respect to such
securities is then in effect commencing on , 1997. See "Concurrent
Offering," "Plan of Distribution" and "Selling Securityholders."

The distribution of the shares of Common Stock offered hereby by the
Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.

The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.

None of the proceeds of such sales will be received by the Company;
however, the Company will receive proceeds from the exercise, if any, of the
Warrants. Substantially all of the expenses in connection with the registration
of the Common Stock will be borne by the Company, except for any underwriter's,
brokers' and dealers' commissions and/or discounts. See "Plan of Distribution."

The Common Stock is traded on the Nasdaq-National Market under the symbol
"SKYM." [On , 1997 the last reported sale price for the Common Stock
as reported on the Nasdaq-National Market was $ .]

On the date of this Prospectus, a registration statement filed under the
Securities Act with respect to an underwritten public offering by the Company of
2,000,000 shares of Common Stock and up to 300,000 additional shares of Common
Stock offered by certain selling shareholders of the Company (the "Selling
Shareholders") to cover over-allotments, if any, was declared effective by the
Securities and Exchange Commission (the "Commission"). The Company will receive
net proceeds of $ from the sale of the shares included in the
underwritten public offering, and the Selling Shareholders will receive
approximately $ net proceeds if the over-allotment option is exercised
in full after payment of underwriting discounts and commissions and estimated
expenses of the underwritten public offering. Sales of securities by the Selling
Securityholders or even the potential of such sales, would likely have an
adverse effect on the market price of the Common Stock. See "Concurrent
Offering."

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE HEREOF.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

The date of this Prospectus is , 199 .
<PAGE> 85

[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]

THE OFFERING

Securities Offered Hereby(1)........ 720,000 shares of Common Stock.

Common Stock to be Outstanding after
the Offering(2)(3).................. 8,590,000 shares.

Use of Proceeds..................... None of the proceeds of this offering
will go to the Company. The net
proceeds from the concurrent offering
will be used by the Company for
implementing marketing and
promotional programs, developing
additional circulation media, capital
expenditures and working capital
requirements. See "Use of Proceeds."

Risk Factors........................ The securities offered hereby involve a
high degree of risk. See "Risk
Factors."

Proposed Nasdaq National Market
Symbol.............................. "SKYM"
- ---------------
(1) An additional 2,000,000 shares of Common Stock are being offered by the
Company and up to 300,000 additional shares of Common Stock to cover
over-allotments, if any, are being offered by certain shareholders of the
Company (the "Selling Shareholders") in the concurrent underwritten public
offering. See "Concurrent Offering."

(2) Assumes that the 2,000,000 shares of Common Stock registered under the
concurrent offering have been sold by the Company.

(3) Does not include (i) 438,080 shares of Common Stock issuable upon exercise
of stock options issued pursuant to the Company's stock option plans, which
have a weighted average exercise price of $6.13 per share, an additional
311,920 shares of Common Stock reserved for issuance thereunder, including
20,000 shares reserved for issuance to non-employee directors upon
completion of this Offering, (ii) 180,000 shares of Common Stock issuable
upon the exercise of Warrants issued by the Company in connection with the
Private Placement, which are exercisable at the initial public offering
price and (iii) 58,824 shares of Common Stock issuable by the Company upon
the exercise of a warrant issued to a vendor, which is exercisable at the
initial public offering price. See "The Company -- Private Placement" and
"Management -- Stock Option Plans."
<PAGE> 86

[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]

CONCURRENT OFFERING

On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering of 2,000,000
shares of Common Stock by the Company and up to an additional 300,000 shares of
Common Stock to cover over-allotments, if any, by the Selling Shareholders was
declared effective by the Commission. Sales of securities by the Company and the
Selling Shareholders, or even the potential of such sales, would likely have an
adverse effect on the market price of the Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."
<PAGE> 87

[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]

SELLING SECURITYHOLDERS

The following table provides certain information with respect to the Common
Stock beneficially owned by each Selling Securityholder as of the date of this
Prospectus. Except as indicated in the footnotes to this table, none of such
Selling Securityholders has a material relationship with the Company. Except as
indicated in the footnotes to this table, the Company believes that the persons
named in the following table have sole voting and investment power with respect
to the respective shares of Common Stock set forth opposite their names. The
shares of Common Stock offered by this Prospectus may be offered from time to
time by the Selling Securityholders named below or their nominees.

<TABLE>
<S> <C> <C> <C> <C> <C>
David A. Wirthlin(3).................... 68,562 * 3,600 64,962 *
Martin F. Smith(4)...................... 48,108 * 4,800 43,308 *
Thomas J. Litle(5)...................... 29,000 * 24,000 5,000 *
Lyle R. Knight(6)....................... 29,000 * 24,000 5,000 *
Andrea Fox(7)........................... 22,854 * 1,200 21,654 *
David Anfang, M.D....................... 6,000 * 6,000 0 0
American High Growth Equities Retirement
Trust................................. 54,000 * 54,000 0 0
Gary Bielfeldt.......................... 24,000 * 24,000 0 0
Richard R. Blue......................... 12,000 * 12,000 0 0
James A. Buck and Martha Buck, Trustees
of the James and Martha Buck Family
Trust................................. 6,000 * 6,000 0 0
Christine Cheney........................ 1,200 * 1,200 0 0
Continental Stock Transfer & Trust
Company(8)............................ 6,000 * 6,000 0 0
Ditta Limited Partnership............... 48,000 * 48,000 0 0
Mark Folk............................... 6,000 * 6,000 0 0
Donald L. and Elizabeth Fones........... 12,000 * 12,000 0 0
Brian Gell.............................. 6,000 * 6,000 0 0
Alan Grotenstein........................ 6,000 * 6,000 0 0
Keith Gulledge.......................... 6,000 * 6,000 0 0
James and Teresa Hara................... 18,000 * 18,000 0 0
Hi-Tel Group, Inc....................... 6,000 * 6,000 0 0
Holistica International, Inc............ 6,000 * 6,000 0 0
Mohammed & Hasina Hossain............... 6,000 * 6,000 0 0
Inveski Ltd............................. 54,000 * 54,000 0 0
Varugheshe & Leela Jacob................ 6,000 * 6,000 0 0
Neal T. Jansen.......................... 12,000 * 12,000 0 0
Raj G. Kansal........................... 6,000 * 6,000 0 0
Michael R. Klein........................ 12,000 * 12,000 0 0
O. James & Karen Klein(9)............... 66,135 * 12,000 54,135 *
Manohar & Gopaldas Mahtani.............. 6,000 * 6,000 0 0
Michael & Shoshana Margolin............. 6,000 * 6,000 0 0
Kenneth Mastrilli....................... 12,000 * 12,000 0 0
Sandy & Manuel Mayerson................. 6,000 * 6,000 0 0
Michael A. McKee........................ 12,000 * 12,000 0 0
</TABLE>
<PAGE> 88

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING NUMBER OF OFFERING
--------------------- SHARES ---------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Richard G. Morris....................... 6,000 * 6,000 0 0
Melvin L. & Betty H. Mouton Family
Living Trust.......................... 6,000 * 6,000 0 0
Omotsu Holdings Ltd..................... 20,400 * 20,400 0 0
Richard H. & Mary O'Riley Trust......... 12,000 * 12,000 0 0
Charumati Patel......................... 6,000 * 6,000 0 0
Kala C. & Chandu V. Patel............... 6,000 * 6,000 0 0
Natu & Daksha Patel..................... 6,000 * 6,000 0 0
Rajni R. & Shobhana R. Patel............ 12,000 * 12,000 0 0
Summant L. & Laxmi Patel................ 12,000 * 12,000 0 0
James Lee Perkins....................... 18,000 * 18,000 0 0
Esther Purjes........................... 24,000 * 24,000 0 0
Dr. Sanjeeva Rao........................ 6,000 * 6,000 0 0
Sandeep Diamond Corp.................... 12,000 * 12,000 0 0
James Scibelli.......................... 54,000 * 54,000 0 0
Norman Shapiro.......................... 12,000 * 12,000 0 0
Fredda Sheib............................ 12,000 * 12,000 0 0
Six L. Properties L.P................... 12,000 * 12,000 0 0
David Soucek & Joseph Soucek............ 12,000 * 12,000 0 0
Frank Stella............................ 12,000 * 12,000 0 0
Leonard Vitullo......................... 6,000 * 6,000 0 0
John Worsley............................ 1,200 * 1,200 0 0
Jay S. Youngerman....................... 12,000 * 12,000 0 0
Muhammed S. Yousuf...................... 6,000 * 6,000 0 0
</TABLE>

- ---------------
* Less than 1%.

(1) Percentages are based upon 8,590,000 shares of the Company's common stock
outstanding.

(2) Mr. Worsley is the President and Chief Executive Officer of the Company and
is a member of the Company's Board of Directors.

(3) Mr. Wirthlin is the Chief Financial Officer and Secretary of the Company.

(4) Mr. Smith is a Vice President of the Company.

(5) Mr. Litle is a member of the Company's Board of Directors.

(6) Mr. Knight is a member of the Company's Board of Directors.

(7) Ms. Fox is a Vice President of the Company.

(8) Continental Stock Transfer & Trust Company is the Company's stock transfer
agent and registrar.

(9) Mr. Klein, who currently serves as a consultant to the Company, is a former
employee of the Company.
<PAGE> 89

[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]

PLAN OF DISTRIBUTION

The Company will not receive any of the proceeds from the sale of any of
the Shares of Common Stock offered hereby (the "Offered Securities") by the
Selling Securityholders; however, the Company will receive proceeds from the
exercise, if any, of the Warrants. The Offered Securities may be sold from time
to time by the Selling Securityholders, or by pledgees, donees, transferees or
other successors in interest. Such sales may be made on one or more exchanges or
in the over-the-counter market or otherwise, at prices and at terms then
prevailing or at prices related to the then current market price, or in
negotiated transactions. The Offered Securities may be sold by one or more of
the following: (a) a block trade in which the broker-dealer so engaged will
attempt to sell the Offered Securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
broker-dealers engaged by the Selling Securityholders may arrange for other
broker-dealers to participate in the resales.

In connection with distributions of the Offered Securities or otherwise,
the Selling Securityholders may enter into hedging transactions with
broker-dealers. In connection with such transactions, broker-dealers may engage
in short sales of the Offered Securities in the course of hedging the positions
they assume with Selling Securityholders. The Selling Securityholders may also
sell Offered Securities short and redeliver the Offered Securities to close out
such short positions. The Selling Securityholders may also loan or pledge
Offered Securities to a broker-dealer and the broker-dealer may sell the Offered
Securities so loaned or, upon a default, the broker-dealer may effect sales of
the pledged Offered Securities pursuant to this Prospectus.

Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Securityholders in amounts to
be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.

All costs, expenses and fees in connection with the registration of the
shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sales of the Offered Securities will be borne by the Selling
Securityholders. The Selling Securityholders may agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of the
Offered Securities against certain liabilities, including liabilities arising
under the Securities Act.

In order to comply with the securities laws of certain states, if
applicable, the securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Company and
the Selling Securityholders.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the securities may not simultaneously engage in
market-making activities with respect to the securities for a period of two
business days prior to the commencement of such distribution. In addition, and
without limiting the foregoing, each Selling Securityholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rules 10b-6, 10b-6A and 10b-7, which
provisions may limit the timing of the purchases and sales of securities by the
Selling Securityholders.
<PAGE> 90
[ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS]

======================================================

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
The Company...........................
Concurrent Offering...................
Use of Proceeds.......................
Dividend Policy.......................
Dilution..............................
Capitalization........................
Selected Financial and Operating
Data................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Certain Transactions..................
Selling Securityholders...............
Description of Securities.............
Shares Eligible for Future Sale.......
Plan of Distribution..................
Legal Matters.........................
Experts...............................
Additional Information................
Index to Financial Statements......... F-1
</TABLE>

======================================================

SKYMALL, INC.

[Company logo depicting
aircraft inside of a
diamond shape]

720,000 SHARES
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1996

======================================================
<PAGE> 91

PART II TO FORM S-1

INFORMATION NOT REQUIRED IN THE PROSPECTUS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Articles 11 and 12 of the Company's Articles of Incorporation provide as
follows:

1. To the fullest extent permitted by the laws of the State of Nevada, as
the same exist or may hereinafter be amended, no director or officer of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director or officer;
provided, however, that nothing contained herein shall eliminate or limit the
liability of a director or officer of the Corporation to the extent provided by
applicable laws (i) for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law or (ii) for authorizing the payment of
dividends in violation of Nevada Revised Statutes Section 78.300. The limitation
of liability provided herein shall continue after a director or officer has
ceased to occupy such position as to acts or omissions occurring during such
director's or officer's term or terms of office. No repeal, amendment or
modification of this Article, whether direct or indirect, shall eliminate or
reduce its effect with respect to any act or omission of a director or officer
of the Corporation occurring prior to such repeal, amendment or modification.

2. The Corporation shall indemnify, defend and hold harmless any person who
incurs expenses, claims, damages or liability by reason of the fact that he or
she is, or was, an officer, director, employee or agent of the Corporation, to
the fullest extent allowed pursuant to Nevada law.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated costs and expenses of the
Company in connection with the Offering other than underwriting discounts.

<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 8,893
NASD Filing Fee........................................................... 3,434
Nasdaq Listing Fee........................................................ 38,975
Legal Fees and Expenses................................................... 100,000
Accounting Fees and Expenses.............................................. 75,000
Representative's Non-accountable Expense Allowance........................ 75,000
Printing and Engraving Expenses........................................... 150,000
Blue Sky Fees and Expenses................................................ 80,000
Miscellaneous............................................................. 278,698
--------
Total........................................................... $810,000
========
</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES

On October 1, 1994, the Company issued 2,268,898 shares of Common Stock to
Alan C. and Karen Ashton in consideration for certain intellectual property
rights and a right to receive a 1% royalty on the Company's sales.

On October 1, 1994, the Company issued 226,890 shares of Common Stock to
Bert A. Getz in consideration of Mr. Getz's guarantee of certain Company debt.

On October 20, 1996, the Company issued 3,575 shares of Preferred Stock to
Bert A. Getz in consideration for conversion of $3,575,000 of debt owed by the
Company to Getz.

On October 20, 1996, the Company issued 1,425 shares of Preferred Stock to
Alan C. and Karen Ashton in consideration for conversion of $1,425,000 of debt
owed by the Company to the Ashtons.

On October 20, 1996, the Company issued 3,000 shares of 6% Dividend Paying
Convertible Redeemable Preferred Stock (the "Preferred Stock") in a private
placement offering to certain investors (the "Investors").

II-1
<PAGE> 92

The Company received gross proceeds of $3,000,000 as consideration for the
Preferred Stock. The Preferred Stock is convertible into Common Stock at any
point, and it shall automatically convert into shares of Common Stock upon a
public offering at a conversion rate of the greater of (i) 180 shares of Common
Stock per share of Preferred Stock, or (ii) 1,000 divided by (66 2/3 multiplied
by the initial public offering price per share of Common Stock per share of
Preferred Stock). In connection with the Private Placement, the Company also
issued Warrants to the Investors to purchase an aggregate of 180,000 shares of
Common Stock at the Company's initial public offering price.

On a number of different dates since December 15, 1993, the Company granted
options to purchase a total of 438,080 shares of Common Stock to various
employees of the Company pursuant to the Company's 1994 Stock Option Plan. Such
options have exercise prices ranging from $5.56 to $7.39 per share.

Unless otherwise noted herein, the issuances of securities in the
transactions described above were deemed to be exempt from registration under
the Act either pursuant to the exemption from registration contained in Section
3(a)(9) and Section 4(2) thereof, or under the provisions of Regulation D or
Rule 701 promulgated under the Act. Such sales were made solely to investors who
represented that they were accredited investors and to not more than 35
non-accredited investors, all of whom purchased such securities for investment
and not with a view to the distribution thereof. All sales were made without any
general solicitation or general advertising. Restrictions have been imposed on
the resale of such securities, including the placement of legends thereon noting
such restrictions, and written disclosure of such restrictions were made prior
to issuance of the securities.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION METHOD OF FILING
------- --------------------------------------------------------------- -------------------
<C> <S> <C>
1 Form of Underwriting Agreement................................. ***
3.1a Articles of Incorporation of Registrant........................ ***
3.1b Certificate of Amendment to Articles of Incorporation.......... ***
3.2 Bylaws of Registrant........................................... ***
4.1 Amended Certificate of Designation for Preferred Stock......... ***
4.2 Form of Common Stock Certificate............................... ***
4.3 Form of Representative's Warrant Agreement..................... ***
5 Opinion re: legality of the securities being registered........ ***
10.1 Employment Agreement between Robert M. Worsley and
SkyMall, Inc................................................... ***
10.2 Form of Airline Customer Services Agreement.................... ***
10.2a Schedule of Omitted Material Terms from Material Airline
Customer Services Agreement.................................... ***+
10.2b Airline Customer Services Agreement between SkyMall, Inc. and
Continental Airlines, Inc., dated January 1, 1992, as
amended........................................................ ***+
10.2c Airline Customer Services Agreement between SkyMall, inc. and
United Airlines, Inc., dated May 1, 1992....................... ***+
10.4 Loan Agreement between Merrill Lynch Business Financial
Services, Inc. and SkyMall, Inc. dated October 11, 1996........ ***
10.5 Form of Tax Indemnification Agreement.......................... ***
10.6 SkyMall, Inc. 1994 Stock Option Plan, as amended............... ***
10.7 Non-Employee Director Stock Option Plan........................ ***
10.8a Lease Agreement between Pasqualetti Properties, Inc. and
Smitty's Super Valu, Inc. dated June 24, 1960.................. ***
10.8b Agreement between Rose Pasqualetti Perkins, Amos Pasqualetti,
Anthony Pasqualetti, Ben Pasqualetti and Smitty's Super Valu,
Inc. dated March 2, 1961....................................... ***
</TABLE>

II-2
<PAGE> 93

<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION METHOD OF FILING
------- --------------------------------------------------------------- -------------------
<C> <S> <C>
10.8c Addendum to Lease between Amos Pasqualetti, Ben S. Pasqualetti,
Rose Pasqualetti Jenkins, Estate of Anthony J. Pasqualetti and
Smitty's Super Valu, Inc. dated May 11, 1966................... ***
10.8d Sublease between Schwan Brothers Properties and Smitty's Super
Valu, Inc. dated August 1, 1984................................ ***
10.8e Lease Amending Agreement Smitty's Super Valu, Inc., Pasquo
Investments, and Amos Pasqualetti and Victoria McFarland dated
October 1, 1984................................................ ***
10.8f Addendum to Sublease between Smitty's Super Valu, Inc. and
Schwan Brothers Properties dated January 1, 1985............... ***
10.8g Assignment of Sublease from Pima Partners to SkyMall, Inc.
dated July 12, 1990............................................ ***
11 Statement re: computation of per share earnings................ *
21 Subsidiaries of Registrant..................................... N/A
23.1 Consent of Accountants......................................... *
23.2 Consent of Counsel............................................. See Exhibit 5
24 Powers of Attorney............................................. ***
27 Financial Data Schedule........................................ ***
99.1 Consent of Alan C. Ashton...................................... ***
99.2 Consent of Lyle R. Knight...................................... ***
99.3 Consent of Thomas J. Litle..................................... ***
99.4 Consent of Randy Petersen...................................... ***
</TABLE>

- ---------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
+ Confidential treatment requested as to certain portions of this exhibit.

(B) FINANCIAL STATEMENT SCHEDULES

UNDERTAKINGS

1. The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:

(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.

(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

2. The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment 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-3
<PAGE> 94

3. The undersigned Registrant hereby undertakes to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.

4. The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.

5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, 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 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 such
director, officer or controlling person in connection with the securities being
registered, 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 Act and will be governed by the final adjudication of
such issue.

6. The undersigned Registrant hereby undertakes that:

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

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

II-4
<PAGE> 95

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 4 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix and State of Arizona on
December 9, 1996.

SKYMALL, INC.,
a Nevada corporation

By /s/ Robert M. Worsley

------------------------------------------
Robert M. Worsley
Chairman of the Board and
President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------- ------------------
<S> <C> <C>
/s/ Robert M. Worsley Director and President (Principal December 9, 1996
- ----------------------------------- Executive Officer)
Robert M. Worsley
/s/ David A. Wirthlin Chief Financial Officer (Principal December 9, 1996
- ----------------------------------- Financial Officer)
David A. Wirthlin
</TABLE>

II-5

<PAGE> 1
EXHIBIT 11
SkyMall, Inc.
Supplemental Statement Re: Computation of Per Share Loss

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
For Primary Loss Per Share(4)(5) 1991 1992 1993 1994
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding during the period, excluding shares
issued within 12 months prior to the filing of the
registration statement 4,378,575 4,448,043 3,131,736 3,276,450

Stock options repriced in September 1996(6) 135,338 135,338 135,338 135,338

Effect of treasury stock method on stock
options repriced in September 1996(6) (88,527) (88,527) (88,527) (88,527)

Stock options issued in September 1996(6) 167,405 167,405 167,405 167,405

Effect of treasury stock method on stock options
issued in September 1996(6) (109,503) (109,503) (109,503) (109,503)

Common stock equivalents issuable upon
conversion of Preferred Stock from private
placement in October 1996(1)(2) 540,000 540,000 540,000 540,000

Effect of treasury stock method on convertible
shares from private placement(2) (352,941) (352,941) (352,941) (352,941)
--------- -------- -------- --------
Weighted average common and common equivalent
shares outstanding 4,670,347 4,739,815 3,423,508 3,568,222
========== ========== ========== ===========

Net income (loss) $(5,075,000) $(9,640,000) $(5,766,000) $(12,186,000)
========== ========== ========== ===========
Net income (loss) per share $ (1.09) $ (2.03) $ (1.68) $ (3.42)
========== ========== ========== ===========

<CAPTION>
Year ended For the For the
December 31, Six months ended June 30, Nine Months ended Sept. 30,
------------ ------------------------- ---------------------------
For Primary Loss Per Share(4)(5) 1995 1995 1996 1995 1996
------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Weighted average number of common shares
outstanding during the period, excluding shares
issued within 12 months prior to the filing
of the registration statement 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000

Stock options repriced in September 1996(6) 135,338 135,338 135,338 135,338 135,338

Effect of treasury stock method on stock
options repriced in September 1996(6) (88,527) (88,527) (88,527) (88,527) (88,527)

Stock options issued in September 1996(6) 167,405 167,405 167,405 167,405 167,405

Effect of treasury stock method on stock
options issued in September 1996(6) (109,503) (109,503) (109,503) (109,503) (109,503)

Common stock equivalents issuable upon
conversion of Preferred Stock from private
placement in October 1996(1)(2) 540,000 540,000 540,000 540,000 540,000

Effect of treasury stock method on convertible
shares from private placement(2) (352,941) (352,941) (352,941) (352,941) (352,941)
---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding 5,441,772 5,441,772 5,441,772 5,441,772 5,441,772

Common stock equivalents issuable upon
conversion of Preferred Stock from conversion
of shareholder debt in October 1996(3) 900,000 900,000

Effect of treasury stock method on convertible
shares from conversion of shareholder debt(3) (588,235) (588,235)
--------- --------- --------- --------- ---------

Pro forma weighted average number of common and
common equivalent shares outstanding 5,753,537 5,753,537
========= ========= ========= ========= =========

Net income (loss) $ 758,000 $ 165,000 $ 770,000 $ 116,000 $1,091,000
Interest on debt converted to preferred stock 419,000 461,000

--------- --------- --------- --------- ---------
Net income (loss) as adjusted $1,177,000 $1,552,559
========= ========= ========= ========= =========

Net income (loss) per share $ .14 $ .03 $ .14 $ .02 $ .20
========= ========= ========= ========= =========
Pro forma net income (loss) per share $ 0.20 $ .27
========= ========= ========= ========= =========
</TABLE>
<PAGE> 2

(1) Pursuant to the rules of the Securities and Exchange Commission, common and
common equivalent shares issued during the 12 months immediately preceding
the anticipated filing date of the Company's initial public offering have
been included in the calculation of common and common equivalent shares as
if they were outstanding for all periods presented, including loss years
where the impact of incremental shares is antidilutive; as calculated using
the treasury stock method assuming an initial public offering price of
$8.50 per share.

(2) Shares of common stock potentially issuable upon conversion of convertible
preferred stock have been included since the convertible preferred stock is
automatically converted upon completion of the initial public offering.
Shares outstanding for all periods presented included in the computation of
pro forma earnings per share have been restated using the treasury stock
method in accordance with SAB 83. The proceeds from the private placement
of preferred stock were $3 million, before expenses.

(3) Shares of common stock issuable upon conversion of preferred stock issued
in exchange for notes payable to shareholders have been included since the
preferred stock is automatically converted upon completion of the initial
public offering at 66 2/3 percent of the initial public offering price. The
treasury stock method has been used to reduce the shares outstanding in
each period to the extent of outstanding shareholder debt and accrued
interest of up to $5 million using an assumed initial offering price of
$8.50 per share, before expenses.

(4) No calculation of fully diluted loss per share has been provided as fully
diluted loss per share is equal to primary loss per share.

(5) Common and common equivalent shares have been adjusted to reflect a
1,592-for-1 stock exchange upon incorporation in Nevada in October 1996.

(6) Per SAB Topic 4:D, options issued within 12 months immediately preceding
the anticipated filing date of the Company's initial public offering have
been included in the calculation common and common equivalent shares as if
they were outstanding for all periods presented, including loss years where
the impact of incremental shares is antidilutive; as calculated using the
treasury stock method assuming an initial public offering price of $8.50
per share.

<PAGE> 1
EXHIBIT 23.1

[LETTERHEAD OF ARTHUR ANDERSEN LLP]

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made part of this registration
statement.

Arthur Andersen LLP

Phoenix, Arizona,
December 9, 1996