INFONOW CORP /DE, 10-K, 1997-03-31

INFONOW CORP /DE
10-K, 1997-03-31
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934

FOR THE YEAR ENDED DECEMBER 31, 1996

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

Commission file number 0-19813

INFONOW CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 04-3083360
(State of Incorporation) (IRS Employer Identification No.)

1875 LAWRENCE STREET, SUITE 1100, DENVER, COLORADO 80202
(Address of principal executive offices) (Zip code)

(303) 293-0212
(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:
UNITS
COMMON STOCK, PAR VALUE $.001 PER SHARE
CLASS A WARRANTS
CLASS B WARRANTS
(Title of Class)

The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.

Yes X No
--- ---
Indicated by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

As of February 28, 1997, 5,515,872 common shares were outstanding. The aggregate
market value of the shares held at that date by non-affiliates was approximately
$7,457,000 based on the average of the bid and ask prices as quoted on Nasdaq's
Electronic Bulletin Board System.

For the purposes of calculating the above required information, affiliates are
defined as shareholders with greater than 5% beneficial ownership of the
Company's stock and all directors and officers of the Company.

DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Shareholders to be held on April 25,
1997, is incorporated into Part III of this Form 10-K.

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PART 1
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ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW
The Company develops and markets products and services that are designed
to deliver customer service information over the Internet. InfoNow introduced
its first service, FindNow-SM-, an Internet-based locator and mapping
service, in July 1996. A company using the FindNow-SM- service as part of its
World Wide Web ("Web") site can provide customized location and mapping
information about its products and services to its customers via Web sites on
the Internet. FindNow-SM-is accessed through an InfoNow customer's ("Client")
Web site. To use FindNow-SM-, an Internet user enters the street address of
his or her current location on a specialized Web page within a client's Web
site using the FindNow-SM- service. This specified page then queries the
FindNow-SM- servers operated by InfoNow to produce a map showing the user's
location and the nearest Client sales and service locations as well as other
customized information. FindNow-SM- is based on proprietary technology
developed in partnership with Environmental Systems Research Institute, Inc.
("ESRI"), the world's largest geographic information systems ("GIS") company.
Since its introduction, FindNow-SM- has been implemented on Web sites of Visa
International, Compaq Computers, NationsBank, Apple Computers, American
Airlines, United Health Care, Kenwood USA and BancOne. These applications can
be viewed by anyone with access to the Web by "browsing" the Web sites of any
of the Clients noted above or by viewing the "Customers" section of InfoNow's
home page at www.infonow.com.

The Company also provides business presentation and Web site development
services through its subsidiary, Cimarron International, Inc. ("Cimarron").

COMPANY BACKGROUND
The Company was incorporated under the laws of the State of Delaware on
October 29, 1990, and for the first five years of existence was focused on
the sale of software through the use of encrypted CD-ROM technology. Sales of
software using these methods were never sufficient to cover the Company's
cost of operations, and in 1995 the Company embarked upon an acquisition
strategy focused on companies that would allow the Company to shift its
strategy away from its previous business and focus on opportunities related
to the Internet.

The Company made two business acquisitions as a result of its new
business strategy. In May 1995, the Company acquired Cimarron, a leading
provider of interactive multimedia and business presentation services in the
Rocky Mountain region. Cimarron was established in 1979, and its staff of
twelve professionals have won numerous awards for their creative work,
including an EMMY, TELLY, Alfie and B/PAA Gold Spike. On August 23, 1995, the
Company acquired Navigist, Inc. ("Navigist"), a provider of Internet software
development services, consulting and support services for computer networks,
and Internet site services. The Company acquired Cimarron and Navigist as a
means of acquiring skills in electronic content creation as well as a core of
software development skills needed for developing Internet-based applications.

In 1995, the Company ceased selling software using encrypted CD-ROM
technology and installed a new senior management team, led by Michael
Johnson, who became President and Chief Executive Officer in October 1995.
Utilizing resources from Cimarron and Navigist, the Company formed a third
business group, Internet Products, to focus on executing the Company's
strategy to develop Internet-based customer service software, products and
services. The Internet Products Group introduced FindNow-SM- in July 1996.
FindNow-SM- is an Internet-based locator and mapping

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service designed to allow a national chain or national consumer brand to
provide customers with their nearest sales and service locations and other
location-based information via the World Wide Web.

The Company sold Navigist on December 13, 1996 to two of the former
owners of Navigist. The impact of this disposition is reflected in the
consolidated financial statements of the Company for the year ended
December 31, 1996.

INDUSTRY BACKGROUND
Several recent developments within the global business community are
changing the way that businesses can respond to customer inquiries about
their products and services.

The most important development is the emergence of the Internet as a
significant new medium for communications. The Internet is a global
collection of computer networks, linking millions of public and private
computers around the world. In addition to providing access to a vast array
of information, the Internet represents a new medium through which
organizations and individuals can conduct business and answer customer
inquires. The potential benefits of conducting business through the Internet
include direct, immediate and consistent communications with consumers and
low communications and transaction costs. In addition, the unique interactive
capabilities of the Internet also give businesses the capability to acquire
valuable information that can help pinpoint customer needs, provide a
superior answer to customer inquires, deliver updated information instantly,
and provide a faster response than traditional customer service call centers.

The Internet is experiencing significant growth in both the number of
computers connected to the Internet and in consumer usage. The number of
"host" computers connected to the Internet has grown from approximately
200,000 in 1989 to over seven million at the end of 1995, representing a
annual growth rate of over 80%. A 1995 study completed by Nielsen Media
Research indicated that over 17% of the adult population of the US and Canada
currently have access to the Internet and that over 24 million of these
adults were considered frequent users. The study noted that the total time
spent on the Internet by consumers is equivalent to the total time spent by
consumers watching rented video tapes. International Data Corporation has
estimated that the number of Internet users will reach approximately 200
million by the end of 1999, from 56 million at the end of 1995.

The Company believes that this growth is due to a number of factors
including the proliferation of communication-enabled computers, a significant
increase in network infrastructure, reductions in the cost of Internet
access, and the availability of intuitive graphical software that allow
non-technical users to access the Web. These developments have resulted in
widespread access at a rapidly declining cost. The Company believes these
factors will promote continued growth in consumer usage of the Internet and
continue to spur the interest of corporations and other organizations in
utilizing the Internet as a tool for communicating with customers.

The most prominent growth in the Internet has occurred on an area
known as the World Wide Web (the "Web") which is where most commercial
activity has taken place. The Web utilizes a standard protocol know as hyper
text transfer protocol (http:) which allows almost any computer to access Web
"pages" written in Hyper Text Markup Language ("HTML") through the use of
browser software such as Netscape Navigator.

One unique feature of the Web is the capability to allow one Web page to
link to another page and communicate information to a different site. This
capability makes it possible for a Web site developer to outsource portions
of their Web site to another, more specialized Web site in the same way that
manufacturing concerns subcontract certain processes out to other vendors. As
the amount of information, commercial applications and the number of Web
sites have increased, Web pages have become more sophisticated. Many early
Web sites consisted of Web pages which contained only simple text and
graphics. Now, many large corporate and commercial sites contain pages with
rich

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multimedia content and sophisticated interactive capabilities that allow
access to information stored in corporate databases. The production of these
Web sites require significant investments of time and money and now require
that the developers of such sites have the knowledge of sophisticated tools
such as CGI (common gateway interface) script, Java and VRML (virtual reality
modeling language). InfoNow believes that companies will outsource more and
more functions within their Web sites as Web sites become more specialized
and complex. This trend will create a significant demand for functional
products tailored to meet specific needs. In addition, in order to maintain
long term economic viability, these applications must solve real problems
that can produce a measurable benefit.

The Company believes that it can provide significant value by supplying
tools and services to enable companies to provide customer service via the
Internet. The Company believes that the Internet is an alternative to many
functions currently performed in a traditional customer service call center,
and InfoNow's focus is on the $15 - $25 billion market in the United States
for services provided by call centers. These centers handled over 10 billion
customer calls in 1994 and the level of activity is expected to grow
significantly through the next century. Customer service call centers
provide a wide range of customer support services, including dealer and
service location, help desk and product support services, product ordering
and consumer information fulfillment.

InfoNow's objective is to develop tools and services that will
facilitate the shift of a large portion of the call center market to the
Internet. FindNow-SM- is the Company's first product which utilizes the
Internet to address customer service issues for corporations. InfoNow
developed its FindNow-SM- system to answer location-based queries because
they are among the most frequently asked questions by consumers.

In addition, the Company believes that an opportunity exists to
significantly improve upon current methods of finding locations using an
Internet-based solution. Significant benefits include potential cost saving of
90% as compared to many current solutions, the ability to gather location-based
information about consumers through advanced reporting capabilities built into
FindNow-SM-, and the ability to provide a superior response to most inquiries.

The GIS technology underlying the FindNow-SM- system utilizes
latitude and longitude, which can pinpoint locations, calculate the "true"
location proximity, and generate an accurate map. Many call centers currently
employ simple listings by city or state or locating systems based on zip code
areas which do not always provide the nearest locations and give no
information such as a map or directions that would help a user find the
nearest location once it has been identified. The ability to respond
virtually instantaneously with text, graphic and other "higher bandwidth"
information (e.g., a picture versus a verbal explanation) and the resulting
reduction in wait times represents a substantial improvement in efficiency
and effectiveness over current call center solutions from a customer's
perspective. Because the FindNow-SM- system utilizes database searching it
can also perform sophisticated searches for locations with certain criteria.

The Company believes that the primary industry trend affecting its
business presentations operation is the transition to electronic
presentations from traditional business presentations based on the design,
creation and production of 35mm slide presentations. The increased
acceptance of computer-based electronic presentations is the result of the
declining cost of computer hardware used to display these productions and the
development of computer software presentation tools that allow the
development of rich multimedia content for a presentation and can be more
easily modified in electronic format.

BUSINESS STRATEGY
InfoNow's primary objective is to be a leading provider of solutions and
services to deliver customer service information via the Internet by
establishing a leading position in the emerging

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market for Internet-based locator services. The Company is pursuing the
following strategies with respect to its Internet Products group and its
FindNow-SM- service:

EXTEND FUNCTIONALITY OF THE FINDNOW-SM- SERVICE. InfoNow intends to
provide a more flexible menu of services by the use of internally-developed
enhancements and the integration of purchased third party applications to
extend the functionality of the FindNow-SM- system. The Company will use a
combination of customer input and its own knowledge of using the Internet to
deliver customer service information as a source of direction as it
determines how it will enhance and extend its core technology.

LEVERAGE THE COMPANY'S INFORMATION-BASED ASSETS. The Company currently
has licenses for geographic data for the United States and has an exclusive
license for geographic data for Canada. In addition, the Company also
possesses unique location information through its current customer base. The
Company intends to utilize this information as well as build other databases
of location-based information to provide better coverage, and more accurate
information to current and future customers.

TARGET INDUSTRY-LEADING CORPORATE CUSTOMERS. The Company intends to
focus primarily on the corporate customers. The Company plans to utilize its
own direct sales force as well as arrangements with Web developers, Internet
access providers and others to target market leading corporations with an
emphasis on solving customer service needs. The Company believe that the
customer service area can best utilize the unique capabilities of an
Internet-based solution and therefore will represent the largest market for
the Company's products and services.

EMPHASIS ON CUSTOMER SUPPORT AND VALUE ADDED. The Company intends to
develop and maintain strong customer relationships by leveraging the broad
range of expertise of its consultative sales force to address the special
needs of corporations that are delivering customer service information via
the Internet.

EXPAND INTO SELECTED INTERNATIONAL MARKETS. The Company currently has
geographic coverage of the United States and has an exclusive license for the
use of Canadian data. During the next three to twelve months, the Company
currently has plans to add Australia and selected countries in Western Europe.
The Company intends to leverage its current relationships with multinational
companies into expansion overseas as well as targeting large foreign
corporations with operations in the U.S. through its direct sales effort. The
Company may also utilize partnerships in selected countries to gain better
access to local sales forces, geographic data, marketing resources and specific
knowledge of foreign markets.

ESTABLISH AND EXTEND STRATEGIC ALLIANCES. The company will continue to
pursue strategic alliances that can provide additional technical, financial or
distribution resources that will allow the Company to develop and market its
products and services into a broader range of markets. In addition, the Company
may seek to accelerate its growth through strategic acquisition of complementary
businesses, products or technology. However, the Company currently has no plans,
commitments or agreements with respect to any such transactions.

EXPAND INTERNET-BASED PRODUCT OFFERINGS BEYOND FINDNOW-SM-. Develop
additional customers service applications utilizing technologies developed
internally and acquired from others to expand its offering of Internet-based
customer service applications.

The Company intends to continue to offer business presentation services
through Cimarron. The Company's primary strategy is to successfully address
the transition to electronic presentations from traditional slide-based
presentations by continuing to develop its electronic content authoring
skills and capabilities. In addition, Cimarron will seek to broaden its
current customer base by focusing on providing turnkey solutions for investor
relations and theater production clients. If successful in

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its initial efforts to sell turnkey solutions to these markets locally,
Cimarron plans to expand these offerings to other selected geographic markets
outside the Denver metro area.

PRODUCTS AND SERVICES
The Company currently provides Internet-based mapping and locator
services and business presentation services through its two operating groups,
Internet Products and Cimarron. Prior to the sale of Navigist in December
1996, the Company also offered network engineering and consulting services
and Internet site services. As a result of the sale of Navigist on December
13, 1996, the Company no longer offers those services. The sales of Internet
Products Group, Cimarron and Navigist accounted for 16%, 49% and 35%
respectively of the total revenues of the Company for the year ended December
31, 1996. The Company did not generate significant revenue from its
FindNow-SM- service until the second quarter of 1996 and has yet to generate
operating income from such services. However, the Company expects its revenue
mix will shift significantly as the market for the Company's Internet-based
customer service solutions develops and the Company devotes more resources to
continued development of FindNow-SM- and its other Internet-based customer
service products and services.

In 1996 the Company generated approximately 51% and 49% of its total
revenue from the Internet products and business presentations segments of its
business, respectively. See Note 9 to the Consolidated Financial Statements
herein for financial information as to the Company's business segments.

FINDNOW-SM- INTERNET-BASED MAPPING AND LOCATOR SERVICES

The Company's principal service is FindNow-SM-, an Internet-based
locating and mapping service. FindNow-SM- is accessed through an InfoNow
customer's ("Client") Web site. To use FindNow-SM-, an Internet user enters
the street address of his or her current location on a specialized Web page
within a Client's Web site. This specialized page then queries the
FindNow-SM- servers operated by InfoNow to produce a map showing the Internet
user's location and the nearest Client sales and service locations as well as
other customized information. FindNow-SM- utilizes advanced GIS (geographical
information system) technologies and is fully customized to seamlessly and
transparently integrate into each Client's existing Internet site and provide
"hotlinks" to more information on services, products, pricing, etc.

The Company believes that using an Internet-based solution for finding
locations represents a significant improvement over current methods for
finding locations. Significant benefits include potential cost saving for a
Client of 90% as compared to many current solutions, the ability of a Client
to gather location-based information about its consumers through advanced
reporting capabilities built into FindNow-SM-, and a superior response time
to most inquiries.

The Company offers the FindNow-SM- service at three increasing levels of
sophistication: (1) Point mapping, which locates a fixed point on a map
based on an address; (2) relational mapping, which locates a fixed point and
searches for proximity to other known locations (such as ATM's, bank
branches, service and sales locations, etc.); and (3) advanced relational
mapping, which provides more flexibility in searching for proximity from
multiple locations. The various features of the levels of service are
summarized below:

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<TABLE>
<CAPTION>
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Point Relational Advanced
Mapping Mapping Relational
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
User or predefined search radius X X X
Single point "local map" X X X
Proximity searching for closest locations X X
Reference map with "search from" and "retrieved
location" points X X
Real-time geocoding X X X
search from address or intersection X X
Search from city center X
Search from landmark X
Search by establishment name X
Re-center search on a retrieval point X
Executive reporting X X X
Custom map location overlays/markers X
External database feed capability X
- ------------------------------------------------------------------------------------------------------------
</TABLE>

The GIS technology underlying the FindNow-SM- system utilizes latitude
and longitude which can pinpoint locations, calculate the "true" location
proximity, and generate an accurate map. Many call centers currently employ
simple listings by city or state or locating systems based on zip code areas
which do not always provide the nearest locations and give no information
such as a map or directions that would help a user find the nearest location
once it has been identified. The ability to respond virtually instantaneously
with text, graphic and other "higher bandwidth" information (e.g., a picture
versus a verbal explanation) and the resulting reduction in wait times
represents a substantial improvement in efficiency and effectiveness over
current call center solutions from a customer's perspective. Because the
FindNow-SM- system utilizes database searching it can also perform
sophisticated searches for locations with certain criteria. For example,
FindNow-SM- can be configured to find the location of the nearest Spanish
speaking cardiologist with a medical degree from Harvard if a Client wanted
to make that kind of information available to its customers through its Web
site.

A typical FindNow-SM- installation includes the development of
customized, Client-specific access to the service, and the design and
implementation of client databases. The FindNow-SM- service is generally
provided on a two-year contract which provides for an initial setup charge
and a monthly service fee. These combined fees typically range from $20,000
to in excess of $100,000 in the initial year of service for a corporate
application, and includes the initial interface implementation. Ongoing
services include hosting the FindNow-SM- service on the Company's servers,
update the locations database, and maintaining the Web site interface. The
setup and monthly service fees are determined based on a variety of factors,
including the level of service selected, the number of Client locations,
anticipated transaction volume and the level of customization requested by
the Client. In addition to standard services, the Company also offers
followup support and services which are priced and delivered on a project by
project basis.

BUSINESS PRESENTATION AND MEDIA SERVICES.
The Company's Cimarron subsidiary provides comprehensive business
presentation services that range from simple graphic design to complete
productions utilizing sophisticated multimedia presentations, multimedia
authoring, production and project management. Cimarron's services include:

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- Interactive multimedia programming including digital video, audio and
animation
- Web site design and implementation
- Graphic design services for electronic and slide presentation
- Imaging services and slide production
- Linear or interactive electronic screen shows
- Content organization and writing
- Hardware consultation and staging support
- Photographic prints
- Plot posters
- Color transparencies
- CD archiving and duplication

The Company generally performs its imaging and graphics services on a
project by project basis and typically bills based on a standard rate sheet
depending on the specific service and quantities requested. The Company
offers most of its services on a standard or rush basis. Rush services
involve shorter delivery times and are charged at higher rates.

The Company sells production services on either a cost-plus or fixed fee
basis depending upon particular project requirements. Larger, more
complicated projects are typically bid on a fixed fee based on the estimated
scope of the project. Changes in scope of work are billed in addition to the
initial base fee, usually on a time and materials basis.

NETWORK ENGINEERING AND CONSULTING SERVICES.

Prior to its sale on December 13, 1996, the Company's Navigist
subsidiary provided network engineering services which included: (1)
providing design, engineering, implementation, and support services for
corporate local area and wide-area computer networks; (2) providing
assistance to corporations in establishing and maintaining an Internet
presence, including design and development of a World Wide Web or file
transfer protocol ("FTP") presence, e-mail, gateway services, secure Internet
connectivity, day-to-day Internet systems administration, Internet
application development, and installation services; and (3) designing,
developing and implementing applications for corporate Intranets, private
internal corporate networks and applications based primarily on Internet
browser and server technology. These services were offered by the Company's
Navigist subsidiary through its Denver and San Jose offices. The Company
closed Navigist's Denver office in June 1996. As a result of the sale of the
remaining Navigist operations, including the San Jose office, the Company
ceased offering these services after December 13, 1996.

INTERNET SITE SERVICES.

Prior to its sale of Navigist on December 13, 1996, the Company offered
Internet site services. The Company completed the construction of its Network
Operations Center ("NOC") in San Jose, CA during the fourth quarter of 1995.
This center provided Navigist the ability to provide a variety of Internet site
services to companies who wished to outsource these services. The NOC also
provided the communications and support infrastructure required for the initial
introduction of the Internet Products Group's FindNow-SM- operations which were
subsequently moved to Rocky Mountain Internet's Colorado facility in September
1996. These services were targeted towards medium size corporations desiring
secure access to the Internet utilizing firewall and other security measures and
were offered in conjunction with Navigist's network engineering and consulting
services. Although the market for Internet access has grown significantly in
the past 24 months, the Company had

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contracted with only one third party customer at the time of the sale of
Navigist in December 1996. All assets related to this service were sold as
part of the Company's sale of Navigist and the Company ceased offering these
services on December 13, 1996.

RESEARCH AND DEVELOPMENT
The Company believes that its future success will largely be dependent
on its ability to enhance the functionality the FindNow-SM- system and to
develop other successful related products and services. The Company's
current research and development efforts at the current time are influenced
significantly by customer requirements. New features are customized initially
for delivery to a single customer and then incorporated into future versions
of the Company's products and services. The Company continually evaluates
its products and services to determine what additional products or
enhancements are required by its customers and plans to utilize both
purchased technologies as well as internally developed software that will be
integrated into the Company's products.

The Company spent $38,303 and $367,812 in 1995 and 1994, respectively
on research and development. All costs in 1994 related to the development of
the Company's CD-ROM software distribution technology, which was abandoned in
1995. The custom installation and service nature of the Company's FindNow-SM-
system and other services was such that the Company did not incur direct
research and development expense for the year ended December 31, 1996.
However, the Company capitalized $250,248 during 1996 related to the
development of its FindNow-SM- system in accordance with FAS 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".
The Company may incur significant direct research and development expenses in
future years as it develops new Internet products and services or new
capabilities for the FindNow-SM- system not developed in conjunction with
specific customer projects.

SALES AND MARKETING
The Company's sales efforts for its Internet products rely primarily
on direct sales, promotional mailings and referrals. The Company utilizes a
staff of sales professionals headquartered in its Denver, Colorado offices
that sell to national and international accounts. The Company's primary sales
and marketing efforts in 1996 were directed at increasing the visibility of
the FindNow-SM- product through the use of direct sales efforts, trade shows
exhibits and promotional mailings. The Company plans to further expand its
sales and marketing efforts in 1997 through the addition of sales staff, use
of print advertising and the use of exclusive distribution agreements for
certain markets or customers with other parties, such as Internet service
providers and Web developers. In addition, the Company intends to leverage
its recent acquisition of an exclusive license of Canadian geographic data by
focusing significant sales efforts in Canada in 1997. Although InfoNow is
initially targeting several selected vertical markets for FindNow-SM-, the
Company believes that the market for FindNow-SM- includes every major
national or multinational company that has multiple locations and could
benefit from helping its consumers find them.

The Company markets and sells its business presentation services through
a direct sales force of professionals located in its Denver Colorado offices,
and its customers are concentrated among corporate clients in the Denver,
Colorado metropolitan area. In addition to its direct sales force, the
Company also utilizes print advertising, radio announcements, direct mailings
and client referrals. The Company recently combined the sales forces of its
traditional and multimedia services in order to present a more consistent
image to its corporate clients and to provide its customers with a single
point of contact for all business presentation needs. In conjunction with the
consolidation of the sales force, the Company recently initiated additional
marketing and selling efforts targeted toward securing specific, high
potential markets, such as investor relations and theater production support,
through the use of educational seminars, publication of industry "white
papers", and participation in industry trade groups.

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Customers
The Company serves primarily medium to large corporate organizations,
including many Fortune 500 companies. The following table is a representative
list of current and past clients of the Company:

FINDNOW-SM- SYSTEM BUSINESS PRESENTATIONS
- ----------------------------- --------------------------------------
Visa International AT&T
Compaq Computers Apple Computer
NationsBank Boston Market
BancOne Cyprus Minerals
United Healthcare Gates Rubber
American Airlines Great West Life
Kenwood USA RE/MAX International
Apple Computer Samsonite
System One/AMADEUS
TCI
US West
Visa/PLUS System

A significant portion of the Company's revenues in a given fiscal period
may be derived from a substantial order placed by a single customer. As a
result, the Company's revenues often have been concentrated among a relatively
small number of customers. The Company's largest customers, those consisting of
more than 10% of the total revenues, accounted for 16%, 16% and 39% of the
Company's total revenues in 1996, 1995 and 1994, respectively. The Company
anticipates that its revenues per customer will become less concentrated as more
contracts for its FindNow-SM- services are awarded.

The Company's backlog is composed of future monthly service fees for the
Company's FindNow-SM- services, which range in terms from one to two years and
are generally non-cancelable except for cause. As of February 28, 1997 the
Company had $684,000 of backlog which represented ten (10) contracts for
FindNow-SM- services, the revenues from which are expected to be realized over
the next two years. The remainder of the Company's products and services have
relatively short sales and delivery cycles which are generally less than 60 days
from the time the project is contracted to final delivery. Therefore, the
Company does not have significant backlog from its other products and services.

COMPETITION
The market for Internet services and products is highly competitive and is
characterized by rapidly changing technologies, evolving industry standards,
frequent new product introductions or enhancements and rapid changes in customer
requirements. As the growth of the Internet continues, the Company expects that
competition will continue to intensify within the markets it operates. The
markets for the Company's FindNow-SM- system are in an early stage of
development and no one competitor has established a dominant position in the
market. The Company believes that the diverse markets within the Internet will
allow more than one supplier of products and services similar to those of the
Company. However, it is possible that a single supplier may dominate one or more
market segments. The Company is aware of three other providers of products and
services that are in various stages of development which may compete with the
Company's own offerings. In addition, the Company believes that as the markets
continue to develop, it may face competition from new sources of competition,
including (i) Web developers, (ii) systems integrators and consultants, (iii)
network and Internet service providers, (iv) GIS tool providers, and (v) other
Internet product

<PAGE>

software developers. In some cases, these competitors are larger, more
established and have substantially greater financial, technical and marketing
resources than the Company. There can be no assurance that the Company will
be able to compete successfully against its current or future competitors or
that competition will not have a material adverse effect on the Company's
business, results of operations and financial condition.

The Company believes the principal competitive factors relative to the
FindNow-SM- system are the functionality and features of the system, ability to
adapt to specific customer needs, reliability, accuracy and "yield" of geocoding
and mapping of locations, response time, product reputation based on client
referrals, pricing relative to functionality offered, quality of customer
support and the ability to develop strong customer relationships.

Competition for the Company's business presentation services comes
primarily from companies located in and around the Denver, Colorado metropolitan
area and along the Front Range of Colorado. Many of these competitors are
smaller and offer a limited range of services. A few are larger and offer a
comparable range of services. These competitors include (i) copy centers, (ii)
multimedia production companies and Web developers, (iii) video production
companies, and (iv) public relations firms. Key competitive factors include
creative ability, breadth of services, reputation, and price.

INTELLECTUAL PROPERTY
The Company's FindNow-SM- software service, trade secrets, service marks
and similar intellectual property are proprietary to the Company. The Company
has received a federal trademark registration for the name "InfoNow" and has
filed a service mark application for the " FindNow-SM-" name. The Company
also relies on a combination of copyright and trademark law, non-disclosure
agreements and certain contractual provisions within its customer agreements
to establish and maintain proprietary rights in the FindNow-SM- service and
other intellectual property of the Company. However, these measures can
afford only limited protection for the Company's intellectual property as it
does not prevent competitors from independently developing equivalent or
superior technology. While the Company may have a limited ability to prevent
others from developing similar technologies, the Company believes that such
protection is less significant to the future success of its business than
other factors, including the knowledge, ability and experience of the
Company's personnel in delivering service and support to its customers, the
strength of its ongoing product development activities, customer loyalty to
the Company's products and the market position of the Company's products and
services.

The Company believes that its products, trademarks, service marks and other
proprietary rights do not infringe on the intellectual property rights of
others. However, there can be no assurances that third parties will not assert
infringement claims against the Company in the future, or that such assertions
will not lead to litigation and the requirement that the Company pay a license
fee or royalties to obtain intellectual property rights needed to sell its
products and services. Such royalties or licensing agreements, if required, may
not be available on terms acceptable to the Company or may not be available at
all which could result in delays or interruptions in the Company's services and
could have a material adverse impact on the Company's business, operating
results and financial condition.

The Company relies on certain software and geographic data that it
licenses from third parties, including software and data that is integrated
with internally developed software and used in the Company's FindNow-SM-
system. There can be no assurance that these third party software licenses
will continue to be available to the Company or will be available on terms
acceptable to the Company. In addition, the Company is somewhat dependent
upon the ability of the vendors of such third party software and data to
enhance their current products on a timely and cost effective basis in order
to meet changing customer needs. If the Company were not able to acquire
software and geographic data

<PAGE>

licenses from its current vendors, equivalent software and geographic data
would need to be developed or purchased and integrated into the Company's
systems. Although other alternative sources exist for the technology and data
embodied in these license agreements, the Company may not be able replace the
functionality of its current systems or may not be able to successfully
integrate new software and data into its current system. Delays and
interruptions could occur in the FindNow-SM- service which would result in a
material adverse impact on the Company's business, operating results and
financial condition.

EMPLOYEES

As of February 28, 1997, the Company had a total of 34 full time employees
including 7 in sales and marketing, 12 in software development and customer
support, 9 in business presentation production, and 6 in finance, management
and administration. Outside contractors are used by the Company on an as-needed
basis.

InfoNow considers its relations with its employees to be good and has not
experienced any interruption of operations as a result of labor disagreements.
None of the Company's employees is subject to a collective bargaining agreement

The Company believes that its ability to continue to attract and retain
qualified personnel will be a key factor in the success of the Company.
Competition for technical personnel with the skills required by the Company to
deliver its products and services is intense. It may be difficult for the
Company to obtain personnel with the required technical skills and could have a
material adverse effect on the operations of the Company if it is unable to
obtain additional qualified personnel needed for the planned growth of the
Company's business or to replace existing employees in the event that the
Company had to replace several key employees within a relatively short period of
time.

ITEM 2. PROPERTIES.

The Company leases approximately 7,800 square feet of office space at its
headquarters in Denver, Colorado for its product development, marketing,
operations and administration activities. This lease is with an unrelated party
and terminates on June 30, 1999. The Company believes that its facilities are
adequate for its current needs and that suitable additional space can be
acquired if needed.

The Company's principal Web server equipment and operations are housed and
maintained by Rocky Mountain Internet at its operations center in Denver,
Colorado. The Company's operations are dependent in part upon its ability to
protect its operating systems against physical damage from fire, floods, power
loss, telecommunications failures and similar events. Although these facilities
have safeguard protections such as a halon fire system, redundant
telecommunications access, off-site storage of backups and 24 hour systems
maintenance support, the Company does not presently have redundant multiple site
capability to maintain uninterrupted operation in the event of any such
occurrence. In addition, despite the implementation of network security measures
by the Company, its servers are vulnerable to computer viruses, and similar
disruptions from unauthorized tampering with the Company's computer systems. The
occurrence of any of these events could result in interruptions or delays in
service to the Company's customers which could have a material adverse effect on
the Company's business, results of operations and financial condition.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.

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

No matters were submitted to a vote of shareholders during the three month
period ended December 31, 1996.

<PAGE>

PART II
-------

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

The following table sets forth the high and low bid price of the Company's
Common Stock, reported for the fiscal periods indicated on the NASD Electronic
Bulletin Board system, the principal market upon which such securities were
traded under the symbol INOW. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. All per share amounts above have been restated
on a retroactive basis to reflect the 1 for 25 reverse split approved by the
shareholders of the Company in February 1995. As of February 28, 1997, there
were approximately 266 holders of record of the Common Stock. The Company is
currently applying for a listing on the Vancouver Stock Exchange.

HIGH LOW
------- --------
YEAR ENDING DECEMBER 31, 1995
-----------------------------
First Quarter . . . . . . . . . . . . $ .06 $ .02
Second Quarter. . . . . . . . . . . . 2.50 .06
Third Quarter . . . . . . . . . . . . 4.72 1.81
Fourth Quarter. . . . . . . . . . . . 5.00 3.38

YEAR ENDING DECEMBER 31, 1996
-----------------------------
First Quarter . . . . . . . . . . . . $ 3.75 $ 2.00
Second Quarter. . . . . . . . . . . . 3.00 1.375
Third Quarter . . . . . . . . . . . . 1.875 .75
Fourth Quarter. . . . . . . . . . . . 2.125 1.25

The Company has never declared or paid any cash dividends on the Common
Stock and does not currently anticipate paying any such dividends in the
foreseeable future. The Board of Directors of the Company intends to review
this policy from time to time after taking into account various factors such
as the Company's financial condition, results of operations, current and
anticipated cash needs and plans for expansion.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data are for, and as of the end of,
each of the years in the five-year period ended December 31, 1996 and have
been derived from the consolidated financial statements of the Company, which
for the year ended December 31, 1996 were audited by Hein + Associates LLP,
independent auditors, and were audited by Arthur Andersen LLP, independent
public accountants, for the years ended December 31, 1995, 1994, 1993 and
1992. The report of Hein + Associates LLP dated February 28, 1997, covering
the consolidated financial statements as of December 31, 1996, and the report
of Arthur Andersen LLP dated March 29, 1996 covering the consolidated
financial statements as of December 31, 1995 each contained an explanatory
paragraph concerning the Company's ability to continue as a going concern.
The Consolidated Financial Statements as of December 31, 1996 and 1995, and
for each of the years in the three-year period ended December 31, 1996, and
the reports thereon, are included in Item 8 in this Form 10-K. The

<PAGE>

selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis" and the Consolidated Financial
Statements and notes thereto included in Items 7 and 8 in this Form 10-K.

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1996 1995 1994 1993 1992
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales $ 2,206,528 $ 1,427,163 $ 826,089 $ 977,407 $ 407,464
Operating Expenses 5,263,418 3,090,667 3,475,404 6,098,240 4,729,184
Net Loss before extraordinary item (3,092,141) (1,781,821) (2,658,520) (5,136,205) (4,468,728)
Net loss (3,092,141) (1,647,698) (2,658,520) (5,136,205) (4,468,728)
Net loss per common share before
extraordinary item(1) (.86) (.99) (10.95) (28.57) (33.39)
Net loss per share(1) (.86) (.92) (10.95) (28.57) (33.39)
Weighted average common shares
outstanding 3,587,128 1,794,925 242,773 179,766 133,832

Year Ended December 31, 1996
--------------------------------------------------------------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992
------------ ----------- ----------- ------------ -----------
Working capital (deficit) $ 1,284,009 $ 155,815 $ (762,797) $ 1,027,309 (1,456)
Total assets 4,290,137 4,215,894 285,415 2,243,947 1,324,196
Total liabilities 1,118,099 792,172 963,828 594,081 761,837
Long-term debt 93,803 186,479 143,333 -- --
Stockholders' equity (deficit) 3,172,038 3,423,722 (678,413) 1,649,866 562,359
</TABLE>

(1) All per share amounts above have been restated on a retroactive basis to
reflect the 1 for 25 reverse stock split approved by the shareholders of the
Company in February 1995. See Note 1 to the Consolidated Financial Statements
regarding the calculation of share and net income (loss) per share data.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.

OVERVIEW

As discussed in the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1995, the Company's business changed substantially in
1995 due a change in strategy which resulted in the acquisitions of Navigist and
Cimarron on May 22, 1995 and August 23, 1995, respectively, and the formation of
a new Internet Products Group in late 1995. In addition, the Company
discontinued its former business which involved the distribution of software via
encrypted CD-ROM in 1995.

After its change in business strategy, the Company generates revenues by
providing Internet-based mapping and locator services through its Internet
Products Group and providing business presentation services through its Cimarron
subsidiary. In addition the Company also generated revenues during its 1996
fiscal year by providing network engineering and consulting services and

<PAGE>

Internet site services through its Navigist subsidiary. As a result of the sale
of Navigist on December 13, 1996, the Company will no longer offer those
services.

The sales of the Company's three operating groups; Internet Products Group,
Cimarron and Navigist, accounted for 16%, 49% and 35% respectively of the total
revenues of the Company for the year ended December 31, 1996. The Company
expects its revenue mix will shift significantly towards sales within its
Internet Products in future years as the market for the Company's FindNow-SM-
system and other Internet-based customer service products and services continues
to develop.

At the beginning of the third quarter, the Company deployed its first
Internet service, FindNow-SM-, a locator and mapping service designed to
seamlessly integrate into a client company's Website. FindNow-SM- allows client
companies to deliver location information about their sales and service
outlets via the World Wide Web. Since FindNow's implementation on the VISA
International Web site (www.visa.com) in July 1996, the Company has
contracted or implemented the FindNow-SM- system for several other clients
including Compaq Computers, NationsBank, American Airlines, Apple Computers
and United Healthcare. The Company is also in discussions with other
customers at the current time and expects that additional sales of the
FindNow-SM- system will occur as the system continues to gain market
acceptance. Although the Company believes its current strategy in internet
products could provide it with significant opportunities for future growth,
there can be no assurance that its strategy will be successful. The Company
did not generate significant revenue from its FindNow-SM-customer service
applications until the second quarter of 1996 and has yet to generate
operating income from such services.

The Company's Cimarron operations, which provide business presentation
services, showed a small decline in sales and profits on a proforma basis as
compared to prior years periods. This decline is in part due to a relatively
stable market for these services in the Denver metro area. In addition, Cimarron
provided resources and support during the formation of the Company's Internet
Products Group during 1996 which took management focus and resources away from
its primary operations.

The Company's Navigist operations, which provide network engineering and
consulting services, generated poor financial results in 1996 and experienced
declining sales when compared to the prior year periods resulting in negative
cash flows from it's operations throughout most of the 1996 fiscal year. The
management of the Company took several actions in order to reduce these losses,
including closing the Denver, Colorado office of Navigist during the quarter
ended June 30, 1996. Concurrent with the closure of the Denver office of
Navigist, the internet software development group that was previously part of
the Denver Navigist operations was consolidated into the Company's Internet
Products Group, leaving the San Jose office as the only active Navigist
operation. While these changes reduced operating losses, they did not result in
profits or positive cash flows for the remaining Navigist operations. As a
result of these developments, the Company sold the remaining Navigist operations
on December 13, 1996. The Company statements for the year ended December 31,
1996 contain a non-cash charge of $1,539,806 to reflect the write down of the
goodwill of Navigist to the realized sale value.

RESULTS OF OPERATIONS

The Company's results of operations for the year ended December 31, 1996
include the full year operating results of the Company's Internet Products
Group, and its subsidiaries Cimarron International, Inc. and Navigist, Inc.
(until the sale of Navigist, which occurred on December 13, 1996). The Company's
financial statements for the year ended December 31, 1995 include the results of
the operations for Cimarron and Navigist for seven and four months respectively.
The Company also realized $104,700 in revenues related to the sales of software
distributed via CD-ROM during the year ended December 31, 1995. The pro forma
results for the year ended December 31,

<PAGE>

1995 used in the discussion below assume that Navigist and Cimarron were
acquired on January 1, 1995.

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 WITH PRO FORMA YEAR ENDED
DECEMBER 31, 1995

The historical results as presented in the audited financial statements
include the results of Cimarron and Navigist from the dates of their acquisition
by the Company, which was May 23, 1995 and August 24, 1995, respectively. The
following proforma operating data has been prepared assuming Cimarron and
Navigist were combined with the Company effective January 1, 1995 and is used
for discussion of the year ended December 31, 1995.

Unaudited pro forma results for year ended December 31, 1995:

(all amounts in thousands)

<TABLE>
<CAPTION>
InfoNow Pro Forma
Parent Only Cimarron(1) Navigist(1) Pro Forma Consolidated
(Historical) (Historical) (Historical) Adjustments(2) Results
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Sales $ 104 $ 668 $ 655 $ 1,979 $ 3,406
Operating expenses 1,641 763 686 1,870 4,922
Other income (loss), net 13 2 - (13) 2
--------- ------ ------ -------- --------
Net Loss $ (1,524) $ (93) $ (31) $ 96 $ (1,552)
--------- ------ ------ -------- --------
--------- ------ ------ -------- --------
</TABLE>

(1) Represents the post-acquisition results of operations of Cimarron and
Navigist as reflected in the accompanying consolidated results of operations.
(2) Includes the results of operations for Cimarron from January 1, 1995, to
May 22, 1995, and the results of operations for Navigist from January 1, 1995 to
August 23, 1995. Also includes additional provision for interest expense of
$14,166 on acquisition debt of $350,000 and goodwill amortization of $124,667
for the periods prior to acquisition of Cimarron and Navigist, respectively.

Total sales decreased by $1,158,000, or 34%, for the year ended December
31, 1996 compared to the pro forma period in the prior year. This decrease
relates to a 30% and 52% decline in the revenues of Cimarron and Navigist,
respectively. These declines were due primarily to lower revenues in the
Interactive Media Group of Cimarron and the closure of the Navigist network
communications engineering and consulting practice in Denver. In addition, there
were no revenues for the year ended December 31, 1996 related to the Company's
prior CD-ROM business. The Company generated revenues of $104,700 from this
business for the year ended December 31, 1995. All activity in this business
ceased during 1995. These decreases were offset somewhat by increases in
revenues from the Internet Products Group which began service of its
FindNow-SM- system in July 1996 and generated approximately $345,000 in
revenues from the sales of its FindNow-SM- system during the year ended
December 31, 1996.

The net loss of the Company increased by $1,539,000, or 54%, from the
previous year. The results for the year ended December 31, 1996 include a non-
cash charge of $1,540,000 for the impairment of goodwill related to the
disposition of Navigist. Without this non-cash charge, the net loss of the
Company would have been substantially unchanged from the prior year. Cimarron
and Navigist experienced a decline of $99,900 and $486,000, respectively in
their operating results which were offset by a decrease in corporate expenses.

The Company's cost of sales declined $648,418 for the year ended December
31, 1996, which was approximately proportional with the decline in total sales
of the Company compared to the prior fiscal year. The cost of sales as a percent
of revenues decreased slightly, from 51% to 50%,

<PAGE>

when compared with the prior year's period. The margins of the Cimarron
operations improved slightly as compared to the prior year as a result of
fewer projects with "pass-through" costs, which result in lower profits than
other types of projects. These improvements were offset by a decrease in
margins in the Navigist operations which were primarily related to the
reclassification of production labor in the Navigist operations from selling,
general and administrative to the cost of sales. When adjusting for the
reclassification of these expenses, the gross margins of Navigist's
operations were substantially unchanged. The Company does not believe that
current margins on its Internet Products sales are necessarily indicative of
the margins that will be achieved in the future. These margins will be
influenced by the Company's ability to fully utilize fixed cost resources,
such as its servers, software development team and data acquisition costs.
The development of the market for the Company's FindNow-SM- service is a key
factor that will determine future operating margins. These markets have only
recently developed and are rapidly changing. The Company faces competition
from several other firms which may affect the future pricing or positioning
of the Company's products and could result in significant variations in the
near term profitability of the Company's products and services.

Selling, general and administrative expenses decreased $551,300, or 17%,
from the previous fiscal year. This decline in expenses resulted from management
cost reductions in several areas , elimination of certain operating expenses
related to the closure of the Navigist Denver operations, and reclassification
of production labor in the Navigist operations from selling, general and
administrative to cost of sales. However, this decline was less than the
decrease in sales of Cimarron and Navigist. As a result, selling, general and
administrative expenses of the Company increased as a percent of sales from 93%
in 1995 to 118% for the year ended December 31, 1996.

HISTORICAL FINANCIAL COMPARISON FOR THE YEAR ENDED DECEMBER 31, 1996, AND 1995

Total sales increased by 54%, or $779,300, for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increases in
revenues reflect the full year operations from the acquisition of the of the
operations of Cimarron and Navigist. The results of operations for the year
ended December 31, 1995 included only seven and four months of operations of
Cimarron and Navigist, respectively. In addition, $345,000 in revenues were
generated from the Internet Products Group, which introduced its FindNow-SM-
system in July 1996. These increases were offset by a decrease of $104,700 in
revenues from the Company's previous business of selling software distributed
via CD-ROM. The Company ceased all activity in this business during the quarter
ending September 30, 1995.

The net loss of the Company before an extraordinary gain from debt
restructuring increased by 74%, or approximately $1,310,300, for the year ended
December 31, 1996. The results for 1996 include a non-cash charge of $1,540,000
for the impairment of goodwill related to the disposition of Navigist. Without
this non-cash charge, the net loss of the Company before extraordinary charges
decreased by $229,500, or 13%, for the year ended December 31, 1996. The
decrease was due to reduction of corporate operating expenses of $1,043,600,
which included $376,400 of stock compensation expenses recognized in conjunction
with the issuance of stock options and warrants in 1995. This reduction of
corporate expenses was partially offset by losses incurred in the Company's
Navigist operations during 1996 which amounted to $398,600, including a
provision of $108,400 for goodwill amortization prior to the impairment
writedown of Navigist goodwill. In addition, the reduction in corporate expenses
was also offset by the increase in selling and other operating expenses
amounting to approximately $400,000 related to the Company's Internet Products
Group.

The cost of sales rose $420,000 in 1996 compared to the prior year, and as
a percent of revenues in 1996 compared to 1995 increased slightly from 48% of
sales to 50% of sales. This increase is primarily related to the
reclassification of production labor in the Navigist operations from selling,
general and administrative to the cost of sales. When adjusting for the
reclassification of these expenses, the gross margins of the business of
Cimarron have remained substantially

<PAGE>

unchanged over the prior year. The margins of the Cimarron operations
improved slightly as compared to the prior year as a result of fewer projects
with "pass-through" costs, which result in lower profits than other types of
projects. These improvements were offset by a decrease in margins in the
Navigist operations which were primarily related to the reclassification of
production labor in the Navigist operations from selling, general and
administrative to the cost of sales. When adjusting for the reclassification
of these expenses, the gross margins of Navigist's operations were
substantially unchanged. The Company does not believe that current margins
on its Internet Products sales are necessarily indicative of the margins that
will be achieved in the future. These margins will be influenced by the
Company's ability to fully utilize fixed cost resources, such as its servers,
software development team and data acquisition costs. The development of the
market for the Company's FindNow-SM- service is a key factor that will
determine future operating margins. These markets have only recently
developed and are rapidly changing. The Company faces competition from
several other firms which may affect the future pricing or positioning of the
Company's products and could result in significant variations in the near
term profitability of the Company's products and services.

Selling, general and administrative costs in 1996 increased $251,000, or
11%, as compared to the prior year. However, total selling, general and
administrative expenses decreased from 166% of sales in 1995 to 119% of sales in
1996. The decline of selling, general and administrative expenses as a percent
of sales is the result of significant reduction in corporate operating expenses,
which were offset by an increase in Cimarron and Navigist selling, general and
administrative expenses, which rose primarily because the results for the year
ended December 31, 1996 reflect the operations Cimarron and Navigist for a full
year. The results for the year ended December 31, 1995 reflect only seven and
four months of operations for Cimarron and Navigist, respectively.

PRO FORMA AND HISTORICAL FINANCIAL INFORMATION FOR THE YEAR ENDED DECEMBER 31,
1995 AND 1994

The historical results as presented in the audited financial statements
include the results of Cimarron and Navigist from the dates of their acquisition
by the Company, which was May 23, 1995 and August 24, 1995, respectively. The
following proforma operating data has been prepared assuming Cimarron and
Navigist were combined with the Company effective January 1, 1994 and March 8,
1994 (the inception date for Navigist), respectively, and is used for discussion
of the year ended December 31, 1994.

Unaudited pro forma results for year ended December 31, 1994:

(all amounts in thousands)

<TABLE>
<CAPTION>
InfoNow Pro Forma
Parent Only Cimarron(1) Navigist(1) Pro Forma Adjustments(3)
(Historical) (Historical) (Historical) Consolidated Results
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Sales ........................ $ 826 $ 1,495 $ 568 $ - $ 2,889
Operating expenses ........... 3,475 1,428 600 135 5,638
Other income (loss), net ..... (9) (4) - (31) (44)
--------- -------- ------- ------ --------
Net Loss ..................... $ (2,658) $ 63 $ (32) $ (166) $ (2,793)
--------- -------- ------- ------ --------
--------- -------- ------- ------ --------
</TABLE>

(1) Represents results of operations for Cimarron for the year ended
December 31, 1994.
(2) Results are from the inception date of Navigist (March 8, 1994) through
December 31, 1994.
(3) Represents provision for amortization of goodwill of $212,518, elimination
of deferred compensation obligations and other adjustments of $77,207, and
interest on acquisition notes of $31,375.

<PAGE>

Pro forma sales in 1995 increased by 18% over the previous year. The
increase was comprised of a 5% and 212% increase in the sales of Cimarron
and Navigist, respectively, and a 87% reduction in sales of software
distributed via CD-ROM. The large increase in pro forma sales for Navigist
was due, in part, to the fact that Navigist did not begin operation until
March 1994 and sales activity was not significant until June 1994.
Annualizing 1994 results for Navigist would have resulted in an increase of
approximately 56% for Navigist's revenue in 1995. This significant growth in
the business reflects the general growth in demand for network engineering,
Internet site, and Intranet application development services.

The Company's pro forma net loss decreased by approximately 44%, or
$1,200,000 primarily due to a combination of increased sales, better gross
margins and a decrease in total operating expenses. The improvement in gross
margins related to the change in mix of the Company's business away from the
distribution of software, which decreased from 29% of sales in 1994 to 3% of
sales in 1995, towards the sales of multimedia presentations and network
engineering services which have higher profit margins. The combination of
increased sales and increased gross margins resulted in an increase of
approximately $109,000 in gross margins from 1994 to 1995.

Decreases in the Company's pro forma operating expenses were partially
due to the Company's decision to abandon further development of its encrypted
CD-ROM software distribution system and to stop all research and development
activity on this technology. This action resulted in a reduction of $368,000
in research and development costs included in operating expenses in 1995
versus 1994. The remaining decreases in pro forma operating costs related to
a decrease of approximately $820,000 in general and administrative costs from
InfoNow due to the demobilization of the CD-ROM software distribution
business. This decrease was partially offset by an increase of approximately
$564,000 in selling, general and administrative expenses of Navigist
corresponding to the growth in the revenues of Navigist in 1995 as well as
reflecting a full year of operation for Navigist. Other income and expenses
did not change significantly, increasing by $46,000. However, total other
income and expenses for 1995 included a extraordinary gain on the
restructuring of debt of $134,000 and a loss on the sale of assets of
$104,000 relating to the disposition of assets in conjunction with the change
in the Company's business strategy. The net result of these two transactions
accounted for approximately $30,000 of the net increase in other income.

LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $1,284,000, including cash and
equivalents of $2,049,640, at December 31, 1996, compared to working capital
of $155,815 at December 31, 1995. This increase is related entirely to the
successful completion a private placement on December 6, 1996 which raised
gross proceeds of approximately $2,800,000.

During 1995, the Company substantially reduced its short term debt by
completing a refinancing which retired approximately $458,000 of master
promissory notes and $189,700 in other notes payable in exchange for common
stock, warrants, cash and notes payable which resulted in an extraordinary gain
of $134,123 related to debt restructuring. In addition, the Company also
completed a private placement in May 1995 which provided net proceeds of
approximately $1,251,000 and, in December 1995, was able to secure a bank term
loan secured by the fixed assets of the Company in the amount of $150,000.

During the quarter ended June 30, 1996, the Company received
approximately $208,000 in proceeds from the exercise of warrants to purchase
common stock of the Company. In addition, in the quarter ended September 30,
1996, the Company completed a small private placement which provided $45,000
in additional cash and reduced current liabilities of the Company by $143,000.

<PAGE>

The Company has a note payable to an officer of the Company in the amount
of $100,000, bearing interest at prime rate plus 2.75%. This note is fully due
and payable March 1997. The note is convertible, at the option of the holder
into 33,333 shares of the Company's common stock

As of December 31, 1996, the Company had a short term obligation to
Environmental Systems Research Institute, Inc. ("ESRI") in the amount of
$150,000 due in March 1997, related to computer hardware and software licenses
obtained from ESRI in connection with the initial development of the Company's
FindNow-SM- system.

Other short term obligations of the Company include deferred
compensation payable to several key employees of the Company as a result of
their agreement to defer a portion of their salaries in 1996. This amount is
being repaid on a prorata basis in 1997.

Although the Company has made progress in commercializing its FindNow-SM-
service with the implementation or contracting of ten clients as of February 28,
1997, the Company has continued to sustain operating losses. The Company used
cash of $364,858, $885,699 and $1,913,809 in its operations during the years
ended December 31, 1996, 1995 and 1994, respectively. While the Company's use of
cash from operations has been declining, its use of cash for investing
activities such as fixed assets has increased significantly, from $447,000 in
1995 to $1,038,000 in 1996, and included the purchase of approximately $513,000
in hardware and software to establish the FindNow-SM- service network operations
center ("NOC") and $250,000 of expenses capitalized in connection with
development of the FindNow-SM- system.

The Company is currently dependent upon and intends to use a significant
portion of the proceeds from the December 6, 1996 private placement to fund
its on-going operations as well as to execute its business plan with respect
to the development of FindNow-SM- and related Internet products. These plans
include the hiring of additional sales and technical personnel, the
acquisition of additional geographic and other data and the purchase
technologies that will be integrated into the FindNow-SM- system. The Company
also plans to continue to develop and enhance the FindNow-SM- service and may
develop other related products. Although in the past these efforts have been
largely funded under customer contracts, these projects may not be funded by
specific client projects in the future depending upon market conditions.

The Company currently projects that available cash balances together
with projected cash flow from operations will be sufficient to fund the
Company's operations through 1997. However, in the event that the market
acceptance of the Company's products and services is not as robust as
anticipated, competition is greater than anticipated, development of new
products or enhancements to existing products is costlier or slower than
expected, or that the Company's projections otherwise prove to be inaccurate,
the Company may need to seek additional financing. In the event that such
financing were needed, failure to obtain such financing would have a material
adverse effect on the Company's business, including a possible reduction or
cessation of operations. Accordingly, there is an explanatory paragraph in
the auditors report describing uncertainties concerning the Company's ability
to continue as a going concern included in the Company's audited financial
statements dated December 31, 1996.

In August 1994, the Company's securities were delisted from the Nasdaq
SmallCap Market because the Company's securities did not meet the minimum
assets and equity maintenance listing requirements of $2,000,000 and
$1,000,000, respectively. In order for the Company's securities to be
relisted, it must meet the initial listing requirements which require, among
other things, the Company to have total assets and equity of $4,000,000 and
$2,000,000, respectively, and to have a $3.00 minimum bid price. The Company
is currently in the process of applying for a listing on the Vancouver Stock
Exchange. However, there can be no assurance that the Company will be granted
a listing or that a listing would improve liquidity of the Company's common
shares.

<PAGE>

Inflation during the three years ended December 31, 1996 has had no
significant effect on the Company's liquidity, capital costs or results of
operations.

FORWARD LOOKING STATEMENTS AND RELATED BUSINESS RISKS AND ASSUMPTIONS.

The Company's actual results may vary materially from the forward
looking statements made above. The Company intends that such statements be
subject to the safe harbor provision of the Securities Act. The Company's
forward-looking statements include the plans and objectives of management for
future operations and relate to: (i) the ability of the Company to generate
future sales of the Company's FindNow-SM- service, (ii) market acceptance of
the FindNow-SM- service, (iii) success of the Company in forecasting and
meeting the demand of the customers of the FindNow-SM- service, including
maintaining technical performance of the system as new customers are added to
the system, (iv) ability to obtain financing to purchase equipment needed to
provide service to additional FindNow-SM- customers, (v) ability to maintain
pricing and adequate profit margins on its products and services,
(vi) ability to retain qualified technical personnel, (vii) ability of the
company to maintain current pricing and sales volume in its operations of
Cimarron, (viii) ability to control development and operating costs of the
FindNow-SM- service within current budgeted levels, and (ix) the ability of
the Company to raise additional capital, if needed.

The foregoing assumptions are based on judgments with respect to, among
other things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the Company's ability to control.
There are also other risks which could cause the Company's revenues or costs
to vary markedly from the forward-looking statements made above, such as the
risk that the market demand for the FindNow-SM- system may not develop as
expected, or if it does develop, that the Company will be able to generate
sufficient sales to fund its operations. Accordingly, although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any such assumption could prove to be inaccurate and therefore
there can be no assurance that the results contemplated in forward-looking
statements will be realized and any statements should not be regarded as a
representation by the Company or any other person that the Company's
objectives or plans will be achieved.

ITEM 8. FINANCIAL STATEMENTS.

See pages F-1 through F- 27 of this Form 10-K and Item 14.

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

On January 27, 1997, the Company engaged the accounting firm of Hein +
Associates LLP ("Hein") as its principal independent accountants to audit the
Company's financial statements for its fiscal year ending December 31, 1996.
The appointment of new independent accountants was approved by the Audit
Committee and Board of Directors of the Company. The Company dismissed its
former independent public accountants, Arthur Andersen LLP, effective with
the appointment of Hein.

Prior to the appointment of Hein, management of the Company has not
consulted with Hein except that, at the Company's request, Hein read the
Company's reports filed on Form 10-Q for the quarterly periods ending June
30, 1996 and September 30, 1996.

During the two most recent fiscal years ended December 31, 1995 and
1994, and the interim period subsequent to December 31, 1995, there were no
disagreements with the former accountants on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope

<PAGE>

or procedure which would have caused the former accountants to make reference
in their report to such disagreements if not resolved to their satisfaction.

Arthur Andersen's reports on the financial statements for the past two
years have contained no adverse opinion or disclaimer of opinion and were not
modified as to audit scope or accounting principles except for an explanatory
paragraph regarding the Registrant's ability to continue as a going concern
contained in the financial statements for the years ended December 31, 1995
and 1994. Arthur Andersen LLP furnished the Company with a letter addressed
to the Commission stating that it agreed with the above statements.

<PAGE>

PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Incorporated by reference from the portion of the proxy statement
entitled "Proposal 1-Election of Directors".

ITEM 11. EXECUTIVE COMPENSATION.

Incorporated by reference from the portion of the proxy statement
entitled "Executive Compensation".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated by reference from the portion of the proxy statement
entitled "Security Ownership of Certain Beneficial Owners and Management".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated by reference from the portion of the proxy statement
entitled "Certain Transactions".

<PAGE>

PART IV
-------

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

(a) and (d) Financial Statements and Schedules

The financial statements and schedules of the Registrant
listed on the accompanying Index to Financial Statements
are filed as part of this Annual Report.

(b) Reports on Form 8-K filed during the quarter ending
December 31, 1996.

Form 8-K and 8-K/A dated December 13, 1996, relating to the
sale of Infomergerco, Inc. dba Navigist, Inc.

Form 8-K dated December 6, 1996, related to completion of a
private placement financing.

Included as exhibits are the items listed on the Exhibit
Index. The Registrant will furnish a copy of any of the
exhibits listed below upon payment of $5.00 per exhibit to
cover the costs to the Registrant of furnishing such
exhibit.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, on

INFONOW CORPORATION

By: /s/ MICHAEL W. JOHNSON
---------------------------------
Michael W. Johnson, President

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ MICHAEL W. JOHNSON Chief Executive Officer, March 24, 1997
- ----------------------- President and Director
Michael W. Johnson (Principal Executive Officer)

/s/ KEVIN D. ANDREW Chief Financial Officer, March 24, 1997
- ----------------------- Treasurer and Secretary
Kevin D. Andrew (Principal Financial and
Accounting Officer)

/s/ NAHUM RAND
- ----------------------- Chairman and Director March 24, 1997
Nahum Rand

/s/ DONALD E. COHEN
- ----------------------- Vice Chairman and Director March 24, 1997
Donald E. Cohen

/s/ GENE R. COPELAND
- ----------------------- Director March 24, 1997
Gene R. Copeland

<PAGE>

INFONOW CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors, Hein + Associates, LLP . . . . . . . . . . F-2

Report of Independent Public Accountants, Arthur Andersen LLP. . . . . . . F-3

Consolidated Balance Sheets -- December 31, 1996 and 1995. . . . . . . . . F-4

Consolidated Statements of Operations for the years ended
December 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . F-6

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . F-8

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-9

F-1
<PAGE>

INDEPENDENT AUDITORS REPORT

Board of Directors
InfoNow Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of INFONOW
CORPORATION and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InfoNow Corporation
and its subsidiaries, as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As discussed in Note 11 to the financial statements, the Company has
experienced recurring losses from operations which raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also discussed in Note 11. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As, discussed in Note 1, in 1996 the Company adopted the provisions of Statement
of Financial Standards No. 123 "Accounting for Stock based Compensation".

HEIN + ASSOCIATES LLP

Denver, Colorado,
February 28, 1997

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To InfoNow Corporation:

We have audited the accompanying consolidated balance sheets of INFONOW
CORPORATION (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1995. 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.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InfoNow Corporation
and its subsidiaries, as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
accompanying financial statements, the Company has experienced recurring losses
from operations and requires cash to fund continuing operations that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 11.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

In 1995, the Company adopted the provisions of Statement of Financial Standards
No. 121 "Accounting for Impairment of Long-Lived Assets" (Note 1).

ARTHUR ANDERSEN LLP

Denver, Colorado,
March 29, 1996.

F-3
<PAGE>

INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,049,640 $ 231,781
Accounts receivable 161,596 494,918
Prepaids and other current assets 99,069 34,809
------------ ------------
Total current assets 2,310,305 761,508

Property and equipment, net 692,972 336,050
Capitalized software development costs,
net of accumulated amortization of $140,871 in 1996 362,759 -
Goodwill, net of accumulated amortization
of $107,740 and $87,820 in 1996 and 1995, respectively 912,956 3,099,955
Other assets and deferred charges 11,145 18,381
------------ ------------
$ 4,290,137 $ 4,215,894
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 412,026 $ 435,591
Convertible notes payable to related party 100,000 -
Unearned revenue 228,956 123,386
Deferred compensation 75,707 -
Capital lease obligation - current portion 4,079 3,514
Notes payable - current portion 205,528 43,202
------------ ------------
Total current liabilities 1,026,296 605,693

NOTES PAYABLE, net of current portion 81,887 172,440
CAPITAL LEASE OBLIGATION, net of current portion 9,916 14,039
COMMITMENTS AND CONTINGENCIES (Note 10 and 11)

STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 1,962,335 shares - -
authorized, none issued or outstanding

Common stock, $.001 par value; 15,000,000 shares
authorized, 5,515,164 and 3,183,567 issued and
outstanding at December 31, 1996 and 1995,
respectively 5,515 3,184

Additional paid-in capital 22,316,244 19,478,118
Accumulated deficit (19,149,721) (16,057,580)
------------ ------------
Total stockholders' equity 3,172,038 3,423,722
------------ ------------

$ 4,290,137 $ 4,215,894
------------ ------------
------------ ------------
</TABLE>

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

F-4
<PAGE>

INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SALES $ 2,206,528 $ 1,427,163 $ 826,089

OPERATING EXPENSES:
Cost of sales and direct project related costs 1,104,288 684,027 720,094
Selling, general and administrative 2,619,324 2,368,337 2,387,498
Impairment of long-lived asset 1,539,806 - -
Research and development - 38,303 367,812
----------- ----------- -----------
Total operating expenses 5,263,418 3,090,667 3,475,404
----------- ----------- -----------

Loss from operations (3,056,890) (1,663,504) (2,649,315)

OTHER INCOME (EXPENSE):
Loss on disposition of assets (14,607) (104,083) -
Interest income 13,460 14,648 6,239
Interest expense (34,104) (28,882) (15,444)
----------- ----------- -----------

Loss before extraordinary gain
from debt restructuring (3,092,141) (1,781,821) (2,658,520)

Extraordinary gain from debt restructuring - 134,123 -
----------- ----------- -----------

Net Loss $(3,092,141) $(1,647,698) $(2,658,520)
----------- ----------- -----------
----------- ----------- -----------

NET LOSS PER COMMON SHARE

Before extraordinary item $(0.86) $(0.99) $(10.95)
Extraordinary debt restructuring gain - $0.07 -
----------- ----------- -----------
NET LOSS PER COMMON SHARE $(0.86) $(0.92) $(10.95)
----------- ----------- -----------
----------- ----------- -----------

WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,587,128 1,794,925 242,773
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

F-5
<PAGE>

INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 329,200 $ 330 $13,404,366 $ (3,467) $(11,751,362)

Common stock issued in January 1994
issued at $65.63 per share, net of
offering costs of $36,127 5,352 5 315,120 - -

Exercise of employee stock options 311 - 11,648 - -

Write off of stock subscriptions receivable - - - 3,467 -

Net loss - - - - (2,658,520)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1994 334,863 335 13,731,134 - (14,409,882)
------------ ------------ ------------ ------------ ------------

Common stock issued at $1.30 per share
for cash in May 1995 private placement,
net of offering costs of $100,843 1,039,846 1,040 1,249,917 - -

Common stock valued at $1.30 per share
issued in conjunction with the acquisition
of Cimarron in May 1995 (Note 2) 533,334 533 692,801 - -

Warrants issued in conjunction with
acquisition of Cimarron - - 195,058 - -

Issuance of common stock valued at
approximately $1.25 per share to
extinguish accounts payable and other
liabilities 30,809 31 38,460 - -

Issuance of warrants in conjunction
with conversion of Master Promissory
Notes (Note 5) - - 129,787 - -

Issuance of common stock valued at $1.30
and $2.60 per share in connection with
the conversion of Master Promissory
Notes (Note 5) 299,028 299 448,399 - -

Common stock valued at $4.25 per share
issued in conjunction with the acquisition
of Navigist, Inc. in August 1995 (Note 2) 498,621 499 2,118,671 - -

Warrants issued in conjunction with the
acquisition of Navigist - - 79,966 - -

Issuance of common stock pursuant to the
exercise of stock options 36,847 37 26,598 - -

Issuance of common stock valued at $1.30
per share in exchange for services 48,077 48 62,452 - -
</TABLE>

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

F-6
<PAGE>

INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Compensation expense related to issuance
of options and warrants - - 313,894 - -

Adjustment in number of shares to effect
1 for 25 reverse split (759) (1) - - -

Issuance of common stock in conjunction
with conversion of convertible bridge
note at $0.80 per share 64,401 64 51,456 - -

Common stock issued at $0.59 per share
in August 1995 private placement (Note 8) 67,731 68 39,756 - -

Issuance of common stock in conjunction
with conversion of Cimarron acquisition
note at $1.30 per share 230,769 231 299,769 - -

Net loss - - - - (1,647,698)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1995 3,183,567 3,184 19,478,118 - (16,057,580)
------------ ------------ ------------ ------------ ------------

Issuance of common stock in conjunction
with the exercise of employee stock options 15,708 15 20,404 - -

Issuance of common stock in conjunction
with the exercise of warrants 469,554 470 187,352 - -

Return of common stock to treasury from
escrow, subsequently retired (92,000) (92) 92 - -

Non-cash charge related to the issuance
of warrants to purchase 115,000 shares
of common stock to ESRI - - 253,382

Common stock issued to three officers
of the Company valued at $1.12 per share
in exchange for $95,000 cash, and $93,000
in deferred salaries and expenses 167,112 167 187,834 - -

Common stock valued at $1.40 per share
for cash in December 1996 private placement
net of cash offering costs of $57,868.
Includes 50,000 shares issued to placement
agent as compensation for services
rendered in placement 2,045,273 2,045 2,712,223 -

Shares retired in conjunction with sale
of Navigist, Inc. (274,050) (274) (523,161) -

Net loss - - - - (3,092,141)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1996 5,515,164 $ 5,515 $ 22,316,244 $ - $(19,149,721)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>

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

F-7
<PAGE>

INFONOW CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(3,092,141) $(1,647,698) $(2,658,520)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 507,713 216,604 313,245
Impairment of long-lived asset 1,539,806 - -
Loss on disposal of property and equipment 14,607 104,083 24,073
Gain on debt extinguishment - (134,123) -
Compensation expense recognized in connection
with stock option and warrant issuances - 376,394 -
Other (7,210) - 21,007
Changes in operating assets and liabilities:
Accounts receivable 204,193 36,476 225,146
Other current assets (64,260) 45,749 5,786
Other assets and deferred charges (7,820) 11,769 91,559
Accounts payable and other liabilities 364,822 11,686 74,715
Unearned revenues 175,432 93,246 -
Related party payables, net - 115 (10,820)
----------- ----------- -----------
Net cash used in operating activities (364,858) (885,699) (1,913,809)

INVESTING ACTIVITIES:
Net change in restricted cash balances - 15,000 150,000
Purchase of property and equipment (692,728) (219,686) (39,505)
Acquisition of Cimarron and Navigist,
net of cash received - (261,190) -
Disposition of Navigist (97,000) - -
Additions to capitalized software (250,248) - -
Proceeds from sale of property and equipment 1,818 18,244 26,321
----------- ----------- -----------
Net cash flows from (used in)
investing activities (1,038,158) (447,632) 136,816

FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 2,809,269 1,290,780 326,773
Proceeds from exercise of options and warrants 208,241 26,635 -
Proceeds from notes payable 417,080 415,000 285,000
Proceeds from related party note 100,000 - -
Payment of capital lease obligations (3,697) (3,300) -
Principal payments on debt obligations (310,018) (181,979) -
----------- ----------- -----------
Net cash from financing activities 3,220,875 1,547,136 611,773

Net increase (decrease) in cash and
cash equivalents 1,817,859 213,805 (1,165,220)
----------- ----------- -----------

CASH AND EQUIVALENTS, beginning of period 231,781 17,976 1,183,196
----------- ----------- -----------

CASH AND EQUIVALENTS, at end of period $ 2,049,640 $ 231,781 $ 17,976
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

F-8

<PAGE>

INFONOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. ORGANIZATION AND BUSINESS ACTIVITY

The Company was incorporated under the laws of the State of Delaware on
October 29, 1990, and was focused on the sale of software through the use of
encrypted CD-ROM technology. Sales of software using these methods were never
sufficient to cover the Company's cost of operations and in 1995, the Company
embarked upon an acquisition strategy focused on companies that would allow the
Company to shift its direction away from its previous business and focus on
opportunities related to the Internet. In September 1995, the Company ceased
selling software using encrypted CD-ROM technology. The Company made two
business acquisitions as a result of its new business strategy.

In May 1995, the Company acquired Cimarron International, Inc. ("Cimarron")
for stock, notes and cash. Cimarron is an interactive multimedia company serving
the Rocky Mountain region. The transaction was structured as a merger, with
Cimarron merging into a subsidiary of the Company; Cimarron is now a wholly-
owned subsidiary of the Company.

On August 23, 1995, the Company acquired Navigist, Inc. ("Navigist") for
stock and notes. Navigist is a provider of consulting, engineering and support
services for computer networks as well as a provider of Internet site services
and Intranet applications development. Navigist has offices in Englewood,
Colorado and San Jose, California. The transaction was structured as a merger,
with Navigist merging into a subsidiary of the Company; Navigist became a
wholly owned subsidiary of the Company.

Utilizing resources from Cimarron and Navigist, the Company formed a third
business group, Internet Products, to focus on executing the Company's strategy
to develop Internet-based customer service software, products and services. The
Internet Products Group introduced FindNow-SM- in July 1996. FindNow-SM- is an
Internet-based locator and mapping service designed to allow a national chain or
national consumer brand to provide customers with their nearest sales and
service locations and other location-based information via the World Wide Web.

The Company sold 100% of the common stock of Navigist, Inc., on December 13,
1996, to two of the former owners of Navigist. The consolidated financial
statements of the Company for the year ended December 31, 1996, include a
provision of $1,539,806 for the impairment of goodwill relating to the
acquisition of Navigist.

b. BASIS OF PRESENTATION

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

F-9
<PAGE>

c. REVENUE RECOGNITION

The Company derives revenue from several sources. Multimedia production
revenue is generated from work performed on custom projects to develop software
or corporate presentations. Network consulting fees are generated from the
providing of network design advice and implementation. Internet service revenue
is generated by providing implementation and hosting services for its
FindNow-SM- service. Design and Imaging service revenue is received from
creating electronic images or by converting customer-supplied data files to
slides, color prints and color overhead transparencies.

Revenue is recognized upon completion, delivery and acceptance by the
customer for design and imaging services as such services are of short
duration from order to completion. For Internet services, large custom
multimedia projects and network consulting projects, the Company recognizes
revenue using the percentage-of-completion method. Revenues are recognized
based on labor costs incurred and total expected labor costs. For certain
custom multimedia and network consulting projects, the Company invoices for
work yet to be performed. These prebillings, together with cash received
prior to performing services, are reflected as unearned revenue in the
accompanying balance sheets.

d. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Replacements, renewals and
improvements are capitalized and costs for repairs and maintenance are expensed
as incurred. Depreciation is computed using the straight-line method over
estimated useful lives of three to five years.

e. CONSOLIDATION

The consolidated financial statements include all the accounts of the
Company and its wholly-owned subsidiaries, Cimarron International, Inc., and
Navigist, Inc., since the dates of their respective acquisition in 1995. Results
of Navigist, Inc., are included in the consolidated results of the Company
through December 13, 1996, the date Navigist was sold. All significant
intercompany accounts and transactions have been eliminated in consolidation.

f. SOFTWARE DEVELOPMENT COSTS

In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed" ("SFAS 86"), software development costs, which consist primarily of
salaries and related costs, purchased software, contract labor costs and
other direct expenses, are expensed as research and development costs prior
to the establishment of technological feasibility. Technological feasibility
for the Company's software products is generally based upon achievement of a
detailed program design free of high risk development issues. After
technological feasibility is established for a product, all software
development costs are capitalized until the product is ready for delivery.
Subsequent software maintenance costs are expensed as operating costs as
incurred. Amortization of capitalized computer software cost is provided on a
product-by-product basis at the greater of the amount computed using the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or the straight line method over the
remaining useful economic life of the product (generally two years).
Approximately $503,630 in software development costs were capitalized in
conjunction with the development of the Company's FindNow-SM- system for the
year ended December 31, 1996, including a $253,382 non-cash provision related
to the fair value of options issued to ESRI (Note 8). The Company also
amortized $140,871 for the year ended December 31, 1996, related to this
asset. No software development costs were capitalized or amortized during the
years ended December 31, 1995 and 1994.

g. RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred and include
salaries, consulting fees and other direct costs. The Company expensed $38,303
and $367,812 in 1995 and 1994, respectively,

F-10
<PAGE>

related to research and development costs. All costs in 1994 related to the
development of the Company's CD-ROM software distribution technology were
expensed. The Company's current research and development efforts are influenced
significantly by customer requirements. New features are customized initially
for delivery to a single customer and then incorporated into future versions of
its service. As a result, all development costs were recorded as cost of sales
and the Company did not record any research and development expense in 1996.

h. GOODWILL

The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets" ("SFAS 121") for its fiscal
year ended December 31, 1995, for the purpose of evaluating its long lived
assets which consist principally of goodwill. The Company evaluates its goodwill
at each financial reporting date to determine if events or circumstances
indicate that an impairment has occurred. In accordance with SFAS 121,
management has estimated expected future undiscounted cash flows from identified
assets and compared those values to the related carrying value of those assets
to determine if an asset impairment has occurred. During 1996, as a result of
its review of long-lived assets as required by SFAS 121, the Company took a non-
cash charge against operating results in the amount of $1,539,806 as a write
down of all goodwill related to its acquisition of Navigist, Inc. This write
down will reduce future amortization expense by approximately $144,000 on an
annual basis. The Company sold this subsidiary on December 13, 1996.

i. CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturity dates of three months or less
to be cash equivalents.

j. NET LOSS PER COMMON SHARE

Net loss per common share is computed based on the weighted average number
of common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of stock options, convertible
securities and warrants. In loss periods, dilutive common equivalent shares are
excluded as their effect would be anti-dilutive. All share and per share data,
except shares authorized, have been retroactively adjusted to reflect the 1 for
25 reverse split approved by the shareholders of the Company in February 1995.

k. STOCK COMPENSATION EXPENSE.

The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123") for its fiscal year
ended December 31, 1996. SFAS 123 encourages, but does not require, all
companies to adopt a fair value based method to measure compensation cost of
issued stock options and similar instruments issued to employees using a Black-
Scholes model or other comparable method. The Company has elected an option
under SFAS 123 that allows a Company to continue to recognize compensation cost
in accordance with the guidance in APB No. 25 and disclose the proforma results
of operations had SFAS 123 been applied to the financial statements.
Transactions in which the Company issues stock options or other equity
instruments to acquire goods or services from nonemployees must be accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.

Prior to its year ended December 31, 1996, the Company recognized
compensation expense for financial accounting purposes in accordance with APB
Statement No. 25, "Accounting for Stock Issued to Employees" which requires that
compensation expense must be recorded for options issued under certain
conditions. The compensation charge is determined based on the excess of the
estimated fair market value of the underlying common stock at the date of grant,
over the exercise price of the options. Compensation expense is amortized on a
straight-line basis over the vesting

F-11
<PAGE>

period of the related options. Compensation expense related to the granting or
repricing of options and warrants at exercise prices below fair market value
amounted to $313,894, in the year ended December 31, 1995.

l. RECLASSIFICATIONS

Certain amounts in the prior year financial statements have been
reclassified to conform with the current year classifications. Such
reclassifications had no effect on net loss.

Note 2. ACQUISITIONS

a. CIMARRON INTERNATIONAL, INC.

On May 22, 1995, the Company acquired all outstanding common shares of
Cimarron through the issuance of 533,334 shares of the Company's common stock
valued at $1.30 per share, a $300,000 convertible note (which was subsequently
sold to the president of the Company and converted into 230,769 shares of common
stock (Note 8), and a $160,000 cash payment (including a payment of $10,000 to
the president of Cimarron). In addition, the Company issued warrants to
purchase 107,844 shares of common stock at an exercise price of $.40 per share
to the Company's financial advisors as compensation for its services in
connection with the acquisition. As the fair value of the Company's common stock
was $1.30 and $3.68 per share, respectively on the date of these grants, the
Company recorded additional consideration of $195,058 related to these warrants.

The purchase price related to the Cimarron merger is as follows:

Issuance of common stock . . . . . . . . . . . . . . . . . . . . $ 693,334
Issuance of warrants . . . . . . . . . . . . . . . . . . . . . . 195,058
Convertible note payable . . . . . . . . . . . . . . . . . . . . 300,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
------------
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,348,392
------------
------------

The purchase price was allocated as follows:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . $ 245,228
Other current assets . . . . . . . . . . . . . . . . . . . . . . 39,059
Property and equipment . . . . . . . . . . . . . . . . . . . . . 95,962
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,722
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,696
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,405,667
Assumption of liabilities. . . . . . . . . . . . . . . . . . . . (57,275)
------------
$ 1,348,392
------------
------------

The merger was accounted for using the purchase method of accounting. The
purchase price was allocated to the assets and liabilities of Cimarron based on
their estimated fair market value at the date of the merger. After allocating
the purchase price to the identifiable assets and liabilities of Cimarron,
$1,020,696 of the purchase price was recorded as goodwill acquired and is being
amortized over a fifteen year period. The Company has consolidated the results
of Cimarron since the closing date of the merger (May 22, 1995). Pro forma
results of operations are shown below, combined with the impact of the Company's
subsequent acquisition of Navigist, Inc., on August 23, 1995.

F-12
<PAGE>

b. NAVIGIST, INC.

The Company acquired all of the outstanding common stock of Navigist, Inc.
("Navigist") on August 23, 1995. The former shareholders of Navigist received
498,621 shares of common stock of the Company valued at $4.25 per share, and a
$50,000, 8.75% secured convertible promissory note. The secured convertible
promissory note was convertible at the option of the holders into 34,482 shares
of common stock of the Company no later than August 22, 1997, or at the option
of the Company if the average closing bid price has equaled or exceeded $4.00
per share for 30 consecutive days. The note was scheduled to mature on August
22, 1998, and was secured by substantially all of the assets of Navigist. In
addition, cash payments of $4,800 were made to former stockholders of Navigist
and transaction costs of approximately $39,884 were incurred related to the
transaction. In addition, the Company issued warrants to purchase 79,996 shares
of common stock at an exercise price of $3.25 per share to the Company's
financial advisor in conjunction with its advisory services related to the
acquisition. The Company recorded additional consideration of $79,996 related to
this warrant. Shortly before the merger, the Company advanced $142,500 to
Navigist.

The purchase price related to the Navigist acquisition was as follows:

Issuance of common stock . . . . . . . . . . . . . . . . . . . . . $ 2,119,139
Issuance of warrants . . . . . . . . . . . . . . . . . . . . . . . 79,996
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . 39,884
Convertible note payable . . . . . . . . . . . . . . . . . . . . . 50,000
------------
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,289,019
------------
------------

The purchase price was allocated as follows:
Cash received. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,194
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . 284,873
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 18,070
Property and equipment . . . . . . . . . . . . . . . . . . . . . . 50,162
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,547
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,167,079
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,621,925
------------
Assumption of liabilities. . . . . . . . . . . . . . . . . . . . . (332,906)
$ 2,289,019
------------
------------

The merger was accounted for using the purchase method of accounting. The
purchase price was allocated to the assets and liabilities of Navigist based on
their estimated fair market value at the date of the merger. After allocating
the purchase price to the identifiable assets and liabilities of Navigist,
$2,167,079 of the purchase price was recorded as goodwill and was being
amortized over a fifteen year period. The Company has consolidated the results
of the Navigist acquisition since the closing date of the merger (August 23,
1995). Pro forma results of operations are shown below, combined with the impact
of the Company's acquisition of Cimarron on May 22, 1995.

On December 13, 1996, the Company sold all the common shares of Navigist to
VDC Paradigms, Inc., which is owned by two of the principal operating managers
of Navigist. The Company received 274,050 shares of InfoNow common stock and the
surrender of notes held by the buyers amounting to $27,940 in consideration for
the sale of Navigist. As part of the transaction, the Company also made a cash
payment of $97,000 to the buyers, canceled all intercompany balances owed by
Navigist to InfoNow and Cimarron International, Inc., amounting to approximately
$490,400 and forgave a note owed by Navigist to InfoNow in the amount of
$142,500. In addition, the Company also retired the remaining notes payable,
amounting to $22,060 that were issued in the original acquisition of Navigist by
the Company in August 1995 in order to facilitate the completion of the
transaction.

F-13
<PAGE>

c. UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma consolidated results of operations of the
Company for the year ended December 31, 1995 and 1994, assumes that the
acquisitions of Cimarron and Navigist had occurred on January 1, 1994. The pro
forma results for fiscal 1994 include the activity of Navigist from March 8,
1994, (the inception date of Navigist). The pro forma net loss per share
includes shares issued in the private placement as the Cimarron transaction and
the private placement were contingent upon each other. The pro forma results
presented below are not necessarily indicative of the actual results of
operations that would have been achieved nor are they necessarily indicative of
future results of operations.

Period Ended December 31,
--------------------------
(dollars in thousands,
except per share amounts)
1995 1994
---- ----
Revenues. . . . . . . . . . . . . . . . . . $ 3,406 $ 2,889
Net loss before extraordinary items . . . . (1,686) (2,793)
Net loss. . . . . . . . . . . . . . . . . . (1,552) (2,793)
Net loss per share. . . . . . . . . . . . . $ (0.55) $ (1.06)

The supplemental information presented below shows the separate operations
of InfoNow, Cimarron and Navigist from the dates of their acquisition:

Unaudited Pro Forma Results for Year Ended December 31, 1995:
(all amounts in thousands)

Pro forma
InfoNow Cimarron Navigist Pro Forma Consolidated
(Historical) (Historical)(1) (Historical)(1) Adjustments(2) Results
------------ ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . $ 104 $ 668 $ 655 $ 1,979 $ 3,406
Operating expenses . . . . . . . . 1,641 763 686 1,870 4,960
Other income (loss), net . . . . . 13 2 - (13) 2
---------- ---------- ---------- ----------- ---------
Net Loss . . . . . . . . . . . . . $ (1,524) $ (93) $ (31) $ 96 $ (1,552)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
</TABLE>

(1)Represents the post-acquisition results of operations of Cimarron and
Navigist as reflected in the accompanying consolidated results of operations.

(2)Includes the results of operations for Cimarron from January 1, 1995, to May
22, 1995, and the results of operations for Navigist from January 1, 1995 to
August 23, 1995. Also includes additional provision for interest expense of
$14,166 on acquisition debt of $350,000 and goodwill amortization of $124,667
for the periods prior to acquisition of Cimarron and Navigist, respectively.

Unaudited Pro Forma Results for year ended December 31, 1994:
( all amounts in thousands)

Pro forma
Pro Forma Consolidated
InfoNow Cimarron(1) Navigist(2) Adjustments(3) Results
----------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . $ 826 $ 1,495 $ 568 $ -- $ 2,889
Operating expenses . . . . . . . . 3,475 1,428 600 135 5,638
Other income (loss), net . . . . . (9) (4) - (31) (44)
----------- -------- -------- ----------- ---------
Net Loss . . . . . . . . . . . . . $ (2,658) $ 63 $ (32) $ (166) $ (2,793)
----------- -------- -------- ----------- ---------
----------- -------- -------- ----------- ---------
</TABLE>

(1)Represents results of operations for Cimarron for the year ended December 31,
1994.
(2)Results are from the inception date of Navigist (March 8, 1994) through
December 31, 1994.
(3)Represents provision for amortization of goodwill of $212,518, elimination of
deferred compensation obligations and other adjustments of $77,207, and
interest on acquisition notes of $31,375.

F-14
<PAGE>

Note 3. INCOME TAXES

The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") on January 1, 1993. SFAS 109 requires
recognition of deferred tax assets and liabilities for the expected future
income tax consequences of transactions. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Net
deferred tax assets are then reduced by a valuation allowance for amounts which
do not satisfy the realization criteria of SFAS 109.

At December 31, 1994, the Company had a net operating loss carryforward for
income tax purposes of approximately $14,350,000. Because the Company
experienced a significant change in control and substantially changed its
business on May 22, 1995, as a result of its private placement (Note 8) and the
acquisition of Cimarron, and then its subsequent acquisition of Navigist in
August 1995, the Company believes that, under current tax regulations, the
utilization of tax loss carryforwards will be limited to loss carryforwards
generated after May 23, 1995, which amount to approximately $1,908,000 as of
December 31, 1996.

The significant components of the net deferred tax asset consist of the
following:

December 31,
------------
1996 1995
---- ----

Capitalized software . . . . . . . . . . . . $ (40,500) $ --
Net operating loss carryforwards . . . . . . 706,000 378,000
Deferred compensation. . . . . . . . . . . . 28,000 --
------------ -----------
Deferred tax asset, net. . . . . . . . . . . 693,500 378,000
------------ -----------
Less - valuation allowance . . . . . . . . . (693,500) (378,000)
------------ -----------
$ -- $ --
------------ -----------
------------ -----------

The benefits of the Company's net operating loss carryforwards and other
timing differences as of December 31, 1996 and 1995, do not satisfy the
realization criteria set forth in SFAS No. 109 and accordingly, the Company has
recorded a valuation allowance for the entire net deferred tax asset.

Note 4. PROPERTY AND EQUIPMENT

Property and Equipment consist of the following:
December 31,
------------
1996 1995
---- ----

Computer equipment . . . . . . . . . . . . . $ 763,243 $ 394,813
Furniture and fixtures . . . . . . . . . . . 109,715 80,038
Computer software. . . . . . . . . . . . . . 167,138 80,260
---------- ----------
1,040,096 555,111
Less accumulated depreciation and
amortization. . . . . . . . . . . . . . (347,124) (219,061)
---------- ----------
Property and equipment, net. . . . . . . . . $ 692,972 $ 336,050
---------- ----------
---------- ----------

In connection with the acquisition of Cimarron International (Note 2), the
Company relocated its headquarters to the Cimarron facilities. The relocation
and change in business strategy resulted in the abandonment, sale and write-off
of certain property which resulted in the reduction of approximately $710,731 of
property cost and $577,487 of accumulated depreciation in 1995.

F-15
<PAGE>

Note 5. LONG TERM DEBT

a. SUMMARY OF LONG TERM DEBT

December 31,
1996 1995
---- ----
Term loan payable to a bank, collateralized
by all property and equipment, bearing interest
at prime plus 1.25% (total of 9.50% at 12/31/96)
due in monthly installments of $3,817 to
December 1999. $ 116,994 $ 150,000

Capital lease obligation bearing interest
rate at 15%, due in monthly installments
of $497 to November 1999 13,995 17,553

Convertible notes payable to former
Navigist shareholders, bearing interest
at 8.75%, interest only payments due
quarterly, principal due in full on
August 23, 1998. - 50,000

Non-interest bearing short term
obligation payable to ESRI in connection
with development of FindNow-SM- system,
without collateral. Principal due in
full on March 1, 1997 150,000 -

Promissory note payable to officer of
Company, collateralized by all accounts
receivable, bearing interest at prime
plus 2.75% (total of 11.25% at 12/31/96),
interest only payments due monthly,
principal due in full on March 29, 1997.
Convertible into 33,333 shares of
common stock. 100,000

Notes payable to suppliers, at varying
interest rates and maturities ranging
from January 1996 to June 2000 20,421 15,642
---------- ----------

401,410 233,195

Less current portion (309,607) (46,716)
---------- ----------

Long-term portion $ 91,803 $ 186,479
---------- ----------
---------- ----------

b. MATURITIES OF LONG TERM DEBT

Future minimum lease payments under capital leases and annual maturities of
other long-term debt at December 31, 1996 are as follows:

Year ending December 31,
1997 . . . . . . . . . . . . . . . . . . . . . . $ 309,607
1998 . . . . . . . . . . . . . . . . . . . . . . 44,605
1999 . . . . . . . . . . . . . . . . . . . . . . 47,028
2000 . . . . . . . . . . . . . . . . . . . . . . 170
2001 . . . . . . . . . . . . . . . . . . . . . . ---
----------
$ 401,410
----------
----------

F-16
<PAGE>

The Company paid $34,104, $29,230 and $8,695 for interest during the years
ended December 31, 1996, 1995, and 1994 respectively, including $14,397 and
$11,513 paid to related parties in the years ended December 31, 1996 and 1995,
respectively.

c. DEBT RESTRUCTURING

In 1994, the Company received proceeds of $285,000 from two shareholders,
one of which is a director of the Company, under a Master Promissory Note (the
"Master Note"). During 1995, two shareholders advanced an additional $233,046
in bridge financing to the Company under the terms of the Master Notes. Interest
on the Master Note accrued at an annual rate of 10%. Principal and interest due
under the Master Notes is convertible into warrants to purchase the Company's
Series A Preferred Stock to the extent of the highest outstanding balance of
principal and accrued interest under the Master Notes. An amendment to the
Master Note agreement allowed the holders to receive a warrant to purchase
251,148 shares of the Company's Series A Preferred Stock at an exercise price of
$1.593 per share. During 1995, the Master Note Holders converted $60,000 of the
Master Promissory Note and received 37,665 shares of Series A Preferred Stock.

In connection with the merger of Cimarron and private placement in May of
1995, a shareholder and director of the Company agreed to exchange his Master
Note in the total amount of $229,428, including accrued interest and 18,833
shares of preferred stock into 199,560 shares of common stock and a warrant to
purchase an additional 199,560 shares at $1.30 per share. The warrant expired on
May 22, 1996.

A shareholder of the Company exchanged his Master Note payable to the
Company in the total amount of approximately $228,618 including accrued interest
and 18,832 shares of preferred stock for 99,468 shares of common stock and a
warrant to purchase an additional 99,468 shares of common stock at $2.60 per
share. The warrant expires on May 22, 1997.

During 1995, the Company renegotiated certain accounts and notes payable to
vendors by issuing a combination of reduced notes payable and cash. The Company
reduced $190,797 of accounts payable and $189,707 of notes payable by issuing
notes payable of $60,280, cash of $57,258 and 30,809 shares of common stock,
valued at $1.30 per share. Warrants to purchase 83,944 shares of the Company's
common stock at $0.40 per share were issued to the Company's financial advisor
in conjunction with their services in completing the refinancing. The Company
recognized consideration of $98,854 related to these warrants which is reflected
as a reduction to the extraordinary gain from debt restructuring.

In April 1995, the Company received proceeds of $50,000 from a convertible
promissory note. The note was payable on demand, accrued interest at 15% and was
subsequently converted into 64,401 shares of the Company's common stock in May
1995. As additional consideration for the making of the loan, the Company issued
a warrant to purchase 62,500 shares of the Company's common stock at $1.30 per
share.

Note 6. SUPPLEMENTAL CASH FLOW INFORMATION

The Company had the following significant non-cash transactions:

During 1996, the Company completed a non-cash transaction with
Environmental Research Institute, Inc. ("ESRI"), in which the Company received
computer equipment and software licenses from ESRI in exchange for an
obligation. The remaining obligation, amounting to $150,000, as of December 31,
1996, has been recorded in the notes payable-current portion caption on the
balance sheet. The Company also recorded a non-cash charge of $253,382 related
to a warrant to purchase

F-17
<PAGE>

115,000 common shares of the Company stock issued to ESRI in accordance with the
guidance of SFAS 123. This charge was recorded as capitalized software and
$52,788 of this charge was amortized in 1996. The Company also issued 167,112
shares of common stock in exchange for cash and cancellation of $143,001 in
current liabilities (Note 8).

During 1995, the Company purchased Cimarron and Navigist, Inc. (Note 2)
with a combination of cash, notes and common stock; 30,809 shares of common
stock were exchanged to retire approximately $62,000 of accounts and notes
payable and other obligations; 299,028 shares of common stock were issued to
related party debtholders and preferred shareholders to retire $458,046 of debt
obligations and 37,665 outstanding preferred shares (Note 8); 230,769 shares of
common stock were issued in conjunction with the exercise of the conversion
feature of a $300,000 convertible note payable issued in conjunction with the
Cimarron acquisition (Note 8).

During 1994, the Company converted $318,992 of accounts payable to notes
payable (Note 5); the Company purchased a $20,853 telephone system under a five
year capital lease.

Note 7. RELATED PARTY TRANSACTIONS

On March 29, 1996, the company executed a promissory note to the Chief
Financial Officer of the Company in the amount of $100,000 collateralized by all
the receivables of the Company. The note is due in March 1997 bearing interest
at prime plus 2.75%. The note can be converted into common stock of the Company
at $3.00 per share at the option of the note holder at any time prior to
maturity.

In a separate transaction, a vice-president of the Company advanced $50,000
to the Company as a short term non-interest bearing loan. On September 13, 1996,
this loan was exchanged for 44,444 shares of common stock valued at $1.12 per
share.

In exchange for his services as chairman of the Board of Directors, in May
1995, the Company issued 48,077 shares of common stock valued at $1.30 per
share. Further, the Company issued to the Chairman a warrant to purchase 125,000
shares of common stock at $.40 per share. The warrant expires in May 1998. The
Company recognized $175,000 in compensation expense during 1995 related to these
transactions.

In May 1995, the Company issued warrants to purchase 120,043 shares of
common stock to Copeland Consulting Group, Inc., in connection with services
provided as interim CEO and advisor from September 1994 to May 1995. Gene
Copeland, a director of the Company, is the principal of Copeland Consulting
Group and also is an associate of Opus Capital, the Company's financial advisor.
As the warrants were priced at $0.40 per share, which was below the market price
of the common stock of $1.30 at the issuance date of the warrants, the Company
recognized $108,039 in compensation expense related to this transaction. On
August 23, 1995, Copeland Consulting Group received a warrant to purchase 4,000
shares of common stock at $3.25 per share. The Company recorded $4,000 in
compensation as the market price of the stock at the date of the transaction of
$4.25. On October 10, 1995, the Company issued a warrant to purchase 23,486
shares of common stock at $.40 per share. As the market price of the common
stock of the Company was $3.68 at this date, total consideration of $77,034 was
recorded related to this transaction.

During 1995, the Company granted a former officer a non-qualified stock
option for the purchase of 31,330 shares of common stock at an exercise price of
$0.78 per share as part of the officer's severance package. As the fair market
value of the underlying common stock was in excess of the exercise price, the
Company recognized $16,536 in compensation expense in 1995 related to this
transaction based on the difference between the fair market price of the stock
at the date of issuance which was $1.30 and the exercise price of the option
issued.

F-18
<PAGE>

During 1995, the former CEO of the Company agreed to convert the amount due
to him for accrued salaries and other expenses of approximately $33,474 into
14,071 shares of the Company's common stock valued at $2.38 per share.

During 1994, the Company entered into a settlement agreement in connection
with an employment agreement with one of its former officers which provided for
a base salary of $90,000 per annum through August 1, 1995. The Company agreed
to pay the former officer his base salary through December 21, 1994 in exchange
for the former officer dropping a lawsuit that the former officer filed against
the Company claiming termination without cause. The settlement was further
amended in November 1994 whereby the Company agreed to pay the remaining amount
due at that time to the former officer at a rate of $2,000 per month through
April 1995 with the remaining amount of $3,963 paid in May 1995.

Note 8. STOCKHOLDER'S EQUITY

a. COMMON STOCK

In the first quarter of 1995, the Company's shareholders approved a
reduction in the authorized amount of its $.001 par value common stock to
15,000,000 shares, effective April 7, 1995.

b. PREFERRED STOCK

Shares of preferred stock may be issued from time to time in one or more
series, with the rights and powers of each series set by the Board of Directors.
Of the 1,962,335 authorized shares, 213,483 have been designated as Series A
Convertible Preferred Stock.

The Series A Convertible Preferred Stock is convertible to common at the
rate of four shares of common for one share of preferred. The Series A
Convertible Preferred Stock has a liquidation value of $1.593 per share and the
holders have voting rights on an as-converted basis. No preferred stock was
outstanding as of December 31, 1996 or 1995.

c. SIGNIFICANT EQUITY TRANSACTIONS

On December 6, 1996, the Company completed a private placement of 1,995,273
Units at $1.40 per Unit, each Unit consisting of one share of Common Stock, par
value $.001 per share (the "Shares"), and one share purchase warrant (the
"Warrants"). Two warrants entitle the holder to acquire one additional share of
Common Stock at $1.40 per share (the "Warrants") during the eighteen (18) month
term of the Warrant.

Total gross proceeds from the sale of Units were $2,793,380. Total cash
commissions paid or to be paid in conjunction with the placement amounted to
$50,368. In addition, 50,000 shares of common stock was issued to Haywood
Securities for corporate financial services rendered in conjunction with the
private placement. The Company will also issue 305,000 warrants to purchase
common stock at $1.40 per share and expense reimbursements amounting to $15,000
will be paid to two parties which facilitated the sale of the Units in
conjunction with the placement.

As a condition of the placement, the Company has agreed to file a
registration statement with the Securities and Exchange Commission on behalf of
U.S. Placees no later than 120 days after completion of the placement and to use
its best efforts to have such registration statement made effective. In the
event that the Company can not successfully file a registration statement within
the prescribed time period, a U.S. Placee may demand, at its sole discretion,
and without further

F-19

<PAGE>

compensation to the Company, that the Company issue additional Units to Placee
equal to ten (10) percent of the number of Units issued to them in this
placement.

On September 13, 1996, the Company completed a private placement of common
shares to three officers of the Company in which the Company issued 167,112
shares of common stock valued at $1.12 and granted warrants to purchase 83,556
shares at $1.50 per share, exercisable until September 13, 1998. In
consideration for these shares, the three officers provided $45,000 in cash and
reduced obligations owed to them including a $50,000 short term advance and
$93,001 in deferred salaries and other expenses.

In conjunction with the Company's initial public offering, the Company's
common shareholders agreed to escrow a portion of their holdings amounting to
92,000 shares. The escrowed shares would be released to the stockholders in the
event certain conditions were met by February 7, 1996. None of the stated
conditions were met at that date and as a result, all escrowed shares were
forfeited and returned to authorized, but unissued common shares.

In November 1995, the former shareholder of Cimarron sold the convertible
note payable issued in connection with the acquisition of Cimarron (Note 2) to
the President of the Company for the face value of the note of $300,000. In
December 1995, the President exercised the conversion option under this note
converting the entire face value of the note into 230,769 shares of common
stock.

Concurrent with the acquisition of Cimarron in May 1995, the Company
completed a private placement of 1,039,846 shares of its common stock at $1.30
per share which raised net proceeds of $1,250,957. The Company incurred total
placement fees and other expenses of approximately $100,843. In addition,
warrants to purchase 100,000 shares of the Company's common stock at $1.30 per
share were issued to a placement agent and warrants to purchase 129,983 shares
of the Company's common stock at $0.40 per share were issued to the Company's
financial advisor. As the fair value of the Company's common stock exceeded the
exercise price on the date of grant, the Company recorded additional
consideration of $116,984 related to this transaction. Both warrants are
currently exercisable and expire on May 22, 1998. Under the terms of the
placement, the Company has agreed to use reasonable efforts to register the
shares under the Securities Act of 1933.

In August 1995, the Company issued 67,731 shares of common stock at $0.59
per share to an existing shareholder. At the sale date, the price of the
Company's common stock quoted on the NASDAQ bulletin board system was $3.25 per
share. The proceeds from the issuance of these shares were used to expedite the
settlement of short term debt of the Company.

d. STOCK AND WARRANT COMPENSATION

The Company applies APB Opinion No. 25 and related interpretations in
accounting for options and warrants issued to employees. Accordingly, no
compensation cost has been recognized for issuances of options and warrants to
employees at exercise prices not less than the market value of the Company's
common stock on the grant dates. Had compensation cost for the Company's plans
been determined consistent with FASB Statement No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:

1996 1995
- -----------------------------------------------------------------------
Net Loss As Reported $(3,092,141) $(1,647,698)
- -----------------------------------------------------------------------
Pro Forma (3,474,094) (2,975,386)
- -----------------------------------------------------------------------
Primary Earnings As Reported $ (0.86) $ (0.92)
- -----------------------------------------------------------------------
Per Share
- -----------------------------------------------------------------------
Pro Forma $ (0.97) $ (1.66)
- -----------------------------------------------------------------------

F-20
<PAGE>

The fair value of each grant was determined using the Black-Scholes option
pricing model with the following assumptions used for grants for 1995 and 1996:
risk free interest rate of 6.50%; no expected dividend yield; expected lives of
5 years or the contractual term of the option or warrant, whichever is less and
assumed volatility of approximately 133% and 393% in 1996 and 1995,
respectively. The weighted average contractual term of the options was 10 years
compared to a weighted average expected term of 5 years.

During 1996, the Company capitalized $253,382 into software development costs
related to the issuance of warrants to ESRI in accordance with SFAS 123 which
is being amortized over the term of the warrant which is four years. The
Company recorded $52,788 of amortization expense related to this charge for
the year ended December 31, 1996.

e. STOCK OPTION PLAN

The Company has a Stock Option Plan (the "Plan") to provide officers and
other key employees options to purchase shares of the Company's common stock.
On March 24, 1995, the Board of Directors approved an increase in the amount of
shares issuable under the plan from 62,908 to 1,000,000. Under the terms of the
Plan, the Board of Directors may grant officers and key employees either "non-
qualified" or "incentive stock options" as defined by the Internal Revenue
Service code and regulations. Under the terms of the Plan, the purchase price
of the shares subject to an option will be the fair market value of the
Company's common stock on the date the option is granted. If the grantee owns
more than 10% of the total combined voting power or value of all classes of
stock on the date of grant, the purchase price shall be at least 110% of the
fair market value at the date of grant and the exercise term shall be up to five
years from the date of grant. All other options granted under the Plan are
exercisable up to 10 years from the date of the grant. Options issued under the
Plan generally vest over a three year period.

A summary of the status of the Company's stock option plan as of December 31,
1994, 1995, and 1996 and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED- WEIGHTED-
-AVERAGE AVERAGE AVERAGE
FIXED EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 503,501 $3.06 6,335 $0.40 39,635 $ 1.76
Granted 474,842 2.25 607,830 2.86 2,120 0.65
Exercised (15,708) 1.30 (36,847) 0.72 (311) 37.50
Forfeited (241,890) 3.55 (73,817) 2.35 (35,109) 1.62
---------- ---------- ----------
OUTSTANDING AT END OF YEAR 720,745 2.40 503,501 3.06 6,335 0.40
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at year-end 235,258 55,819 2,935
Weighted-average fair value $2.23 $2.31 $0.58
of options granted during the
year
</TABLE>

In September 1994, the Board of Directors of the Company repriced the
options held by employees. A total of 5,691 employee options ranging in exercise
prices from $1.50 to $4.82 were repriced at $.40 per share which approximated
the estimated fair market value of the Company's common stock on the date of
repricing.

The following table summarizes information about fixed stock options outstanding
at December 31, 1996:

F-21
<PAGE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------- --------------------------
WEIGHTED WEIGHTED- WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER -AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/96 CONTRACTUAL LIFE PRICE AT 12/31/96 PRICE
- ------ ----------- ---------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 to 1.375 189,000 9.0 years $1.33 71,875 $1.31
1.50 to 2.25 233,547 9.8 1.90 31,684 1.86
2.56 to 2.81 60,034 9.1 2.60 33,242 2.58
3.62 to 4.43 238,164 8.9 3.70 98,457 3.70
------- -------
1.00 to 4.43 720,745 9.2 2.40 235,258 2.56
------- -------
------- -------
</TABLE>

During 1995, a total of 607,830 options were issued by the Company. The
table below summarizes the purpose and consideration recorded related to the
issuance of options and warrants:

<TABLE>
<CAPTION>
NUMBER OF
UNDERLYING EXERCISE MARKET CONSIDERATION
PURPOSE RECIPIENT(S) SHARES PRICE PRICE RECORDED
------- ------------ ------ ----- ----- --------

OPTIONS:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Acquisition of Cimarron Employees and
former owner of
Cimarron 121,500 $1.30 $1.30 --
- ----------------------------------------------------------------------------------------------------
Acquisition of Navigist Employees and
former owners
of Navigist 180,000 $4.25 $4.25 --
- ----------------------------------------------------------------------------------------------------
Employment of CEO President 150,000 $3.68 $3.68 --
- ----------------------------------------------------------------------------------------------------
Incentive Compensation/ Employees of
- ----------------------------------------------------------------------------------------------------
Severance Package InfoNow(1) 125,000 $1.30-3.25 $1.30-3.25 $23,259(1)
- ----------------------------------------------------------------------------------------------------
Portion of severance Former officer
package of InfoNow 31,330 $.78 $1.30 16,536(2)
- ----------------------------------------------------------------------------------------------------
607,830
-------
-------
</TABLE>

(1) Although all options were granted at the fair market value at the date of
grant, the vesting of a portion of the options issued to a former officer
of the Company were accelerated as part of his severance package and
recorded as compensation expense.
(2) Recorded as compensation expense.

F-22
<PAGE>

f. STOCK WARRANTS

A summary of the status of the Company's Warrants as of December 31, 1994, 1995,
and 1996 and changes during the years ended on those dates is presented below:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED WEIGHTED-
AVERAGE -AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
WARRANTS SHARES PRICE SHARES PRICE SHARES PRICE
- -------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,865,318 $26.88 481,752 $100.76 487,888 $100.70
Granted 1,586,194 1.65 1,403,216 1.17 3,000 0.40
Exercised (469,554) 1.30 -- -- -- --
Forfeited (315,199) 6.01 (19,650) 2.12 (9,136) 97.62
---------- ---------- ----------
OUTSTANDING AT
END OF YEAR 2,666,759 19.01 1,865,318 26.88 481,752 100.76
---------- ---------- ----------
---------- ---------- ----------
Warrants exercisable
at year-end 2,648,523 1,802,776 479,752
Weighted-average fair
value of warrants
granted during the year $0.88 $1.61 $1.95
</TABLE>

In September 1994, the Board of Directors of the Company repriced 6,000 director
warrants ranging in exercise price from $18.75 to $187.50 was repriced at $0.40
per share which approximated the estimated fair market value of the Company's
common stock on the date of repricing.

The following table summarizes information about Warrants outstanding at
December 31, 1996:

<TABLE>
<CAPTION>
WARRANTS OUTSTANDING WARRANTS EXERCISABLE
- ---------------------------------------------------------------------- --------------------------
WEIGHTED WEIGHTED- WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER -AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/96 CONTRACTUAL LIFE PRICE AT 12/31/96 PRICE
- ------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.40 to 0.80 262,020 1.4 years $0.43 261,020 $0.43
1.30 to 1.50 1,511,694 1.6 1.40 1,499,652 $1.40
2.25 to 3.25 344,434 1.4 2.70 344,434 2.71
3.68 to 4.25 95,861 3.8 4.20 90,667 4.23
56.90 to 121.13 452,750 0.3 105.71 452,750 105.71
--------- ---------
0.40 to 121.13 2,666,759 1.4 19.01 2,648,523 19.12
--------- ---------
--------- ---------
</TABLE>

The Company completed an initial public offering (the "Offering") for
52,900 Units (the "Units") in March 1992. Each Unit consists of two shares of
common stock, two redeemable Class A Warrants, and one redeemable Class B
Warrant. The Class A and Class B Warrants are transferable separately. These
warrants expired on February 6, 1997. The Company sold an option to purchase up
to 4,600 units, at 140% of the initial public offering price, to the Underwriter
for $115. These units are identical to the Units sold to the public, except
that the Class A and Class B Warrants are not redeemable by the Company. Certain
of these warrants contain ratcheting provisions within the warrants which act to
protect the warrantholder from below market financings by the Company. These
warrants expired on February 6, 1997.

F-23
<PAGE>

During 1995, a total of 1,403,216 warrants were issued by the company. The
table below summarizes the purposes and consideration recorded related to the
issuance of these warrants:

<TABLE>
<CAPTION>
NUMBER OF
UNDERLYING EXERCISE MARKET CONSIDERATION
PURPOSE RECIPIENT(S) SHARES PRICE PRICE RECORDED
------- ------------ ------ ----- ----- --------

WARRANTS:
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Private Placement Opus Capital(5) 129,983 $.40 $1.30 116,984(3)
- --------------------------------------------------------------------------------------------------------------------
Acquisition of Navigist 75,966 $3.25 $4.25 75,966(2)
- --------------------------------------------------------------------------------------------------------------------
Financial advisory fees 121,490 $.40-2.25 $1.30-2.25 64,337(3)
- --------------------------------------------------------------------------------------------------------------------
Debt Restructuring 80,956 $.40 $1.30-3.50 90,339(4)
- --------------------------------------------------------------------------------------------------------------------
Master Note Conversion 39,576 $.40 $3.68 112,792(3)
- --------------------------------------------------------------------------------------------------------------------
Cimarron Acquisition 97,550 $.40 $1.30-3.68 165,412(2)
- --------------------------------------------------------------------------------------------------------------------
Conversion of Note Chairman of 199,560 $1.30 $1.30 --
Director fees the Board 125,000 $.40 $1.30 112,500(1)
16,650 $2.25 $2.25 --
- --------------------------------------------------------------------------------------------------------------------
Conversion of Note Gilman
Securities 99,468 $2.60 $1.30 --
- --------------------------------------------------------------------------------------------------------------------
Professional services Copeland 120,043 $.40 $1.30 108,039(1)
- --------------------------------------------------------------------------------------------------------------------
Acquisition of Navigist Consulting Group(6) 4,000 $3.25 $4.25 4,000(2)
- --------------------------------------------------------------------------------------------------------------------
Debt Restructuring 2,988 $.40 $1.30 8,515(4)
- --------------------------------------------------------------------------------------------------------------------
Master Note Conversion 13,192 $.40 $3.68 43,269(3)
- --------------------------------------------------------------------------------------------------------------------
Cimarron Acquisition 10,294 $.40 $3.68 33,764(2)
- --------------------------------------------------------------------------------------------------------------------
May 1995 private
Placement Canaccord 100,000 $1.30 $1.30 --
- --------------------------------------------------------------------------------------------------------------------
Joint Venture 24,000 $4.25 $4.25 --
- --------------------------------------------------------------------------------------------------------------------
Professional services 37,500 $.40 - .80 $1.30 18,000(1)
- --------------------------------------------------------------------------------------------------------------------
Bridge Loan 62,500 $1.30 $1.30 --
- --------------------------------------------------------------------------------------------------------------------
Annual director Directors of
warrant awards InfoNow 42,500 $1.30 - $4.25 $1.30-4.25 --
---------
- --------------------------------------------------------------------------------------------------------------------
1,403,216
---------
---------
</TABLE>

(1) Recorded as compensation expense
(2) Capitalized as part of acquisition cost
(3) Recorded as an equity transaction
(4) Recorded as reduction of gain on debt extinguishment
(5) Warrants equally held by the Managing General directors of Opus Capital
(6) Gene Copeland, a director of the Company, is the President and an owner of
Copeland Consulting Group

NOTE 9. BUSINESS SEGMENT INFORMATION

The Company operates in two major lines of business, internet products and
business presentation services. The internet products segment includes network
design and internet service operations provided by the Company's Navigist
subsidiary. This subsidiary was sold on December 13, 1996. No information is
shown for 1994 since all revenues, operating results and assets were related to
the Company's previous business which involved the distribution of software via
encrypted CD-ROM. Results from the acquisitions of Cimarron and Navigist are
included in their applicable

F-24
<PAGE>

segments from their acquisitions on May 22, 1995, and August 23, 1995,
respectively. The results for 1996 include the operations of Navigist from
January 1, 1996, to December 13, 1996. Information concerning operations in
these businesses at December 31, 1996 and 1995 and for the years then ended are
presented below:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Sales (1):
CD-ROM software $ -- $ 104,671
Internet products and consulting 1,124,351 654,594
Business presentations 1,082,177 667,898
------------ ------------
Consolidated net sales $ 2,206,528 $ 1,427,163
------------ ------------
------------ ------------

Income (loss) from operations:
CD-ROM software $ -- $ (66,864)
Internet products and consulting(2) (2,565,292) (30,714)
Business presentations (113,482) (93,194)
------------ ------------
(2,678,774) (190,772)
Corporate and other (413,367) (1,456,926)
------------ ------------
Consolidated income (loss) $ (3,092,141) $ (1,647,698)
------------ ------------
------------ ------------

Identifiable Assets(3):
Internet products and consulting $ 954,913 $ 2,649,127
Business presentations 1,134,589 1,284,604
------------ ------------
2,089,502 3,933,731
Corporate and other 2,200,635 282,163
------------ ------------
Consolidated assets $ 4,290,137 $ 4,215,894
------------ ------------
------------ ------------
</TABLE>

(1) Intersegment sales are not material
(2) 1996 Includes charge for impairment of asset of $1,539,806 and losses of
$290,196 from Navigist operations which were sold on December 13, 1996
(3) Goodwill is allocated to the applicable operating segments

NOTE 10. COMMITMENTS AND CONTINGENCIES

a. OPERATING LEASE COMMITMENTS

The Company has noncancelable leases for its facilities and certain office
equipment. At December 31, 1996, the Company was obligated under non-cancelable
operating leases for its office facilities and equipment as follows:

Year ending
December 31,
-------------
1997. . . . . . . . . . . . . . . . . . . . . . . . . . $ 106,070
1998. . . . . . . . . . . . . . . . . . . . . . . . . . 83,140
1999. . . . . . . . . . . . . . . . . . . . . . . . . . 39,178

Rent expense related to operating leases was $200,576, $110,088, and
$106,779 for the years ended December 31, 1996, 1995, and 1994 respectively.

F-25
<PAGE>

b. CONTINGENT ISSUANCE OF STOCK OPTIONS

In connection with the employment agreement with Mr. Michael Johnson, the
Company has agreed to grant additional options to purchase up to 161,895 shares
of common stock. In accordance with the agreement, options to purchase 53,965
shares of common stock will be awarded in the event share price of the Company's
common stock reaches $6.45, $11.05 and $22.11, respectively. All awarded options
will be issued at the fair market value on the date the option is earned and
vest over a twelve month period.

In addition, until October 9, 1997, options may be issued to Mr. Johnson equal
to five percent of all derivative securities exercised that were outstanding as
of October 10, 1995. Options may be issued to purchase up to a maximum of
122,458 shares. All awarded options will be issued at the fair market value on
the date the option is earned and will vest over a 36 month period.

In connection with the employment agreement with W. Brad Browning, the
Company has agreed to grant additional options to purchase 15,000 and 10,000
shares of common stock in the first fiscal quarter in which the cumulative gross
sales of the Internet Products Group is equal or greater than $1,000,000 and
$1,600,000, respectively. All of the awarded options will be issued at the fair
market value on the date the option is earned and will vest over a 12 month
period.

NOTE 11. RISKS AND UNCERTAINTIES

a. CREDIT CONCENTRATION AND DEPENDENCE UPON CERTAIN CUSTOMERS

Due to the project oriented nature of the Company's business, the Company
may perform projects which account for a concentration of revenues and related
accounts receivable in a given period. These concentrations may be recurring
depending upon the projects performed by the Company during the fiscal year.
Although the Company's business is not tied to one particular industry, its
client base is concentrated in the Denver metro and San Francisco Bay area and
is somewhat affected by overall economic trends in those areas. The following
table lists those customers that individually accounted for greater than 10% of
total revenues for the last three fiscal periods:

1996 1995 1994
---- ---- ----
Number of Customers 1 1 2
Percent of total Sales 16% 16% 39%

b. CONTINUING OPERATING LOSSES

The Company has experienced recurring losses from operations since
inception and incurred a net loss of $3,092,141 for the year ended December 31,
1996. Further, the Company required cash to fund operations of $364,858,
$885,699, and $1,913,809 for the years ended December 31, 1996, 1995, and 1994,
respectively. The Company expects to continue to incur operating losses
throughout most of 1997 due to the continued development, sales and
administrative costs related to the development of its FindNow-sm- system and
related Internet products business. Although the company believes that it has
sufficient cash to operate its business during the next twelve months, the
Company's continuing losses raise substantial doubt about the Company's ability
to continue as a going concern because it has not yet demonstrated the ability
to generate positive cash flows from operations. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amount and classification of liability carrying
amounts that might result should the Company be unable to continue as a going
concern.

F-26
<PAGE>

c. LIMITED MARKET FOR COMMON SHARES

In August 1994, the Company's securities were delisted from the NASDAQ
SmallCap Market because the Company's securities did not meet the minimum
assets and equity maintenance listing requirements of $2,000,000 and
$1,000,000, respectively. In order for the Company's securities to be
relisted, it must meet the current initial listing requirements. The Company
is currently in the process of applying for a listing on the Vancouver stock
exchange. However, there can be no assurance that the Company will be granted
a listing or that a listing would improve liquidity of the Company's common
shares.

F-27

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Exhibit
- ------- ----------------------

3.1 Certificate of Incorporation of the Company, as Amended.
3.3 Bylaws of the Company, as Amended.(A)
4.1 Form of Common Stock Certificate for the Registrant's Common Stock,
$.001 par value per share.(A)
4.4 Form of Class C Warrant.(B)
10.3 Conversion Agreement by and between the Registrant and Gilman
Securities Corporation dated as of August 19, 1993.(C)
10.14 InfoNow Corporation 1990 Stock Option Plan, as amended.
10.25 Agreement and Plan of Merger by and among InfoNow Corporation,
Infonewco, Inc., Cimarron International, Inc. and Cimarron
Shareholders dated May 22, 1995.(D)
10.26 Agreement and Plan of Merger by and among InfoNow Corporation,
Infomergerco, Inc., Navigist, Inc. and Navigist Shareholders dated
August 23, 1995. (D)
10.27 Opus Agreements to Provide Financial Advisory Services dated May 23,
1995, July 17, 1995, August 2, 1995 and October 10, 1995.(D)
10.28 Employment Agreement between the Company and Michael W. Johnson dated
October 10, 1995.(D)
10.29 Employment Agreement between the Company and W. Brad Browning dated
January 9, 1996.(D)
10.30 Employment Agreement between the Company and Kevin Andrew dated
March 1, 1996.(D)
10.32 Agreement between the Company and Environmental Systems Research
Institute, Inc. ("ESRI") dated March 6, 1996.(D)
10.33 Stock Purchase and Sale Agreement by and among VDC Paradigms, Inc.,
Craig Michaelis, David Werztberger and InfoNow Corporation dated
December 13, 1996.
10.34 Employment Agreement between the Company and Donald E. Cohen dated
May 22, 1995, as amended.
16.1 Letter from Arthur Andersen LLP dated January 27, 1997.(E)
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hein + Associates LLP
27.1 Financial Data Schedule
_______________________
(A) Incorporated by reference from Registration Statement No. 33-43035 on
Form S-1 dated February 14, 1992.
(B) Incorporated by reference from Post-Effective Amendment No. 2 to
Registration Statement No. 33-43035 on Form S-1 dated July 13, 1993.
(C) Incorporated by reference from Post-Effective Amendment No. 3 to
Registration Statement No. 33-43035 on Form S-1 dated September 30,
1996.
(D) Incorporated by reference from the Company's Annual Report on
Form 10-K for year ended December 31, 1995.
(E) Incorporated by reference from the Company's Current Report on
Form 8-K dated January 27, 1997.

<PAGE>

Page 1
State of Delaware

[STATE SEAL]

Office of Secretary of State
_________________

I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF INFONOW CORPORATION FILED IN THIS OFFICE ON THE TWENTY-NINTH
DAY OF OCTOBER, A.D. 1990, AT 9 O'CLOCK A.M.

| | | | | | | | |

[SEAL] /s/ MICHAEL HARKINS
---------------------------------------
Michael Harkins, Secretary of State

AUTHENTICATION: | 2893734

700352041 DATE: 12/18/1990

<PAGE>

CERTIFICATE OF INCORPORATION

INFONOW CORPORATION

FIRST. The name of the Corporation is:

INFONOW CORPORATION

SECOND. The Address of the registered office of the Corporation in the
State of Delaware is 15 E. North St., Dover, Kent County, DE 19903-0899, and the
name of its registered agent at that address is Incorporating Services, Ltd.

THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

FOURTH. The total number of shares of stock which the Corporation is
authorized to issue is Thirty Million (30,000,000) shares of which Twenty Five
Million (25,000,000) shares of the par value of $.001 each are Common Stock and
Five Million (5,000,000) shares of the par value of $.001 each are Preferred
Stock.

Shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors of the Corporation is authorized to fix or
alter the rights, powers, preferences and privileges, and the qualifications,
limitations or restrictions thereof, of any series of preferred stock, including
but not limited to dividend rights, dividend rate, conversion rights, voting
rights, and liquidation preferences; and to fix the number of shares
constituting any such series and the designation thereof; and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding).

FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind the Bylaws of the Corporation.

SIXTH. The names and mailing addresses of the persons who are to serve
as directors of the Corporation until the first annual meeting of stockholders
or until their successors are elected and qualify are:

NAME ADDRESS
---- -------
Sat Tara S. Khalsa 4725 Walnut, Boulder CO 80301
Douglas D. Borne 4725 Walnut, Boulder CO 80301
Geoffrey S. Goedde 4725 Walnut, Boulder CO 80301
William K. Mackey 4725 Walnut, Boulder CO 80301
Ralph B. Wagner 4725 Walnut, Boulder CO 80301

<PAGE>

SEVENTH. To the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.

SEVENTH The corporation expressly elects not to be governed by Section
203 of the Delaware General Corporation Law.

EIGHTH. The name and mailing address of the incorporator of the
Corporation is:

NAME ADDRESS
---- -------
David J. Cook 1401 Walnut Street
Suite 500
Boulder, CO 80302

THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware and in pursuance of the Delaware General Corporation Law,
does make and file this Certificate hereby declaring and certifying that the
facts herein are true, and accordingly has hereunto set his hand and seal
this 24th day of October, 1990.

/s/ DAVID J. COOK
-----------------------------
David J. Cook

STATE OF COLORADO )
) ss:
COUNTY OF BOULDER )

On this 26th day of October, 1990, personally came before me, the
subscriber, a Notary Public for the State and County aforesaid, David J. Cook,
known to me personally to be such person, and acknowledged that said Certificate
of Incorporation to be his act and deed and that the facts therein stated are
truly set forth. Given under my hand and seal of office the day and year
aforesaid.

My Commission Expires: 10-19-90

[SEAL]
/s/ JOAN BOCHMANN
------------------------------
Notary Public

<PAGE>

Page 1

State of Delaware

Office of the Secretary of State
_________________________

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "INFONOW CORPORATION", FILED IN THIS OFFICE ON THE SIXTH DAY OF
FEBRUARY, A.D. 1995, AT 9 O'CLOCK A.M.

A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.

[STATE SEAL]

[SEAL] /s/ EDWARD J. FREEL
-------------------------------------
Edward J. Freel, Secretary of State
2245005 8100
AUTHENTICATION: 7398756
950028042
DATE: 02-07-95

<PAGE>

INFONOW CORPORATION

CERTIFICATE OF DESIGNATION
_______________

Pursuant to Section 151
of the General Corporation Law of the State of Delaware
_______________

INFONOW CORPORATION (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors, by a Board of
Directors meeting which was held on January 27, 1995, adopted the following
resolution, which resolution remains in full force and effect as of the date
hereof:

WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Certificate of Incorporation, to
fix by resolution or resolutions the designation of each series of preferred
stock and the powers, designations, preferences and relative participating,
optional or other rights, if any, and the qualifications, limitations or
restrictions thereof, including, without limiting the generality of the
foregoing, such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution or resolutions
of the Board of Directors under the General Corporation Law of Delaware; and

WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a new
Series A Preferred Stock (the "Series A Shares" or "Series A Preferred").

NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such series
of Preferred Stock on the terms and with the provisions herein set forth:

1. ISSUANCE: The series of Series A Shares shall consist of 251,148
shares.

2. VOTING RIGHTS: The holder of each share of Series A Preferred
shall be entitled to vote on an "as converted basis", that is, shall be entitled
to the number of votes equal to the number of shares of Common Stock into which
each share of Series A Preferred is convertible, whether or not the Corporation
has authorized and unissued Common shares in an amount sufficient to accommodate
conversion of the Preferred shares.

3. DIVIDENDS: The holders of Series A Shares shall be entitled, when
and if declared by the Board of Directors of the Corporation, to annual
dividends out of retained earnings of the Corporation, provided, however, that
no dividend or distribution may be

<PAGE>

declared or paid on any shares of Common Stock unless at the same time an
equivalent dividend or distribution is declared or paid on all outstanding
shares of Series A Preferred. Each share of Series A Preferred outstanding
shall be deemed converted into Common Stock as provided in Section 5 below
for purposes of determining the dividend or distribution payable on shares of
Series A Preferred. The right to such dividends on shares of Series A
Preferred shall not be cumulative, and no right shall accrue to holders of
Series A Preferred by reason of the fact that dividends on said shares are
not declared in any prior period.

4. RIGHTS ON LIQUIDATION, DISSOLUTION AND WINDING UP.

LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, holders of
Series A Shares shall be entitled to be paid out of the assets of the
Corporation available for distribution to shareholders an amount equal to $1.593
per share of Series A Shares held, plus any declared and unpaid dividends
thereon without interest before any payment shall be made to the holders of the
Common Stock or any other equity security of the Corporation ranking as to
liquidation preference junior to the Series A Preferred. After such payment
shall have been made in full to the holders of Series A Shares they shall be
entitled to no further participation in the distribution of the assets of the
Corporation.

5. CONVERSION. The holders of Series A Preferred shall have
conversion rights as follows:

5.1. RIGHT TO CONVERT. Each share of Series A Preferred shall be
convertible, at the option of the holder thereof, at any time after issuance, at
the office of the Corporation or any transfer agent for the Series A Preferred,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by multiplying (x) one hundred (100) by (y) the quotient of $.01593
divided by the Series A Conversion Price. The Series A Conversion Price shall
initially be $.01593 and shall be subject to adjustment as hereinafter provided.

5.2. MECHANICS OF CONVERSION. Before any holder of Series A
Preferred shall be entitled to convert the same into shares of Common Stock,
he shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Series A
Preferred, and shall give written notice to the corporation at such office
that he elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of business
on the date of such surrender of the shares of Series A Preferred to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.

5.3. FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred. Fractional shares shall
not be issued and in lieu of

<PAGE>

any fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
applicable Series A Conversion Price.

5.4. ADJUSTMENT OF SERIES A CONVERSION PRICE. The Series A
Conversion Price for each Series A Share, whether or not issued, shall be
subject to adjustment from time to time as follows:

5.4.1. If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
common Stock or by a subdivision or split-up of shares of Common Stock, then on
the date such payment is made or such change is effective, the Series A
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable upon conversion of any share of Series A Preferred
shall be increased in proportion to such increase of outstanding shares.

5.4.2. If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then on the effective date of such combination, the
Series A Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable upon conversion of any shares of Series A
Preferred shall be decreased in proportion to such decrease of outstanding
shares.

5.5. REORGANIZATIONS, MERGERS, ETC. If at any time after the date
hereof there occurs any capital reorganization, or any reclassification of any
stock of the Corporation (other than a change in par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), or the
consolidation or the merger of the Corporation with or into another person
(other than a consolidation or merger in which the Corporation is the continuing
entity and which does not result in any change in the Common Stock), or the sale
or other disposition of all or substantially all of the properties and assets of
the Corporation as an entity to any other person, the shares of the Series A
Preferred shall, after such reorganization, reclassification, consolidation,
merger, sale or other disposition, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation or of the
entity resulting from such consolidation or surviving such merger or to which
such properties and assets shall have been sold or otherwise disposed of to
which such holder would have been entitled if, immediately prior to such
reorganization, reclassification, consolidation, merger, sale or other
disposition, he had converted his shares of Series A Preferred into Common
Stock. The provisions of this Section 5.5 shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales or other
dispositions.

6. NO IMPAIRMENT. The Corporation shall not by amendment to its
Certificate of Incorporation or through any reorganization, transfer or assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but shall at
all times in good faith assist in the carrying out of all of the provisions of
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series A
Preferred against impairment.

7. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price pursuant to Section
5, the Corporation at its

<PAGE>

expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of affected
Series A Preferred a certificate, which shall be certified by the
Corporation's accountants if required by such holder, setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon written
request at any time of any holder of Series A Preferred, furnish or cause to
be furnished to such holder a like certificate setting forth (a) such
adjustments or readjustments, (b) the Series A Conversion Price in effect,
and (c) the number of shares of Common Stock and the amount, if any, of other
property that at the time would be received upon the conversion of the Series
A Preferred.

8. NOTICE OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Series A Preferred, at least twenty (20) days prior
to the date specified herein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.

9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series A Preferred such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the then outstanding shares of Series A Preferred, the Corporation
shall take such corporate action as may in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.

10. NOTICES. Any notice required to be given to the holder of shares
of Series A Preferred shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation.

11. AMENDMENTS AND CHANGES.

As long as any of the Series A Preferred shall be issued and
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the total number of shares of Series A Preferred then outstanding:

11.1 Increase the number of authorized shares of Series A
Preferred.

11.2 Create any new class or series of shares having rights on a
parity with or superior to the rights of the Series A Preferred.

<PAGE>

11.3 Amend or change the Corporation's Certificate of
Incorporation or Bylaws in a manner which materially and adversely affects the
rights of the Series A Preferred.

11.4 Materially or adversely alter or change the preferences,
rights, privileges, powers or the restrictions provided for the benefit of the
Series A Shares.

11.5 Amend this Section 11.

12. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Series A
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares that the Corporation shall be
authorized to issue.

IN WITNESS WHEREOF, InfoNow Corporation has caused this certificate to be
executed by its Chairman of the Board and attested by its Secretary this 3rd day
of February, 1995.

INFONOW CORPORATION

By: /s/ GENE R. COPELAND
---------------------------------
Gene Copeland
Chief Executive Officer

[SEAL]

ATTEST:

/s/ ROBIN BRADBURY
- ---------------------------------
Robin M. Bradbury, Secretary

Dated: February 3, 1995

<PAGE>

Page 1

State of Delaware

Office of the Secretary of State
_________________________

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "INFONOW CORPORATION", FILED IN THIS OFFICE ON THE SEVENTH DAY OF APRIL, A.D.
1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.

[STATE SEAL]

[SEAL] /s/ EDWARD J. FREEL
--------------------------------------
Edward J. Freel, Secretary of State
2245005 8100
AUTHENTICATION: 7466817
950077427 DATE: 04-10-95

<PAGE>

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

INFONOW CORPORATION

INFONOW CORPORATION, a corporation organized and existing under and by
virtue of the General Corporaion Law of the State of Delaware, DOES HEREBY
CERTIFY:

FIRST: That the amendments to the Certificate of Incorporation of the
corporation set forth in the following resolutions adopted by the corporation's
Board of Directors and stockholders have been duly declared to be advisable by
the Board of Directors of the corporation and duly proposed by such Board of
Directors to the stockholders of the corporation and have been duly adopted by
the written consent of the holders of a majority of all outstanding shares of
capital stock of the corporation entitled to vote thereon and by a majority of
all outstanding shares of capital stock of each class entitled to vote thereon
as a class, in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware:

RESOLVED: That the first paragraph of Article FOURTH of the
corporation's Certificate of Incorporation be amended in its
entirety to read as follows:

"The total number of shares of stock which the
Corporation is authorized to issue is Seventeen Million
(17,000,000) shares of which Fifteen Million
(15,000,000) shares of the par value of $.001 each are
Common Stock and Two Million (2,000,000) shares of the
par value of $.001 each are Preferred Stock."

RESOLVED: that the Certificate of Incorporation of the corporation be
amended by adding a new Article NINTH as follows:

NINTH: Each share of the Corporation's Common Stock,
$.001 par value, issued at the time a Certificate
of Amendment containing this amendment is filed
with the Secretary of State of the State of
Delaware shall be and hereby is automatically
changed and reclassified without further action
into one twenty-fifth (1/25) of a fully paid and
nonassessable share, $.001 par value, of the
Corporation's Common

<PAGE>

Stock, provided that no fractional shares shall
be issued to any stockholder pursuant to such
change and reclassification. The Corporation
may issue to each stockholder who would
otherwise be entitled to a fractional share as a
result of such change and reclassification a
number of shares rounded up to the next whole
share.

IN WITNESS WHEREOF, said InfoNow Corporation has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Gene R. Copeland,
its President and Robin Bradbury, its Secretary, this 29th day of March, 1995.

INFONOW CORPORATION

By: /s/ GENE R. COPELAND
--------------------------
President

By: /s/ ROBIN BRADBURY
--------------------------
Secretary

<PAGE>
INFONOW CORPORATION

1990 STOCK OPTION PLAN

(AMENDED AND RESTATED AS OF MARCH 21, 1996)

1. PURPOSE OF THE PLAN.

This stock option plan (the "Plan") is intended to encourage ownership
of the stock of INFONOW CORPORATION, a Delaware corporation (the "Company"), by
employees of the Company and its subsidiaries, to induce qualified personnel to
enter and remain in the employ of the Company or its subsidiaries and otherwise
to provide additional incentive for optionees to promote the success of its
business.

2. STOCK SUBJECT TO THE PLAN.

(a) The total number of shares of the authorized but unissued or
treasury shares of the common stock, $.001 par value, of the Company ("Common
Stock") for which options may be granted under the Plan shall not exceed
1,000,000 shares, subject to adjustment as provided in Section 12 hereof.

(b) If an option granted or assumed hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for subsequent option grants
under the Plan.

(c) Stock issuable upon exercise of an option granted under the Plan
may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors of the Company
(the "Board").

3. ADMINISTRATION OF THE PLAN.

(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company if each member of the Board is a "disinterested person"
as defined in Rule 16b-3 as promulgated under the Securities Exchange Act of
1934. If each member of the Board is not a disinterested person, the Plan shall
be administered by a committee of two or more directors, each of whom is a
disinterested person.

(b) Rule 16b-3 under the Securities Exchange Act of 1934 (the "Act")
provides that the grant of a stock option to a director or officer of a company
will be exempt from the provisions of Section 16(b) of the Act if the conditions
set forth in said Rule are satisfied. Unless otherwise specified by the Board,
grants of options hereunder to individuals who are officers or directors of the
Company shall be made in a manner that satisfies the

-1-
<PAGE>

conditions of said Rule.

4. TYPE OF OPTIONS.

Options granted pursuant to the Plan shall be authorized by action of
the Board (or a committee designated by the Board) and may be designated as
either incentive stock options meeting the requirements of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified options
which are not intended to meet the requirements of such Section 422A of the
Code, the designation to be in the sole discretion of the Board. Options
designated as incentive stock options that fail to continue to meet the
requirements of Section 422A of the Code shall be redesignated as non-qualified
options automatically without further action by the Board on the date of such
failure to continue to meet the requirements of Section 422A of the Code.

5. ELIGIBILITY.

Options designated as incentive stock options may be granted only to
officers and key employees of the Company or of any subsidiary corporation
(herein called "subsidiary" or "subsidiaries"), as defined in Section 425 of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations").
Options designated as non-qualified options may be granted to officers and key
employees of the Company or of any of its subsidiaries.

Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted an option pursuant to the Plan.

In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
individual, the Board shall take into account the position and responsibilities
of the individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Board may deem relevant.

No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock representing more than 10% of the voting
power or more than 10% of the value of all classes of stock of the Company or a
parent or a subsidiary (a "Ten-Percent Shareholder"), unless the purchase price
for the stock under such option shall be at least 110% of its fair market value
at the time such option is granted and the option, by its terms, shall not be
exercisable more than five (5) years from the date it is granted. In determining
the stock ownership under this paragraph, the provisions of Section 425(d) of
the Code shall be controlling. In determining the fair market value under this
paragraph, the provisions of Section 7 hereof shall apply.

-2-
<PAGE>

6. OPTIONS AGREEMENT.

Each option shall be evidenced by an option agreement (the
"Agreement") duly executed on behalf of the Company and by the optionee to whom
such option is granted, which Agreement shall comply with and be subject to the
terms and conditions of the Plan. The Agreement may contain such other terms,
provisions Al conditions which are not inconsistent with the Plan as may be
determined by the Board, provided that options designated as incentive stock
options shall meet all of the conditions for incentive stock options as defined
in Section 422A of the Code. No option shall be granted within the meaning of
the Plan and no purported grant of any option shall be effective until the
Agreement shall have been duly executed on behalf of the Company and the
optionee. More than one option may be granted to an individual.

7. OPTION PRICE.

The option price or prices of shares of Common Stock for options
designated as non-qualified stock options shall be the fair market value of
Common Stock as determined by the Board. The option price or prices of shares of
Common Stock for incentive stock options shall be the fair market value of such
Common Stock at the time the option is granted as determined by the Board in
accordance with the Regulations promulgated under Section 422A of the Code. If
such shares are then listed on any national securities exchange, the fair market
value shall be the mean between the high and low sales prices, if any, on the
largest such exchange on the date of the grant of the option or, if none, shall
be determined by taking a weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant in accordance with Treasury Regulations Section 25.2512-2. If such shares
are not then listed on any such exchange, the fair market value of such shares
shall be the mean between the closing "Bid" and the closing "Ask" prices, if
any, as reported in the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") for the date of the grant of the option, or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales on the nearest date before and the nearest date after
the date of grant in accordance with Treasury Regulations Section 25.2512-2. If
such shares are not then either listed on any such exchange or quoted on NASDAQ,
the fair market value shall be the mean between the average of the "Bid" and the
average of the "Ask" prices, if any, as reported in the National Daily Quotation
Service for the date c. the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant in accordance with Treasury Regulations Section 25.2512-2. If the fair
market value cannot be determined under the preceding three sentences, it shall
be determined in good faith by the Board.

8. MANNER OF PAYMENT: MANNER OF EXERCISE.

(a) Options granted under the Plan may provide for the payment of the

-3-
<PAGE>

exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price of the options being exercised, or (iii)
any combination of (i) and (ii), provided, however, that payment of the exercise
price by delivery of shares of Common Stock owned by such optionee may be made
only if such payment does not result in a charge to earnings for financial
accounting purposes as determined by the Board. The fair market value of any
shares of Common Stock which may be delivered upon exercise of an option shall
be determined by the Board in accordance with Section 7 hereof. Pyramiding of
options is permitted in the sole discretion of the Board.

(b) To the extent that the right to purchase shares under an option
has accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, not more than thirty days (30)
from the date of receipt of the notice by the Company, as shall be designated in
such notice, or at such time, place and manner as may be agreed upon by the
Company and the person or persons exercising the option.

(c) With respect to any non-qualified option granted under the Plan,
the Company's obligation to deliver shares upon the exercise of such option
shall be subject to the option holder's satisfaction of all applicable federal,
state and local income and employment tax withholding requirements. The Company
and an employee optionee may agree to withhold shares of Common Stock purchased
upon exercise of an option to satisfy any such withholding requirements.

9. EXERCISE OF OPTIONS.

Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable at such time or times and during such period
as shall be set forth in the Agreement; provided, however, that no option
granted under the Plan shall have a term in excess of ten (10) years from the
date of grant.

To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
1,000 full shares of Common Stock.

-4-
<PAGE>

10. TERMS OF OPTIONS: EXERCISABILITY.

(a) TERM.

(1) Options granted under the Plan shall be for a term fixed by
the Board at the time of grant; provided, however, that each incentive stock
option granted to an employee other than a Ten-Percent Shareholder shall expire
not more than ten (10) years from the date of the granting thereof, and shall be
subject to earlier termination as herein provided.

(2) Each incentive stock option granted to a Ten Percent
Shareholder shall expire not more than five (5) years from the date of the
granting thereof, and shall be subject to earlier termination as herein
provided.

(3) Except as otherwise provided in this Section 10, an option
granted to any employee optionee who ceases to be an employee of the Company or
one of its subsidiaries shall terminate on the last day of the month next
following the month in which such optionee ceases to be an employee of the
Company or one of its subsidiaries, or on the date on which the option expires
by its terms, whichever occurs first.

(4) If such termination of employment is because of dismissal
for cause or because the employee is in breach of any employment agreement, such
option will terminate on the date the optionee ceases to be an employee of the
Company or one of its subsidiaries.

(5) If such termination of employment is because the optionee
has become permanently disabled (within the meaning of Section 105(b)(4) of the
Code), such option shall terminate on the last day of the twelfth month from the
date such optionee ceases to be an employee, or on the date on which the option
expires by its terms, whichever occurs first.

(6) In the event of the death of any optionee, any option
granted to such optionee shall terminate on the last day of the twelfth month
from the date of death, or on the date on which the option expires by its terms,
whichever occurs first.

(b) EXERCISABILITY.

(1) Except as provided below, an option granted to an employee
optionee who ceases to be an employee of the Company or one of its subsidiaries
shall be exercisable only to the extent that the right to purchase shares under
such option has accrued and is in effect on the date such optionee ceases to be
an employee of the Company or one of its subsidiaries.

(2) An option granted to an employee optionee who ceases to be
an employee of the Company or one of its subsidiaries because he or she has
become permanently

-5-
<PAGE>

disabled, as defined above, shall be exercisable for the full number of shares
covered by such option.

(3) In the event of the death of any optionee, the option
granted to such optionee may be exercised for the full number of shares covered
thereby, whether or not under provisions of Section 9 hereof the optionee was
entitled to do so at the date of his or her death, by the estate of such
optionee, or by any person or persons who acquired the right to exercise such
option by bequest or inheritance or by reason of the death of such optionee.

11. OPTIONS NOT TRANSFERABLE.

The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such optionee only by him. Any option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the option is granted, or upon any attempted assignment or
transfer, except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition, attachment, trustee process or similar process, whether legal
or equitable, upon such option.

12. RECAPITALIZATIONS. REORGANIZATIONS AND THE LIKE.

In the event that the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in the number and kind of shares as to which options
may be granted under the Plan and as to which outstanding options or portions
thereof then unexercised shall be exercisable, to the end that the proportionate
interest of the optionee shall be maintained as before the occurrence of such
event; such adjustment in outstanding options shall be made without change in
the total price applicable to the unexercised portion of such options and with a
corresponding adjustment in the option price per share.

In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the shareholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Board may cancel all outstanding options in exchange for consideration in cash
or in kind which consideration in both cases shall be equal in value to the
value of those shares of stock or other securities the optionee would have
received had the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise been made prior to such
sale, conveyance or Change in

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<PAGE>

Control, less the option price there for. Upon receipt of such consideration
by the optionee, his or her option shall immediately terminate and be of no
further force and effect. The value of the stock or other securities the
optionee would have received if the option had been exercised shall be
determined in good faith by the Board, and in the case of shares of Common
Stock, in accordance with the provisions of Section 7 hereof. The Board shall
also have the power and right to accelerate the exercisability of any
options, notwithstanding any limitations in this Plan or in the Agreement
upon such a sale, conveyance or Change in Control. Upon such acceleration,
any options or portion thereof originally designated as incentive stock
options that no longer qualify as incentive stock options under Section 422A
of the Code as a result of such acceleration shall be redesignated as
non-qualified stock options. A "Change in Controls shall be deemed to have
occurred if any person, or any two or more persons acting as a group, and all
affiliates of such person or persons, who prior to such time owned less than
twenty-five percent (25%) of the then outstanding Common Stock, shall acquire
such additional shares of Common Stock in one or more transactions, or series
of transactions, such that following such transaction or transactions, such
person or group and affiliates beneficially own fifty percent (50%) or more
of Common Stock outstanding.

Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or otherwise associated with the Company or any of its
subsidiaries) shall have the right, immediately prior to such dissolution or
liquidation, to exercise his or her option to the extent then exercisable.
If by reason of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization, or liquidation, the Board shall authorize
the issuance or assumption of a stock option or stock options in a
transaction to which Section 425(a) of the Code applies, then,
notwithstanding any other provision of the Plan, the Board may grant an
option or options upon such terms and conditions as it may deem appropriate
for the purpose of assumption of the old option, or substitution of a new
option for the old option, in conformity with the provisions of such Section
425(a) of the Code and the Regulations thereunder, and any such option shall
not reduce the number of shares otherwise available for issuance under the
Plan.

No fraction of a share shall be purchasable or deliverable upon the
exercise of any option, but in the event any adjustment hereunder of the number
of shares covered by the option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.

13. NO SPECIAL EMPLOYMENT RIGHTS.

Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary) or interfere in any
way with the right of the Company (or any subsidiary), subject to the terms of
any separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Whether an
authorized

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<PAGE>

leave of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Board at the time.

14. RESTRICTIONS ON ISSUE OF SHARES.

(a) Notwithstanding the provisions of Section 8, the Company may
delay the issuance of shares covered by the exercise of any option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:

(1) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable federal and state securities acts now in force or as
hereafter amended; or

(2) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares are
exempt from registration and qualification under applicable federal and state
securities acts now in force or hereafter amended.

(b) It is intended that all exercises of options shall be effective,
and the Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.

15. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.

Unless the shares to be issued upon exercise of an option granted
under the Plan have been effectively registered under the Securities Act of
1933, as now in force or hereafter amended tithe "1933 Act"), the Company shall
be under no obligation to issue any shares covered by any option unless the
person who exercises such option, in whole or in part, shall give a written
representation and undertaking to the Company which is satisfactory in form and
scope to counsel for the Company and upon which, in the opinion of such counsel,
the Company may reasonably rely, that he or she is acquiring the shares issued
pursuant to such exercise of the option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable to register under the 1933 Act or
other applicable statutes any shares with respect to which an option shall have
been exercised, or to qualify any such shares for exemption from the 1933 Act or
other applicable statutes, then the Company may take such action and may require
from each optionee such

-8-
<PAGE>

information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus or offering
circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such
use of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
requires to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.

16. LOANS.

The Company may make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable federal and
state laws and regulations regarding such loans must be met.

17. MODIFICATION OF OUTSTANDING OPTIONS.

The Board may authorize the amendment of any outstanding option with
the consent of the optionee when and subject to such conditions as are deemed
to be in the best interests of the Company and in accordance with the
purposes of the Plan.

18. APPROVAL OF STOCKHOLDERS.

The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company voting in
person or by proxy at a duly held stockholders meeting, or by written consent
of all of the stockholders, within twelve (12) months after the adoption of
the Plan by the Board and shall take effect as of the date of adoption by the
Board upon such approval. The Board may grant options under the Plan prior to
such approval, but any such option shall become effective as of the date of
grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.

19. TERMINATION AND AMENDMENT OF PLAN.

Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board.
The Board may at any time terminate the Plan or make such modification or
amendment thereof as it deems advisable; provided, however, that except as
provided in this Section 19, the Board may not, without the approval of the
stockholders of the Company obtained in the manner stated in Section 18,
increase the maximum number of shares for which options may be granted or change
the designation of the class of persons eligible to receive options under the
Plan. Termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
theretofore granted to him or her.

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<PAGE>

20. RESERVATION OF STOCK.

The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.

21. LIMITATION OF RIGHTS IN THE OPTION SHARES.

An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.

22. NOTICES.

Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.

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<PAGE>

STOCK PURCHASE AND SALE AGREEMENT

This Stock Purchase and Sale Agreement (the "Agreement") is entered into as
of this 13th day of December, 1996, by and among VDC PARADIGMS, INC., A
California corporation ("Buyer"), INFONOW CORPORATION, a Delaware corporation
("Seller"), DAVID WERTZBERGER ("David") and CRAIG MICHAELIS ("Craig").

RECITALS

A. Seller is the sole shareholder of INFOMERGERCO, INC. d.b.a. "NAVIGIST",
INC.", a Colorado corporation ("Navigist"), which conducts business in the State
of California.

B. David and Craig (collectively, "Owners") are the sole shareholders of
buyer and are employees of Navigist. Owners were also employees and
shareholders of Navigist's predecessor, also know as "Navigist, Inc.", which was
acquired by Seller as its subsidiary on August 23, 1995 through a triangular
merger.

C. Seller and Owners desire to disassociate completely, severing all prior
and existing relationships among them in connection with Navigist, through the
purchase by Buyer of all of the outstanding shares of Navigist and the
termination of all contracts and obligations between and among Navigist, Seller
and Owners.

D. In connection with the representations and warranties given herein, the
parties recognize that their ability to rely upon a representation or warranty
by another party is limited to the extent that the party making the
representation or warranty has knowledge of the facts superior to the knowledge
of the party to whom the representation is made. In that regard, Owners have
managed the day to day business and operations of Navigist in San Jose,
California, and Seller has managed the Board and certain administrative,
financial, tax and corporate matters for Navigist.

AGREEMENT

NOW, THEREFORE, the parties hereby agree as follows:

1. DEFINITIONS. As used herein the following terms, and their derivatives,
shall have the meanings set forth below:

(a) "Assets" shall mean all of the assets used in the operation of
the Business, including, without limitation, those listed on Exhibit "A"
attached hereto and incorporate herein by this reference.

<PAGE>

(b) "Business" shall mean the business presently conducted by
Navigist at 2107 North First Street, Suite 360, San Jose, CA 95131.

(d) "Closing Date" shall mean the day, which is no more than five (5)
days following the date of this Agreement, for the Closing as Buyer and Seller
may hereafter mutually agree.

(e) "Collateral" shall mean the "Collateral", as such term is defined in
the Security Agreement.

(f) "Confidentiality Agreements" shall mean those certain Confidentiality
and Assignment of Proprietary Inventions Agreements dated August 23, 1996
between Seller and Owners.

(g) "Contracts" shall mean the contracts, agreements and obligations of
Navigist listed on Exhibit "B" attached hereto and incorporated herein by this
reference.

(h) "Debt Payment" shall mean Ninety Seven Thousand Dollars ($97,000.00) to
be paid by Seller to Navigist at the Closing.

(i) "Employment Agreements" shall mean those certain Employment Agreements
dated August 23, 1995 by and between Seller and Owners.

(j) "Escrow Agreement" shall mean that certain Escrow Agreement dated
August 23, 1996 by and among Seller, Buyer, Owners and Former Shareholders and
Cooley, Godard, Castro, Huddleson and Tatum pursuant to which the Shares are
held subject to the Security Agreement.

(k) "Financial Statements" shall mean all of the statements of earnings,
balance sheets and cash flows of Navigist.

(l) "Financing Statements" shall mean all of those certain UCC-1 Financing
Statements identified on Exhibit "C" attached hereto and incorporated herein by
this reference which evidence the security interest granted under the Security
Agreement.

(m) "Former Shareholders" shall mean Paul D. Barker and Michael S.
Yates.

(n) "Liabilities" shall mean the liabilities of Navigist of the
nature listed by payee and amount on Exhibit "D" attached hereto.

(o) "Navigist Debt" shall mean all debts owed by Navigist to Seller,
including, without limitation, the notes payable in the amount of One Hundred
Forty Two Thousand Five Hundred ($142,500.00).

<PAGE>

(p) "Owner Releasees" shall mean Owners and their respective spouses,
Navigist and its past, present and future employees and agents, their respective
heirs, successors and assigns, and their respective insurance carriers and
attorney's.

(q) "Purchase Price" shall mean One Dollar ($1.00).

(r) "Secured Notes" shall mean those certain Secured Convertible
Promissory Notes of Seller dated August 23, 1995 in the aggregate amount of
Twenty Seven Thousand Nine Hundred Forty Dollars ($27,940.00) issued to Owners.

(s) "Security Agreement" shall mean that certain Stock Pledge and
Security Agreement dated August 23, 1995 between Seller and Owners and the
Former Shareholders which secures the Secured Notes.

(t) "Seller Releasees" shall mean Seller and its past, present and
future officers, directors, shareholders, employees and agents, their respective
heirs, successors and assigns, and their respective insurance carriers and
attorney's.

(u) "Shares" shall mean the Ten Thousand (10,000) Shares of Navigist
common stock held of record by Seller represented by Share Certificate number
C-1.

(v) "Stock" shall mean two hundred seventy four thousand fifty
(274,050) of those two hundred seventy eight thousand six hundred thirty
(278,630) shares of Seller's common stock held of record by Owners represented
by Share Certificate Numbers 880, 882, 883, 884, 886, 887, 894, 895, 896 and
897.

(w) "Stock Transfers" shall mean assignments separate from
certificate pursuant to which Owners transfer by gift shares of Seller's common
stock held by them to persons as set forth on Exhibit "E" attached hereto.

(x) "Terminating Obligations" shall mean all of the contracts,
obligations and agreements listed on Exhibit "F" attached hereto which are to be
terminated upon the Closing.

2. PURCHASE AND SALE.

2.1 PURCHASE AND SALE OBLIGATIONS. Subject to the terms and
conditions of this Agreement, at the Closing Seller shall sell, transfer,
convey, assign and deliver the Shares to Buyer and terminate the Terminating
Obligations, and Buyer shall purchase the Shares from Seller, terminate the
Terminating Obligations and transfer the Stock to Seller.

<PAGE>

2.2. CLOSING. The Closing shall take place on the Closing Date at
10:00 a.m. at the offices of Sweeney, Mason & Wilson, A Professional Law
Corporation, 983 University Avenue, Suite 104-C, Los Gatos, California, or at
such other time and place as Buyer and Seller may mutually agree.

2.3 OBLIGATIONS AT CLOSING.

(a) SELLER'S OBLIGATIONS. At the Closing, Seller shall deliver
to Buyer the following:

(i) Share Certificate Number C-1 of Navigist together with
a duly executed Assignment Separate From Certificate in a form approved by buyer
effecting the transfer of the Shares to Buyer;

(ii) The corporate books and records of Navigist;

(iii) The written resignations of all of the officers and
directors of Navigist;

(iv) Duly executed UCC-2 or UCC-3 Financing Statements or
other releases in forms acceptable to Buyer of all security interests in or to
the Assets other than security interests held by Owners or the Former
Shareholders;

(v) Duly executed releases from the Former Shareholders in
forms approved by Seller effecting the release of the Shares from the Escrow
Agreement;

(vi) The Debt Payment by wire transfer; and

(vii) A duly executed release of the Navigist Debt in a
form approved by Buyer together with all promissory notes evidencing the same
marked as cancelled.

(b) BUYER'S AND OWNERS' OBLIGATIONS. At the Closing, Buyer
and Owners, as applicable, shall deliver to Seller the following:

(i) One Dollar ($1.00) as payment of the Purchase
Price;

(ii) Duly executed UCC-2 or UCC-3 Financing Statements
in forms approved by Seller effecting the release of Owners' security interest
in the Collateral;

<PAGE>

(iii) Duly executed releases of the Secured Notes in
forms approved by Seller together with the Secured Notes marked as cancelled;

(iv) Share Certificate Numbers 880, 882, 883, 884,
886, 887, 894, 895, 896 and 897 of Seller together with a duly executed
Assignment Separate From Certificate in a form approved by Seller effecting the
transfer of the Stock to Seller and duly executed Stock Transfers; and

(v) A duly executed guaranty by Navigist of Buyer and
Owners' indemnity obligations set forth in Section 12 of this Agreement.

3. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and
warrants to Seller that, except as identified on Schedule 3, the facts and
circumstances set forth below are and, except as contemplated hereby, at all
times up to the Closing will be, true and correct, and hereby acknowledges that
such facts and circumstances constitute the basis upon which Seller is induced
to enter into and perform this Agreement.

(a) LEGAL CAPACITY OF BUYER. Buyer is a duly organized California
corporation, with full right, power, legal capacity and authority to enter into
and perform its obligations under this Agreement and all agreements, documents
and instruments executed by Buyer pursuant to this Agreement, and no approvals,
consents, orders, licenses, certificates or permits or any person (other than
parties to the Contracts from whom consent to assignment must be obtained) or
any governmental authority are necessary in connection with its execution,
delivery or performance of this Agreement or any agreements, documents and
instruments executed by Buyer pursuant to this Agreement.

(b) APPROVAL/BINDING EFFECT. The execution, delivery and performance
of this Agreement, and all documents, instruments and agreements executed by
Buyer pursuant to this Agreement, have been authorized by all necessary action
by buyer. Upon the execution of this Agreement by all parties hereto, Buyer's
obligations under this Agreement will constitute the legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their terms.

(c) ACKNOWLEDGMENT. Buyer acknowledges and agrees that there no
warranties or representations whatsoever are made with respect to the Assets
except for those regarding title and otherwise expressly set forth below.

4. OWNERS' REPRESENTATIONS AND WARRANTIES. Owners, (severally and not
jointly as to subsections (a) through (c) and jointly and severally as to
subsections (d) through (p), hereby represent and

<PAGE>

warrant to Seller that, except as identified on Schedule 4, the facts and
circumstances set forth below are and, except as contemplated hereby, at all
times up to the Closing will be, true and correct, and hereby acknowledge that
such facts and circumstances constitute the basis upon which seller is induced
to enter into and perform this Agreement.

(a) LEGAL CAPACITY OF OWNERS. He has full right, power, legal
capacity and authority to enter into and perform his obligations under this
Agreement and all agreements, documents and instruments executed by him pursuant
to this Agreement, and no approvals, consents, orders, licenses, certificates or
permits of any person (other than parties to the Contracts from whom consent to
assignment must be obtained) or any governmental authority are necessary in
connection with his execution, delivery or performance of this Agreement or any
agreements, documents and instruments executed by him pursuant to this
Agreement.

(b) APPROVAL/BINDING EFFECT. Upon the execution of this Agreement by
all parties hereto, his obligations under this Agreement will constitute the
legal, valid and binding obligations, enforceable against him in accordance with
their terms

(c) TITLE TO STOCK UPON CLOSING. Upon the Closing, Buyer will have
good and marketable title to all of the Stock formerly held by him, free and
clear of any and all restrictions on transfer (other than those imposed by
securities laws) and all claims, liens and encumbrances or any nature.

(d) LEGAL CAPACITY OF BUYER. Buyer is a duly organized California
corporation, with full right, power, legal capacity and authority to enter into
and perform its obligations under this Agreement and all agreements, documents
and instruments executed by Buyer pursuant to this Agreement, and no approvals,
consents, orders, licenses, certificates or permits of any person (other than
parties to the Contracts from whom consent to assignment must be obtained) or
any governmental authority are necessary in connection with its execution,
delivery or performance of this Agreement or any agreements, documents and
instruments executed by Byer pursuant to this Agreement.

(e) APPROVAL/BINDING EFFECT. The execution, delivery and performance
of this Agreement, and all documents, instruments and agreements executed by
Buyer pursuant to this Agreement, have execution of this Agreement by all
parties hereto, Buyer's obligations under this Agreement by all parties hereto,
Buyer's obligations under this Agreement will constitute the legal, valid and
binding obligations of Buyer, enforceable against Buyer in accordance with their
terms.

<PAGE>

(f) NO BREACHES. To the best of Owners' knowledge, neither the entry
into this Agreement nor the consummation of the transactions contemplated hereby
will result in or constitute any of the following:

(i) A default, breach or violation, or any event that with
notice or lapse of time, or both, would constitute a default, breach or
violation of any lease, contract, agreement, instrument, commitment, obligation
or arrangement by which Navigist offer the Assets are bound;

(ii) The creation or imposition of any lien, charge or
encumbrance on any of the Assets; or

(iii) The violation of any law, rule, regulation, ordinance,
judgment, order, writ, injunction or decree applicable to or affecting Navigist
or the Assets.

(g) COMPLIANCE WITH LAWS. To the best of Owners' knowledge, Navigist
has materially complied with, and is not in violation of, applicable federal,
state and local statutes, laws regulations and ordinances (including without
limitation any applicable building, zoning, environmental protection and
hazardous material statutes, laws, regulations and ordinances) affecting the
Business or the Assets.

(h) COMPLIANCE WITH OTHER INSTRUMENTS. To the best of Owners'
knowledge, Navigist is not in violation or default of any provisions of its
Articles of Incorporation or Bylaws or of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or of any
provision of federal or state statute, rule or regulation applicable to
Navigist. The execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of Navigist.

(i) LITIGATION. To the best of Owners' knowledge, there have not
been, and as of the Closing Date since the date of this Agreement there will not
have been, any actions, proceedings, judgments or liens initiated or threatened
by or against Navigist or any of the Assets for amounts in excess of Ten
Thousand Dollars ($10,000.00) individually or Fifty Thousand Dollars
($50,000.00) in the aggregate, whether or not covered by insurance.

(j) TAXES. To the best of Owners' knowledge, within the times and in
the manner prescribed by law, Seller has filed, or will

<PAGE>

timely file, all federal, state and local income tax returns for Navigist and
has paid or deposited, or will timely pay, all income taxes, assessments and
penalties required with respect to the Business prior to the Closing Date. To
the best of Owners' knowledge, all sales and use taxes, withholdings, including
employment taxes, and other tax liabilities and assessments of the Business
accruing prior to the Closing Date have been, or will timely be, fully satisfied
or provided for; and to the best of Owners' knowledge there are no present
disputes as to taxes of any nature payable by Seller or Navigist with respect to
the Business.

(k) LIST OF CONTRACTS. To the best of Owner's knowledge, the list of
contracts attached hereto as Exhibit "B" is a true, accurate and complete
listing of all of the material contracts, leases, insurance policies, agreements
and obligations of the Business, meaning those providing for monthly or total
payment in excess of Five Thousand Dollars ($5,000.00), including without
limitation distributor, customer, vendor, maintenance and service contracts.
Seller has been provided with copies of true and complete copies of each such
contract, agreement or obligation, as amended, which Seller has requested. To
the best of Owners' knowledge, all such contracts, agreements, and obligations
are in full force and effect and no event has occurred which, with notice or
lapse or time or both, would constitute a breach by either party to any such
contract, agreement or obligation intends to breach, cancel or terminate the
same.

(l) STATUS OF ASSETS. To the best of Owners' knowledge, the Assets
are all of the material assets, meaning a value of more than Five Thousand
Dollars ($5,000.00), used in the operation of the Business as of the date of
this Agreement and are the assets of Navigist. To the best of Owners'
knowledge, the Assets are free and clear of any and all restrictions on transfer
and all claims, liens and encumbrances or any nature. To the best of Owners'
knowledge, no person or entity has any right, claim, title or interest in or to,
nor asserted any right, claim, title or interest in or to, any of the Assets or
the Business. To the best of Owners' knowledge, with respect to the property
and assets Navigist leases, Navigist is in compliance with such leases and, to
its knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.

(m) STATUS OF LIABILITIES. To the best of Owners' knowledge, the
list of liabilities attached hereto as Exhibit "D" is a complete list of all of
the material liabilities, meaning greater than One Thousand Dollars ($1,000.00),
of Navigist. The liabilities listed on Exhibit "D" are liabilities of only
Navigist and not Seller, irrespective of whether the underlying obligation was
incurred in the name of Seller and irrespective of any claim that Seller was the
beneficiary of products or services underlying such liabilities.

<PAGE>

(n) ACCURACY OF FINANCIAL STATEMENTS. To the best of Owners'
knowledge, the Financial Statements for the Business provided by Owners to
Seller have been, or when prepared will be true and accurate and fairly present
on a consistent basis the financial position of the Business as of the
respective dates of the balance sheets included in such financial statements and
the earnings of its operations and cash flows for the respective periods
indicated.

(o) NO MATERIAL FINANCIAL CHANGES. To the best of Owners' knowledge,
since the date of the last Financial Statement of the business provided to
Seller there has not been any:

(i) Transaction by Navigist except in the ordinary course of
business as conducted on that date;

(ii) Capital expenditure by Navigist exceeding Two Thousand
Dollars ($2,000.00); or

(iii) Material adverse change in the financial condition,
liabilities, assets, or prospects of the Business.

5. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby represents and
warrants to Buyer and Owners that, except as identified on Schedule 5, the facts
and circumstances set forth below are and, except as contemplated hereby, at all
times up to the Closing will be, true and correct, and hereby acknowledge that
such facts and circumstances constitute the basis upon which Buyer and Owners
are induced to enter into and perform this Agreement.

(a) LEGAL CAPACITY OF SELLER. Seller is a Delaware corporation duly
organized with full right, power, legal capacity and authority to enter into and
perform its obligations under this Agreement and all agreements, documents and
instruments executed by it pursuant to this Agreement, and no approvals,
consents, orders, licenses, certificates or permits of any person (other than
parties to the Contracts from whom consent to assignment must be obtained) or
any governmental authority are necessary in connection with its execution,
delivery or performance of this Agreement or any agreements, documents and
instruments executed by is pursuant to this Agreement.

(b) APPROVAL/BINDING EFFECT. The execution, delivery and performance
of this Agreement, and all documents, instruments and agreements executed by
Seller pursuant to this Agreement, have been authorized by all necessary action
by Seller. Seller's obligations under this Agreement constitute the legal,
valid and binding obligations of Seller, enforceable against Seller in
accordance with their terms.

<PAGE>

(c) NO BREACHES. To the best of Seller's knowledge, neither the
entry into this Agreement nor the consummation of the transactions contemplated
hereby will result in or constitute any of the following:

(ii) The creation or imposition of any lien, charge or
encumbrance on any of the Assets; or

(iii) The violation of any law, rule, regulation, ordinance,
judgment, order, writ, injunction or decree applicable to or affecting Navigist
or the Assets.

(d) CAPITALIZATION OF NAVIGIST. Navigist is a Colorado corporation,
duly organized and in good standing under the laws of the State of Colorado and
is duly qualified to conduct business in the State of California. The
authorized capital stock of Navigist consists of fifty thousand (50,000) shares
of common stock having a par value of $.001 of which ten thousand (10,000)
shares are issued and outstanding. All of the Shares are validly issued, fully
paid and nonassessable, and to the best of Seller's knowledge such shares have
been issued in full compliance with all federal and state securities laws.
There are no outstanding subscriptions, options, rights, warrants, convertible
securities, or other agreements or commitments obligating Navigist to issue or
transfer from treasury any additional shares of its capital stock of any class.

(e) COMPLIANCE WITH LAWS. To the best of Seller's knowledge, Navigist
has materially complied with, and is not in violation of, applicable federal,
State and local statutes, laws, regulations and ordinances (including without
limitation any applicable building, zoning, environmental protection and
hazardous material statutes, laws, regulations and ordinances) affecting the
Business or the Assets.

(d) COMPLIANCE WITH OTHER INSTRUMENTS. To the best of Seller's
knowledge, Navigist is not in violation or default of any provisions of its
Articles or Incorporation or Bylaws or of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or of any
provision of federal or state statute, rule or regulation applicable to
Navigist. The execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in conflict with or constitute, with or

<PAGE>

without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien, charge or encumbrance upon any
assets or Navigist.

(e) TITLE UPON CLOSING. Upon the Closing, Buyer will have good and
marketable title to all of the Shares, free and clear of any and all
restrictions on transfer (except those imposed by securities laws) and all
claims, liens and encumbrances or any nature.

(f) LITIGATION. To the best of Seller's knowledge, there have not
been, and as of the Closing Date since the date of this Agreement there will not
have been, any actions, proceedings, judgments or liens initiated or threatened
by or against Navigist or any of the Assets for amounts in excess of Ten
Thousand Dollars ($10,000.00) individually or Fifty Thousand Dollars
($50,000.00) in the aggregate, whether or not covered by insurance.

(g) TAXES. To the best of Seller's knowledge, within the times and in the
manner prescribed by law, Seller has filed, or will timely and in the manner
prescribed by law, Seller has filed, or will timely file, all federal, state and
local income tax returns for Navigist and has paid or deposited, or will timely
pay, all income taxes, assessments and penalties required with respect to the
Business prior to the Closing Date. To the best of Seller's knowledged, all
sales and use taxes, withholdings, including employment taxes, and other tax
liabilities and assessments of the Business accruing prior to the Closing Date
have been, or will timely be, fully satisfied or provided for; and there are no
present disputes as to taxes of any nature payable by Seller or Navigist with
respect to the Business. Buyer has been provided with copies of true and
complete copies of each such tax return, as amended, and correspondence with
taxing authorities.

(h) LIST OF CONTRACTS. To the best of Seller's knowledge, the list of
contracts attached hereto as Exhibit "B" is a true, accurate and complete
listing of all of the material contracts, leases, insurance policies, agreements
and obligations of the Business, meaning those providing for monthly or total
payment in excess of Five Thousand Dollars ($5,000.00), including without
limitation distributor, customer, vendor, maintenance and service contracts.
Buyer has been provided with copies of true and complete copies of each such
contract, agreement or obligation, as amended, which Buyer has requested. To
the best of Seller's knowledge, all such contracts, agreements and obligations
are in full force and effect and no event has occurred which, with notice or
lapse or time or both, would constitute a breach by either party thereunder. To
the best of Seller's knowledge, no party to any such contract, agreement or
obligation intends to breach, cancel or terminate the same.

<PAGE>

(i) STATUS OF ASSETS. The best of Seller's knowledge, the Assets are
all of the material assets, meaning a value of more than five Thousand Dollars
($5,000.00), used in the operation of the Business as of the date of this
Agreement and are the assets of Navigist. To the best of Seller's knowledge,
the Assets are free and clear of any and all restrictions on transfer and all
claims, liens and encumbrances or any nature. To the best of Seller's
knowledge, no person or entity has any right, claim, title or interest in or to,
nor asserted any right, claim, title or interest in or to, any of the Assets or
the Business. To the best of Seller's knowledge, with respect to the property
and assets Navigist leases, Navigist is in compliance with such leases and, to
its knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.

(j) STATUS OF LIABILITIES. To the best of Seller's knowledge, the
list of liabilities attached hereto as Exhibit "F" is a complete list of all of
the material liabilities, meaning greater that One Thousand Dollars ($1,000.00),
of Navigist. The liabilities listed on Exhibit "D" are liabilities of only
Navigist and not Seller, irrespective of whether the underlying obligation was
incurred in the name of Seller and irrespective of any claim that Seller was the
beneficiary of products or services underlying such liabilities.

(k) ACCURACY OF FINANCIAL STATEMENTS. To the best of Seller's
knowledge, the Financial Statements for the Business provided by Seller to
Owners have been, or when prepared will be, true and accurate and fairly present
on a consistent basis the financial position of the Business as of the
respective dates of the balance sheets included in such financial statements and
the earnings of its operations and cash flows for the respective periods
indicated.

(1) NO MATERIAL FINANCIAL CHANGES. To the best of Seller's knowledge,
since the date of the last Financial Statement of the Business provided to
Owners there has not been any:

(i) Transaction by Navigist except in the ordinary course of business
as conducted o that date;

(ii) Capital expenditure by Navigist exceeding Two Thousand Dollars
($2,000.00); or

(iii) Material adverse change in the financial condition,
liabilities, assets, or prospects of the Business.

6. BUYER'S AND OWNERS' OBLIGATION BEFORE CLOSING. Buyer and Owner agree
and covenant that from the date of this Agreement until the Closing to perform
the obligations set forth below.

<PAGE>

(a) RELEASES FROM FORMER OWNERS. Buyer and Owners shall use their
reasonable best efforts to pursue, in good faith, the release by the Former
Shareholders of their security interests under the Security Agreement and the
release of their rights and interests under the Escrow Agreement.

(b) PERFORMANCE OF EMPLOYMENT AGREEMENTS. Owners shall continue to
perform their respective Employment Agreements, including, without limitation,
negotiating on behalf of Navigist with respect to claims against Navigist,
continuing to operate the Business in its usual and ordinary manner in
accordance with the same methods as the Business has previously been carried on,
including, without limitation, collecting of accounts receivable and paying of
accounts payable.

(c) NO MODIFICATIONS. Owners shall not make or institute any
policies, methods or change that will materially vary from those used by the
Business as of the date of this Agreement. Owners shall not modify, amend,
cancel or terminate any of the contracts of the Business without the prior
written consent of Seller.

(d) PRESERVATION OF RELATIONSHIPS. Owners shall, except to the
extent expressly released thereunder, use their best efforts to preserve the
Business intact, to keep available to the Business its present employees, and to
preserve the present relationships with suppliers, customers and others having
business relationships with the Business.

(e) NO ASSET SALES. Owners shall not sell, transfer, assign, lease
or in any other manner alienate or encumber any of the material Assets except in
the ordinary course of business.

7. OBLIGATIONS OF SELLER BEFORE CLOSING. Seller agrees and covenants that
from the date of this Agreement until the Closing to perform the obligations set
forth below.

(a) NO OFFICE CHANGES. Seller shall not effect any changes in the
officers, directors or employees of the Business.

(b) NO TERMINATIONS. Seller shall not effect the termination of the
Employment Agreements of either Owner.

(c) NO MODIFICATIONS. Seller shall not make or institute any
policies, methods or changes that will materially vary from those used by the
Business as of the date of this Agreement. Seller shall not modify, amend,
cancel or terminate any of the contracts of the Business without the prior
written consent of Seller.

<PAGE>

(d) PRESERVATION OF RELATIONSHIPS. Seller shall use its best efforts
to preserve the Business intact, to keep available to the Business its present
employees, and to preserve the present relationships with suppliers, customers
and others having business relationships with the Business.

(e) NO ASSET SALES. Seller shall not sell, transfer, assign, lease
or in any other manner alienate or encumber any of the material Assets except in
the ordinary course of business.

(f) ELIMINATION OF NAVIGIST DEBT. Seller shall effect the
elimination, without satisfaction, of the Navigist Debt through a contribution
to capital or through a contribution to capital or though some other means
agreed to in writing by Buyer and Seller.

(g) RELEASES FROM FORMER OWNERS. Seller shall use its reasonable
best efforts to pursue, in good faith, the release by the Former Shareholders of
their security interests under the Security Agreement and the release of their
rights and interests under the Escrow Agreement.

8. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. The obligation of Buyer
to purchase the Shares under this Agreement is subject to the complete
satisfaction, at or before the closing, of all of the conditions set forth in
this Section 8. Buyer may waive any or all of these conditions; provided,
however, that no such waiver of a condition shall constitute a waiver by Buyer
of any of its other rights or remedies, at law or in equity, if Seller shall be
in default of any of its representations, warranties or covenants under this
Agreements.

(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties by Seller in this Agreement shall be true as of the Closing as
though made at that time.

(b) SELLER'S PERFORMANCE. Seller shall have in al material respects
performed, satisfied and complied with all covenants required by this Agreement
or any agreement, document or instrument executed pursuant to this Agreement to
be performed, satisfied or complied with by Seller at or before the Closing.

(c) CONSENTS. All necessary agreements and consents of any parties
to the consummation of the transactions contemplated by this Agreement, or
otherwise pertaining to the matters covered by this Agreement, shall have been
obtained by Buyer or Seller and delivered to Buyer.

(d) ADVERSE CHANGES. There shall have been no material adverse
change in the Business, and there shall have been no

<PAGE>

destruction or loss of or damage to any of the Assets which materially and
adversely affects the Business or the Assets.

9. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. The obligation of Seller
to sell the Shares under this Agreement is subject to the satisfaction, at or
before the Closing, of all of the conditions set forth in this Section 9.
Seller may waive any and all of these conditions; provided, however, that no
such waiver of a condition shall constitute a waiver by Seller of any of its
other rights or remedies, at law or in equity, if Buyer or Owners shall be in
default of any of its representations, warranties or covenants under this
Agreement.

(a) ACCURACY OF BUYER'S AND OWNERS' REPRESENTATIONS AND WARRANTIES.
All representations and warranties by buyer and Owners in this Agreement and all
agreements, documents and instruments executed pursuant to this Agreement shall
be true as of the Closing as though made at that time.

(b) BUYER'S AND OWNERS' PERFORMANCE. Buyer and Owners shall have in
all material respects performed, satisfied and complied with all covenants
required by this Agreement and all other agreements, documents and instruments
executed pursuant hereto to be performed, satisfied or complied with by them at
or before the Closing.

(c) CONSENTS. All necessary agreements and consents of any parties
to the consummation of the transactions contemplated by this Agreement, or
otherwise pertaining to the matters covered by this agreement, shall have been
obtained by Seller or Buyer and delivered to Seller.

10. EFFECT OF CLOSING. Upon the closing, all of the Terminating
Obligations shall automatically terminate and the releases set forth below shall
become effective.

(a) RELEASE BY OWNERS. Owners, on behalf of themselves and their
respective successors and assigns, releases, acquits and forever discharges the
Seller Releasees from any and all past, present or future rights, actions,
causes of action, claims, damages, demands, costs, losses, expenses and
compensation of any and every kind, nature, and character, known or unknown,
suspected or unsuspected, including any and all claims for attorneys' fees and
costs, which arise out of or relate to, in whole or in part, the Business,
Seller, Navigist, any duty of any person or entity with respect to such entities
or any claim, assertion or allegation made prior to the date of this Agreement.

<PAGE>

(b) RELEASE BY SELLER. Seller, on behalf of itself and its
successors and assigns, releases, acquits and forever discharges the Owner
Releasees from any and all past, present or costs, losses, expenses and
compensation of any and every kind, nature, and character, known or unknown,
suspected or unsuspected, including any and all claims for attorneys' fees and
costs, which arise out of or relate to, in whole or in part, the Business,
Seller, Navigist, any duty of any person or entity with respect to such entities
or any claim, assertion or allegation made prior to the date of this Agreement.

(c) WAIVER OF CIVIL CODE SECTION 1542. The parties fully understand
the statutory language of Section 1542 of the Civil Code of the State of
California and, having been so apprised, agree nevertheless to waive any and all
rights or benefits which they may now have, or in the future may have, under the
terms of Section 1542 of the California Civil Code, which provides as follows:

A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.

The parties fully understand that if the facts upon which this Agreement is
given are found hereafter to be other than or different from the facts now
believed to be true, they expressly accept and assume the risk of such possible
difference in facts and agree that this Agreement shall be and remain effective
notwithstanding any such differences in facts.

(d) LIMITATION ON RELEASES. Notwithstanding any other provision of
this Agreement, the release set forth herein does not release any rights or
obligations of any party under this Agreement or any agreement, document or
instrument executed pursuant to this Agreement.

11. SELLER'S AND OWNERS' OBLIGATIONS AFTER THE CLOSING.

(a) SELLER'S INDEMNITIES. From and after the Closing, Seller shall
indemnify, defend and hold Buyer and Owners harmless from and against any and
all claims, demands, losses, obligations, liabilities, damages, costs and
expenses, including interest, penalties and reasonable attorneys' and experts'
fees, arising out of or relating to any of the following:

(i) Any material breach of, or failure by Seller to perform,
satisfy or comply with any of its covenants in this Agreement

<PAGE>

or any agreement, document or instrument executed pursuant to this Agreement;

(ii) Any material breach of any of Seller's representations or
warranties in this Agreement or any agreement, document or instrument executed
pursuant to this Agreement;

(iii) Any act or action taken by Seller in connection with its
performance of, satisfaction of or compliance with any of its covenants in this
Agreement; or

(iv) Any liability of Seller.

(b) DELIVERY OF RECORDERS. Immediately after the Closing, Seller
shall cause to be delivered to Buyer all of the day to day operational records
of the Business necessary for the continued operation of the Business in its
possession or under its control.

12. BUYER'S AND OWNERS' OBLIGATIONS AFTER THE CLOSING.

(a) BUYER'S AND OWNERS' INDEMNITY. From and after the closing, Buyer
and Owners shall (severally and not jointly with respect to any obligation,
representation or warranty made severally and not jointly and jointly and
severally with respect to any obligation, representation or warranty made
jointly and severally), indemnify, defend and hold Seller harmless from and
against any and all claims, demands, losses, obligations, liabilities, damages,
costs and expenses, including interest, penalties and reasonable attorneys' and
experts' fees, arising out of or relating to any of the following:

(i) Any material breach of, or failure by him or it to perform,
satisfy or comply with any of his or its covenants in this Agreement or any
agreement, document or instrument executed pursuant to this Agreement;

(ii) Any material breach of any of any of his or its
representations or warranties in this Agreement or any agreement, document or
instrument executed pursuant to this Agreement; or

(iii) Any act or action taken by him or it in connection with
his or its performance of, satisfaction of or compliance with any of its
covenants in this Agreement.

(b) BUYER'S AND NAVIGIST'S INDEMNITY. From and after the Closing,
Buyer shall indemnify, defend and hold Seller harmless from and against any and
all claims, demands, losses, obligations, liabilities, damages, costs and
expenses, including interest, penalties and reasonable attorneys' and experts'
fees incurred following the Closing, arising out of or relating to any liability
of

<PAGE>

the Business as conducted before or after the Closing, except to the extent such
liability is not disclosed by Seller in breach of its representations and
warranties herein.

13. TERMINATION. Buyer or Seller may terminate this Agreement by written
notice to the other if (i) the other has breached any covenant hereunder and
failed or refused to cure such breach within five (5) days following written
notice of such breach, (ii) if any representation or warranty of the other is
incorrect in any material respect and the party who made such incorrect
representation or warranty fails or refuses to correct the same to the
reasonable satisfaction of the other within five (5) days following written
notice of the inaccuracy or (iii) if the Closing does not occur on or before the
Closing Date.

14. REPRESENTATION OF PARTIES. This Agreement was negotiated at arms
length by the parties hereto with the assistance of counsel. This Agreement may
not be construed against either party as the drafter.

15. SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns.

16. FURTHER INSTRUMENTS. The parties shall execute and deliver such
further instruments and take such further actions as may be reasonably necessary
to carry out the purposes and intent of this Agreement.

17. GOVERNING LAW/VENUE. Venue and jurisdiction for any and all actions
to construe or enforce this Agreement or any agreement, document or instrument
executed pursuant hereto shall be proper only in Santa Clara County, California
if brought or filed by Seller and only in the City and County of Denver if
brought or filed by Buyer, Owners and/or Navigist. This Agreement shall be
construed and enforced in accordance with the law of the State which has
jurisdiction over the action or proceeding.

18. SEVERABILITY. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision of this Agreement which may prove invalid or unenforceable
under any applicable law shall not affect the validity or enforceability of any
other provision hereof.

<PAGE>

19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

20. NOTICES. Any requests, demands or notices required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon personal delivery or by facsimile or forty-eight (48) hours after deposit
in the United States mail (postage prepaid), by certified mail, return receipt
requested, addressed to the receiving party at the address set forth below its
signature or at such other address as such party may specify by written notice
to the other party hereto.

21. AMENDMENTS. No amendment or variation of the terms of this
Agreement, with out without consideration, shall be valid unless made in
writing and signed by all of the parties to this Agreement at the time of
such amendment.

22. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties concerning the subject matter contained
herein. There are no representations, agreements, arrangements or
understandings, oral or written, between or among the parties, related to
the subject matter of this Agreement which are not fully expressed herein.

23. TIME OF ESSENCE. Time is of the essence in the performance of
each and every obligation of the parties under this Agreement.
(signatures on following page)

<PAGE>

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

BUYER:

VDC PARADIGMS, INC.,
a California corporation

By: /s/ Dave Wertzberger
-------------------------------------

Its: President
------------------------------------

Address: 1358 Cerro Verde
--------------------------------
San Jose, CA 95120
--------------------------------
Fax: 408-437-3191
--------------------------------

OWNERS:

/s/ David Wertzberger
----------------------------------------
DAVID WERTZBERGER

Address: 1358 Cerro Verde
--------------------------------
San Jose, CA 95120
--------------------------------
Fax: 408-437-3191
--------------------------------

/s/ Craig Michaelis
----------------------------------------
CRAIG MICHAELIS

Address: 1401 Red Hawk Circle, Apt G307
--------------------------------
Fremont, CA 94538
--------------------------------
Fax: 408-437-3191
--------------------------------

SELLER:

INFONOW CORPORATION, INC.,
a Delaware corporation

By: /s/ Kevin Andrew
------------------------------------

Its: Vice President & CFO
------------------------------------

Address: 1875 Lawrence, Suite 1100
--------------------------------
Denver, CO 80202
--------------------------------
Fax: 303-293-0213
--------------------------------

<PAGE>

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") dated as of May 22, 1995, made
between INFONOW CORPORATION, a Delaware corporation (the "COMPANY"), and DONALD
E. COHEN (the "EXECUTIVE"), a resident of Edwards, Colorado.

RECITALS

WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders to assure that the
Company will have the service of the Executive.

AGREEMENT

NOW THEREFORE, the parties hereto agree as follows:

CERTAIN DEFINITIONS

When used in this Agreement, the terms specified below shall have the
following meanings:

"CHANGE OF CONTROL" means a merger of the Company in which the Company is
not the successor corporation, or a sale of substantially all of the assets of
the Company.

"EFFECTIVE DATE" means the date first set forth above.

"EMPLOYEE DISABILITY" means any medically determinable physical or mental
impairment that can be expected to last for a continuous period of not less than
six months, and that renders the Executive unable to perform the duties required
under this Agreement.

"NOTICE OF TERMINATION" means a written notice given in accordance with
Section 8.7 which sets forth (a) the specific termination provision in this
Agreement relied upon by the party giving such notice, (b) in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under such termination provision (a failure to include a
fact or circumstance not precluding the notifying party from asserting such fact
or circumstance in enforcing rights under this Agreement) and (c) if the
Termination Date is other than the date of receipt of such Notice of
Termination, the Termination Date.

1
<PAGE>

"TERMINATION DATE" means the date of receipt of the Notice of Termination
or any later date specified in such notice (which date shall be not more than 15
days after the giving of such notice), as the case may be; PROVIDED, HOWEVER,
that if the Company terminates the Executive's employment other than for Cause,
then the Termination Date shall be the date of receipt of such Notice of
Termination.

EMPLOYMENT AFTER EFFECTIVE DATE

AGREEMENT BY COMPANY. The Company agrees to employ the Executive for
the period commencing on the Effective Date and ending on the third anniversary
of such date (the "EMPLOYMENT PERIOD").

AGREEMENT BY EXECUTIVE. The Executive agrees that during the
Employment Period he will, consistent with Section 3.1(b), devote full time and
best efforts to the Company's business.

TERMS OF EMPLOYMENT

POSITION AND DUTIES.

(a) During the Employment Period, (1) the Executive shall serve
initially as Chief Executive Officer of the Company and may perform various
senior executive's duties, reporting to its Board of Directors or Chief
Executive Officer and (2) the Executive's services shall be performed at the
headquarters of the Company or Cimarron International, Inc. ("CIMARRON") at the
Effective Date or any other location less than 50 miles from such locations.

(b) During the Employment Period (other than any periods of vacation,
sick leave or disability to which the Executive is entitled), the Executive
agrees to devote the Executive's reasonable full attention and time to the
business and affairs of the Company and, to the extent necessary to discharge
the duties assigned to the Executive in accordance with this Agreement, to use
the Executive's best efforts to perform faithfully and efficiently such duties.

During the Employment Period, the Executive may (1) serve on corporate, civic or
charitable boards or committees, (2) deliver lectures, fulfill speaking
engagements or teach at educational institutions, (3) manage personal
investments and (4) serve as an advisor or officer to companies not in direct
competition with the Company's "BUSINESS", which is defined as electronic
marketing and/or distribution of computer software, related products and
consumer goods to consumers and businesses, so long as such activities do not
significantly interfere with the performance of the Executive's duties under
this Agreement. To the extent that any such activities have been conducted

2
<PAGE>

by the Executive before the Effective Date (such activities falling within
category (4) being described on Exhibit A hereto), the continued conduct of
such activities (or activities similar in nature and scope) after the
Effective Date shall not be deemed to interfere with the performance of the
Executive's duties under this Agreement.

COMPENSATION.

(a) BASE SALARY. During the Employment Period, the Company shall pay
or cause to be paid to the Executive a monthly base salary in cash ("BASE
SALARY") as set forth below:

During the first year $ 8,334/month
During the second year $ 9,584/month
During the third year $10,417/month

During the Employment Period, the Base Salary shall be reviewed in conjunction
with annual performance reviews conducted in accordance with corporate
guidelines.

(b) ANNUAL BONUS. In addition to the Base Salary, the Executive
shall be granted for each fiscal year of the Company ending during the
Employment Period the opportunity to earn an annual bonus of up to 40% of the
Base Salary ("ANNUAL BONUS") in accordance with the terms and conditions of a
bonus plan or plans to be established from time to time by the Company for its
senior management, such plan or plans to be developed in an manner consistent
with corporate objectives.

(c) EXECUTIVE COMPENSATION PLANS. In addition to the Base Salary and
Annual Bonus payable as hereinabove provided, during the Employment Period, the
Executive shall (subject to the terms and conditions of such plans and programs
as they may be in effect from time to time) be eligible to participate in all
executive compensation plans and programs of the Company which are applicable to
other senior executives of the Company, and shall be granted an option to
purchase a number of shares of the Company's common stock consistent with option
grants to other senior executives of the Company, which option grant shall
provide for an exercise price of $0.75 per share and shall be subject to three-
year annual vesting.

(d) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and the Executive's family shall be eligible to participate in, and
receive all benefits under, welfare benefit plans provided by the Company and
applicable to other senior executives of the Company and their families.

(e) EXPENSES. During the Employment Executive shall be entitled to
prompt reimbursement of reasonable employment-related expenses incurred by the
Executive upon the

3
<PAGE>

Company's receipt of accountings. During the first year of the Employment
Period, the Company shall reimburse Executives expenses, as incurred, in
connection with maintaining a secondary residence near the Company's
headquarters and related travel to his principal residence, up to $1,000 per
month.

(f) VACATION. During the Employment Period, the Executive shall be
entitled to four weeks paid vacation annually.

3.3 OTHER TERMS.

(a) RETENTION OF PERSONAL PROPERTY. The Company hereby acknowledges
and agrees that certain personal property of Executive currently resides at the
office of Cimarron, including but not limited to awards, including without
limitation, the Emmy (KCNC), Grand Gold Pick (Hospice of Metro Denver), Alfie
(Relocation Concepts), International Film Society (Ernst & Young) and Gold Spike
(Martin Marietta); Videotape Masters of the following programs: Hospice of
Metro Denver, Hermine Cohen Tribute, Julius Cohen Tribute; all personal slide
shows stored on-site, including Nepal, California, Big Bands; Arches; that
Executive retains ownership of such property after the purchase of Cimarron, and
that Executive may remove such property from Cimarron at any time. With the
prior approval of the Company which will not be unreasonably withheld, Executive
shall be permitted, at Executive's expense, to copy any script, audio tape,
videotape or electronic media produced by or under direct supervision of the
Executive.

(b) HOME OFFICE EQUIPMENT. The Company hereby grants Executive an
option to purchase from the Company, within 30 days of his Termination Date, any
and all office equipment purchased by the Company for Executive's use in his
home, the purchase price to be the greater of the then current fair market value
of such equipment, and the depreciated value of such equipment as carried on the
Company's books.

TERMINATION OF EMPLOYMENT

CAUSE.

(a) During the Employment Period, the Company may terminate the
Executive's employment for Cause.

(b) "CAUSE" means any of the following: Employee's Death; Employee's
Disability; or commission by the Executive of any felony; the Executive's
habitual or gross neglect of the Executive's duties (other than on account of
disability); willful breach of duty by the Executive in the course of the
Executive's employment; or inability of the Executive to perform the Executive's
duties due to alcohol or drug addiction, except that Cause shall not mean:

4
<PAGE>

(1) bad judgment or negligence other than habitual or gross
neglect of duty;

(2) any act or omission believed by the Executive in good faith
to have been in or not opposed to the interest of the Company (without intent of
the Executive to gain, directly or indirectly, a profit to which the Executive
was not legally entitled);

(3) any act or omission with respect to which a determination
could properly have been made by the Board that the Executive met the applicable
standard of conduct for indemnification or reimbursement under the Company's
by-laws, any applicable indemnification agreement, or applicable law, in each
case in effect at the time of such act or omission; or

(4) any act or omission with respect to which notice of
termination of employment of the Executive is given more than 12 months after
the earliest date on which any member of the Board, not a party to the act or
omission, knew or should have known of such act or omission.

(c) Any termination of the Executive's employment by the Company for
Cause shall be communicated to the Executive by Notice of Termination.

GOOD REASON.

(a) During the Employment Period, the Executive may terminate his or
her employment for Good Reason.

(b) "GOOD REASON" means any of the following:

(1) the assignment to the Executive of any duties inconsistent
with the Executive's position as Chief Executive Officer or other senior
executive positions of the Company, or any other action by the Company which
results in a material adverse change in such position, excluding action which
the Company does not take in bad faith and does remedy promptly after its
receipt of notice of such action given by the Executive;

(2) the Company's requiring the Executive to be based at any
office or location other than the location described in Section 3.1(a); or

(3) despite anything in this Agreement to the contrary, a
termination of employment by the Executive for any reason during the 6-month
period immediately following a Change in Control.

5
<PAGE>

(c) Any termination of employment by the Executive for Good Reason
shall be communicated to the Company by Notice of Termination. A failure by the
Executive to include in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right of the
Executive under this Agreement or preclude the Executive from asserting such
fact or circumstance in enforcing rights under this Agreement.

OBLIGATIONS OF THE COMPANY UPON TERMINATION

IF BY THE EXECUTIVE FOR GOOD REASON OR BY THE COMPANY OTHER THAN FOR
CAUSE. If, during the Employment Period, the Company shall terminate
Executive's employment other than for Cause, or if the Executive shall terminate
employment for Good Reason, the Company shall pay the Executive, in addition to
all vested rights arising from the Executive's employment as specified in
Article III, a cash amount equal to the sum of all amounts due under Section
3.2(a) for the remainder of the Employment Period, as and when due under those
provisions. As provided in the Employee Stock Restriction Agreement of even
date herewith, upon such termination the Company shall release the remaining
shares from the stock restriction. Until the earlier of (i) the end of the
Employment Period, and (ii) the 18 month anniversary of the Termination Date,
the Company shall continue to provide to the Executive and the Executive's
family welfare benefits due under Section 3.2(d). The cost of such welfare
benefits shall not exceed the cost of such benefits to the Executive immediately
before the Termination Date. Notwithstanding the foregoing, if the Executive
is covered under any medical, life, or disability insurance plan(s) provided by
a subsequent employer, then the amount of coverage required to be provided by
the Employer hereunder shall be reduced by the amount of coverage provided by
the subsequent employer's medical, life, or disability insurance plan(s).

IF BY THE COMPANY FOR CAUSE. If the Company terminates the
Executive's employment for Cause during the Employment Period, this Agreement
shall terminate without further obligation by the Company to the Executive.

IF BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. If the Executive
terminates employment during the Employment Period other than for Good Reason,
this Agreement shall terminate without further obligations by the Company to the
Executive.

NON-EXCLUSIVITY OF RIGHTS

WAIVER OF OTHER SEVERANCE RIGHTS. To the extent that payments are
made to the Executive pursuant to Section 5.1, the Executive hereby waives the
right to receive severance payments under any other plan or agreement of the
Company.

OTHER RIGHTS. Except as provided in Section 6.1, this Agreement shall
not prevent

6
<PAGE>

or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall this
Agreement limit or otherwise affect such rights as the Executive may have
under any other agreements with the Company or any of its subsidiaries.
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan of the Company or any of its subsidiaries
and any other payment or benefit required by law at or after the Termination
Date shall be payable in accordance with such plan or applicable law except
as expressly modified by this Agreement.

NO MITIGATION

NO MITIGATION. The Executive shall not have any duty to mitigate the
amounts payable by the Company under this Agreement by seeking new employment
following termination. Except as specifically otherwise provided in this
Agreement, all amounts payable pursuant to this Agreement shall be paid without
reduction regardless of any amounts of salary, compensation or other amounts
which may be paid or payable to the Executive as the result of the Executive's
employment by another employer.

MISCELLANEOUS

NO ASSIGNABILITY. This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.

SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Any successor to the business
and/or assets of the Company which assumes or agrees to perform this Agreement
by operation of law, contract, or otherwise shall be jointly and severally
liable with the Company under this Agreement as if such successor were the
Company.

PAYMENTS TO BENEFICIARY. If the Executive dies before receiving
amounts to which the Executive is entitled under this Agreement, such amounts
shall be paid to the beneficiary designated in writing by the Executive, or if
none is so designated, to the Executive's estate.

NON-ALIENATION OF BENEFITS. Benefits payable under this Agreement
shall not be

7
<PAGE>

subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution or levy of any kind, either
voluntary or involuntary, before actually being received by the Executive, and
any such attempt to dispose of any right to benefits payable under this
Agreement shall be void.

SEVERABILITY. If any one or more articles, sections or other portions
of this Agreement are declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such article,
section or other portion to the fullest extent possible while remaining lawful
and valid.

AMENDMENTS. This Agreement shall not be altered, amended or modified
except by written instrument executed by the Company and Executive.

NOTICES. All notices and other communications under this Agreement
shall be in writing and delivered by hand or by first class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

Donald E. Cohen
181 Snaffle Road
Edwards, CO 81632

If to the Company:

InfoNow Corporation
1640 Range Street
Boulder, CO 80301
Attn: Robin Bradbury

or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.

COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.

GOVERNING LAW. This Agreement shall be interpreted and construed in
accordance

8
<PAGE>

with the laws of the State of Colorado, without regard to its choice of law
principles.

CAPTIONS. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.

TAX WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement any federal, state or local taxes that are required to be
withheld pursuant to any applicable law or regulation.

NO WAIVER. The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement shall not be deemed a
waiver of such provision or any other provision of this Agreement. A waiver of
any provision of this Agreement shall not be deemed a waiver of any other
provision, and any waiver of any default in any such provision shall not be
deemed a waiver of any later default thereof or of any other provision.

IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date first above written.

INFONOW CORPORATION

By: /s/ NAHUM RAND
-----------------------
Name: Nahum Rand
Title: Chairman

EXECUTIVE

By: /s/ DONALD E. COHEN
--------------------------
Donald E. Cohen

9
<PAGE>
EXHIBIT A

Executive is a cofounder and investor of BOLDER Multimedia, Inc., a developer
of multimedia software, and currently serves as its Executive Vice President.

<PAGE>

Exhibit 21.1

SUBSIDIARIES OF THE COMPANY

1. Cimarron International, Inc.

<PAGE>

[Letterhead]

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTS

As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 29, 1996 included in this Form 10-K into
the Company's previously filed Form S-8 Registration Statement File No.
33-50612. It should be noted that we have not audited any financial
statements of the company subsequent to December 31, 1995 or performed any
audit procedures subsequent to the date of our report.

/s/ ARTHUR ANDERSEN LLP

Denver, Colorado,
March 28, 1997.

<PAGE>

INDEPENDENT AUDITOR'S CONSENT

We consent to the incorporation by reference in the Form S-8 Registration
Statement of InfoNow Corporation of our report dated February 28, 1997, which
contains an explanatory paragraph regarding the Company's ability to continue
as a going concern, accompanying the consolidated financial statements of
InfoNow Corporation, also incorporated by reference in such Registration
Statement.

/s/ HEIN + ASSOCIATES LLP

HEIN + ASSOCIATES LLP

Denver, Colorado
March 17, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
InfoNow's Annual report to stockholders for the year ended December 31,
1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,049,640
<SECURITIES> 0
<RECEIVABLES> 161,596
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,310,305
<PP&E> 1,040,096
<DEPRECIATION> 347,124
<TOTAL-ASSETS> 4,290,137
<CURRENT-LIABILITIES> 1,026,296
<BONDS> 0
0
0
<COMMON> 5,515
<OTHER-SE> 3,166,523
<TOTAL-LIABILITY-AND-EQUITY> 4,290,137
<SALES> 2,206,528
<TOTAL-REVENUES> 2,206,528
<CGS> 1,104,288
<TOTAL-COSTS> 5,263,418
<OTHER-EXPENSES> (1,147)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,104
<INCOME-PRETAX> (3,092,141)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,092,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,092,141)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> (0.86)

</TABLE>